If your Offer in Compromise has been approved, you need to make sure the IRS does not revoke your Offer. At all costs, make sure that you:
•File your taxes on-time for the next five years.
•If you cannot file by April 15th, request an automatic extension. Definitely file your taxes by the extension deadline.
•Pay your taxes on-time. If you owe, your taxes must be paid in full by April 15th. Make estimated payments or extension payments to make sure you don't have a balance due.
If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection efforts.
Showing posts with label IRS Problems. Show all posts
Showing posts with label IRS Problems. Show all posts
Wednesday, August 4, 2010
Tuesday, August 3, 2010
Three Types of Offer In Compromises
The IRS may accept an offer in compromise based on three grounds:
1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.
1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.
Monday, July 26, 2010
What is Offers In Compromise?
In a nutshell, an offer in compromise is a taxpayer’s offer made to compromise and settle a delinquent tax liability. The amount the IRS is willing to accept in settlement is the cash equivalent of what the IRS could collect by levy or other seizure of the taxpayer’s income and assets, over a certain period of time. The IRS refers to this as the taxpayer's realizable collection potential. The offer of settlement may be made on the ground that the taxpayer does not have the financial ability to pay the fullliability, or there is doubt about the taxpayer's legal liability to pay the claim, or where under the circumstances it would be unfair to force the taxpayer to pay the claim. Recent amendments to the key IRS Code section authorizing compromises have imposed some new requirements to the offer process.
Law IRC §7122: The new law contains the following requirements for submission of an OIC:
• The taxpayer must pay 20% of the OIC at the time a lump-sum OIC application is submitted to the IRS for approval. The term “lump-sum OIC” means any offer of payments made in five or fewer installments.
• The taxpayer must pay the first proposed installment at the time a periodic payment OIC application is submitted to the IRS for approval.
• The taxpayer must continue to make the proposed installments of a periodic payment OIC during the time period the OIC is being evaluated by the IRS for approval. Any failure to make an installment during this period may be considered a withdrawal of the OIC.
• The application of any payment made under the above rules with respect to the tax liability may be specified by the taxpayer.
• The tax liability which is the subject of the OIC is reduced by any user fee
imposed with respect to the OIC.
• The IRS may issue regulations waiving the required payment rules above in a manner consistent with the practices established under Section 7122(d)(3).
• Any OIC which does not meet these new requirements may be returned to
the taxpayer as unprocessable.
• Any OIC submitted will be deemed to be accepted by the IRS if the OIC is not rejected by the IRS within 24 months after the date the OIC was submitted.
These new rules are effective for OICs submitted on and after July 16, 2006.
KEY BENEFITS: An offer in Compromise deemed processable by the IRS halts levy and other tax collection seizures during the time the offer is under consideration. Where this remedy applies, it is a good way to get the taxpayer a fresh-start; the IRS accepts a presumably small amount of money and forgets the rest. In some cases it can be said this remedy literally settles a huge tax debt for “pennies on the dollar,” although settlements that good are rare. A caveat is that the taxpayer is on a kind of “probation” for 5 years following the acceptance of the offer, during which the taxpayer must file all tax returns timely and pay the taxes due. Default may result in retraction of the agreement and demand for full payment.
Law IRC §7122: The new law contains the following requirements for submission of an OIC:
• The taxpayer must pay 20% of the OIC at the time a lump-sum OIC application is submitted to the IRS for approval. The term “lump-sum OIC” means any offer of payments made in five or fewer installments.
• The taxpayer must pay the first proposed installment at the time a periodic payment OIC application is submitted to the IRS for approval.
• The taxpayer must continue to make the proposed installments of a periodic payment OIC during the time period the OIC is being evaluated by the IRS for approval. Any failure to make an installment during this period may be considered a withdrawal of the OIC.
• The application of any payment made under the above rules with respect to the tax liability may be specified by the taxpayer.
• The tax liability which is the subject of the OIC is reduced by any user fee
imposed with respect to the OIC.
• The IRS may issue regulations waiving the required payment rules above in a manner consistent with the practices established under Section 7122(d)(3).
• Any OIC which does not meet these new requirements may be returned to
the taxpayer as unprocessable.
• Any OIC submitted will be deemed to be accepted by the IRS if the OIC is not rejected by the IRS within 24 months after the date the OIC was submitted.
These new rules are effective for OICs submitted on and after July 16, 2006.
KEY BENEFITS: An offer in Compromise deemed processable by the IRS halts levy and other tax collection seizures during the time the offer is under consideration. Where this remedy applies, it is a good way to get the taxpayer a fresh-start; the IRS accepts a presumably small amount of money and forgets the rest. In some cases it can be said this remedy literally settles a huge tax debt for “pennies on the dollar,” although settlements that good are rare. A caveat is that the taxpayer is on a kind of “probation” for 5 years following the acceptance of the offer, during which the taxpayer must file all tax returns timely and pay the taxes due. Default may result in retraction of the agreement and demand for full payment.
Subscribe to:
Posts (Atom)
Posts
