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© 2017

Offer in Compromise Basics & Overview

Presented by: Tanya Baber EA, PA, CTRS

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canopytax.com/freeTanya Baber, EA, PA, CTRS – TaxEdge365.com © 2017Get your free IRS transcript tool:

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.

Instructor Bio○ 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 Ju

○ Tanya is a CTRS – Certified Tax Resolution Specialist – and is a member of The American Society of Tax Problem Solvers (ASTPS), and the National Association of Tax Professionals (NATP). She also serves on the board of directors for a variety of local and national non-profits and volunteers with Search and Rescue in Mesa County to give back to her community.

○ Ms. Baber enjoys developing and teaching advanced level classes to CPA’s, Accountants, Comptrollers, and other individuals seeking continuing education credits through Tax Edge. She also consults with Canopy Tax software to assist in developing specialized tax resolution software tailored for CPA’s, Enrolled Agents, Attorneys and Accountants.

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○ 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

Course Overview

IRS Offers

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canopytax.com/freeTanya Baber, EA, PA, CTRS – TaxEdge365.com © 2017

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

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Types of Offers

○ Doubt as to Liability (DATL) 656-L

○ Doubt as to Collectability (DATC) 656

○ Effective Tax Administration (ETA) 656

○ Streamlined:

○ Income up to $100,000

○ Tax liability less than $50,000

■ Limit used to be $25,000 or less









○ 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 (or was improperly assessed)

○ Tax was not due

○ Penalty incorrectly assessed

○ Not eligible if previously heard in tax court

DATL 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

DATC Offer







Requirements to Submit an Offer



○ Long term illness

○ Can’t meet basic living expenses

○ Can’t borrow against equity

○ Old Age

○ Liquidation leaves taxpayer penniless

○ Other circumstances

Factors Supporting Economic Hardship









○ Failure to file tax returns or pay tax for a number of years

○ Deliberately avoided tax payment

○ Tax protestor

Factors Supporting Economic Hardship









Is Taxpayer in compliance?

1. ALL REQUIRED RETURNS are filed (SFR Okay)

○ Will allow 30 days to comply

2. Estimated taxes – current year

○ Enclose documentation (and only one opportunity to correct)

3. Business owner – all returns filed, timely, PR tax deposits for quarter of filing OIC, trust funds paid or RFRP assessed

Is the Offer Processable?









Is the Offer Processable?

Is taxpayer in bankruptcy? If so – ineligible

● Can you pay in full?

○ IA or lump sum – consider SOL







Pros and Cons of the OIC Program



Pros and Cons

Pros

○ Permanent Contract (unless Taxpayer violates terms)

○ Fresh Start

○ Reduction of liability

○ Stops Collection Activity









Pros and Cons

Cons

○ SOL considerations

○ Tolls SOL

○ Future non-compliance (up to 5 years after)

○ May void OIC

○ Roadmap to their stuff

○ Future Refunds kept through offer year

■ (not considered a payment towards offer)

○ May still file Tax Lien







RCP/Financial Analysis



For Individuals:

○ 433-F Short Form

○ 433-A

○ Some IA (Installment Agreements) PPIA, CNC, etc.

○ 433-A (OIC)

○ DATC & ETA OIC

○ DATL – no 433A Required

IRS Collection Information Forms









For Businesses:

○ 433-B

○ All business except Sole-Prop

○ Follows Legal Formation (not tax form)

○ LLC Example (single member)

○ 433-B (OIC)

○ Penalty of Perjury

○ Full disclosure

○ All lines completed

○ enter “0” or “N/A”

Collection Information Statements









Overview: Financial Data

Equity Component

Asset Values● Home $150K● Auto $20K● IRAs $10K

Less: Encumbrances● Mortgage $100K● Auto Loan $10K● IRA tax $4K

Equity $66K

Income Component

Income● Wages/month = $5K

Allowable Expenses● Total = $4K

Excess/Month● Total = $1K

Income Component ● $1K x 12mo = $12K

Total ● $66K+12K = $78K









Half the Equation - Equity

○ How are assets determined?

○ Personal

○ Business









1. List all assets

○ (Except exempt items)

2. Determine FMV of each

3. Multiply by Quick Sale Value

○ (as needed – usually 80%)

4. Subtract any debt on the asset

5. Subtract current taxes

○ If caused by liquidation

6. The result is the RCP of all Assets

RCP Assets (Personal or Business)









○ All Income

○ Allowable Expenses

○ Standards – National, Regional, Local

○ Special Exceptions

Other Half of the Equation - Income









Other (Potentially) Allowable Expenses

○ Child care

○ Taxes

○ Health Care

○ Court Ordered Payments

○ Involuntary Deductions

○ Secured Debt

○ Accounting & Professional fees for representing

your client before IRS

○ Dependent care

○ Life insurance

○ Disability insurance for self-employed

○ Union dues

○ Professional Fees

○ Expenses for physically or mentally handicapped

○ Expenses necessary for family health & welfare

○ Expenses for production of Income









Financial Analysis Summary

1. Reasonable Collection Potential (RCP) from Assets

2. Amount Available from Income

3. Combine amounts above to determine total RCP

4. Step 4 is not the end, consider collection potential under bankruptcy or other possible reductions.







Payment Methods



Two Ways to Pay

Cash Offer

○ 20% down payment, 5 or fewer installments, 5 months

○ 12 Multiplier, plus

○ Available equity

Short-term Deferred Offer

○ Up to 24 months

○ 24 Multiplier, plus

○ Available equity









○ 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

Application of Payments









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), or

○ Doubt as to Liability









Form 656

○ Signed under penalty of Perjury

○ All documentation and financial worksheets required

○ Mail offer to appropriate processing unit

○ Holtsville (East)

○ Memphis (West)









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

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

What Happens Next?







Resources

Questions?

• Ask others in the Community! canopytax.com/community

• Tanya Baber: [email protected]

• Canopy Education Director: [email protected]

Additional Resources

• FREE IRS Transcripts Tool by Canopy: canopytax.com/free

• Tax Resolution & Practice Management: canopytax.com

• Consulting & Case Work by Tax Edge: http://taxedge365.com

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Tanya Baber, EA, PA, CTRSTax Edge – Accounting | Consulting | Resolution – TaxEdge365.com

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If you would like to schedule a one-on-one consultation or request assistance with a case, contact TaxEdge at 855-726-EDGE

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