Category: IRS-Offer-In-Compromise (OIC)

Offer In Compromise (OIC) means offering to pay the IRS less than you owe to settle your tax debt. Jim explores the pros and cons (and timing issues) of the OIC approach, and how to get your lowest offer accepted by the IRS.

Filing an Offer-in-Compromise? Timing is Critical

The best time to file an Offer-in-Compromise is when you have all your ducks in a row. Failure to get this right usually results in the Offer being rejected and all your work will be for naught.

Here are the steps I follow:
  1. Get the IRS Tax Transcripts showing the dates filed and amounts owed and the date that the Statute of Limitations
  2. Get any past due tax returns filed and current year estimated tax payments up to date. The IRS will automatically reject any offers when the taxpayer is not in compliance.
  3. Gaither all the client information regarding financial assets and their expectations for future earnings.
  4. Prepare the IRS Form 433 which is used to report the financial information to the IRS.
  5. Calculate the Reasonable Collection Potential (also known as RCP) using the IRS
  6. Recommend changes that might make reduce the RCP result. For example, the IRS treats life insurance premiums as an allowable expense. If the client does not have life insurance, then we get them signed up and paying those premiums.
  7. Once the client makes the recommend changes, we must wait long enough so that the new payments will show on three months of bank statements.

Once we have the three months of bank statements, we can finish up the Offer-in-Compromise and include all the documentation that is needed to support our position. Typically, this is close to a 5-month proposition to get an offer completed. Not being in compliance, not including the documentation to support your position, or making the offer for an amount that is less than the RCP formula is a guarantee that the offer will be rejected.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

 

Dissipated Assets May Maim Your Offer-in-Compromise Application

Dissipated Assets can maim your OIC application.

Let’s say you spent many hours producing an Offer-in-Compromise Application that shows it’s in the Government’s interest to accept your payment offer of 50 percent on each dollar owed. Your tax debt, cut in half. With a smile, you submit it to the IRS.  Many months later, the IRS responds with a counteroffer that is $20,000 higher. Why?

IRS Eyes Form 4797 for Dissipated Assets

It turns out that part of the IRS process when evaluating an OIC Application is to look back at your last three years of tax returns, specifically at Schedule D and Form 4797 where you report sales of assets.

There, they found a big sale of stock that netted you $20,000.   Now they want that money plus your offer amount.

The moral of the story? Always look back in time — three years of returns worth — before finalizing an Offer-in-Compromise Application. Maybe that stock sale was on the earliest return and waiting a year before you make your offer is possible.

Another strategy is that if you owe the IRS and have a big sale that nets cash, make sure you spend it on “allowable expenses.”. Allowable expenses are housing, food, medical expenses, not vacations and personal loans. Paying down a credit card debt is not an allowable expense unless the underlying charge can be categorized as such.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.