1. How Do You Submit a Successful Offer In Compromise? (2017 Update)
Frank J. Rooney, Esquire
Rooney Law Firm
Offices in CO, MD, and VA

2. Offers in Compromise Update-What are the Changes?
Section 7122(c)-Lump Sum Must Pay 20% or Start Periodic Payments with Application
Section 7122(f)-Deemed Accepted After 24 Months
Can Pay State Taxes If Can’t Be Paid Off
Student Loans Allowable
Revising Calculation of Future Income
Expand Allowable Living Expenses Category and Amount
TIPRA. Section 509, amends IRC 7122 by creating a new subsection (c). titled "Rules for
Submission of Offers in Compromise." The new subsection (c) requires that offers submitted on or
after July , (and not subject to the waiver with respect to low-income taxpayers or offers filed
under doubt as to liability only) must be accompanied by partial payments of the proposed offer
amount. The form of these partial payments depends on the taxpayer s proposed offer and terms of
payment. The law also establishes a time period after which an offer would be deemed accepted by
the IRS.
IRC 7122(f), as amended by the TIPRA legislation, will cause the IRS to deem an offer ·accepted" ~
it is not withdrawn. returned or rejected within 24 months after the IRS receipt date. If a liability
included in the offer amount is disputed in any judicial proceeding, that time period is omitted from
calculating the 24-month time frame.
• Revising the calculation for the taxpayers future income.
• Allowing taxpayers to repay their student loans.
• Allowing taxpayers to pay state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

3. Overview Of Offers in Compromise (OIC)
Doubt as Liability-Legitimate Basis for Objection to Tax Debt
Doubt as to Collectability-Inability to Pay or Hardship
Processable Offer in Compromise-No Longer Requires Compliance
Pay $150 Fee-Waived If Low Income or Doubt as to Liability
Pay 20 Percent with Lump Sum

4. Statute of Limitations Issues Designated Payments
Handling the Case
Basic Calculation – “Reasonable Collection Potential”- Net Equity in Assets Plus Excess Inflow Over IRS Deemed Necessary Expenses
Gotchas
Dissipated Assets
Statute of Limitations Issues
Designated Payments

5. What is a Non-Processable OIC?
Taxpayer in Open Bankruptcy Case
Did Not Pay $150
Did Not Pay 20 Percent with Lump Sum Offer Application
Did Not Pay Installment Payment with Installment Offer Application and Continue with Monthly Payments While Pending
Did Not Sign Form 656
Yes. As a result of TIPRA, offers will be deemed not processable and will be returned to the taxpayer
along with the St 50 application fee in the following situations:
Taxpayer is a debtor in an open bankruptcy proceeding
Taxpayer does not submit the $150 application fee or a signed Form 656-A. Income Certification
for Offer 1n Compromise Application Fee and Payment
Taxpayer does not submit the 20 percent payment with the lump sum offer, or a signed Form 656 -A
for Tax Pros
Q. Resolve an Issue
' Appealing a Tax
Dispute
> Responding to a
• Taxpayer does not submit the initial payment With the periodic payment offer or a signed Form
656-A
What happens if a taxpayer only submits the $150 application fee with the offer?
If a taxpayer submits only the application fee and does not submit either the 20 percent payment or
the first installment payment, the offer Will be deemed not processable and the $150 application fee
will be returned to the taxpayer.

6. What Are the Options When Dealing with a Tax Liability?
Submit an Offer Doubt as to Liability-Amount Owed is Incorrect,
Innocent Spouse
Pay It Off-Lump or Installment Agreement
Can’t Pay-Currently Not Collectible
Submit an Offer Doubt as to Collectability or Effective Tax Administration
Discharge Certain Taxes and Penalties in Bankruptcy

7. Procedural Issues: Innocent Spouse Substantive Issues
Doubt as to Liability
Procedural Issues:
S/L-Bars IRS Claim
Prior Bankruptcy Discharged Taxes
Taxes Paid
Innocent Spouse
Substantive Issues

8. Doubt as to Collectability
Taxpayer’s Reasonable Collection Potential- Less Than Amount Owed
Calculate Excess Cash Inflow Compared to Cash Outflow for Allowable Exps.
Calculate Net Equity in Assets

9. Dissipated Asset Issues
Asset Sold, Transferred, Gifted or Spent On Non-Priority Items
IRS Will Bring Asset back into RCP Calculation
Motivated by Keeping Assets from IRS

10. “Effective Tax Administration”
Calculated Amount Shows Taxpayer Can Pay More than Offer Submitted
Hardship
Promotes Compliance Based on Taxpayer’s History

11. What are IRS Necessary Living Expenses?
Necessary Living Expenses-Good
Conditional Living Expenses-Bad

12. Calculating the Offer Amount-Doubt as to Collectability
National Standards
Local Standards
Transportation Standards
Medical Expenses

13. Must Show Special Circumstances to Justify Higher than Table Amounts
National Standards
Based On IRS Table
Size of Family
Must Show Special Circumstances to Justify Higher than Table Amounts

