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February 11, 2015

Offer-In-Compromise as an IRS Collection Alternative for Federal Tax Liabilities

The tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated on how to utilize the Internal Revenue Service’s collection alternatives to manage their federal tax liabilities. The IRS has broad authority and tools available to collect delinquent taxes, including the ability to file a Notice of Federal Tax Lien. Therefore, if individual taxpayers or businesses are contacted by an IRS revenue officer, it is important to be aware of and understand the various collection alternatives available to resolve federal tax liabilities. Aside from simply paying the tax liability in full, there are various collection alternatives available to taxpayers that can help reduce or eliminate tax liabilities arising from an IRS audit or examination, including, but not limited to: (i) offer-in-compromise, (ii) installment agreements, (iii) currently not collectible status, (iv) discharging taxes in bankruptcy, and (v) challenging the underlying tax liability. Utilizing a collection alternative may help prevent, or significantly reduce the effect of, an IRS collection action.

This article is the first of a series that will focus on the offer-in-compromise as an IRS collection alternative. This article provides a general description of the offer-in-compromise program, including how to determine whether you are eligible. Future articles in the series will provide a more in-depth discussion of the offer-in-compromise program, including Doubt as to Liability Offers. First, it is helpful to understand what an offer-in-compromise entails and how it can help a taxpayer manage their federal tax liabilities.

What is an Offer-in-Compromise?

The IRS, similar to any other business, encounters situations where outstanding debts cannot be collected in full or a dispute arises over the amount owed. It is generally acceptable business practice to resolve such collection and liability issues through a compromise. An offer-in-compromise is an agreement between a delinquent taxpayer and the IRS to settle a federal tax liability for less than the full amount owed or assessed. An offer-in-compromise provides eligible taxpayers the opportunity to pay off their tax debt and to get a fresh start.

To utilize this collection alternative, taxpayers can fill out either a Form 656, Offer-in-Compromise (OIC) or Form 656-L, Offer-in-Compromise (Doubt as to Liability), which allows the taxpayer to propose a settlement to the IRS. Submitting an application does not ensure that the IRS will accept the taxpayer’s offer. Instead, the application begins a process of evaluation and verification, during which the IRS considers any special circumstances that might affect the taxpayer’s ability to pay. The taxpayer’s settlement offer, upon filing and acceptance for processing, will be acted upon by recommendation for one of the following: (i) acceptance, (ii) rejection, (iii) termination, or (iv) it may be withdrawn by the taxpayer or the taxpayer’s agent. To qualify for acceptance, taxpayers should be aware of several eligibility requirements, as well as factors that the IRS considers when reviewing an application for an offer-in-compromise.

Eligibility for Offer-in-Compromise

For an individual taxpayer or business facing federal tax liabilities, an offer-in-compromise can be a saving grace. Before a taxpayer’s offer-in-compromise can be considered by the IRS, however, the taxpayer must:

1. File all tax returns the taxpayer is legally required to file;

2. Make all required estimated tax payments for the current year; and

3. Make all required federal deposits for the current quarter, if you are a business owner with employees.

The IRS has not established a minimum compliance requirement for the acceptance of an offer-in-compromise. Rather, the IRS is authorized to consider several factors, when analyzing whether to accept an offer-in-compromise, including: (i) economic hardship, (ii) public policy, and (iii) equity. Generally, if a taxpayer can pay their tax debt in full, whether through an installment agreement or a lump sum, the IRS will not accept an offer-in-compromise. Furthermore, if a taxpayer or business is currently undergoing bankruptcy proceedings, they will not be eligible to apply for an offer-in-compromise. If the IRS decides to accept a taxpayer’s offer, the compromise becomes a legally binding agreement between the IRS and the taxpayer, enforceable by either party.

NLG Comment: It is important to note that the Offer-in-Compromise (Doubt as to Liability) requires an intimate understanding of the policies and procedures behind the IRS offer-in-compromise program. You cannot simply offer some amount to the IRS and hope that they will accept that number. This is much different than a settlement and contract dispute between two private parties. Rather, it requires a  thorough understanding of the calculation used by the IRS to determine the amount owed. There are many nuances behind the calculation and planning techniques available to minimize the ultimate amount owed. It is important to work with someone that handles these offers-in-compromise on a daily basis. And remember, if you want to simply offer some amount to the IRS without any back up or detail, and without going through the necessary calculation, you would be better off to save your time, and your money, by not submitting an offer. It would simply be rejected. Rather, you need to do the necessary due diligence and complete it correctly.

An offer-in-compromise can provide individual taxpayers and businesses an excellent opportunity to resolve their federal tax liabilities, especially if they are unable to pay the full amount owed. Taxpayers who have been contacted by an IRS revenue officer should consult with an experienced tax attorney to find out if they qualify for an offer-in-compromise or other collection alternatives.

Contact Nardone Law Group

Nardone Law Group represents individuals and businesses in federal tax matters, including collection alternatives, such as offers-in-compromise. If you or your business have been contacted by an IRS revenue officer, or are struggling with tax liabilities, you should contact one of our tax attorneys today. Nardone Law Group’s tax attorneys have vast experience representing clients before the IRS. We will thoroughly review your case to determine what options and alternatives are available to you.

Contact us today for a consultation to discuss your case.

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February 11, 2015

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