Insurance World

While there are many tips written about Offers in Compromise, few are from a former IRS Agent that taught Offers in Compromise at the IRS.

Most of the tips I read are fairly accurate. The points I will bring to the table are told in light of how the IRS Agent, reviewer of Offers in Compromise, looks at a case.

Here are my top ten tips about Offers in Compromise:

1. Fill out the Offer in Compromise correctly. Seems simple, however, about 50% of the offers are returned for not being completely filled out. Make sure all the applicable boxes are completed. The IRS will return your offer in a heartbeat if it is not filled out completely.

2. The IRS will look to reject the offer first! Trust me on this. The IRS first eyes always look to reject. They are looking at all the reasons to send back or reject the offer. Why? It is less work for the Agents. Since IRS Agents are graded on inventories or case loads, they want to clear out their inventories.

3. File the Offer in Compromise during the worst time in your financial life. A lot of people wait until they start to make some money and decide to file the offer. Make absolutely sure your income levels are as low as they possibly can be. Make no deposits of self employment income before you turn in your offer, it may bump up your average income.

4. The base rule for offers is that you must give the IRS your total equity in all assets. If your assets total $9000 you must offer at least that. The IRS is very strict about this. You can use a low distressed value for your assets. Use liquidation values. Get an appraisal if necessary.

5. Be completely truthful. The IRS has been trained to sniff out stink on a case. This is all they do for a living. Do not lie!

6. Make sure the financial statements are filled out correctly. If you forget to fill out one box or put "none" on any section where applicable, the IRS can and will reject the OIC.

7. Provide all documentation. The IRS will want every figure documented with a check and invoice to prove this is your actual expense. They are very thorough on this issue. Get all documents to prove your case.

8. Check the IRS pub to find out what the IRS allows for expenses. For example, the IRS does not allow for college tuition. There is a complete list of dos and don'ts, so be forewarned.

9. Make sure all your tax returns are up to date and you are current on ES payments or adequate withholding is being taken out of your check.

10. The IRS will do a very thorough check on your Offer. Do not be surprised if they pull your credit report, google your name and use all types of searches to verify the worth of your assets.

Remember, 25% of all offers in compromise are accepted. Hire a professional tax firm and one that has a former IRS Offer in Compromise specialist like myself.

Michael D. Sullivan is a seasoned IRS tax expert. Learn more about Michael and the services he provides at http://www.freshstarttax.com/.

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An Offer in Compromise is an agreement between the taxpayer and the government that settles a tax liability for payment of less than the full amount owed. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government. The program is not designed to simply allow taxpayers to get out of paying their tax obligations. In fact it is quiet the opposite...it is designed to allow the government to collect something when it is unlikely that the tax liability can be collected in full. The requirements are largely financial in nature and are more strict than most would think after hearing advertisements flood the marketplace that make it sound easy to settle with the IRS for "pennies on the dollar". While some cases may very well settle for pennies on the dollar a taxpayer's situation has to meet certain criteria for that to be the case. An OIC is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. It is crucial that professional representation be obtained in preparation and submission of an OIC as relatively few are approved.

The IRS will consider an OIC on 3 different bases:

Doubt as to Liability - This means that there is legitimate doubt as to whether the taxpayer owes all or part of the assessed tax liability.Doubt as to Collectability - This means that it is doubtful that the taxpayer could pay the liability in full within the remaining statutory period for collection by liquidating assets or through current installment agreement guidelines.Effective Tax Administration - This means that there is no doubt as to the liability or collectability but that exceptional circumstances exist that will allow the IRS to consider an offer. In this instance the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.

An offer must meet certain financial criteria in order to be approved. Simply stated the offer must show that the taxpayer's net assets and future disposable income are not enough to pay the full debt. If that is the case and there are no conditions that will lead the IRS to believe that the situation will change, then the likelihood of an approved offer is greater. 

A taxpayer's net assets are equal to what they can earn from the sale of any items that they own such as equity in real estate, automobiles or investments. A taxpayer's future disposable income consists of their current income less expense amounts allowed to support the health and welfare of the taxpayer and their dependents. While this may sound simple it is actually very complex because there are many details to consider. Only professionals who deal with these matters on a regular basis are equipped to understand the total picture and communicate effectively with the IRS. It cannot be emphasized enough to seek professional representation when considering an offer in compromise since the average taxpayer has never prepared anything similar to it or has never faced any process similar to the one that is followed once an offer is submitted.

