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:: The 10 most important things you need to know about Offers in Compromise

In order to qualify to file an OIC, you must have filed all of the tax returns you are required to file; however, you do not have to make payment on those filed returns. In the case of self-employed individuals, “compliance” means filing and full payment for two consecutive quarters.

The settlement procedures depend on how much is collectible from you. It has nothing to do with how much you owe to the IRS . For example, a $4 million tax liability could be settled for $1,000 if you are only collectible for $1,000.

For collectibility, the IRS looks at both assets and income.

In analyzing income, the IRS is required to allow you to offset your income with reasonable and necessary living expenses (e.g., housing, food, transportation, heath care, court ordered payments, child care, etc.).

The IRS will discount assets to their “quick sale” value. In the case of real estate, cars and other fixed assets, the IRS discount is at least 20% in almost all cases.

If you disagree with an IRS determination by an Offer Specialist, the offer can be appealed to an IRS Office of Appeals. The appeal conference is informal.

If the IRS is actively pursuing a collection action against you (either a levy, lien or garnishment of wages) , you can appeal that collection action in what is called a Collection Due Process Appeal. During that Appeal hearing, you can offer an Offer in Compromise or an Installment Agreement as an alternative to the collection action.

All tax liabilities of individuals and corporations can be compromised, including payroll tax liabilities and tax liabilities for tax fraud, and any tax liability not dischargeable in bankruptcy.

The Congress requires the IRS to have a “liberal acceptance” policy for offers in compromise. The legislative tax policy for offers-in-compromise is to give taxpayers a “fresh start.” The IRS adopts that tax policy.

A tax liability can be settled, even if you are collectible for the full amount of that tax liability, if you can demonstrate “special circumstances” for those assets or income. This can be done if the settlement is important for “effective tax administration."

 

CPAs, accountants, bookkeepers, enrolled agents, and attorneys without a tax specialty may not have the time, experience, education, insight or technical skill to deal with the technical analysis, legal research, identification of issues, interpretative creativity and insight, negotiating skills, knowledge of the IRS , or technical writing ability necessary to effectively prevent avoidable tax overpayments.

 

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Tax Preparation
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Levy
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IRS Tax Liens - continued
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