Offer in Compromise Program Updates

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Offer in Compromise

Program Updates

Offer in Compromise

Program Updates

Presenter name: Joseph Lewandoski

Presenter title:

Senior Stakeholder Liaison

Small Business/Self-Employed Division Date

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What is an Offer in

Compromise?

What is an Offer in

Compromise?

An agreement between the taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed

less than the full amount owed

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Objectives of the OIC Program

• Resolution in best interest of both the taxpayer and the government

• Provide taxpayer a fresh start toward future compliance

future compliance

• Obtain what can be reasonably collected as early as possible and at least cost

• Revenue that may not be collectable through other means

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Who Qualifies for an OIC?

Generally, taxpayers who are unable to full pay their liability in a lump sum or through a payment agreement qualify through a payment agreement qualify for an offer in compromise

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Basis of OICs

• Doubt as to Collectibility - doubt that the tax liability could be fully paid during the life of the statute

• Effective Tax Administration -

exceptional circumstance exists: public exceptional circumstance exists: public policy/equity/economic hardship

• Doubt as to Liability - doubt exists that the assessed tax is correct

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Basis of OICs

• Doubt as to Collectibility - doubt that the tax liability could be fully paid during the life of the statute

• Effective Tax Administration -

exceptional circumstance exists: public exceptional circumstance exists: public policy/equity/economic hardship

• Doubt as to Liability - doubt exists that the assessed tax is correct

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OIC Payment Terms

• Lump Sum Cash Offer

• Short Term Periodic Payment Offer

• Deferred Periodic Payment Offer

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Lump Sum Cash Offer

• Payable in five or fewer installments upon written notice of acceptance

• Offer must be accompanied by 20% of the amount being offered and the $150

amount being offered and the $150

application fee or a completed Form 656-A

• 20% payment is not refundable, regardless of the outcome of the OIC

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Determining the Lump Sum

Offer Amount

Determining the Lump Sum

Offer Amount

• 5 or fewer installments in 5 months or less:

- Realizable value of assets + amount that could be collected over 48 months (or time remaining on statute, whichever is less)

• 5 or fewer installments in more than 5 months but within 24 months :

- Realizable value of assets + amount that could be collected over 60 months of

payments (or time remaining on statute, whichever is less)

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Determining the Lump Sum

Offer Amount (continued)

Determining the Lump Sum

Offer Amount (continued)

• 5 or fewer installments in more than 24 months:

- Realizable value of assets + amount that could be collected over the time remaining - Realizable value of assets + amount that

could be collected over the time remaining on the statute

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Short Term Periodic

Payment Offer

Short Term Periodic

Payment Offer

• The offer amount must be paid within 24 months of the date the IRS

received the offer

• The first installment and the $150 application fee or a completed

Form 656-A are due upon filing

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Short Term Periodic Payment

Offer (continued)

Short Term Periodic Payment

Offer (continued)

• Regular installments must continue to be made during the offer investigation

• Payments are non refundable regardless of the outcome of the offer

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Determining the Short Term

Periodic Payment Offer Amount

Determining the Short Term

Periodic Payment Offer Amount

• The offer amount must equal or exceed: The realizable value of assets plus what could be collected over 60 months of

payments, or the time remaining on the statute, whichever is less

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Deferred Periodic Payment Offer

• Payable in installments in 25 or more months but within the life of the

remaining statutory period for collection

• Offer must be accompanied with the first proposed installment payment and the proposed installment payment and the

$150 application fee, or a completed Form 656-A

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Deferred Periodic Payment Offer

(continued)

Deferred Periodic Payment Offer

(continued)

• Regular installment payments must continue to be made during the offer investigation

• Payments are non refundable

regardless of the outcome of the offer

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Determining the Deferred Periodic

Payment Offer Amount

Determining the Deferred Periodic

Payment Offer Amount

• The offer amount must equal or exceed: The realizable value of assets + the

amount that could be collected through monthly payments during the remaining monthly payments during the remaining life of the collection statute.

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Processability Criteria

The Taxpayer Must:

1. Not be a debtor in open bankruptcy

2. Submit $150 application fee or Form 656-A 3. Submit 20% payment if filing a Lump Sum 3. Submit 20% payment if filing a Lump Sum

Cash offer, or the first installment payment if filing a Short Term or Deferred Periodic Payment offer, or submit Form 656-A

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OIC Processing

• Offer must be filed with COIC site: Memphis or Holtsville.

