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Bill Conklin on Offer in Compromise
 
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Are you considering an Offer in Compromise? Call Bill first to help you decide whether or not you are making a well-informed decision.

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Will your Offer in Compromise eventually be rejected? You need to know this is a risk. There is a 90% chance that your offer in compromise will be rejected.

Don't believe lofty promises that only make the problem disappear in the short-term. You may later get hit again by the IRS even after you thought you had received IRS help. You need to know what's going on with your case. Don't let somebody tell you that your situation is under control. Find out for yourself. Do your homework.

Call Bill if you need immediate irs help.

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Remember, the IRS wants your money. Keep this simple fact in mind when you are considering accepting an Offer in Compromise.

Call Bill first to find out if the Offer in Compromise is right for your case.

303-455-0837

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The Offer in Compromise Scam permits the ultimate swindle of the American Taxpayer

 

If you are in trouble with the IRS it is very scary and now you hear may advertisements on the radio and television from companies that claim they can resolve the problems for pennies on the dollar.  Of course, sometimes, that is possible, but in the vast majority of cases, the IRS demands its pound of flesh.

 

Here is how the scam works.  When you have IRS Problems, the IRS can file a lien against you.  These companies troll the IRS lien filings and start calling the IRS victims.  They claim that for a huge fee, they can resolve the citizen's problems.   Typically, the initial fee will be upwards of 6,000 dollars with no end in sight.  Once the company has the citizen in its clutches, it will come back asking for thousands more.

 

Here is what the company is likely to do for you.  The company will prepare a Form 656 for you.  The form will require extensive financial data from you.  You will actually do most of the work.  When the company files the form , the IRS is suppose to stop all collection activity.  The IRS will consider the form for about eight months during which time, your problems magically disappear.  After about eight months, the IRS will most likely send a rejection letter.  The company then may request many thousands of dollars more to write an appeal.  The entire time, you are out of the loop.  You don't know what is happening and you are basically held hostage to the company.  If the offer in compromise is accepted you will, quite likely, have to make payments that you cannot afford, if the offer in compromise is ultimately rejected, you will be right back to square one and you will have extended the statutes governing the bankruptcy and collection of taxes.

After about a year, you might be back to square one and you will have wasted all the money you paid to the company.

There are more and more companies popping up on the web and advertising on TV offering these services.  It is the absolute perfect scam.  The company can charge thousands of dollars to fill out a form that takes a couple of hours, it can submit the form to the IRS and delay the levy for eight months.  When the IRS rejects the offer, the company can blame the problem on the IRS.  It is long gone with the money. 

Even if the offer in compromise is accepted from the feds, if an offer is not accepted by the state and the state garnishes your wages, you will have to drop the IRS's offer and it will be cancelled.

If the IRS accepts the offer in compromise, and doesn't allow payments to unsecured creditors, and the creditors choose to sue you and garnish your wages, you will default on the OIC.  The IRS does not like to allow payments to unsecured creditors. 

Don't pay thousands of dollars to a bunch of vultures for a tax solution that is unlikely to work.

 

You can see that the offer in compromise approach as handled by the companies that advertise massively on TV and radio, is flawed to a dangerous extent.  It actually  allows and encourages a ripoff of desperate people.  Congress needs to do something about this government induced scam but in the meantime, you need to watch out!  If you have been ripped off by one of these companies, let me know, I would love to hear from you.   If you are considering hiring one of them, you might give me a call first.  I have been around the block with this stuff for over 35 years. 

 

 

What is an Offer in Compromise?
 

THE OFFER IN COMPROMISE:  pros and cons

 

 

           The IRS has a procedure that first appeared in the Revenue Laws in the year 1868.  Currently Section 7122 of the Internal Revenue Code gives the IRS the power to compromise a tax debt.  The IRS will seriously consider an offer when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential.  The IRS also likes the Offer in Compromise route because it is a method that helps get individuals back into voluntary compliance and regular return filing.

 

           Therefore, before the IRS will seriously consider an Offer, there must be a real doubt as to the IRS's ability to collect the tax debt  If the IRS rejects an offer, they should provide a written statement of the reasons why the offer was rejected.  The taxpayer can file a new offer or can appeal the denial with the appeals division.

 

           The settlement authority is limited to the IRS personnel who have been delegated the power to compromise taxes.  For civil cases, this is the District Director and the Assistant District Director of the District in which the individual lives.  Once the Offer in Compromise is accepted, it is available for review by the public for a period of one year.

