The IRS wants basically two things in order to accept an Offer based on Doubt as to Collectability.

First, they want as much as they could get if all of the taxpayer’s non-exempt assets were liquidated.

Second, they want as much as they believe they could get from the taxpayer’s earnings for the next 4 to 5 years, depending on how the offer is structured.

In part one of the test, the asset value of the taxpayer must be determined.  If the taxpayer has a home, the quick sale value must be determined.  This is usually 80% of the actual value.  Then the liens against the property are deducted.  If there is equity, then the amount of the equity is the starting point in determining how much it will take to fund the Offer in Compromise.

Each asset is then valued and a determination of how much equity there is in each asset is made.  The value of the equity is added on to the amount of the Offer.

There are certain exemptions from this rule.  First, household furnishings, furniture and personal belongings are exempt up to a particular amount.  The same for tools of trade, the items that are needed to generate income.

Once a determination is made as to how much equity value there is in assets, then a determination is made as to how much excess income there is from earnings.  This will be covered in part 3 of this series.

A caution:  This information is provided solely for a general understanding of the principles concerning Offers in Compromise.  It is not intended for any specific situations.  Please consult a Tax Attorney and do not rely on these articles.  You really need a competent Tax Attorney if you are going to do an Offer in Compromise.

We have simplified how an OIC works for purposes of this article.  Offers in Compromise  are very, very complicated and if not done very carefully, will almost certainly result in a rejection.  A tax attorney is highly recommended to handle an OIC.  For more information about Offers, visit our website:  www.martellelaw.org/offer-in-compromise

There are advertisements splashed all over the Television and the internet claiming to be able to settle taxes for pennies on the dollar.  If you get a tax lien issued against you, you will get letters from outfits all over the country offering to settle your taxes for a small fraction of what you owe.  Are these claims true?  Can these organizations actually settle my taxes for a very small percentage of what I owe?

LET THE BUYER BEWARE!

The only way to settle tax liability for a fraction of what is owed, with certain exceptions, is through an Offer in Compromise.  And no one can tell you whether you qualify for an OIC without obtaining detailed information from you.

Before you agree to have anyone represent you, you should do some research to determine whether they are for real, whether they have complaints against them and whether they have an A+ rating with the Better Business Bureau.  A simple Google search for: “complaints against ABC Tax Resolution”  (substitute the name of anyone you are considering hiring) and a Better Business Bureau search will quickly show you whether a firm is reputable or not.

For more information and links to the complaints against some of the more aggressive marketing firms that make promises that they often can’t keep, visit:  http://www.martellelaw.org/offer-in-compromise

The short answer is that the IRS wants two things to settle an Offer.  First, they want an amount equal to the value of your assets, after deducting liens against them.  Second, they want as much as they believe they could get from your earnings for the next 4-5 years, after deducting what they consider normal living expenses.  Without seeing a detailed statement of your particular budget, there is no way anyone can tell you whether you qualify for an Offer in Compromise.  Beware.

At our website, we have much detailed information about resolving tax problems.  Please feel free to visit our site located at: www.martellelaw.com

The purpose of this series of articles is to explain how Offers work and what the criteria are for having an offer successfully handled.

First, what is an Offer in Compromise?

An Offer in Compromise is an agreement between taxpayer(s), either personal or business and the IRS, where the taxpayer is able to settle their total tax liability for less than they owe.  If an OIC is accepted by the Internal Revenue Service then the person or businesses tax liability is settled and once they pay the agreed on amount, they have no further obligation to pay those taxes.  Note that there are conditions that the taxpayer must meet, which will be discussed in future articles.

There are three types of Offers:

First, Doubt as to Collectibility:  In this type of Offer the taxpayer simply doesn’t have the ability to make payments sufficient to pay off the tax liability within 4-5 years.  Therefore it is doubtful that the Internal Revenue Service will be able to collect the amount due, because of financial hardship of the taxpayer.

Second, Doubt as to Liability:  If the taxpayer has a legitimate dispute as to whether the tax is actually owed, they may be able to settle the liability with the IRS for a portion of what the IRS claims due.  The dispute must be valid and not frivolous, however.

Third, Effective Tax Administration:  If the taxpayer has the ability to pay, but it would work a great hardship to the taxpayer and would generally be unfair to make them pay, this type of offer may be filed.  An example of this type of offer is where a retired person owns their home and has equity and therefore could pay if they sold the home, but they are living on a very limited income, this type of offer might be accepted.

The next several articles in this series will explain much more about OIC’s and how they work.

