Offer in Compromise Basics & Overview Tanya Baber Tax Edge

INSTRUCTOR

Tanya Baber Tax Edge Tanya has been an Enrolled Agent with the IRS since 2006 and received her Bachelor’s degree in Public Accounting and Business Administration from Colorado Mesa University. Tanya practices as a public accountant from her hometown of Grand Junction, CO, and also helps clients from the east coast to Hawaii and a few internationally. Since 1994, Tanya has guided clients in the areas of accounting and payroll, personal, business, and non-profit tax preparation, planning, consulting and representation as well as solving their complex tax problems.

Course Overview ● Three different types of offers ● Requirements to submit an offer ● Pros and Cons of the OIC Program ● Calculation of RCP / Financial Analysis ● Two payment methods available

Introduction & Types of Offers

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

IRS Offer Program – Why? ● Agreement to settle liability for less than the full amount ○ In interest of both IRS and Taxpayer ● Collect what they can (as soon as they can) ● Provide Taxpayer a Fresh Start ● Get money otherwise unavailable to them ○ Borrowing from family members

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Types of Offers

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

DATL Offer ● Form 656-L (no financial info needed) ● Possible reasons for DATL: ○ Tax was discharged in bankruptcy ○ SOL has run on collections ○ Tax has not been assessed/was improperly assessed ○ Tax was not due ○ Penalty incorrectly assessed ● Not eligible if previously heard in tax court

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

DATC Offer ● Individual tax (some payroll tax) ● Complete 433-A (OIC) ○ And 433-B (OIC) if required ● Determine term and amount of payment ● Complete form 656 ● Mail form 656 with 433-A (OIC) ○ 433-B(OIC) if needed, and ALL Attachments to IRS

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Effective Tax Administration Offer (ETA) ● Does not meet criteria for compromise ○ Based on Liability ○ Or based on Collectability ● Based on economic hardship or ● Collection would be detrimental to voluntary compliance

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Factors Supporting Economic Hardship ● Long term illness ● Can’t meet basic living expenses ● Can’t borrow against equity ● Old Age ● Liquidation leaves taxpayer penniless ● Other circumstances

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Factors Against an OIC (Offer In Compromise) ● Failure to file tax returns or pay tax for a number of years ● Deliberately avoided tax payment ● Tax protestor

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Streamlined Offers ● Fewer requests for financial information ● Greater flexibility considering ability to pay ● Eligible for: ○ Wage Earner ○ Unemployed ○ Self-Employed, Gross Receipts <$500,000 ● Household Income $100,000 or less ● Total amount owing less than $50,000 when offer is filed

Poll Question

Requirements to Submit an Offer

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Is the Offer Processable?

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Is the Offer Processable? Is taxpayer in bankruptcy? If so – ineligible ● Can you pay in full? ○ IA or lump sum – consider SOL What if a submitted offer does not meet payment requirements? ● It may be returned as unprocessable ● BUT… IRS keeps the money

Basically, if required payments are not made, they believe it is your intent to withdraw the offer...

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

New Changes in 2017 Starting 3/27/17: ● IRS will return any newly filed OIC ○ If all required tax returns are not filed ○ Application fee will be returned ○ BUT Initial payment is NOT returned

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

New Changes in 2017

Pros and Cons of the OIC Program

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Poll Question

RCP/Financial Analysis

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Overview: Financial Data

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Half the Equation - Equity ● How are assets determined? ● Personal ● Business

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Other Half of the Equation - Income ● All Income ● Allowable Expenses ○ Standards – National, Regional, Local ● Special Exceptions

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Other (Potentially) Allowable Expenses

● Child care

● Life insurance

● Taxes

● Disability insurance for self-employed

● Health Care

● Union dues

● Court Ordered Payments

● Professional Fees

● Involuntary Deductions

● Expenses for physically or mentally

● Secured Debt ● Accounting & Professional fees for representing your client before IRS ● Dependent care

handicapped ● Expenses necessary for family health & welfare ● Expenses for production of Income

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Financial Analysis Summary 1. Reasonable Collection Potential (RCP) from Assets 2. Amount Available from Income 3. Combine amounts above to determine total RCP 4. Compare the total RCP to the tax liability and determine if this is a viable offer

So what if it ISN’T viable? Step 4 is not the end, consider collection potential under bankruptcy or other possible reductions.

Poll Question

Payment Methods

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Two Ways to Pay

Lump Sum Cash Offer

Periodic Payment Offer

● 20% down payment

● First payment made with offer

● 5 or fewer installments

● Remaining balance - monthly payments

● within 5 months

● within 6 to 24 months

● of the date your offer is accepted

● of the date your offer is submitted

● 12 Multiplier, plus

● 24 Multiplier, plus

● Available equity

● Available equity

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Application of Payments ● Taxpayer has the right to designate ○ Failure to designate? + Apply in the best interest of the government ○ Non-refundable “payment of tax” ● User Fee Increased to $186 ○ Reduces assessed tax, no designation, no refund ● However - new rule suggests it could be returned if not processable ○ But wouldn’t trust that too much ● Proposals to increase fee again effective in 2017, but so far not approved

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

IRS Fee/Payment Waiver IRS has authority to and may: ● Waive required payments ● No 20% ● No Installments, and ● No fee on: ○ Low-income (below poverty levels) ○ This is called “Low Income Certification” ○ Doubt as to Liability

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

Form 656 ● Signed under penalty of Perjury ● All documentation and financial worksheets required ● Mail offer to appropriate processing unit ○ Holtsville (East) ○ Memphis (West)

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

What Happens Next? If Offer is rejected… ● Administrative Appeal ○ 30 days- Form 13711 ● Submit Another Offer ○ Must be substantially different ● Tax Court Petition ○ Special circumstances only ● Installment Agreement and/or PPIA

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

What Happens Next? If Offer is accepted... ● All refunds due in calendar year applied ● Lien not released until terms satisfied ● Information avail. for Public Review

Poll Question

Offer in Compromise Basics & Overview Tanya Baber, Tax Edge

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Tanya Baber [email protected] | 855-726-EDGE