 

           The Offer in Compromise is submitted on Form 656 with an attached 433A or 433B, depending on whether the individual is employed or is self-employed in a small business.

 

           If you are seriously considering an Offer in Compromise, you should realize that an acceptable Offer would generally be the quick sale value of your assets plus your disposable income for a period of five years. For example if you owe the IRS $200,000 and you have $20,000 equity in your home and your 433A shows that you have $200 per month in disposable income, you would probably have to offer your equity plus $200 times 60 or a total of $32,000.  It would be best if you could come up with about five grand up front because if the IRS rejects your offer, they have to give the money back. (It is very difficult for the IRS to give money back, they don't like to do it).

 

           If you have positioned yourself for a bankruptcy, you might consider filing an Offer in Compromise after the 240 day assessment period has ended.  For example, one of our members, who was just ready for a Chapter 7, decided to file an Offer in Compromise instead.  She offered the IRS $1,000 with the offer toward a complete settlement on a $50,000 liability.  The IRS accepted the offer because they realized that they would not be able to even get $1,000 if they rejected the offer. She would take back the $1,000 and then spend it and  file bankruptcy and they would get nothing.

 

           If you can make a point of the fact that the offer is a take it or leave it situation, you have a much better chance of getting your offer accepted.

 

           There are some circumstances that make an Offer in Compromise a difficult solution.  For example if you live in a state that has income tax and you also owe the state money on your back taxes, you would want to compromise with them also.  If you owe a bunch of money to the State and you can't pay them back, and they won't compromise, you will have to file a bankruptcy even if the feds would compromise.  However, in some cases, it might be advantageous to do a combination of an offer in compromise and a bankruptcy, although it would be necessary to look at the particular situation.

 

           Remember that the filing of an Offer in Compromise will also stay the 10-year statute of limitations on collection for a period of the offer plus one year; and if you file the offer during the 240 days after the assessment,  you will stay the 240 day statute by the period of the offer plus 30 days; that is why it is best to wait to file the offer until you have used up the 240 day period.

 

           Generally, it is a good idea  to try to get your Revenue Officer to suggest to you, based on your 433A, the amount of an offer that she thinks the IRS would accept.  The IRS is much more apt to accept the Offer if you can get the RO to bless it first with her suggestions.  Also, if at all possible, you should pay as much money up front with the offer as you can.

 

           If you have an Offer in Compromise accepted, it would be a good idea for you to continue to voluntarily file your tax returns for a period of five years, as the IRS can cancel the offer if you do not voluntarily send in returns.  This is because the IRS is completely aware that they have a terrible Fifth Amendment problem with the alleged filing requirement.  They, therefore will require any individual who is at their mercy to file returns in order to receive any sort of benefit such as a compromise.

 

           If there is also some doubt as to your liability for the tax, you should mention that in your Offer in Compromise.  Let's say that the IRS has considered you to be a responsible person in the assessment of a 941 penalty.  If you can reasonably show that you are not a responsible person, that is certainly worth mentioning in an offer in compromise.

 

           If you are considering the filing of an Offer in Compromise, you must first be sure that all returns have been filed and you should try to wait out the 240 day statute for assessments.  If you don't have much in the way of assets, your offer will not have to take into account a substantial worth.  If you have had a secure job with good pay for many years, the IRS will realize that you will be reluctant to quit your job in the face of a garnishment, so they will probably be harder on you than if you have had many jobs and your future isn't too secure.  For example a waiter who worked at many different restaurants in the past 20 years would have a much easier time in getting a cheap offer accepted than would a guy who was a CEO with a stable company for many years.  The IRS will certainly pay a lot of attention to your future earning potential in determining what they are going to let you get away with. If you think that an Offer is a possibility sometime in the future, you might start thinking now about how you are going to prepare for it.  A little financial planning in advance will never hurt anyone and it might save you thousands of dollars in the future.  If you have received a Stat. Notice and you are in Tax Court arguing about the future assessment, you would be well advised to start thinking about your final solution to the assessment.  Will you pay it in full, will you bankrupt it, or will you just hang out and live with it?  You must be practical, because the IRS has an incredible amount of seizure power, and most people cannot stand up to the onslaught on a full blown collection attack.  For this reason the Offer in Compromise may be the best solution for many. Good luck.