We have simplified how an OIC works for purposes of this article.  Offers in Compromise  are very, very complicated and if not done very carefully, will almost certainly result in a rejection.  A tax attorney is highly recommended to handle an OIC.  For more information about Offers, visit our website:  www.martellelaw.org/offer-in-compromise

While there are no definitive statements as to how the relaxed rules will work or how they are being relaxed, tax professionals welcome the relaxing of the criteria for acceptance of OIC’s.

Until recently, it was difficult for taxpayers to qualify for Offers in Compromise.  The rules for acceptance were very rigid and had little flexibility.  Now, the relaxing of the rules will make it easier for people to qualify for Offers.

Two things are certain from the announcement:

First, the IRS will accept more evidence regarding  the value of real estate.  This has been an ongoing problem, in that it is no secret to anyone that real estate values have fallen dramatically.

Second, rather than looking at historic earning information to determine ability to pay, the IRS will now consider information about what the taxpayer is currently earning and evidence about what the taxpayer will earn in the future.  This will relax the standards for acceptance of Offers, dramatically.

For more information about Offers in Compromise, please visit our website at:

http://www.martellelaw.org/offer-in-compromise/

To ask specific questions and have an attorney respond, click here:

http://www.martellelaw.org/contact-us/

About the author:

Martin Martelle is a Tax Attorney, who represents clients throughout the United States with Tax Problems.

STREAMLINED INSTALLMENT AGREEMENT: If the taxpayer owes less than $25,000, an installment agreement is not as difficult to obtain.  The IRS has a streamlined procedure where the taxpayer can enter into an Installment Agreement and pay the past due taxes in no more than 5 years, depending on how much their income is.

FULL PAY INSTALLMENT AGREEMENT: If the person owes over $25,000, but is able to pay the obligation in full within 5 years, they may be able to qualify for an Installment Agreement.  In this circumstance, they must provide very detailed financial information, together with proof of necessary living expenses.  The IRS will only allow them a relatively modest amount for living expenses.  These expenses are set by National Standards.  The IRS will expect that the taxpayer live very frugally and pay all of what they consider to be excess income towards the tax liability.

PARTIAL PAY INSTALLMENT AGREEMENT (PPIA): If the taxpayer simply doesn’t have enough excess income to pay the tax liability within 5 years, then they may qualify for a PPIA.  This is the most difficult Installment Agreement to obtain.  The IRS grants these Installment Agreements with reluctance.  They are probably not going to be paid in full and as such, they will scrutinize the taxpayers and their finances very carefully.  However, if a person really can’t afford to make significant payments to the IRS, then they may qualify to pay only a small portion of the amount of the taxes that they owe.

In order to obtain the very best Installment Agreement possible a person should have the help of a qualified Tax Attorney to assist them in preparation of their Installment Agreement.  For more information about Installment Agreements, please visit our website at:

http://www.martellelaw.org/irs-installment-agreement/

If you have tax problems it seems like wherever you look you will see ads from businesses offering to settle your taxes for “Pennies on the Dollar”  for “As little as the change in your pocket”.  If you have a tax lien filed against you, you will become flooded with letters and flyers and phone calls from businesses wanting to settle your tax liability for you.  They will all offer to settle your tax liability through an OIC.

Is this true?  Can taxes really be settled for much less than you owe?

Well the real answer is maybe.  But only if you qualify.  And qualifying is not easy.  The IRS will not just hand out a settlement for a fraction of what you owe without you showing a severe hardship.

These unscrupulous so called “Tax Relief Organizations” will often make promises to you that they will do an Offer in Compromise and settle your tax liability.  Then they will take thousands of dollars in fees from you.  Then a year later will tell you that the IRS won’t accept your OIC, sorry, but you will have to pay the taxes.

In fact in many of these cases an Offer was not a reasonable alternative.  Offers in Compromise are not easy to obtain from the Internal Revenue Service.  They do not accept them unless there are serious doubts as to whether they will be able to collect the taxes.

What can a consumer do to protect themselves from these scam organizations that simply want to take big fees and not deliver:

First, before you give anyone a penny, check them out online.  Do a Google search for Complaints against “ABC Tax Relief” or whatever their name is.  Look at them to see whether they have complaints against them.  Look at what their clients say about them.

Second, contact the Better Business Bureau and see whether they are listed with them and if so, how many complaints they have against them.

In my opinion, it is very difficult to tell a taxpayer whether they will qualify for an Offer in Compromise without having significant information about them.  To determine whether an OIC will be accepted, we need to have comprehensive information about both a person’s assets and about their earnings.  We also need to have information about how much their living expenses are.  Only then are we able to recommend and Offer in Compromise as a viable option.