• COIC site is determined by the taxpayer’s state of residence

Exception: DATL offers must be filed with Exception: DATL offers must be filed with

Holtsville

• COIC makes all processability determinations

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COIC

• COIC works the following types of cases:

– Wage Earners – Retirees

– Self-employed individuals without

employees and gross receipts of $500,000 or less

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Field Cases Worked by OIC Group

• Corporations

• Partnerships

• Estates and Trusts

• Trust Fund Recovery Penalty (TFRP) –

• Trust Fund Recovery Penalty (TFRP) – Doubt as to Liability (DATL) only

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• Any business with employees

• Closely held corporations

• LLP and LLC

• Sole proprietors with gross receipts

Field Cases Worked by OIC Group

(Continued)

Field Cases Worked by OIC Group

(Continued)

• Sole proprietors with gross receipts

over $500,000

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Field OIC Group Locations

• California

• Gulf States

• South Atlantic

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Doubt as to Liability Processing

• Most Doubt as to Liability offers are

processed and worked by a centralized Doubt as to Liability Unit in the Brookhaven Campus

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Low Income Guidelines

• Used to determine eligibility for exception to the application fee

• Used to determine eligibility for exception to initial and all subsequent payments

due during course of offer investigation due during course of offer investigation

• Only applies to individuals

• Annual income level is based on the IRS OIC Low Income Guidelines.

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Low Income Guidelines

(continued)

Low Income Guidelines

(continued)

Taxpayers claiming the low income exemption must:

• Complete the OIC Application Fee and Payment Worksheet

Payment Worksheet

• Certify eligibility by completing Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment

• Attach the Form 656-A to the Form 656 application

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Payment Designations

• Taxpayers may designate the application of the 20% initial payment with the offer and periodic payments submitted while the offer is being investigated

• Designation must be in writing at the time of payment and specify taxable year,

period, and type of tax

• $150 application fee cannot be designated

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Payment Designations

(continued)

Payment Designations

(continued)

• Payments in excess of the required amount will be applied to tax unless designated as a deposit

• Payments are considered “payments on

• Payments are considered “payments on tax” and are not refundable

• Deposits are refundable if the offer is later returned, rejected, or withdrawn

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Form 656 - Most Common Errors

• Tax periods missing or incorrect

• OIC amount missing or not consistent with the terms

• Taxpayer identification numbers missing or incorrect

• OIC includes joint liabilities without

• OIC includes joint liabilities without signatures or both parties

• OIC submitted by a husband and wife with joint liability taxes but also includes the single liabilities of one of the

taxpayers.

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Most Common Reasons for a

“Processable Return” - NOT!

Most Common Reasons for a

“Processable Return” - NOT!

• Failure to provide financial information

• Failure to stay in compliance with estimated tax payments

• Waiver of fee not substantiated

• Returns not filed

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Tax Liens, Impact on Statutes,

& Appeal Rights

Tax Liens, Impact on Statutes,

& Appeal Rights

• Tax liens may be filed during the offer investigation

• Tax liens not released until offer payment terms are satisfied

payment terms are satisfied

• Statute of limitations for collection is suspended for pending offers

• IRC § 7122 – provides for appeal of rejection of an offer

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FY 2009 Program Results

Receipts: 52,102

Dispositions: 43,211

Total ^{% of}

dispos

• Not-processable returns: 4,384 10%

• Acceptances: 10,665 24%

• Rejections: 12,621 29%

• Returns: 10,529 24%

• Withdrawals/Term 5,012 11%

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Case Cycle Time

• COIC

– 89% of offers processed by COIC are currently closed within 6 months or less

• Field

– 82% of offers worked in our Field groups are currently closed in 9 months or less

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Before Filing

• Explore all collection options

• Review processability checklist in Form 656-Booklet

• Ensure taxpayer is current with all filing and paying requirements

and paying requirements

• Include all required fees and payments

• Carefully complete financial statements and Form 656

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After Filing

• Respond promptly

• Make any periodic payments as they become due

• Stay in compliance

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OIC Resources

• Form 65B, Offer in Compromise Booklet

• Visit IRS.gov, Search Offer in Compromise

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