Negotiating An OIC Requires Knowledge, Strategy And Skill
An Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability for less than the full amount owed. Attempting to negotiate an Offer in Compromise yourself is not advisable. The difference between approval and rejection of an OIC is often the knowledge, experience and judgment of the person negotiating the agreement. Instead, you should call upon the services of an experienced tax professional.
The tax professionals at Daniel Rosefelt & Associates, LLC, Attorney & CPA have many years of experience helping taxpayers reduce their federal and state tax liabilities through the IRS Offer in Compromise program and similar state OIC programs. The process of submitting an Offer in Compromise and obtaining IRS acceptance is complicated. Success requires substantial attention to details, and compliance with a variety of IRS regulations, procedures and guidelines.
Call Daniel Rosefelt & Associates, LLC, Attorney & CPA at 301.656.4424 to schedule a consultation. We serve clients throughout the U.S. and around the world from our offices in Bethesda, Maryland, and Washington, D.C.
Types Of Offers In Compromise
There are three different kinds of Offers in Compromise:
- Doubt as to Collectibility— Allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.
- Doubt as to Liability —Doubt exists that the IRS assessed the correct amount of tax liability. This method only applies if you can prove you do not owe the tax assessed, not because you are unable to pay the tax liability. If you do not think that you owe the tax liability, then you may submit an OIC for “Doubt as to Liability.”
- Effective Tax Administration (ETA) — An ETA offer is made when a taxpayer agrees with the delinquent tax amount that the IRS is seeking to collect and would be able to pay the full amount owed, but an exceptional circumstance exists that allows the IRS to consider the taxpayer’s offer. To be eligible for compromise on this basis, you must demonstrate that the collection of the tax would create an economic hardship, or would be unfair and inequitable.
The Doubt as to Collectability Guidelines
— A Doubt as to Collectability Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances such as:
- Ability to pay;
- Expenses; and
- Asset equity.
The IRS will generally approve an Offer in Compromise when the amount offered represents the most it can expect to collect within a reasonable period of time. The IRS calculates your Reasonable Collection Potential (RCP) in determining the amount it will accept. Before the IRS will can consider a doubt as to collectability offer (absent special circumstances), the taxpayer must not be able to pay the taxes in full either by liquidating assets or through current installment agreement payment guidelines. You must submit the appropriate collection information statement along with all required supporting documents. The IRS’ goal in approving an OIC is to achieve collection of the amount that it believes to be potentially collectible from a taxpayer at the earliest possible time and with the least cost to the government. In addition to its collection goal, the IRS expects that its acceptance of an adequate offer will result in creating for the taxpayer a fresh start toward compliance with all future filing and payment requirements. Once an offer is accepted, the taxpayer must remain in compliance with all filing and payment requirements for the next five years.
Doubt as to Collectability OIC Payment Options:
Lump Sum Cash Offer
– The Taxpayer must pay the offer amount in five or fewer monthly installments and must include the net realizable value of your assets (often discounted for quick sale valuation), plus the amount equaling 12 months of your net disposable income as determined by IRS guidelines.
Short Term Periodic Payment Offer
– The taxpayer must pay the offer amount in 24 monthly installments and must include the net realizable value of your assets (often discounted for quick sale valuation), plus the amount equaling 24 months of your net disposable income as determined by IRS guidelines.
Information Required To Obtain An OIC,
In order to submit and ultimately receive IRS approval of an Offer in Compromise, a taxpayer is required to provide the IRS with a wide range of financial documentation used to evaluate the taxpayer’s ability to pay. The IRS considers the amount that could be obtained from the equity in your house and other assets, plus any additional amount that you should “reasonably” be able to pay from your monthly budget. Your OIC package will include a recent financial statement prepared on an IRS Form 433-A (OIC) (Individual or Self-Employed Taxpayers) and/or Form 433-B (OIC) (Business Taxpayers), and is often supported by recent bank statements, tax returns, paystubs, house and property appraisals, deeds, car titles, monthly expense invoices and receipts, and a variety of other financial documents. These documents are used by the IRS to confirm your eligibility for an OIC and determine the settlement amount it will accept. The IRS reviews your financial information in the light of its own income and expense standards. The IRS does not compute your “reasonable collection potential” by subtracting your actual monthly expenses from your monthly income. Rather, the IRS determines your allowable monthly expenses by using a complex set of artificial national and local expense standards based on family size and yearly income.
How We Can Help
For taxpayers who qualify, an Offer in Compromise is an excellent way to resolve a tax problem and get a fresh start with the IRS. However, the decision to make an Offer in Compromise is complicated and success depends on the proper application of knowledge, experience and attention to detail. The experienced tax professionals at Daniel Rosefelt & Associates, LLC, Attorney & CPA have negotiated substantial numbers of OICs, and will work diligently to obtain the best possible result for you.
Contact Our Tax Professionals
If you have a problem with delinquent taxes, call Daniel Rosefelt & Associates, LLC, Attorney & CPA at 301.656.4424 or complete our contact form.