How can I consolidate my IRS debts without an attorney, but through an offer in compromise with the IRS?
An Offer in Compromise (OIC) is a settlement on IRS tax debt. The OIC process involves filing an IRS Form 656 with the IRS. An OIC does not require an attorney, CPA, or Enrolled Agent, although all three of those categories of tax professionals are permitted to submit one on a taxpayer's behalf.
On the Form 656, the taxpayer lists all the periods for which he or she owes taxes; the OIC will include all the tax periods listed on that Form 656. If a taxpayer qualifies for an OIC, it is likely the best solution for resolving a delinquent tax liability. In the last published IRS statistics, the IRS reports that the average discount on accepted Offers was 88% (only 12 cents on the dollar was paid by Americans with accepted OICs), and that the average acceptance rate was 47.6%.
OICs that are submitted by professionals have a much higher success rate than OICs submitted by individuals. This is because individuals often are confused by the paperwork required and do not submit a proper OIC. The financial disclosure form the IRS requires (the new 433-A (OIC)- viewable on pages 7-13 at http://www.irs.gov/pub/irs-pdf/f656b.pdf) can be quite confusing.
Just because the IRS asks for payment information for an item or area of expense does not mean that the IRS actually takes that expense into account when qualifying the taxpayer for the OIC.
For example, the IRS asks taxpayers to list the monthly payment made for "other secured debts", separate from housing or vehicle payments listed elsewhere. A taxpayer would list a boat payment in this area. The expense is totaled with other IRS-recognized expenses that are included in the expense calculation the IRS uses in the qualifying process.
A taxpayer may reasonably think that, because the expense was requested on the "Monthly Household Income and Expense Information" area, the IRS includes this expense when figuring out how much money the taxpayer can pay each month. Instead, the IRS will zero out the boat payment expense, figuring that taxpayer can take every dollar that is used for it can be used to pay the tax debt.
A taxpayer who does not know this will be in for an unpleasant surprise. The OIC either will not be accepted or will be revised to come in at a much higher cost than the taxpayer expected.
Another reason to work with a tax professional is that individuals often view the OIC process as similar to a negotiation with a standard creditor, which is more like haggling. The IRS does not haggle; it is not a back-and-forth negotiation.
To reduce a tax debt you have to prove to the IRS that you don't have the ability to repay the debt, based on your household income, your allowable living expenses, and the assets in your name. The IRS will accept only what it determines is the maximum amount it can expect to collect before the debt expires due to the collection statutory expiration date.
Yet another reason to hire a professional is that sometimes individuals can offer more than they should have, because they do not understand the formula the IRS applies. For instance, if a taxpayer can demonstrate that he can only afford a total of $200 towards a tax debt of $100,000, he should not offer more than $200.
Some individuals can't believe that such a low dollar OIC would be accepted and offer far more than necessary, based on a misconception that a low-dollar offer will be refused.
I highly recommend contacting a professional tax resolution firm to help optimize your chances of getting an OIC accepted, and to get the best terms.
If nothing else, you can hear whether or not your financial situation will qualify you for a successful OIC. Keep in mind that some reputable professionals will want to view your IRS file and have a detailed picture of your finances, before offering making a judgment that you can reduce your tax debt through an OIC.
Given the savings possibilities on accepted OICs and the fact that OICs submitted by a professional succeed more often than one's submitted individually, you would be well served to meet with a reputable tax relief specialist.
The OIC is still a relatively new IRS instrument, created in 1992 by Section 7122 of the Tax Code. The three grounds under which an OIC can be successfully negotiated with the IRS are:
An additional benefit of submitting an OIC is that it puts a temporary hold on all IRS collection activity. Once the IRS acknowledges receipt of a submitted OIC, the IRS is prohibited from collecting on a tax liability, by levy or sending collection letters or an IRS Revenue Officer to collect.
The suspension of collection activity lasts during the period in which the Offer is being processed, or 30 days following rejection of an offer, or during the appeal of an OIC. This window of non-collection is frequently a respite for taxpayers, securing additional time for taxpayers to work out a solution while preventing the IRS from seizing any assets or levying pay or a bank account in the interim.
The only exception to the hold on collections is if the IRS rules that an OIC was submitted frivolously, where the taxpayer was using the OIC system to stop collections without submitting a valid OIC for consideration.
Generally, taxpayers must submit a $150 application fee along with their OIC submission. When it comes to paying the actual amount of the OIC, taxpayers have three payment options:
Despite the IRS forms stating that different multipliers are used ,depending on how quickly the offer amount is repaid, Jim Brown, VP at Freedom Tax Relief, states that Freedom's attorneys and Enrolled Agents are "still seeing the IRS multiply the net available by the remaining months on the statute of limitation; we are not seeing the 48 month multiplier used at the Offer service centers." This is another illustration of how confusing the OIC process can be and why working with a reputable tax professional will eliminate surprises and lead to a better result.
The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.
If the OIC is rejected, the taxpayer is offered an opportunity to file an appeal which will be heard by the IRS Office of Appeals. There are no rights to appeal for offers that are returned, withdrawn or terminated.
An offer is considered accepted, if it is not withdrawn, returned or rejected within two years (24 months) of the date the IRS acknowledges receipt of the offer.The 24 month period is put on hold if the taxpayer disputes the tax liability in a judicial proceeding.
The IRS will not process an OIC for a taxpayer who is currently in a bankruptcy proceeding or who owns a business that is an a bankruptcy proceeding. If a taxpayer is already in process on a OIC and files for bankruptcy the OIC can be suspended and resubmitted after the bankruptcy discharges. The 24 month mandatory acceptance period is put on hold when the taxpayer files for bankruptcy.
If the offer is accepted, the taxpayer is on a five year 'probation.' During those five years, if the taxpayer files a required tax return late or does not pay any tax obligation in full by the due date, the offer will be revoked and the forgiven tax debt is brought back to life, along with additional penalties and interest that will be tacked on.
The IRS will keep any refund that would otherwise be forthcoming to the taxpayer for the year that the offer was submitted, any year that the offer was being reviewed, and the year that the offer was accepted.
A taxpayer who is in the process of an OIC should pay attention to how much is withheld from his or her paycheck, attempting to not owe any amount that can't be paid in full when due, but also not resulting in a large refund that will be forfeited. Refunds are not forfeited, if a taxpayer submits a successful OIC Doubt as to Liability, only for an OIC Doubt as to Collectibility or OIC ETA.
I hope this information helps you Find. Learn & Save.