Offers in Compromise and FAQs

Introduction

Offers in Compromise are at the discretion of the Internal Revenue Service (IRS). While no lawyer can provide a guarantee of success the Massachusetts tax lawyers at Mooney McGinn LLP work with the IRS to obtain IRS concessions to that amount owed when possible and appropriate. Our understand of tax law and procedure and our open and frank approach to negotiations often provides credibility to a client’s case and comfort to the client.

What is an Offer in Compromise (”OIC”)?

An Offer in Compromise is a process to develop a negotiated settlement between the IRS and a taxpayer who the IRS believes owes money. The OIC is a way to resolve the taxpayer’s tax debt for less than the full amount owed to the Internal Revenue Service.

An Offer in Compromise is something Mooney McGinn LLP undertakes for clients on a regular basis when there is a reasonable probability of success. The out come of an Offer in Compromise can never be guaranteed.

An offer in compromise will not be accepted by the IRS if the Internal Revenue Service believes that the tax debt can be paid in full in a lump sum or through a payment agreement. The IRS will accept a taxpayer’s OIC if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP).

The RCP is how the Internal Revenue Service measures a taxpayer’s ability to pay. Many factors are considered to determine the ability of the taxpayer to pay, and how much and when the taxpayer should pay. These factors include the age, health, remaining periods of collection statutes income, culpability and IRS policy to determine an Offer in Compromise. The IRS will review a taxpayer’s assets, including real property, automobiles, bank accounts, etc. to determine whether a taxpayer can pay the tax liability in full. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenditures.

What are the Legal Requirements For Offers in Compromise?

The Internal Revenue Code ("IRC") prescribes Guidelines for officers and employees of the Internal Revenue Service to determine whether an Offer in Compromise is adequate and should be accepted to resolve a dispute. Under the IRC guidelines, any civil or criminal case currently under review by the IRS, but before any prosecution of a tax crime may be compromised.

The IRS publishes schedules of national and local allowances to ensure that taxpayers entering into a Offer in Compromise have sufficient income to provide for basic living expenses. These guidelines are very strict and the information provided on financial condition forms is a “moving target” for the IRS to analyze and limit (by way of offsets to collectible income and equity in assets).

What are the Requirements for an Offer in Compromise?

In order for an offer in compromise to be considered by the IRS, specific requirements must be satisfied:

1. The taxpayer cannot be a debtor in a current bankruptcy proceeding;
2. The taxpayer must submit a $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment;
3. The taxpayer must submit one of the following payments with Form 656, Offer in Compromise application:
   • Lump Sum Offer: The taxpayer must include twenty (20%) percent of the lump sum offer with Form 656.
   • Periodic Payment Offer: The taxpayer must include the first installment with Form 656.

Can an Offer in Compromise Stop a Federal Tax Lien or Levy?

An Offer in Compromise can be filed to stay a federal tax lien or levy. However, an Offer in Compromise may not be considered if it is solely intended to delay collection.

Is A Federal Tax Lien Released When An OIC Is Accepted?

The IRS will generally only release a Notice of Federal Tax Lien when all of the OIC payment terms are satisfied. However, for an immediate release of a federal tax lien, a taxpayer can submit payment using a certified check and include a request letter.

What are the Potential Benefits to an Offer in Compromise?

There are many potential benefits to the acceptance of an Offer in Compromise. Including:

• Total payment less may be less than the tax owed;
• Total payment of interest may be reduced;
• Potential for an abatement of penalties;
• Interest does not run, on the compromised liability, the Offer is far better than an Installment Agreement.

What is an Installment Agreement?

An Installment Agreement is simply an amortization over time of a tax liability with a fixed rate of interest similar to a mortgage. In contrast an Offer in Compromise renegotiates the amount of the tax liability.

What Forms are Necessary to Complete an OIC?

The IRS provides many of their forms on line. The Offer in Compromise Booklet, Form 656-B, contains all of the necessary information, including worksheets, to file an offer in compromise.

Taxpayers must use Form 656, Offer in Compromise or Form 656-L, Offer in Compromise (Doubt as to Liability), when submitting an offer in compromise (OIC).

A taxpayer should use Form 656 when there is doubt that the tax liability could be collected in full through a lump sum or an installment agreement. A taxpayer should complete Form 656-L when the he or she believes that the tax liability is incorrect. However a taxpayer cannot file both Form 656 and Form 656-L concurrently.

In addition to Form 656, Offer in Compromise, a taxpayer must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses.

If a taxpayer submits Form 656-L, Offer in Compromise (Doubt as to Liability), then the taxpayer is not required to submit either Form 433-A or Form 433-B.

What Happens If Breach the Terms of My Accepted OIC?