 

  

The Offer in Compromise

            Internal Revenue Manual 5323 Section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 imposes a duty on the Internal Revenue Service to allow more flexibility in the use of its allowable expense standards. Revenue Officers and employees of the Collection Division are not allowed to use standard schedules to the extent that such a use would result in the fact that the individual would not have enough funds to provide for living expenses.  Section 3462 should force the IRS to look at the actual expenses of the taxpayer and not rely on its arbitrary determination of the appropriate housing expenses.

            An Offer in Compromise is submitted on a Form 656.  The individual seeking the Offer must also include a Form 433A and a Form 433B if he is self-employed. The Offer should include a discussion setting forth the reasons that an offer in compromise is appropriate.  The submission of the offer waives the statute of limitations for collection for the duration of the offer plus one year thereafter.  The Reform Act of 1998 prohibits the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer in compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, (3) during any period in which an appeal of the rejection of an offer in being considered, and (4) while an installment agreement is pending (IRC 6331(k)).

            The IRS uses a formula that combines an analysis of the current net worth with a determination of the taxpayer's future ability to pay. In March of 1999, the IRS created a new offer referred to as a Deferred Payment Offer, which allows an individual to pay the discounted value of his assets plus monthly payments for the remainder of the statute of limitations for collection.

            When the IRS receives an offer in compromise, it is sent to an offer coordinator for the IRS district where it is reviewed.  The offers are reviewed to determine if the individual is currently paying taxes, has filed all tax returns and is not currently involved in a bankruptcy proceeding.  Once it is determined that an offer can be processed, it is sent to the service center for a search of the tax records to determine the exact amount of the tax due.  The offer will not be processed if the individual is not currently filing returns and paying current taxes.

            The offer is then sent to a Revenue Officer for further investigation.  Offer in Compromise specialists do the investigation, The individual may be required to submit financial records, bank statements, etc. 

            There are three basic plans for the payment of the offer in compromise.  The offer may be paid in cash within 90 days of acceptance.  The individual should offer the realizable value of his assets (quick sale value) plus the total amount that the IRS could collect over 48 months of payments. 

            The IRS basis its acceptance of the offer with the following formula:

Quick Sale Value Plus Present Value of Income Equals Offer in Compromise (QSV + PVI = OIC).  The IRS determines the Quick Sale Value of al the client's assets and then adds the amount of the present value of the ability to pay.

            The IRS also has a short-term payment offer.  This offer requires that the amount be paid within two-years of acceptance.  The offer must include the quick sale value of current assets plus the amount that the IRS could secure in 60 months or the remainder of the ten-year statutory period for collection, whichever is less. 

            There is also a deferred payment option that requires payment of the offer amount within the remaining statutory period for collecting the tax.  This must include the realizable value of your assets plus the amount that the IRS could collect through monthly payments during the remaining life of the collection statute. There are several options. The firs option is to pay the full payment to the realizable value of your assets within 90 days from the date the IRS accepts your offer and your future income in monthly payments during the remainder of the statue for collections.

            The second option is a cash payment for the realizable value of your assets within 90 days from the date the IRS accepts the offer and monthly payments during the remaining life of the collection period for both the balance of the value of your assets and your future income.  The third option is the entire offer amount in monthly payments over the life of the collection statute.

            In determining the amount of the offer, the IRS uses a quick sale value of assets.  The IRS also looks at the amount that can be collected from future income.  Pension plans can be a problem in an offer in compromise. The Internal Revenue Manual gives the following guidelines:

"(1) Where under the terms of employment, a taxpayer is required to contribute a percentage of his gross earnings to a retirement plan and the amount contributed, plus any increments, cannot be withdrawn until separation, retirement, demise, etc., this asset will be considered as having no realizable equity.

(2)  Where the taxpayer is not required as a condition of employment to participate in a pension plan, but voluntarily elects to do so, the realizable equity for compromise purposes shall be the gross amount in the taxpayer's plan reduced by the employer's contributions.  However, in these situations each case should stand on its own merits.

(3) If the taxpayer is permitted to borrow up to the full amount of his equity in a plan, this should be taken into consideration in the computation of realizable equity.

(4) The current value of property deposited in an IRA or Keogh Act Plan Account should be considered in the computation of realizable equity. Cash deposits should be included at full value.  If assets other than cash are invested (e.g. stock, mutual funds), the IRS should be valued at the quick sale value, less expenses.  The penalty for early withdrawal should be subtracted in computing net realizable equity."