For more information about Offers in Compromise and what it takes to qualify for one, please visit our website:  www.martellelaw.org/offer-in-compromise

Let the Buyer Beware.

The amount the IRS will be able to collect from a taxpayer and hence the amount that they will be willing to accept in an Offer in Compromise is usually determined as follows:

First, they look at the value of all of a taxpayers assets.  This is measured by what the quick sale value of the assets is.  With a house, for example, they generally look at 80% of its current value, less the amount of the mortgages against the home.  For vehicles, they use the same formula.

For a taxpayers personal property, generally they do not use the value of their household items and they allow a reasonable amount for tools  of trade.

Then after determining how much the value of the taxpayers assets is, they look at income and expenses.  To simplify, they want the amount of excess income times 48 or 60 depending on how the OIC is structured.  For example if someone has $100 per month of excess income, the IRS will require either $4,800 or $6,000 depending.  Then the amount of the value of the assets would be added to that to arrive at the Offer in Compromise amount.

We have simplified how an OIC works for purposes of this article.  Offers in Compromise  are very, very complicated and if not done very carefully, will almost certainly result in a rejection.  A tax attorney is highly recommended to handle an OIC.  For more information about Offers, visit our website:  www.martellelaw.org/offer-in-compromise

What this means to taxpayers is that once the IRS has sent out the notices required before pursuing forced collection, the time period is very short before they start seizures.

The Internal Revenue Service has powerful tools at its disposal for the collection of taxes.  The main way the IRS collects past due taxes is through levies.  They also can file liens that affect taxpayers.

A levy is an actual seizure of an asset.  The two main assets seized by the IRS are  bank accounts and wages.

When the IRS serves a Notice of Levy on a bank account, the bank must freeze any money in the account when the levy hits and after a period of time turn the money over to the IRS.  It does not matter if there are outstanding checks written against the funds.  They are frozen and turned over to the IRS.  If there is a levy of a bank account, prompt action may result in the release of the funds.

A wage levy is one of the most devastating things that can happen to a taxpayer.  The IRS can seize the majority of a taxpayer’s earnings, leaving them without enough to live on.  Worse yet, a wage levy is continuous and remains in effect until the whole tax liability is paid or until the levy is lifted by action of the taxpayer’s representative.

We can help!  We routinely are able to get levies lifted if they do not leave the taxpayer with enough income to pay necessary living expenses.  It is a complicated process to get a levy lifted in most cases.  There are a number of steps which must be taken to obtain a levy release.

There is no doubt that the Internal Revenue Service has incredible power to collect taxes.  Where a regular creditor must obtain a judgment to levy against someone, the IRS doesn’t have that restriction.  After sending the necessary notices, they are free to start collection by seizure of assets.

The single most important thing a taxpayer can do if they have a large tax liability is to obtain a competent tax attorney to assist them.

The IRS has an incredible amount of power available to them to collect taxes.  Once they have sent a series of notices they can seize assets such as vehicles or business assets.  They can levy on bank accounts and take all funds in the account.  They can also levy on paychecks taking most of the paycheck.  A paycheck levy continues until the total of taxes, penalties and interest is paid in full, unless it is released.  In some circumstances they can even sell a person’s home out from under them and apply the proceeds to the tax liability.

The stunning part of these collection alternatives is that once they have sent the notices they can seize the assets, bank accounts or paycheck without any court action or other notices to the taxpayer.

What this means to taxpayers is that once they start getting collection notices from the IRS that they should contact a Tax Attorney and take steps to insure that the matter is resolved without seizure.  There are a number of things that a Tax Professional can do to avoid levy.  Some of them are(for more information click on the item):

• Installment agreement
• Non Collectible Status
• Offer in Compromise
• In some cases Bankruptcy Discharge

If you have Tax Problems, you need Tax Help from a Tax Attorney NOW!

For a free consultation, please CLICK HERE

The Internal Revenue Service has incredible powers to collect past due taxes.  After having sent the required notices, they can actually seize property without a court order.  They can Levy wages, take bank accounts and file liens against property.  Wage levies are ongoing.  Once they start taking a paycheck, they won’t stop until the tax, interest and penalties are paid in full.

These actions can leave people without the means to pay necessary living expenses.  Fortunately, there are a variety of things that can be done to resolve tax problems.  They include (click on subject for more information)

• Installment  Agreements
• Non Collectible Status
• Offer in Compromise
• Levy Release
• Appeals
• Penalty Abatement

These are a few of the most common ways of resolving tax problems.  For more information, please visit our website at www.martellelaw.org

Our tax attorneys are able to provide you with a free consultation to determine if we can help with your tax problems.  To contact us CLICK HERE