Tax Debt Solutions Blog

Offer in Compromise: The Pros and Cons

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Pros and Cons:  Offer in Compromise

Pros:

• If an OIC is granted, it saves money if your offer has interest continues to accrue and deferred payments according to the OIC and not the initial sum owed.
• If your offer is turned down there is less stress during the procedure because usually property and salaries aren’t seized during that time.
• Tax liens must be relinquished by the IRS within thirty days of receiving the agreed amount for an OIC from you. When a Certificate of Release of Federal Tax Lien becomes public your credit rating recovers.

Cons:

• Once an OIC is agreed to you are obligated to file upcoming tax returns and make tax payments on time for five years.  This applies to payroll tax and estimated business tax, if self-employed.
• If accepted or rejected, the IRS has more time to collect tax owed when you file an offer.  They add the time the offer is under deliberation and thirty days to the usual limitation of ten years to collect.
• All tax refunds before your offer and during the year of acceptance by the IRS must be forfeited.  You may have to forfeit refunds for three to five years.
• Subsequent to submitting an offer you may not appeal to the IRS or court for years stated in the offer.  This applies if offer is accepted or rejected.
• The IRS will revoke an offer after acceptance if you were untruthful.
• It’s not usual but the IRS can audit you during the OIC process depending on what you reveal or withhold.
• The OIC can be revoked if you don’t make a payment.  You will be liable for the initial amount, penalties and interest.  The same pertains if you don’t file and pay all taxes for five years prior to an OIC acceptance.

Tax Relief: You Need To Know This About Installment Agreements

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Installment Payment Plan

Debt under $25,000 easily qualifies for a payment plan, but debt over $25,000 must be negotiated.  A payment plan has the downfall of penalties and interest accumulation during payment which could take years to pay off.

IR Code 6502 allows ten years for the IRS to collect tax money.  To get an IA, the IRS will grant you the extension if you sign Form 900.  Delay the process by first speaking to a tax advisor.  The IRS may not remember to give you the form; in those cases, make sure you request a Form 900. If you don’t sign the form, you don’t get an installment agreement.

Negotiating Monthly Payments

If you can’t pay your tax in a maximum of three years or you owe in excess of $25,000 ask for a monthly payment plan and complete Form 433-A or –B.  Each revenue officer will come to a different conclusion on how much you should pay. 

Strategies to get a payment plan:

• Tell them what payments you can afford when handing in Form 433- A or -B.
• Commit to paying less for income essential living costs only, i.e. amount IRS states you can afford after essentials.  You offer to pay lowest amount as it’s hard to revise once you sign installment plan.
• If you have $0 or a minus amount contemplate an Offer in Compromise, collection suspension, or bankruptcy.
• Make an initial payment when you suggest an agreement.  Continue the payments regardless if the IRS permitted your IA.  Paying a set amount, in a timely matter, for three months may convince the officer that the payment plan and amount is right for you.  If you don’t have the means to start immediate payments, a check that is postdated may be accepted.

Tax bills higher than $25,000 must be approved by a manager, not a tax officer.  If an IA is approved it could take months to get it in writing.

If You Can’t Fulfill your Installment Payment

Being unable to fulfill a monthly payment requires an exceptional reason such as disability or loss of employment.  Call 800-829-1040 for help and also contact the relevant tax officer.  If the IRS doesn’t agree, they can start procedures to seize your property; contact the Taxpayer Advocate Service.

An appeal against a revocation can be restarted but the IRS is usually not compliant if the amount is more than $10,000.  You must supply new documentation showing your changed circumstances, affecting income and living costs. During the new process for an IA, the IRS may take wages and accounts.

Tax Relief: Your Offer In Compromise Questions Answered

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Ways to Avoid Mistakes with IRS OIC Forms:

• Use most current forms to fill in marital status, spouse tax liability, social security number and employer ID.

• Fill in two individual forms if you owe business and personal tax; divide tax type and periods.

• Forms with deletions of preprinted items or alterations will not be processed.

• If both spouses submit an offer, both must sign.

If you made mistakes on your forms, you may resubmit; but it will delay the process by weeks or months.

How Much You Must Pay?

Lump sum offers are made up of five payments or less.  A twenty percent deposit is necessary with your first offer forms.

Installment payment offers are in excess of five payments.   Your first forms must be submitted with one full monthly payment and then every month until your tax bill is settled.

A $150 application fee is required if there is no incomplete payment accompanying your offer beneath the lump sum or installment rules.  It can be put aside if you can’t afford the fee.  Submit an Application Fee Worksheet in Form 656 booklet.  Make check or money order payments to ‘United States Treasury’.

Tax Debt Relief Help: Protecting You and Your Assets

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Safeguarding Yourself after Disclosing Finances to the IRS

After your interview, the IRS will know where you live, work, bank etc.  They can easily confiscate assets and wages so be sure to safeguard yourself. You don’t have to let them know if you change employers, banks or sell assets the day after verbal or oral disclosure but, you must give information that is presently accurate.  Switching banks is a lawful short term option.  Leave a small amount in an account and move the surplus to a different bank.