            The Revenue Officer generally accepts the valuation of personal items that is listed on the financial statement.  If the taxpayer has jewelry, paintings, antiques, coin, stamp or gun collections, the Revenue Officer will probably look closer at the situation. 

            The IRS may grant special relief for property that is held in tenancy by the entirety because they cannot seize it if the spouse does not owe back taxes.  (IRM 57(10)(13).92.  If property is held in joint tenancy or tenancy in common, the IRS will want a 50% chunk of the value.

            The Revenue Officer will look at the individual's budget as it is shown on the Form 433A.  He will also look at the future job prospects of the taxpayer including his education, profession, age. experience, and past income.  The IRS will determine a present value based on the individual's ability to pay.  If the citizen makes a cash offer, the Service will decide how much he can pay per month and then multiply it by 48 months to determine its present value.  If the individual requests a short term deferred offer, the IRS will use 60 months to determine the present value unless there is less than five years on the statute of limitations.

            Some IRS districts seem to be more strict in their acceptance of offers in compromise than other districts. The offer in compromise works best for an individual who has few assets and not much disposable income. If you wish to file an offer in compromise, it is best to look very carefully at the bankruptcy statutes so that you don't inadvertently extend a statute.


 

The Offer in Compromise Situation


If you get on the World Wide Web, you will notice that there are many individuals and firms purporting to get people out of bad tax situations with the offer in compromise.  Currently the IRS is rejecting about 90 percent of the offers.  It is my opinion that an offer in compromise will not work for most individuals.  However, the conmen on the web keep selling the idea.  They file an offer in compromise to remove a levy.  Of course, an offer will remove the levy temporarily, but once the offer is rejected, the levy comes back in full force and the conman is gone with the fee.  These firms and individuals don't care if the offer works or not.  They simply collect thousands of dollars to fill out a few simple pages of paperwork and stall the levy for about 6 months.  Once the offer is rejected, the IRS comes back in full force.  The statute of limitations on collections will be waived for a year plus the time the offer is pending.  The offer in compromise also plays havoc with the bankruptcy statutes.


If you have unsecured debt, the IRS will not allow you to make payments.  Of course this is ridiculous because even if your offer in compromise is accepted and you don't attempt to pay your credit card debt because the IRS left you short of funds, the credit card companies will probably sue you and garnish your wages.  In some states, the credit companies can get up to 50 percent of your wages.  So if your wages are garnished by the credit companies, how are you going to continue with your offer in compromise payments?


Furthermore, the IRS will steal 20% of any upfront money you send with the offer if it rejects the offer.  If you have a chunk of change to give the IRS upon acceptance of the offer, the IRS will simply figure that amount in your assets to determine how much you can pay.


If you make a low wage, you have no unsecured debt and very little in assets and you can obtain a significant loan that you don't have to pay back, then an offer in compromise might work for you, but it is still not the proper method to remove a wage levy.


If you have hired one of the conman law firms or CPA firms on the web to remove your levy with an offer in compromise, give me a call when your offer is rejected and I will help you clean up the mess in a reasonable way.

What is the case law concerning the Offer in Compromise?

Case Law on the Offer in Compromise

            In the case of Coy, 377 F2d 925, (9th Cir., 1967), the taxpayer sued the IRS because the IRS did not refund a deposit made with an offer in compromise.  The IRS took the position that the amount was part of the proceeds of the sale of property on which the IRS had a lien and the offer was submitted to defeat the collection of tax.  The individual made false statements in the offer for which he was convicted. The court ruled that he could not get the money back because his offer was part of a fraudulent scheme. 

            In Feinberg, 372 F.2d 359 (3rd Cir. 1967), the court ruled that the IRS could collect the entire amount of the tax liability in spite of the taxpayer's contention that the three year statute of limitations for assessment had expired.

            In the case of Waller, 767 F. Supp 1042(ED Cal 1991), the court ruled that an accepted offer in compromise bars a subsequent refund suit. 

            In McGee, 566 F. Supp. 960 MD Fla. 1982), the court ruled that the wording of the check written to the IRS had no binding effect on the IRS to accept it as a offer in compromise.  The requirements for a compromise under Section 7122 were not met and the wording of the check had no effect against the IRS.

            In Minnis, Jr. 79-1 USTC (SD Ala. 1979), the court ruled that an earlier offer in compromise extended the statute of limitations on collection.

            In Shanahan, 78-1 USTC 9404 (WD Mo. 1977), the court ruled that the IRS was not required to accept a relatively small offer.