I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. The IRS Offer-in-Compromise is an agreement to clear a tax debt for less than its face value. Making the offer is a time-consuming task that requires a considerable amount of reporting to the IRS to show that a write-down of the debt is in the interest of the government. This hard work could easily be for naught since the IRS rejects about 60% of the offers received. Getting it right starts with choosing the right type of Offer-in-Compromise to make.
There are three types of Offers:
- Doubt as to Liability – This offer is designed for people who are in a dispute with the IRS over the correctness of a tax assessment.
- Doubt as to Collectability – Everybody agrees that the tax amount is right, but the taxpayer is unlikely to be able to pay the debt.
- Effective Tax Administration – Everybody agrees the tax amount is right, but forcing payment would be inequitable because of exceptional circumstances.
Doubt as to Liability
Doubt as to Liability happens when a tax assessment goes wrong and the taxpayer has exhausted his or her options through appeals. If you later find additional information that supports your case, the Doubt as to Liability Offer is your final option outside of court.
Examples of when to use a Doubt as to Liability Offer include:
- Someone turns in a W-2’s or 1099 with your social security number on it. You might not even live in the same part of the state, but the IRS expects you to disprove that it’s your income. Making an offer with a certified statement that it’s not your income and that the commute would have been unreasonably long could do the trick.
- A business that you worked for did not pay its payroll taxes. Because you had check signing authority, the IRS assessed a penalty on you equal to 100 per cent of the “Trust Funds”. Providing additional evidence that you were not a decision maker along with the offer to pay $1 can be your way out.
File Form 656-L to make this offer. You need to include the documentation to back up your claim that the assessment could be wrong. The minimum amount that you can make the offer for is one dollar.
Doubt as to Collectability
This is probably the most common offer made. It’s not worth the government’s time to beat a dead horse so they are willing to take what they can get. You need to provide them with extensive information about the assets you own and your current income levels. They will apply the Reasonable Collection Potential formulas to this data to come up with the minimum amount they will accept.
File Form 656 and the appropriate Form 433 to make the offer. Here is the kicker, you need to include 20% of any lump sum, offer that is nonrefundable should the offer be rejected.
Effective Tax Administration
This is a rarely used type of offer in which both the government and the taxpayer agree as to the amount of the tax liability, but because of exceptional circumstances forcing the taxpayer to pay would produce a situation that is unfair and inequitable. The example given by the IRS is a taxpayer who’s only asset to pay the bill is the equity in their home and they are suffering from some long-term illness. Making that person homeless would result in news stories that the IRS would like to avoid.
Each type of Offer-in-Compromise requires different documentation to prove that the taxpayer qualifies for the debt forgiveness. It’s not a freebee in that it takes a lot of time and effort to prove to the IRS that it is in the best interests of the government to accept less than face value of the debt.
If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email firstname.lastname@example.org.
Cell (352) 317-5692
Office (352) 376-9401
Fax (352) 376-9440