Offer in Compromise Program Updates Presenter name: Joseph Lewandoski Presenter title: Senior Stakeholder Liaison Small Business/Self-Employed Division Date
What is an Offer in Compromise? An agreement between the taxpayer and the IRS that settles the taxpayer s tax debt for less than the full amount owed
Objectives of the OIC Program Resolution in best interest of both the taxpayer and the government Provide taxpayer a fresh start toward future compliance Obtain what can be reasonably collected as early as possible and at least cost Revenue that may not be collectable through other means
Who Qualifies for an OIC? Generally, taxpayers who are unable to full pay their liability in a lump sum or through a payment agreement qualify for an offer in compromise
Basis of OICs Doubt as to Collectibility - doubt that the tax liability could be fully paid during the life of the statute Effective Tax Administration - exceptional circumstance exists: public policy/equity/economic hardship Doubt as to Liability - doubt exists that the assessed tax is correct
Basis of OICs Doubt as to Collectibility - doubt that the tax liability could be fully paid during the life of the statute Effective Tax Administration - exceptional circumstance exists: public policy/equity/economic hardship Doubt as to Liability - doubt exists that the assessed tax is correct
OIC Payment Terms Lump Sum Cash Offer Short Term Periodic Payment Offer Deferred Periodic Payment Offer
Lump Sum Cash Offer Payable in five or fewer installments upon written notice of acceptance Offer must be accompanied by 20% of the amount being offered and the $150 application fee or a completed Form 656-A 20% payment is not refundable, regardless of the outcome of the OIC
Determining the Lump Sum Offer Amount 5 or fewer installments in 5 months or less: - Realizable value of assets + amount that could be collected over 48 months (or time remaining on statute, whichever is less) 5 or fewer installments in more than 5 months but within 24 months : - Realizable value of assets + amount that could be collected over 60 months of payments (or time remaining on statute, whichever is less)
Determining the Lump Sum Offer Amount (continued) 5 or fewer installments in more than 24 months: - Realizable value of assets + amount that could be collected over the time remaining on the statute
Short Term Periodic Payment Offer The offer amount must be paid within 24 months of the date the IRS received the offer The first installment and the $150 application fee or a completed Form 656-A are due upon filing
Short Term Periodic Payment Offer (continued) Regular installments must continue to be made during the offer investigation Payments are non refundable regardless of the outcome of the offer
Determining the Short Term Periodic Payment Offer Amount The offer amount must equal or exceed: The realizable value of assets plus what could be collected over 60 months of payments, or the time remaining on the statute, whichever is less
Deferred Periodic Payment Offer Payable in installments in 25 or more months but within the life of the remaining statutory period for collection Offer must be accompanied with the first proposed installment payment and the $150 application fee, or a completed Form 656-A
Deferred Periodic Payment Offer (continued) Regular installment payments must continue to be made during the offer investigation Payments are non refundable Payments are non refundable regardless of the outcome of the offer
Determining the Deferred Periodic Payment Offer Amount The offer amount must equal or exceed: The realizable value of assets + the amount that could be collected through monthly payments during the remaining life of the collection statute.
Processability Criteria The Taxpayer Must: 1. Not be a debtor in open bankruptcy 2. Submit $150 application fee or Form 656-A 3. Submit 20% payment if filing a Lump Sum 3. Submit 20% payment if filing a Lump Sum Cash offer, or the first installment payment if filing a Short Term or Deferred Periodic Payment offer, or submit Form 656-A
OIC Processing Offer must be filed with COIC site: Memphis or Holtsville. COIC site is determined by the taxpayer s state of residence Exception: DATL offers must be filed with Holtsville COIC makes all processability determinations
COIC COIC works the following types of cases: Wage Earners Retirees Self-employed individuals without employees and gross receipts of $500,000 or less
Field Cases Worked by OIC Group Corporations Partnerships Estates and Trusts Trust Fund Recovery Penalty (TFRP) Doubt as to Liability (DATL) only
Field Cases Worked by OIC Group (Continued) Any business with employees Closely held corporations LLP and LLC Sole proprietors with gross receipts over $500,000
Field OIC Group Locations California Gulf States South Atlantic
Doubt as to Liability Processing Most Doubt as to Liability offers are processed and worked by a centralized Doubt as to Liability Unit in the Brookhaven Campus
Low Income Guidelines Used to determine eligibility for exception to the application fee Used to determine eligibility for exception to initial and all subsequent payments due during course of offer investigation Only applies to individuals Annual income level is based on the IRS OIC Low Income Guidelines.
Low Income Guidelines (continued) Taxpayers claiming the low income exemption must: Complete the OIC Application Fee and Payment Worksheet Certify eligibility by completing Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment Attach the Form 656-A to the Form 656 application
Payment Designations Taxpayers may designate the application of the 20% initial payment with the offer and periodic payments submitted while the offer is being investigated Designation must be in writing at the time of payment and specify taxable year, period, and type of tax $150 application fee cannot be designated
Payment Designations (continued) Payments in excess of the required amount will be applied to tax unless designated as a deposit Payments are considered payments on tax and are not refundable Deposits are refundable if the offer is later returned, rejected, or withdrawn
Form 656 - Most Common Errors Tax periods missing or incorrect OIC amount missing or not consistent with the terms Taxpayer identification numbers missing or incorrect OIC includes joint liabilities without signatures or both parties OIC submitted by a husband and wife with joint liability taxes but also includes the single liabilities of one of the taxpayers.
Most Common Reasons for a Processable Return - NOT! Failure to provide financial information Failure to stay in compliance with estimated tax payments Waiver of fee not substantiated Returns not filed
Tax Liens, Impact on Statutes, & Appeal Rights Tax liens may be filed during the offer investigation Tax liens not released until offer payment terms are satisfied Statute of limitations for collection is suspended for pending offers IRC 7122 provides for appeal of rejection of an offer
FY 2009 Program Results Receipts: 52,102 Dispositions: 43,211 Total % of dispos Not-processable returns: 4,384 10% Acceptances: 10,665 24% Rejections: 12,621 29% Returns: 10,529 24% Withdrawals/Term 5,012 11%
COIC Case Cycle Time 89% of offers processed by COIC are currently closed within 6 months or less Field 82% of offers worked in our Field groups are currently closed in 9 months or less
Before Filing Explore all collection options Review processability checklist in Form 656-Booklet Ensure taxpayer is current with all filing and paying requirements Include all required fees and payments Carefully complete financial statements and Form 656
After Filing Respond promptly Make any periodic payments as they become due Stay in compliance
OIC Resources Form 65B, Offer in Compromise Booklet Visit IRS.gov, Search Offer in Compromise
Questions?