IRS Offer in Compromise Help

To request an Offer in Compromise agreement based on doubt of collectibility means you doubt your ability to ever pay the IRS the full amount of tax owed. This is usually a tough conclusion to negotiate on your own, so we recommend talking with an expert before attempting anything.

What Determines Doubt as to Collectability?

Before requesting an OIC agreement for this reason, taxpayers must not be able to pay their tax debt by:

• Liquidating all assets, or
• Meeting the guidelines for an IRS Installment Payment Plan

The IRS Process of Determining Eligibility

There are two basic components used by the IRS to determine what a taxpayer can or cannot pay:

• Value of assets owned, and
• Potential for future payment

Asset Evaluation – The IRS will want to know the current value of all assets if sold today.  These assets include property, vehicles, boats, home furnishings, investments, retirement savings, and any other possessions of value.

When reviewing your request to close your case as Currently Not Collectible (CNC), Offer in Compromise investigators determine the value of your assets, your future earning ability, and any assets available to you that are beyond the reach of the government.

They will usually claim the asset is worth more than a taxpayer will.  Asset values can be questioned and adjusted based on circumstances, and usually a fair compromise can be reached.

Future Payment –   The IRS will want to determine how much a taxpayer could pay each month on a five-year installment agreement.  They will consider many factors such as age, health, work status, and education to predict the probability of future income increases.

Important Currently Not Collectible Factors

• The government will continue to enforce collections on individuals even if they cannot pay.  It is the taxpayer’s responsibility to provide proof of his current financial status.
• Temporarily classifying a case as CNC stops current collection action.  However, the tax liability is not eliminated and will continue to increase due to penalties and interest.
• The IRS may continue to monitor your financial status annually to determine if your finances have improved.  Collection efforts can resume at any time.
• The IRS has the authority to grant a CNC status based on a Collection Information Statement (CIS) that is no more than a year old.  An experienced tax attorney can ensure the accuracy of this information.
• Even if a taxpayer’s CIS lists income or assets that can be levied, he can still qualify for a CNC status.  He must be able to show that the collection of the delinquent taxes would impair his ability to pay for necessary living expenses.
• Each case is unique.  Special circumstances are considered in all cases, such as health, age, education, etc.
• If the taxpayer can afford $25 monthly, the IRS will require the taxpayer to accept an installment agreement before his case is placed in CNC.
• If the IRS believes future collection efforts will be successful, or if the tax debt is $5,000 or more, a lien will be filed before an account is deemed CNC.

The Effective Tax Administration (ETA) Offer is the most recent addition to the Offer in Compromise help package, allowing the taxpayer to claim hardship.

Severe hardship”, simply stated, means the taxpayer acknowledges the validity of the tax debt and can pay the amount owed in full.  However, he or his family will suffer severe hardship as a result.  Qualifying for tax relief under hardship claims is usually the most difficult.  It is recommended to have a professional tax attorney to assist with filing Form 433-A and supplying the detailed information required.

Beginning the ETA Process

Your tax professional can help you develop a very detailed statement regarding the exceptional circumstances surrounding your case.  These circumstances must prove that paying your tax debt in full would create an ecomic hardship, or would be unfair.  An experienced tax professional knows how to approach the IRS and give you the best chance for acceptance.

Prior to considering an ETA Offer, the IRS must determine that:

• You do not qualify for an OIC agreement based on collectability
• You do not qualify for an OIC agreement based on questioned liability
• You do not qualify for an OIC agreement due to a lengthy history of tax problems

Three Situations that May Support an Economic Hardship Claim

1. A medical condition, disability or illness exists that limits the taxpayer’s ability to make a living.  Further, all the taxpayer’s financial resources will be required to pay for medical care.
2. Paying the tax liabilities in full would leave the taxpayer unable to pay basic living expenses (food, housing, utilities, clothing, mecial, etc.)
3. Although a taxpayer may have sufficient value in assets to pay off the tax liability, these assets cannot be borrowed against.  Also, the IRS cannot seize these particular assets to pay off the taxes.

Who is Most Likely to Qualify for ETA Offers?

Those who can most often successfully utilize the ETA Offers are:

• People with life-threatening illnesses
• People having family members with life-threatening illnesses
• People living on limited fixed-income
• Business owners, not at fault for an underlying tax liability, who would have to close their business if they had to pay

• Currently Not Collectible
• Innocent Spouse Relief
• Installment Agreement
• Penalty Abatement
• Tax Resolution Services