Upon submission of an offer from the taxpayer the IRS will perform an investigation in order to verify the numbers. They will conduct interviews and review information such as previous tax returns, bank statements, real estate records, motor vehicle records and credit bureau reports just to name a few. Remember an agent's goal is to substantiate the numbers. They are accountable to superiors for the work that they do so they go beyond simply asking a few questions...they conduct an all out financial investigation to ensure that the taxpayer cannot hide any assets or income in order to avoid paying the tax that they owe.

When submitting an offer in compromise the taxpayer is required to submit a $150 application fee plus a 20% down payment if choosing the lump sum cash offer or the first installment if choosing a periodic payment plan offer. A taxpayer can request an exception to these requirements because of their income level but must submit the proper form along with the offer. The amount of time the taxpayer has to pay off the debt depends on the offer plan that is chosen. If the taxpayer is already on an installment agreement they may stop making payments on that if they choose the periodic payment plan offer so they can make payments on that.

Once an offer has been accepted the taxpayer is required to honor the terms of the agreement until the amount is paid in full and is also required to remain in compliance in the filing and payment of all required taxes for a period of five years or until the amount is paid in full, whichever is longer.

An offer in compromise can be the answer to a taxpayer's tax problem if the circumstances are right and it can help avoid collection action that possibly includes a bank account levy or a wage garnishment. However professional representation is crucial since only a relatively small portion of the offers received are approved. If a taxpayer is looking for a solution to a big tax problem this could be the one.

Trace George is a Certified Public Accountant and is the Executive Vice President of Action Tax Relief headquartered in Abilene, TX. Action Tax Relief provides services to individuals who are facing signficant tax problems with the IRS. We partner with consultants and CPAs in order to assist taxpayers through the process of dealing with the IRS to resolve their tax issues, including tax levies and liens.

(c) Copyright Trace George. All Rights Reserved Worldwide

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I am a former IRS Agent who has worked and taught the "Offer-in-Compromise" Program in the IRS Regional Training Center. The Offer-in-Compromise is a much talked about program and advertised as "pennies on the dollar" settlement.

FACTS: Approximately 52,000 "Offer-in-Compromise" (hereafter referred to as OIC) are filed each year and that number will be rising at a record pace. 12,000 OIC are accepted each year. The program has an acceptance rate of about 22%.

OICs are worked only by an IRS Tax Specialist whose expertise is OIC. All the tax specialists are trained to scrutinize the OICs. I bite my tongue in saying this; it is my firm belief that the Agents working these cases look first to reject rather than to accept an OIC. Why, simply because it is far less work for an Agent. It is much easier to send a rejection letter than fully document the case for acceptance. Therefore the Agents look for any reason they can use to reject the OIC. An OIC rejection closes out their inventory quickly, making the Agent look very efficient in managing their case load.

The Key to having your OIC accepted is listed below:

1. Fully document the case. Get every piece of paper you can, verify every number you put on the Form 433A, the IRS financial statement.

2. Keep up with the OIC. As soon as the case is assigned, call the Agent every two weeks to ask for an update. This lets the Agent know you really want this pushed through and that you can furnish additional documents if needed. Most Agents will not even contact the Taxpayers or their representative, they will usually just send out a rejection letter. It is the easy way out.

3. Make sure the case makes sense. If you believe the Agent will have questions, send in an additional statement the clarify questions you think will arise.

4. Know that IRS will look at the history of the taxpayer and income levels for the last five years. If there have been major fluctuations in your income level, please document the fluctuations in detail.

5. Believe it or not, many offers are rejected because payments were not attached or the OIC was not signed. To avoid a rejection, you should have a tax professional review the OIC before submitting.

I have been in this business a number of years and truly believe you would be a fool not to have professional representation. Find a professional tax firm specializing in OIC, which is your very best chance of having the OIC accepted.

Former IRS Agents who have worked the Program are best suited for this job; after all, they know the tax policies.

Michael D. Sullivan is a seasoned IRS tax expert. Learn more about Michael and the services he provides at http://www.freshstarttax.com/.

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