Restructuring of the Offers in Compromise
The Offer in Compromise program has existed for many years. Recently, the Program has undergone some revisions to allow more taxpayers to use the Program.
The program allows a taxpayer to extinguish amounts owed to the Internal Revenue Service for various taxes due to the Government. Under the Program, a taxpayer makes an offer to the Service for an amount to extinguish the amount owed. The Service reviews the offer and determines if the offer will be accepted.
Under the right circumstances, the Service will take a fraction of the liability owed to the Government. The Service will consider, and potentially accept, an Offer when there is doubt as to the collectibility of, or liability of, taxes.
By accepting the offer, the Service hopes to accomplish two goals. First, they want to collect what they can reasonably expect to collect in the shortest period of time, avoiding the expense of protracted collection action. Second, they believe that by giving the taxpayer a fresh start, the taxpayer will be more likely to comply with future filing and payment requirements.
Although there is no set formula, the offer is determined to be accepted by the Service based upon certain established criteria.
Information submitted for the Offer must be on forms 433 and 656. These forms require data surrounding the taxpayers assets, liabilities and net equity; as well as current income and expense levels. The Service then adjusts the expense levels to allowable amounts based upon the characteristics of the taxpayer (ie married, children, mortgages, etc.) to obtain an adjusted cash flow.
The certain established criteria fall under two general guides. The offer must be greater than the each of the following: The net assets of the taxpayer defined as the fair value of assets minus the face amount of liabilities. The estimated net cash flow of the taxpayer over a long-term period, discounted to today's dollars using annuity present value factors.
In the past, the service has also required a pledge of a percentage of future income and an agreement to waive certain future tax benefits such as capital losses and net operating losses. These are no longer requirements.
The odds of your offer being accepted will increase if you offer as much as the IRS could collect through other measures and if you can convince them that they are better off accepting your offer now rather than waiting until some future date.
The service will take approximately two weeks to decide if your offer is worth considering. If they are willing to consider your offer, the Service will perform due diligence on the amounts provided within form 433. A final determination could take up to six months.
Age is a factor that benefits the taxpayer making the Offer. The older the taxpayer, the more likely the Service will accept the offer.
Business owners can also take advantage of the Offer in Compromise program. Firms will find the program of particular advantage when faced with the 100% payroll tax penalty.
Taxpayers, after acceptance of the Offer, must remain in compliance with the tax laws for the next five years. Should the taxpayer fall out of compliance, the taxpayer will be put back into the position prior to the acceptance of the offer. In other words, the taxpayer will owe the original amount as if the offer was never made.
An offer in compromise is an effective tool when used properly. However, the Program is not for everyone. Should you desire a consultation regarding this Program, please call our offices at 303 861-0434.