Only interest bearing accounts are conveyed to the IRS at the end of the year.  Open an account in a different location or state from where you reside.  Only pay the IRS with money orders or through your old account.  Each payment’s account is recorded by the IRS so don’t supply you new account number(s).  However, if you are asked to complete Forms 433-A or –B, you must disclose new accounts.

Collector’s Next Move

After assessing forms 433-A and –B the IRS could:

• Demand payment immediately if there is proof that you can pay
• Request that you get a loan from a bank, finance company, or relative company or relative
• Request you sell assets in order to pay the IRS
• Recommend an Offer in Compromise
• Suggest a payment plan
• Advise you of bankruptcy alternatives
• Start imposed collection i.e. levy accounts, other assets and wages
• Describe your case as presently uncollectible

Revenue Officers check information supplied by you.  If you transfer your assets or ask family members to hold your assets they will act severely.  Fake transfers are unlawful and the IRS can seize them.

Tax Relief: Installment Agreement- Getting Declined

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There are three reasons for the IRS to turn down an Installment Agreement (IA):

• Not all living costs are deemed essential i.e., private schooling fees, high credit card purchases, charitable donations.

• Information on Forms 433-A and -B are inaccurate or deceptive e.g., public records prove you own assets that you didn't reveal or your income is higher than disclosed.

• You failed to complete a previous Installment Agreement causing the IRS to regard you as unreliable.

If an IA is turned down, continue your request with the tax officer/manager, RS Appeals Office, and tax advocate.

Revoking an Installment Agreement

Once an IA is approved, you and the IRS are bound to it. However, there are exceptions to revoking your payment plan:

• You don't file tax returns or settle taxes subsequent to the IA; the IRS monitors your returns and payments.

• Revocation is caused by non-payment or late payment; the IRS gives thirty to sixty days before sending a warning regarding revocation.

• There's a noticeable (positive or negative) change in your finances. If you keep silent they may not see it but, if the IRS notices, you must complete a new Form 433-A or -B.

• If the IRS learns you didn't fully disclose all assets and/or additional income(s) during your IA negotiations.

A Form 523 notifies you of the IRS' intention to revoke your IA. You can appeal it by using Form 9423.

Tax Relief: Negotiating an Installment Agreement with the IRS

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It's common to owe taxes to your state and the IRS at the same time; however, you must discuss payment plans with both simultaneously. This is to prevent you from not having enough money to split between the two.

Offer in Compromise - Paying Taxes for Pennies on the Dollar

A lawful reason is not grounds to have a tax bill lessened; it is up to Uncle Sam if you qualify. In most cases the IRS is obliged to give most requests for OIC (Offer in Compromise) balanced consideration. If turned down you can go to the IRS Appeals Court.

It is possible for the IRS and tax payer to work out a deal. Find out at the onset if you qualify as it could save you time and money.

An offer to the IRS takes a long time and must be properly processed with all the required documentation and items such as car registrations, pay slips and accounts.

Are You Eligible for OIC Consideration?

You must do more than request a deal with the IRS: you must not be bankrupt, must complete Form 656 and prove one of the following:

• Doubt as to Collectibility- It's not a sure thing the IRS can collect your tax money owed.

• Doubt as to Liability- It's not a sure thing your tax bill is correct (this is unusual).

• If you have enough assets to settle but extraordinary conditions initiating ‘economic hardship' or ‘unfairness' or ‘inequality'.

Tax Relief: ACS Collectors and Installment Payments

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Tax debt under $25,000 could qualify you for a payment plan of up to sixty months.  You request it but it can be withheld due to unfiled returns.  Debt of more than $25,000 must be worked out with the ACS.

Have a strategy prior to contacting a collector.  Make any excuse not to talk if they contact you first.  Say you’ll get back to them.  If you don’t have facts and figures don’t reply to any questions except your name.

When you contact a collector have your income, living expenses, assets and debt data.  The information is akin to IRS Form 433-A & -B, Collection Information Statement for Businesses, Self-Employed Individuals and Wage Earners.  Your objective is to present an organized list of your finances for more time to pay.  The collector wants all tax money paid quickly.

When you call the collector, be prepared to wait.  Take down his name and ID.  Write down notes.  You could speak to a different collector each time you call.  Some may be more sympathetic than others.  You must emphasize why it’s difficult to meet your expenses e.g. a low income.  Be truthful regarding assets.  Cut short tricky questions such as a second income with a plausible excuse.  Rather promise to call back later.

The collector may grill you regarding home equity, other real estate, bank balances and if you qualify for credit.  He wants to get you to pay your tax debt in full but may not force you to take a loan.  If he thinks you can pay, he will expect payment within thirty days.  If not, you could get a monthly payment plan also called an installment agreement (IA).  You may have to give over pay slips, rent receipts etc to back it up.  Complete a Collection Information Statement.  If you made a verbal agreement, follow through.  Pay on time even if the IRS monthly billing is late.

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