14. Housing Expenses Based On Geographical Table
IRS Housing Standards
Housing Expenses Based On Geographical Table

15. IRS Transportation Standards
Table Based Ceiling for Personal Use
Use Actual for Business Use

16. Legitimate Medical Expenses Must be Making Payments and Show Proof
IRS Medical Expenses
Legitimate Medical Expenses
Must be Making Payments and Show Proof

17. Other Necessary Expenses
Expenses in Excess of IRS Standards for Housing and Living Expenses
IRS Representation Fees
Additional $200 Exp. For Older Vehicle i.e. 6 years Old or Over 75,000 Miles
Other Exp. for the Production of Income

18. Payment Options for the Doubt as to Collectability Offer
5 or fewer months
6 months to 2 years (max)

19. 5 or Fewer Months Lump Sum Offers
$150 fee
20 Percent Paid with Application
NOTE: IRS Prefers Separate Checks

20. 6 to 24 Months Periodic Offers
Periodic Payment Must Accompany Application
Payments Must Continue While Pending
$150 Application Fee
NOTE: Cannot Exceed 24 Months

21. What Happens If Offer Accepted?
Refunds Due Will be Kept
Federal Tax Liens Not Released Until Offer Completion
Collection Activities Suspended
Legal Assessment and Collection Period Extended
If your offer is accepted If your offer is rejected
You must meet all the Offer Terms You may appeal a rejection within 30 on Form 13711
listed in Section 8 of Form 656. days using Request tor Appeal of Offer
including filing all required tax returns In compromise, Form (PDF).
and making all payments;
• Any refunds due within the calendar
year in which your offer is accepted will
be applied to your tax debt;
Federal tax liens are not released until
your offer terms are satisfied; and
Certain offer information is available for
public review at designated IRS Qfli~~-
By submitting this offer, I/we have read, understand and agree to the following terms and conditions: Terms, Conditions, and LegalAgreement a) I request that the IRS accept the offer amount listed in this offer application as payment of my outstanding tax debt (including interest, penalties, and any additional amounts required by law) as of the date listed on this form. Authorize the IRS to amend Section 2 on page 1 in the event I failed to list any of my assessed tax debt. Understand that my offer will be accepted, by law, unless IRS notifies me otherwise, in writing, within 24 months of the date my offer was received by IRS. IRS will keep my payments, fees, and some refunds. b) I voluntarily submit the payments made on this offer and understand that they are not refundable even if I withdraw the offer or the IRS rejects or returns the offer. Unless I designated how to apply the required payment (page 3 of this application), the IRS will apply my payment in the best interest of the government, choosing which tax years and tax liabilities to pay off. The IRS will also keep my application fee unless the offer is not accepted for processing. c) The IRS will keep any refund, including interest, that I might be due for tax periods extending through the calendar year in which the IRS accepts my offer. I cannot designate that the refund be applied to estimated tax payments for the following year or the accepted offer amount. If I receive a refund after I submit this offer for any tax period extending through the calendar year in which the IRS accepts my offer, I will return the refund as soon as possible. d) The IRS will keep any monies it has collected prior to this offer and any payments that I make relating to this offer that I did not designate as a deposit. Only amounts that exceed the mandatory payments can be treated as a deposit. Such a deposit will be refundable if the offer is rejected or returned by the IRS or is withdrawn. Iunderstand that the IRS will not pay interest on any deposit. The IRS may seize ("levy") my assets up to the timethat the IRS official signs and accepts my offer as pending. Pending status of an offerand right to appeal e) Once an authorized IRS official signs this form, my offer is considered pending as of that signature date and itremains pending until the IRS accepts, rejects, returns, or terminates my offer or I withdraw my offer. An offer is also considered pending for 30 days after any rejection of my offer by the IRS, and during the time that any rejection of my offer is being considered by the Appeals Office. An offer will be considered withdrawn when theIRS receives my written notification of withdrawal by personal delivery or certified mail or when I inform the IRS ofmy withdrawal by other means and the IRS acknowledges in writing my intent to withdraw the offer. f) I waive the right to an Appeals hearing if I do not request a hearing within 30 days of the date the IRS notifiesme of the decision to reject the offer. I must comply with my future tax obligations andunderstand I remain liable for the full amount of my taxdebt until all terms and conditions of this offer have been met. g) I will file tax returns and pay required taxes for the five year period beginning with the date of acceptance of thisoffer. If this is an offer being submitted for joint tax debt, and one of us does not comply with future obligations,only the non-compliant taxpayer will be in default of this agreement. h) The IRS will not remove the original amount of my tax debt from its records until I have met all the terms andconditions of this offer. Penalty and interest will continue to accrue until all payment terms of the offer have beenmet. If I file for bankruptcy before the terms are fully met, any claim the IRS files in the bankruptcy proceedingswill be a tax claim. i) Once the IRS accepts my offer in writing, I have no right to contest, in court or otherwise, the amount of the taxdebt. I understand what will happen if I fail to meet theterms of my offer (e.g.,default). j) If I fail to meet any of the terms of this offer, the IRS may levy or sue me to collect any amount ranging from theunpaid balance of the offer to the original amount of the tax debt without further notice of any kind. The IRS willcontinue to add interest, as Section 6601 of the Internal Revenue Code requires, on the amount the IRSdetermines is due after default. The IRS will add interest from the date I default until I completely satisfy theamount owed. I agree to waive time limitsprovided by law. k) To have my offer considered, I agree to the extension of the time limit provided by law to assess my tax debt(statutory period of assessment). I agree that the date by which the IRS must assess my tax debt will now bethe date by which my debt must currently be assessed plus the period of time my offer is pending plus oneadditional year if the IRS rejects, returns, or terminates my offer or I withdraw it. (Paragraph (e) of this section

