Despite what you may have heard on late-night talk radio, the Internal Revenue Service (IRS) rarely makes “pennies on the dollar” tax debt agreements—though if you are skilled you may be able to secure a coveted IRS offer in compromise (OIC) agreement to settle a client’s tax debt.
Tax attorney Eric Green lays out what it takes to secure an OIC settlement in his webinar for Eli Financial, “Overcome Strict Offer in Compromise Conditions and Settle Your Client’s Tax Debt.” Green shows you how the OIC program works, the different offers you can use, what steps to follow, and how to maximize taxpayers’ chances of settling back-tax debt.
IRS Will Work With Debtors
Though diminished in stature and power by recent federal actions, the IRS remains a potent collector of unpaid debts.
“The IRS (is) the most powerful collection agency in the entire world,” asserts tax attorneys Fouts Law Group. When seeking unpaid debt, they can file liens, levy bank accounts and salaries, and send debtors to prison. Your clients probably already know that, and they have likely already heard the ads where companies promise to get them out from under tax payments at a fraction of what is owed. “In real life, however, it’s not so easy,” explained legal help site Nolo.
That said, the OIC acceptance rate is climbing, and in 2016 it reached nearly 43 percent, reported taxdebthelp.com. That’s up from a recent low of about 18 percent in 2003 and comes after the introduction of the IRS’s Fresh Start Initiative, which promises to make it easier for taxpayers to pay tax debts and avoid liens. In 2014, about 68,000 OIC applications were made to the agency, Forbes reported.
Beware: “An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement,” Forbes added. “The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s ‘reasonable collection potential.’”
Even with the odds stacked against them, many of your clients will want an OIC as it’s the only option that lowers the total value of the taxes owed, noted Canopy Tax.
OIC: Get Ready to Negotiate
To submit an OIC application, according to Canopy Tax, one or more forms may be needed depending on the situation, including:
- Form 656—Offer in Compromise
- Form 656-A—Income Certification for OIC Fee and Payment
- Form 433A—Collection Information Statement for Wage Earners
- Form 433-B—Collection Information Statement for Businesses
All of the forms are available here.
Next: You must also make sure your client has no missing tax returns, get ready for an extensive review of their financial situation, and get in touch with the IRS agent reviewing the application.
Rejected? OIC appeals can be filed within 30 days of the rejection notice.
“OIC applicants are generally put through a rigorous financial investigation before the application is approved,” said Canopy Tax. “The IRS will consider many factors in their approval process, including whether there is any possibility that the taxpayer could pay off the whole debt in the future.”
While acceptance rates may be on the rise, don’t get your hopes too high.
“Explore all other payment options before submitting an offer in compromise,” states the IRS rather dourly. “The Offer in Compromise program is not for everyone.”
But while it may be an uphill battle, adds Green, for many of your clients, the rewards may outweigh the risks.
