Offer in Compromise
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IRS Offer in Compromise
The IRS established a program called Offer In Compromise (OIC) as a settlement of tax liabilities for individuals who ultimately have an inability to pay. This is where you often hear the term "pennies on the dollar" and it is a policy of Clear Choice Tax that we don’t make the pennies on the dollar statement. As a caveat we prefer to state that the amount ultimately will be determined by working with our tax department to truly calculate an accurate amount.
The IRS will generally accept an Offer in Compromise when doubt exist that the IRS can't collect in full the total tax liability owed by the taxpayer. Offer in Compromise (OIC) is the most misunderstood solution to tax liabilities. Almost all Offers are based upon Doubt as to Collectibility and/or Doubt as to Liability. You have probably seen some Television Commercials make it seem like everyone will qualify for an Offer In Compromise. When in all reality and in the real World, very few are accepted.
If it is determined that the taxpayer is unable to pay the full balance, then a negotiated settlement can be made.
Our team works hard and deligently to research all possible resolution:
- Detect Tax Errors
- Audit Reconsideration
- Tax Return Amendments
A thorough financial analysis review to determine specific resolution plan:
- Asset & Income Analysis
- Financial Income Statement
- Draft IRS Form 433-A (OIC) or IRS Form 656
Additional information on "Offer in Compromise"
Doubt as to Liability (DATL) - Doubt exists that the assessed tax liability is correct. A Doubt as to Liability Offer is possible where there is a genuine question as to the validity of the tax liability.
Doubt as to Collectibility (DATC) - Doubt exists that the taxpayer could ever pay the full amount of tax owed.
Effective Tax Administration (ETA) - No doubt exists that the taxpayer can fully pay the taxes owed, but exceptional circumstances nonetheless lead IRS to compromise. IRS has two categories of ETA offers, hardship and non-hardship.
Quick Facts: In 2012 about 64,000 Offer In Compromise request was submitted to the IRS and only 24,000 offers accepted out of that 64,000 request and there was about 7,461,000 closed accounts for tax year 2012. That is .00032 percent offers accepted out of the 7,461,000 closed accounts for tax year 2012. Why such a low amount of offers being submitted each year? The IRS uses a formula that combines an analysis of the current net worth with a determination of the taxpayer's future ability to pay. Take a test drive with our "Offer in Compromise Simulator" by clicking on "Take Test".
Over the years the IRS has made great strides in improving the processing of OICs. These efficiencies are making it easier for taxpayers to navigate the OIC process and enable them to receive responses in a timely manner. When an OIC is submitted, the IRS will verify that it can process the offer. The offer will be processed if the taxpayer has: (1) paid the $150 application fee; (2) filed all back tax returns; (3) is not actively involved in a bankruptcy proceeding; and (4) not been involved in an on-going audit
During the verification stage of the IRS offer in compromise, the IRS examines all of the financial information that was provided by the taxpayer in the application. Supporting documentation is reviewed and the financial claims (income, property ownership, etc) are analyzed. If the IRS needs additional information they will generate an Offer Verification Letter that will be submitted to the taxpayer. This letter requests the necessary documentation that the IRS needs to further process the return.
The taxpayer has a few weeks to respond with the requested items. If the response is not timely, the IRS can return the offer and dismiss the offer if need be. If the offer is returned, the IRS will not refund the processing fee.
The IRS then assesses the taxpayer’s potential for collection. As a result, the agency has the right to accept the IRS offer in compromise as it was submitted originally. They often may send a letter summarizing the collection potential analysis.