22. What Happens If Offer Not Accepted?
Various Options
Appeal
If CDP Contest in Tax Court
Bankruptcy-Litigate Collectability and Liability Issues
Pay Tax and Sue for Refund if Doubt as to Liability

23. Offer Example
Taxpayers owns a principal residence in Boulder, CO worth $800,000 with a mortgage of $600,000. * Only Asset
Taxpayers Joint Income Tax Return for 2012 (timely filed on 4/15/13)
shows an Unpaid Tax Debt of $350,000
In March of 2012, Taxpayers Paid Back a $400,000 Loan to Their Parents to Buy their House
Taxpayers Monthly Income is $6,000 with $1000 in mo. Fed and CO Withholdings.

24. Offer Example Cont’d.
Taxpayers with 2 children, ages 3 and 5, have the following monthly expenses:
Mortgage and utils. $2900
Car payment of $450 on one of their 2 cars
Car expenses on both autos of $700, one of which is 9 years old
Health ins. Premiums $400
Installment agreement with state of CO $250 for back state taxes
IRS Rep fees to CPA of $500 on outstanding debt of $3000
Credit card monthly payment used to pay Federal taxes of $100
Credit card payment used to pay food, clothing etc. of $200
Federal guaranteed student loan payment of $300

25. Section 3 Real Estate 433-a(OIC)

26. Section 6 IRS Form 433-a National Standards
National Standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.
The standards are derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES) and defined as follows:
Food includes food at home and food away from home. Food at home refers to the total expenditures for food from grocery stores or other food stores. It excludes the purchase of nonfood items. Food away from home includes all meals and snacks, including tips, at fast-food, take-out, delivery and full-service restaurants, etc.
Housekeeping supplies includes laundry and cleaning supplies, stationery supplies, postage, delivery services, miscellaneous household products, and lawn and garden supplies.
Apparel and services includes clothing, footwear, material, patterns and notions for making clothes, alterations and repairs, clothing rental, clothing storage, dry cleaning and sent-out laundry, watches, jewelry and repairs to watches and jewelry.
Personal care products and services includes products for the hair, oral hygiene products, shaving needs, cosmetics and bath products, electric personal care appliances, and other personal care products.
The miscellaneous allowance is for expenses taxpayers may incur that are not included in any other allowable living expense items, or for any portion of expenses that exceed the Collection Financial Standards and are not allowed under a deviation.  Taxpayers can use the miscellaneous allowance to pay for expenses that exceed the standards, or for other expenses such as credit card payments, bank fees and charges, reading material and school supplies.
Taxpayers are allowed the total National Standards amount monthly for their family size, without questioning the amounts they actually spend. If the amount claimed is more than the total allowed by the National Standards for food, housekeeping supplies, apparel and services, and personal care products and services, the taxpayer must provide documentation to substantiate those expenses are necessary living expenses. Deviations from the standard amount are not allowed for miscellaneous expenses. Generally, the total number of persons allowed for National Standards should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

27. Section 6 IRS Form 433-a Housing Standards

28. Section 6 IRS Form 433-a Transportation

29. Section 6 IRS Form 433-a Transportation

30. Section 6 IRS Form 433-a Transportation

31. Section 6 IRS Form 433-a Health Expenses

32. Out Of Pocket Medical

33. Section 6 IRS Form 433-a Out of Pocket Medical

34. Section 6 IRS Form 433-a Other Expenses

35. Section 6 IRS Form 433-a Child Care

36. Section 6 IRS Form 433-a Life Insurance

37. Section 6 IRS Form 433-a Current Withholding & Est. Tax Payments

38. Section 6 IRS Form 433-a Student Loans

39. Section 6 IRS Form 433-a Past State Taxes

40. Monthly household income

41. Section 6 IRS Form 433-a OIC Calculation

42. Section 6 IRS Form 433-a OIC Calculation Cont’d

43. Section 6 IRS Form 433-a OIC Calculation Cont’d

44. Section 6 IRS Form 433-a OIC Calculation Cont’d

45. Step One of Lump Sum Offer

46. Step 2 of Lump Sum Offer

47. Step 3 of Lump Sum Offer

48. Periodic Payment Offer

49. Designate Offer Payments

50. Effective Tax Administration Offer

51. Q&A