offer in compromise basics & update - latino tax fest · 2017-08-06 · get your free irs...

© 2017

Offer in Compromise Basics & Update

Presented by: Tanya Baber EA, CTRS

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

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 Junction, CO,

○ 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.



http://taxedge365.com/




○ Three different types of offers

○ Requirements to submit an offer

○ Pros and Cons of the OIC Program

○ Calculation of RCP / Financial Analysis

○ New Standards and Exemptions

○ Two payment methods available

Course Overview

Introduction & Types of Offers

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canopytax.com/freeTanya Baber, EA, 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









○ 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









○ 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

Effective Tax Administration Offer (ETA)









○ 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 Against an OIC (Offer In Compromise)









○ 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

Streamlined Offers







Requirements to Submit an Offer



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

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...









New Changes for 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









New Changes for 2017

TIGDA Report 10-12.16 (Reference 207-30-009)

● Recommended to the IRS:

○ 1) Remind employees - Processing OIC required in 16 days,

■ With Taxpayer contact required in 120 days

○ 2) Requirement to send letters if 120 day contact date not met

○ 3) VerIfy alternate resolution discussed when OIC not accepted

Result? IRS officials agreed with the recommendatation. Will it help in process times? That is the goal and intent anyway...







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









FTA Instructions

○ 100% FREE. FOREVER.

○ 2 minutes to pull

○ Digital documents

○ Convenient organization

○ Easy to view/print/download

Transcripts in Canopy











FTA Instructions

○ Instant Analysis Reports

○ Save you hours!

○ Summary of CSED, Penalties,

Interest, Payments, + more!

○ Export reports for clients

Reports in Canopy









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

Income Component

Income● Wages/month = $5K

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

Equity Component $66K

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. 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.







New Standards and Exemptions



National & Local Standards

National - Food, Clothing and Other ItemsNational - Out-of-pocket Health Care

Local - Housing & Utility StandardLocal - Transportation Standard

Lesser of Chart or Actual (OIC Purposes Only - CNC/IA - Actual Only)

Exception - Justify Family Health & Welfare or Production of Income









Exempt Personal Assets

Cash (5.8.5.7)Up to $1,000Plus Additional needed for basic living expenses

Vehicle equity (5.8.5.12)Up to $3,450 (per each vehicle)

Income Producing Assets (5.8.5.15)Ex: Motor Vehicles, Equipment or Rental Property









Exempt Personal Assets

Exempt furniture and personal effectsFor 2016 - $9,120 ($11,400 x 80%)For 2017 - $9,200 ($11,500 x 80%)

Exempt tools of the tradeFor 2016 $4,560 (5,700 x 80%)For 2017 $4,600 (5,750 x 80%)







Payment Methods



Two Ways to Pay

Lump Sum Cash Offer

○ 20% down payment

○ 5 or fewer installments○ within 5 months ○ of the date your offer is accepted

○ 12 Multiplier, plus

○ Available equity

Periodic Payment Offer

○ First payment made with offer

○ Remaining balance - monthly payments○ within 6 to 24 months ○ of the date your offer is submitted

○ 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

○ 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

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)

■ This is called “Low Income Certification”

○ 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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offer in compromise basics & update - latino tax fest · 2017-08-06 · get your free irs...

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