“Offer in Compromise” Lawyer
You or your business may owe so much to the Internal Revenue Service that you simply cannot pay it all: certainly not in one lump sum. If this is your situation, you can make an Offer in Compromise (OIC) – for tax debt relief.
Unlike an “Installment Payment Plan,” an Offer in Compromise with the IRS can actually resolve your debt for far less than you currently owe.
An Offer In Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that resolves the taxpayer’s tax liability.
The good news is that the IRS has the authority to settle, or compromise, your federal tax liabilities by accepting less than full payment under certain circumstances. In fact, the IRS may legally compromise for one of the following reasons:
- Doubt as to Liability: Doubt exists that the assessed tax is correct (a tax lawyer can help you make this case).
- Doubt as to Collectibility: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer in compromise amount must generally be equal to –or greater than– the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his or her estimated future income.
- Effective Tax Administration: This ETA circumstance is where there is no doubt that the tax owed is correct and where there is no doubt that the amount owed could be collected in full from the taxpayer, but there are exceptional circumstances that exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise. This circumstance requires that the taxpayer has the burden of proof to make the case and demonstrate that their OIC qualifies for public policy or equity considerations. They must show that their circumstances are compelling enough to justify acceptance of their OIC compared to other taxpayers in similar circumstances.
The third one, the Effective Tax Administration (ETA) is the most misunderstood so here are some examples:
(ETA) Example 1:
The taxpayer is disabled and lives on a fixed income that will not, after allowance of adequate basic living expenses, permit full payment of the liability under an installment agreement. The taxpayer also owns a modest home that has been specially equipped to accommodate the taxpayer for a disability. While the equity in the house is sufficient to permit payment of the tax liability owed, because of the disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this home equity. Moreover, because the taxpayer’s home has been specially equipped to accommodate the disability, a forced sale of the taxpayer’s residence would create severe adverse consequences for the taxpayer, making such a sale unlikely.
(ETA) Example 2:
The taxpayer is retired and the only income is from a pension. The only asset is a retirement account and the funds in the account are sufficient to satisfy the tax liability. Liquidation of the retirement account would leave the taxpayer without adequate means to provide for his or her basic living expenses. If the retirement account was liquidated to offset the tax debt then society would likely be the funder for the taxpayer’s remaining years.
(ETA) Example 3:
The taxpayer has assets sufficient to satisfy the tax liability, however, the taxpayer also provides full time care and assistance to a dependent child, who has a serious long-term illness. It is determined and predictable that the taxpayer will need to use the equity from the assets to provide for adequate basic living expenses and medical care for the dependent and ill child.
Making an IRS Offer in Compromise
There are a couple of ways that your Orange County Tax Laywer, Paul W. Raymond can make an Offer In Compromise for a client:
- We submit an Offer in Compromise to the IRS and it is then assigned to an IRS revenue officer.
- We file the Offer in Compromise with the Appeals Division of the IRS in a “Collection Due Process Hearing.”
The Collection Due Process Hearing is usually the better of the two options ans they routinely approve a lot of Offers in Compromise submissions. Frankly, they are more realistic to the “real world,” and the outcome is almost always a significant discount of the actual taxes owed.
While, on the face of it, it may seem more logical to submit your Offer in Compromise with the revenue officer rather than file with the Appeals Division there are differences between the two:
- The mandate of a “revenue officer” is to COLLECT money. Revenue officers are not your friend, no matter how professional and polite they may seem, and their promotions are based upon their successes in collections.
- The Appeal officers are an independent arm of the IRS. Their mandate is not specifically to “collect money.”
The Appeals Division Hearing Process
When we get a notice for a Collection Due Process Hearing, we file a request for a hearing, and then some two or three months later we get a hearing with the Appeals Division. At this hearing we negotiate to a very reasonable settlement but if we are unable to resolve it to your satisfaction, we can take it to Tax Court, and contest the collection determination altogether.
As always, we are looking for the best possible outcomes:
- You don’t owe any money.
- You owe some money, and we submit your Offer in Compromise, for less than the amount the IRS says you owe.
The entire Offer in Compromise process takes about six to nine months. Many clients are glad to have this extra time to live life and conduct business without the IRS on their back as the collection process is effectively put “on hold” while the process plays itself out.
Making a State Agency Offer in Compromise
Here in California the state tax agencies including:
- the California Employment Development Department (EDD),
- the California State Board of Equalization (SBE), and
- the California Franchise Tax Board (FTB)
— each have their own form and agency approval guidelines for Offers in Compromise. Orange County Tax Lawyer, Paul W. Raymond, can effectively bring you up to speed on the various ways to make an Offer In Compromise to any or all of these state agencies. Tax Attorney Paul W. Raymond understands that it is your goal to reduce or totally eliminate your current tax-liability and make the process as painless as possible – always with the best possible outcome as our goal.