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Your Tax Liability  Presented by Alvin Brown and Associates, tax attorney, formerly with the Office of the Chief Counsel of the IRS. Call (703) 425-1400 for all IRS tax issues, problems and emergencies. Protect yourself from IRS intimidation, errors, and penalties Email at: ab@irstaxattorney.com of interest to taxpayers and consultants Offers In Compromise  Interest Abatement Tax Refunds Tax Liens Tax Liens - Suing the IRS Appeals of IRS Collection and Examination Actions Taxpayer Rights New Tax Legislation IRS Statute of Limitations Information Seizures and IRS Enforcement Department of Justice Criminal Tax Manual IRS Criminal Investigation Division IRS Tax Code and Regulations IRS Installment Agreements Tax Court Taxpayer Advocate and Problem Resolution Tax Audits Tax Penalties IRS Collection Freedom of Information Taxpayer Privacy Innocent Spouse Relief Employee-Independent Contractor Issues Write Your Congressman |
Offer in Compromise Program
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ultimate goal of an
offer-in-compromise is a settlement/reduction/elimination of the tax
liability that is in
both the Government's and the taxpayer's best interest. The IRS will
accept an offer-in-compromise to settle unpaid accounts for less than
the amount owed when there is doubt that the liability can be collected
in full and the amount you offer reasonably
reflects collection potential. We file a six to ten page
legal memorandum in all OICs that we file with the IRS. The legal
memorandum cites section 7122 of the IRS Code that authorizes the IRS
to reduce any tax liability. In addition, the memorandum cites
the regulations under the statute, the relevant portions of the
Internal Revenue Manual, and the Congressional tax policy in OIC
cases. It it important to emphasize, for example, the fact that
the Congress told the IRS to have a liberal acceptance policy is
processing OIC cases. Our legal memorandum also cites the
Congressional tax policy to settle your tax liability to give
taxpayers a fresh start. Why is a
legal memorandum needed? We want to make sure that the IRS clerk
processing the OIC knows the law, its own Manual, the tax policy and
the legislative history. We want the IRS to know that you have
strong representation; thus, eliminating any potential abuse of power,
abuse of discretion, and/or misapplication of the law and their
administrative rules. The IRS takes extreme positions in OIC
cases, and strong representation is critically necessary. The IRS
will consider exceptions to their normal "reasonable collection
potential" standards - those exceptions are "special
circumstances" The legal memo is used to articulate and
document those "special circumstances." We know and understand
those "special circumstances" from the experience we have in working
thousands of OIC cases throughout the United States. Those
"special circumstances" depend on the facts
and circumstances in individual cases.
The IRS will also consider doubt as to liability and effective tax administration as the basis for abatement. The issue of "liability" is a complex legal issue (e.g., whether a person is a "responsible person" to pay the payroll taxes) requiring sophisticated and well reasoned issues of fact and law. "Effective tax administration" ("ETA") is based on "hardship" principles. IRS settlement/reduction/elimination of your tax liability under ETA principles are authorized by law even if you have the income or assets to fully pay your tax liability from your income or assets. Although there are some tax regulations on ETA considerations, our large volume of OIC cases has given us special insight into tax settlements based upon ETA. The IRS is loathe to approve settlements in ETA OIC cases, contrary to the intent of Congress. Extremely strong representation is necessary in these cases. To submit an offer-in-compromise you must complete Form 656; complete instructions are provided on the form. Also, you must submit Form 433-A, Collection Information Statement for Individuals, or Form 433-B, Collection Information Statement for Businesses, if the basis of the offer is doubt that the liability can be collected in full. These forms provide a statement of your income, expenses, assets, and liabilities. The
IRS will not accept an offer unless it is clear that you have complied
with all current filing requirements. The IRS will
not process an OIC for those working as employees
unless all unfilled tax returns are filed, although it is not required
that you make payment with the tax returns you file. This means
that "employees" need to file all unfilled tax returns if you are
considering eliminating your tax liability in an OIC. The IRS
cannot settle a tax liability for which there is no tax