The IRS may consider you in default of the OIC. The IRS may reinstate your entire tax liability. The IRS may file a lawsuit in Tax Court to collect the entire unpaid balance of the offer or to collect an amount equal to the original amount of the tax liability as liquidated damages.

What Happens If Fail Behind on My Future Tax Returns and Taxes Due?

You will be in default of your OIC. An Offer in Compromise requires that you file and pay your future tax liability for a period of five (5) years from the date of acceptance of the OIC, or until the offered amount is paid in full, whichever is longer. Compliance is the timely filing and paying of all required tax returns and taxes.

Do Interest and Penalties Continue to Accrue During the OIC Process?

Interest will not accrue on a taxpayer’s accepted OIC amount from the date of acceptance until the OIC is satisfied. However, interest and penalties will continue to accrue on the unpaid tax liability while your OIC is under consideration from the IRS.

What Is the Process If The IRS Does Not Accept My Offer In Compromise?

The IRS does not generally accept an OIC on the first submission. Once the IRS determines that it cannot accept an OIC, the taxpayer will be advised of the reasons behind the decision. The taxpayer is given an opportunity to submit additional information that might cause the IRS to reconsider its decision. However, no opportunity will exist if the taxpayer has the ability to satisfy the tax liability in full and has failed to specify special circumstances.

Can I Deal With The IRS On My Own and Will the IRS Help Me?

Yes certainly you can. If you plan to deal with the IRS on your own, you should fully understand how the various processes work. Having the proper substantive and procedural tax knowledge is very important when dealing with the Internal Revenue Service. You should know your strategy options, how the tax assessment and collection procedures operate, which forms to use and know who your IRS contacts are.

The IRS can help, however IRS Revenue Officers and Agents work for the federal government. Their jobs are to assess and collect taxes from you. Their interests are different from your interests. You need a qualified tax professional who will inform you of your options.

Can You Still Help Me If I Am Located In Another State?

Yes. We have many tax clients throughout the United States and in foreign countries. The IRS primarily communicates with taxpayers by telephone and mail. Similarly, we communicate with our clients by telephone, facsimile, mail, and email.

What Is The Difference Between A Tax Levy And A Tax Lien?

A tax lien is a claim on your assets (i.e. real estate and/or personal property) that the federal government uses to secure the debt it claims is owed itself from you. The federal tax lien allows the IRS to receive its monies upon the subsequent transfer of your asset(s). When a tax levy is issued by the IRS, the federal government is immediately taking money out of your bank account. Another type of levy is a wage garnishment.

What is the Cost of an Offer in Compromise?

The Offer in Compromise process is highly factual and time-intensive, it can therefore be expensive. Of course if there is significant amount of money owed to the IRS or DOR, for example, over ten thousand dollars ($10,000), so a cost-benefit analysis should be considered.

The Massachusetts tax attorneys at Mooney McGinn LLP will ask for a retainer, based on the expected complexity and time required to reach a resolutions. The client must often be willing to proceed through to an appellate level on the offer, if necessary, to obtain relief.

How Do I Get Started?

You can contact us at 617-245-8080, or by emailing the Massachusetts and Federal Tax Attorney Tax Attorneys Mooney McGinn LLP. We offer a confidential consultation to assess your needs and recommend a specific course of action.

The Massachusetts Tax Attorneys at Mooney McGinn LLP represent clients throughout greater Boston, the Commonwealth of Massachusetts, and (for representation with the IRS) across the United States.

The Tax Attorneys at Mooney McGinn LLP assists individuals and businesses in resolving federal tax issues and state tax issues. We also help our tax clients implement plans to avoid future IRS problems.

If you need help with an IRS tax issue, call Massachusetts Tax Attorneys at Mooney McGinn LLP toll free at 617-245-8080 for a consultation.

Here is a list of the tax services Tax Lawyers Mooney McGinn LLP provides and the federal tax issues we resolves everyday for our clients:

• Resolution of Tax Levies
• Stopping Garnishments

• Tax Lien Releases

• Tax Litigation

• IRS Tax Audits

• IRS Tax Appeals

• Bankruptcy Litigation involving Tax

• Reduction or Elimination of Interest

• Business Tax Planning

• Individual Tax Planning

• Personal Income Tax Return Preparation

• Business Income Tax Return Preparation

• Estate Planning – Trusts

• Tax Planning

• Tax Consulting

• Tax Collection Counseling

• Abatement of Penalties

• Offers in Compromise

• IRS Payment Plans

• Installment Agreements

• Payroll Taxes & Independent Contractor

• Innocent Spouse Relief

• Statute of Limitation Issues

• Business Entity Planning – Business Formation