Wednesday, August 26, 2020
Offer in compromise
The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential.Call (877) 541-6901 for tax consultation. If your debt is very large, you can apply for an Offer in Compromise with the IRS.
The offer in compromise process is really the heart of accounting. There are almost always extenuating circumstances surrounding the need to submit an OIC, but at its core, preparing an excellent OIC is a numbers game. Of course, there are ways of making an offer more convincing and negotiating is still important, but it is your job as a tax professional to make sure the numbers tell a compelling story. Tax Resolution clients, especially those who qualify for offer in compromise, are often desperate for a manageable solution to their tax problem. We cover three types of OIC: • Doubt as to Liability • Doubt as to Conductibility • Effective Tax Administration We also cover the two OIC payment plans available and provide a handy guide at the end of the book comprised of relevant excerpts from the Internal Revenue Manual for quick reference. Call 866-562-2800 for free tax consultation.
Doubt as to liability (DATL) comes into play when a taxpayer doesn’t actually owe the tax the IRS claims they do. This isn’t a question of amount or inability to pay the requisite tax, but rather a claim that a certain portion of the tax isn’t owed at all. Because doubt as to liability isn’t a question of finances, you won’t need to provide any of your client’s financial information to qualify for the offer. Doubt as to liability can be applied in numerous circumstances, some of which may include: • The tax was discharged fully in bankruptcy. • The statute of limitations ran out on collections. • The tax has been incorrectly or erroneously assessed. • The tax has been assessed to the wrong taxpayer. • The IRS misplaced an amended return. Call 866-562-2800 for free tax consultation.
Doubt as to conductibility (DATC) is what most people associate with offer in compromise. This offer comes into play when the taxpayer doesn’t dispute that the tax is owed, but has no way of paying the full amount owed. A doubt as to conductibility offer will be based on what the IRS calls reasonable collection potential, or RCP. There are three components when calculating reasonable collection potential: equity, income, and allowed expenses.
Disposable Monthly Income The IRS wants to collect as much tax as possible, but not at the expense of the basic well-being of the taxpayer. With that in mind, the IRS allows certain expenses to be subtracted from the taxpayer’s monthly income before claiming the rest. A taxpayer’s monthly disposable income can be calculated simply by subtracting IRS allowed expenses from their monthly income. IRS allowed expenses include: • Food, Clothing, and Misc. • Out-of-Pocket Health Care • Housing and Utilities • Travel and Transportation Coming up with the right allowed expense amount can require some finesse on your part. The allowances associated with the first two categories food, clothing, and misc., and out-of-pocket health care have fixed national standards you can claim without having to provide documentation. The second two categories housing and utilities, and travel and transportation have fixed maximums attached to them based on region and size of household. For these two categories, you are allowed to claim the amount actually spent or the local standard, whichever is less1 . When consulting with your clients to prepare a doubt as to collectible offer, consider expenses such as: • Child Care • Taxes • Health Care • Insurance • Court-ordered Payments • Union Dues • Legal Representation Fees (including your fees!). Call 866-562-2800 for free tax consultation.