assessment. Filed tax returns are important because they result
in an IRS tax assessments. The OIC will function on your
aggregate tax liability from the assessments they make against you once
those tax returns are filed. For those 1099 persons who are self-employed, the IRS
requires that you file quarterly tax returns. Self-employed
persons will be considered in compliance (for purposes of filing an
OIC) if they file their quarterly tax returns "timely" (e.g. not late
in making payment) for the current quarter and the preceding two
quarters. Filing Unfilled Tax Returns
Eliminates the Risk of Imprisonment Section 7203 of the Internal Revenue
Code permits the IRS to charge you with the "willful failure to file a
tax return." The statute subjects you to a risk of being guilty
of a misdemeanor and a $25,000 penalty ($100,000 in the case of a
corporation), and imprisoned for not more than one year. If the
failure to file is "willful" the charge is a "felony" and the
imprisonment is up to five years. YOU ELIMINATE THE RISK OF
IMPRISONMENT IF YOU VOLUNTARILY FILE YOUR TAX RETURNS, and payment of
your tax liability (which can be eliminated in an OIC is not required. Bankruptcy The
IRS will also not process an OIC if you are currently in bankruptcy.. Form
656 Offer in Compromise (Includes Form 433-A and Form 433-B) To represent you please download Form 2848 which is a "Power of Attorney" that allows us to represent you in submitting an Offer In Compromise. This is an on-line form you can fill out, then print and sign then send to us. Our data processing unit for all OIC Forms:Alvin Brown & Associates, LLC. 9667 Main Street, Suite B Fairfax, VA 22031-3751 Phone: 800.712.7690 E-mail: ab@irstaxattorney.com. |
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| Adobe Acrobat is required to view the forms above. A free version of Acrobat Reader is available here. CAUTION: There are many providers of services on the internet who will submit your Offer in Compromise forms. Note that taxpayers complete the forms. These cut-rate "Offer" experts do little more than mail the forms that you prepare to the IRS. Anyone can mail in an IRS form, even a five year old child. Note the following: 1. Taxpayers need to be advised on the numbers. This is critical because to the extent that you have assets in excess of liabilities, the IRS is not likely to accept an Offer that is less than the net value of your assets. Example: If you think that you have a net equity of $50,000 in your home, and you put $50,000 as the net equity value of your home, the IRS is likely to argue that your Offer must be at least $50,000 (assuming no liabilities in this example). But an argument can be made that might reduce that $50,000 to zero or some other low number and, therefore, reduce the Offer by $50,000. 2. Does your tax lawyer have adequate "skill and experience?"
3. Skill and experience is need in arguing your case.
6. Does your advocate know when to take the Offer to an Appeal level?
7. Is your advocate a Tax Lawyer? Think about it - the issues are based on facts and the law. Unless your advocate knows how to interpret the law to protect you, you will not come away with the lowest offer. IRS INTIMIDATION: The IRS will take advantage of a taxpayer who represents himself, and likewise if the taxpayer's advocate is weak. If the IRS can push and intimidate, they will push and intimidate. IRS Offer specialists generally have "collection backgrounds" - they want to collect as much money that they can collect. The IRS must respect your advocate, or your Offer will be higher than it has to be. This is where a strong advocate with an IRS background is helpful. The IRS Offer specialist or Appeals Officer knows that they cannot push a tax lawyer who knows their rules and procedures better than they know their own rules, procedure, and discretion. 8. The BOTTOM LINE: The least expensive advocate for you may cost you a lot of money. If you spend only $295 for someone to "mail" in your Offer forms, then you might be required to make an Offer that will cost you many many thousands of dollars. You need to know that one advocate can cost you a huge amount of money because they did not negotiate the best settlement ($50,000 in extra tax in the above example). The IRS may succeed in rejecting an Offer submitted by one advocate and accepting an Offer on the same case to another Advocate. Competence in advocacy is obviously of critical importance. Section 6344 of the Internal Revenue Code Itemizes “Property Exempt from Levy.” This same property is exempt from valuation in an Offer-in-Compromise: 1. Wearing apparel and school books “necessary" for the taxpayer or for members of his family (section 6344(a)(1)). Luxury such as furs are not necessary and are not exempt. Section 301.6334-1 of the regulations. 2. Fuel, provisions, furniture, and personal effects in the taxpayer's household and of the arms for personal use, livestock, and poultry of the taxpayer, as does not exceed $6,250 in value (section 6334(a)(2)). 3. Books and tools necessary for the trade, business, or profession of the taxpayer as do not exceed in the aggregate $3,125 (section 6334(a)(3). 4. Unemployment compensation (section 6334(a)(4)). 5. Undelivered mail (section 6334(a)(5)). 6. Railroad Retirement Act annuity and pension payments (section 6334(a)(6). 7. Workmen's compensation (section 6334(a)(7)). 8. Judgments for support of minor children (section 6334(a)(8)). 9. Exempt income (section 6334(a)(9)). Exempt income as defined in section 6334(d) pertains, in general, to the sum of the standard deduction plus the personal exemptions allowed, divided by the monthly pay period. For details of the computation, see section 301.6334-3 of the regulations. |
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Filing an Offer in Compromise An OIC is submitted on Form 656, Offer in Compromise. The Form 656 is a complete information package, also containing Forms 433-A and 433-B, Collection Information Statements, as well as instructions and a worksheet. Taxpayers should use the July 2004 version of Form 656. Submitting required documentation with the Form 656 package: Documentation on Form 433-A (for individuals) and Form 433-B (for businesses) is required. If the required documentation is not submitted with Forms 656 and 433-A or 433-B, the IRS will issue one written request to the taxpayer asking for the missing information. If the information is not provided within 30 days, the OIC case is closed and returned to the taxpayer without the opportunity to appeal the decision. It is the taxpayer's responsibility to ensure the IRS has the required information to make its determination on an OIC, as well as provide additional information when the IRS requests it. Form 656, Offer in Compromise · Form 656, Offer in Compromise (PDF format) · Form 656, Offer in Compromise (fill-in format) Forms 433, Collection Information Statements The Forms 433-A and 433-B are included with the Form 656 package. Taxpayers use these forms to submit financial information that is used to determine their ability to pay their tax debt. Individual taxpayers and self-employed individuals must use Form 433-A, while partnerships and corporations must use Form 433-B. Note: There will be instances where the IRS may request the 433-A from corporate officers or individual partners. Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals (PDF format) Form 433-B, Collection Information Statement for Businesses (PDF format) Collection Financial Standards and Necessary Expenses Collection Financial Standards are used to help determine a taxpayer's ability to pay a tax debt. The allowed amounts are used in the Form 433-A: · National Standards - Allowances for food, clothing and other items, known as the National Standards, apply nationwide except for Alaska and Hawaii, which have their own tables. Taxpayers are allowed the total National Standards amount for their family size and income level, without questioning amounts actually spent. · Local Standards - Maximum allowances for housing and utilities known as Local Standards, vary by location. Unlike the National Standards, taxpayers are allowed the amount actually spent, or the standard, whichever is less. There are separate allowance amounts for transportation expenses. · Necessary Expenses - Necessary Expenses are the allowable payments taxpayers make to support their own and their family's health and welfare and/or the production of income. However, this expense allowance does not apply to business entities. OIC Payment Plans There are three payment plans taxpayers and the IRS may agree to: · Cash - paid in 90 days or less. · Short-Term Deferred Payment - more than 90 days, up to 24 months. · Deferred Payment - OICs with payment terms over the remaining statutory period for collecting the tax. Note: The Worksheet to Calculate an Offer Amount instructs wage earners and self-employed individuals on how to figure the appropriate amount for a Cash, Short-Term Deferred or Deferred Payment Plan. Note: The Form 433-A worksheet on page 44 of the Form 656 packet instructs wage earners and self-employed individuals on how to figure the appropriate amount for a Cash, Short-Term Deferred or Deferred Payment Plan. |
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| Brought to you by
Alvin Brown and
Associates, attorney at law, former Supervisory Manager and Tax
Attorney-Advisor, Internal Revenue Service, Office of Chief Counsel,
Internal Revenue Service. Email: ab@irstaxattorney.com. Home page: click here. |