Dec 19, 2007

Your tax debt- Part 19 – The Ultimate Resolution: The Offer in Compromise- is it right for you?

Most believe the ultimate tax resolution is the Offer in Compromise or “OIC.” If you can pay this and it gets approved (the statistics show that the IRS is predisposed to not allowing OICs), it can be the best option. However, you need to consider all alternatives and options. For example, a partial pay installment agreement may in fact be less in payments over the long term (especially if there are not liquid assets with equity).

Some other items you may want to know about OICs (I will have an extensive blog series on this in the near future):

1. It is often referred to as a “Settlement”- however, this implies that the outcome is purely subjective. In fact, it is part subjective and part objective based on a financial investigation.
2. The OIC is a long 9-12 month process (if everything goes smoothly) that is fully investigated by IRS OIC Units and Field Offices; the IRS has 2 years to investigate the OIC and the OIC is deemed accepted if the IRS does not decide on the OIC within 2 years of filing
3. The OIC acceptance requires past, present and future filing compliance for 5 years
4. The OIC acceptance requires future payment compliance for 5 years
5. Offers are open to a redacted public inspection for 1 year
6. The OIC investigation is very intrusive

All options need to be investigated before an OIC is submitted to the IRS.
It is recommended that you consult a competent tax professional for all of your options and questions.

2 responses:

Anonymous,  August 1, 2008 at 11:06 AM  

In this post you state that "OIC acceptance requires past, present and future filing compliance for 5 years." Is there a straightforward means by which compliance is measured? If a taxpayer is a habitual nonfiler for, say, 10 years and then later has a good case for doubt as to collectibility---could the taxpayer file the past 5 years worth of tax returns and meet the 5 year compliance rule? That doesn't really sound like compliance, but taxpayers have the right to file returns even if they're late, I think.

Thanks for posting such a helpful resource!

Jim August 8, 2008 at 12:45 PM  

Thanks for your question. Let me explain the compliance requirement in more detail as I may have mislead you. The IRS requires past compliance for an OIC back at least 6 years (it is in your best interest to comply for all unfiled years as the IRS is going to give you amnesty for all taxes filed- hence, filing all of these taxes may be in your best interest). Present compliance is defined as having your withholding as being adequate so that you do not file a tax return in the next year with a balance due (this will default your OIC- the IRS is looking for adequate Form W-2 withholding if you are a wage earner or adequate estimated tax payments (quarterly payments via FOrm 1040-ES) if you are a sole proprietorship). Future compliance is filing timely and paying all of your taxes on the due date of the return for the 5 years proceeding the year of the Offer acceptance.

Hence, filing the past returns and future returns is compliance. Before you consider this option, you will need to consider your exposure and make sure that you will qualify. Between 10-20% qualify (it is a popular but rarely allowed option), hence, you should have good confidence that you will make it through successfully before you attempt. An unsuccessful OIC means you are back in IRS collections with your financial picture exposed. There are many other options- and the details are very important in selecting which option is appropriate.

Let me know if you need additional assistance. Thanks for showing the confusion that may have been perceived from the compliance entry.

All the best-

Jim

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