CTEA-November 2010Offer-in-Compromise The Capital of Texas Enrolled Agents November 2010 The Offer-in-Compromise

CTEA-November 2010Offer-in-Compromise What is an Offer in Compromise?  Internal Revenue Code (IRC) §7122 provides the legal guidelines establishing the basis and definition of an Offer-in-Compromise  An Offer-in-Compromise (OIC) is an agreement between a taxpayer and the Government that settles the taxpayer’s tax liability (if accepted) for less than the full amount the taxpayer owes.

CTEA-November 2010Offer-in-Compromise IRS-OIC Objectives  Implemented to resolve taxpayer/liability disputes  Allows the Government to collect what they can now  Also allows the Government to obtain cash, assets & other cash equivalents through other means, other than levy/seizure  Provides taxpayers a fresh start with tax compliance (to include filing and paying)

CTEA-November 2010Offer-in-Compromise Basis of the OIC The OIC program generally has three typical bases upon which the taxpayer is allowed to submit an OIC as follows:  Doubt as to Collectibility (DATC)  Doubt as to Liability (DATL) and  Effective Tax Administration (ETA)

CTEA-November 2010Offer-in-Compromise Doubt as to Collectibility  The taxpayer must owe a liability they cannot pay based upon their “Reasonable Collection Potential” (RCP) & additionally requires the following:  Form 656, “Offer in Compromise”  Form 433-A or 433-B “Collection Information Statements”  A $150 Offer fee applies  20% of OIC amount or 1 st Installment Payment  And three months financial support data

CTEA-November 2010Offer-in-Compromise Doubt as to Liability  A genuine dispute must exist with respect to the validity, correctness or accuracy of the tax liability, and the following form and information is required:  Form 656-L, “Offer in Compromise-Doubt as to Liability”, with the required legal argument/basis  NO Form 433-A or 433-B  NO $150 Offer fee applies  NO 20% of OIC amount or 1 st Installment Pmt  And NO three months financial support data

CTEA-November 2010Offer-in-Compromise Effective Tax Administration  When the enforced collection of a tax would in effect create an “economic hardship” or would be detrimental to the “voluntary compliance” of a taxpayer, the Government is authorized to accept an OIC based upon ETA  ETA’s differ in that taxpayers must have or be able to demonstrate the ability to full pay the tax, however extenuating situations must exist, such as medical and/or mental considerations  And three months financial support data

CTEA-November 2010Offer-in-Compromise Effective Tax Administration  The following items are yet required:  Form 656, “Offer in Compromise”  Form 433-A or 433-B “Collection Information Statements”  A $150 Offer fee applies A $150 Offer fee applies  20% of OIC amount or 1 st Installment Payment  And three months financial support data

CTEA-November 2010Offer-in-Compromise Types of DATC Offers  Cash Offer or “Lump Sum Offer” Must be paid in five or fewer installments TP must continue to pay existing installment agreement amount TP may correct 20% shortfall See IRC §7122(c)(1)(A)

CTEA-November 2010Offer-in-Compromise Types of DATC Offers  “Short Term Deferred Offer” Allowed to be paid over a “two year period” TP is not required to continue to pay any existing installment agreement amount Failure to pay the required payments is considered a “withdrawal” See IRC §7122(c)(1)(B)

CTEA-November 2010Offer-in-Compromise Types of DATC Offers  “Long Term Deferred Offer” Allowed to be paid over a “five year period” and/or allowed to be paid over the remaining CSED-“Statute of Limitations” TP is not required to continue to pay any existing installment agreement amount Failure to pay the required payments is considered a “withdrawal” See IRC §7122(c)(1)(B)

CTEA-November 2010Offer-in-Compromise Other OIC Issues  The taxpayer has the “right” to designate OIC payments  Failure to designate may be considered an “ethical violation”  See IRC §7122(c)(2)(A) for designation rights

CTEA-November 2010Offer-in-Compromise Other OIC Issues  The taxpayer has the “right” to Appeal the rejection of an OIC  The taxpayer does not have the “right” to Appeal the return of an OIC  An OIC may be deemed unprocessable if the payment, substantiation, documentation or other requirements are not met

CTEA-November 2010Offer-in-Compromise Other OIC Issues  Currently as OIC is deemed accepted if it is not rejected before the date which is 24 months after the date of submission  Note: If the tax liability is pending dispute via any judicial proceeding, the 24 month period noted above is tolled  Under Consideration: Effective July 16, 2011, the 24 month period may possibly be reduced to 12 months

CTEA-November 2010Offer-in-Compromise OIC Issues-Q & A  ___________________________________ ___________________________________ ___________________________________

CTEA-November 2010Offer-in-Compromise The Capital of Texas Enrolled Agents  The Offer in Compromise LG Brooks, EA 3102 Maple Ave. Suite 450 Dallas, TX Dalton Dr. Suite E, De Soto, TX (972) voice (972) facsimile website: