Update on the IRS Offer-In-Compromise
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Update on the IRS Offer-In-Compromise



OFFERS-IN-COMPROMISE -  GOOD NEWS


Colleen E. Harrison, Enrolled Agent
Former IRS Agent, Retired
Contact me  for expert assistance:  (480) 292-7604






IRS LOWERS THE STANDARDS FOR THE

OFFER IN COMPROMISE


Great News For You !












The IRS has recently lowered the bar for offers in compromise.  Now, RCP is the excess of the taxpayer’s monthly income over allowable expenses, multiplied by 12 in the case of an offer payable within five months, or multiplied by 24 in the case of an offer payable in six to 24 months.  The IRS no longer entertains offers payable in more than 24 months.

  • Cannot pay over a period of 24 months
  • 24 month limit

The Internal Revenue Manual now specifically
provides,

“Consideration should be given to the taxpayer’s overall general situation including such facts as age, health, marital status, number and age of dependents, level of education or occupational training, and work experience.”


  • Age
  • Health
  • Marital Status
  • Number and Age of Dependents
  • Level of Education
  • Occupational Training
  • Work Experience



The new offer in compromise regime is much more realistic, and consistent with the aims of the program.









Reasonable Collection Potential

RCP








The new regime is advantageous for taxpayers in other ways, including:

  • Net realizable equity (NRE) in assets is defined as quick sale value (QSV), less amounts owed to secured lienholders with priority over the federal tax lien, if any, and applicable exemption amounts.   QSV is defined as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short period of time, usually 90 calendar days or less.  QSV is normally calculated at 80% of fair market value (FMV).

  • Funds held in a retirement or profit sharing plan are considered an asset and must be valued for offer purposes.  But if the plan may not be borrowed on or liquidated until separation from employment, and the taxpayer has no ability to access the funds within the period of the offer, and the taxpayer is not eligible to retire until after the period being used to calculate future income (either 12 months or 24 months, under the new regime), then the taxpayer is considered to have no equity in the plan.

  • If the taxpayer uses a car for work, then $3,450 should be deducted from its QSV otherwise determined.

  • If the taxpayer is self-employed, i.e., not a wage earner, and the taxpayer’s income fluctuates, then the taxpayer may income average over the last three years in determining reasonable collection potential (RCP), if that is less that the taxpayer’s income for the most recent year.

  • If the taxpayer’s vehicle is more than six years old or has more than 75,000 miles on it, $200 should be added to the taxpayer’s monthly vehicle operating expense otherwise allowable.

  • The taxpayer may deduct expenses in excess of those allowed by the collection financial standards, by proving that they are necessary for the health or welfare of the taxpayer or the taxpayer’s family, or for the production of income.

I have even seen the IRS accept an offer in compromise from an operating business—once unheard of.  But the IRS cannot accept an offer in compromise from a business entity if there are trust fund taxes which need to be personally assessed against “responsible persons” with respect to the entity—those who control the entity’s available cash, i.e. have the ability to prefer other creditors over the United States.  “Trust fund taxes” are Social Security tax, Medicare tax, and federal income tax withheld from employees’ wages but not remitted to the IRS.  An assessment of trust fund taxes against a responsible person is called a “trust fund recovery penalty.”








Offer on Trust Fund Penalty must be at least as much as the unpaid trust fund taxes.









Before making an offer in compromise, a business entity should ascertain whether it has unpaid trust fund taxes.  If the business does have unpaid trust fund taxes, it can still make an offer, provided the amount it is offering is at least as much as its unpaid trust fund taxes, and it designates payments on the offer as against its unpaid trust fund taxes.  This way, payments on the offer will also discharge the trust fund obligation with respect to the entity.

The IRS’ new offer in compromise regime is of indefinite duration.  Claims by tax resolution scam artists that taxpayers have but a brief window of opportunity to take advantage of the new regime are false.

The IRS’ new regime for evaluating offers in compromise appears at Internal Revenue Manual
5.8.5.


I am highly successful in getting my applications accepted by the IRS for the Offer In Compromise.  You must qualify. 


                                              Colleen E. Harrison, Enrolled Agent
,                                                  Former IRS Revenue Agent
                                                                             





































Submit your offer


You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF).  Your completed offer package will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s) - individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
  • $186 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.


Select a payment option


Your initial payment will vary based on your offer and the payment option you choose:

  • Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.

  • Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.


Application Fee Waived If

If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.
Understand the process



While your offer is being evaluated:



  • Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are suspended;
  • The legal assessment and collection period is extended;
  • Make all required payments associated with your offer;
  • You are not required to make payments on an existing installment agreement; and
  • Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.

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