You must weigh the pros and cons of offer in compromise in light of the other options available to you. When considering whether to choose this option, you must also consider the advantages and disadvantages. The offer in compromise allows you the opportunity to reduce your tax liability relative to your current financial situation. However, settling with the IRS by way of offer in compromise might be the second-best option. For example, the requirements for accepting an offer in compromise are stringent. Taxpayers are required to have low monthly income and practically no assets. “Thus you may end up wasting time and money on trying to [settle] with the IRS when that effort could have been applied toward a better method of resolving your tax liability” (IRSSolution.com, “Pros and Cons of An Offer in Compromise,” 8/24/2013).
Brotman Law
What is an Offer in Compromise?
An offer in compromise (OIC) is a type of agreement between both the taxpayer and the Internal Revenue Service outlining and settling the taxpayer’s tax liabilities for less than the current balance due owed. If the taxpayer’s liabilities can be fully paid through the utilization of an installment agreement or any other related means, then the taxpayer would not ordinarily be eligible for an OIC.
Abuses of the IRS Offer in Compromise Process
J. K. Harris
J. K. Harris is one such company plagued with the woes of consumer complaints and subsequent lawsuits. JK Harris & Company, LLC was a tax representation firm. Founded in 1997, the company specialized in solving IRS and state tax problems. The founder, John K. Harris, penned three books on the subject and grew his company to national recognition. Although the company grew from 450 sales offices to eight regional operations centers, it still suffered under the burden of battling lawsuits where customers complained about misleading business and advertising practices. Lawsuits from past customers claimed that J. K. Harris charged exorbitant fees for resolving tax problems only to discover that the company failed to deliver on its promises. The company was also charged with engaging in deceptive practices. The company’s founder ushered the company through bankruptcy and the company was later shut down.
What to Do If the IRS Rejects Your Installment Agreement
The IRS typically rejects an installment agreement for one of three reasons. For example, if the IRS determines that your living expenses do not fall under the category of necessary, your agreement will more than likely be rejected. The IRS considers extravagant expenses as those that include charitable contributions, private school funding, hefty credit card payments. In addition, if you fail to provide accurate information on Form 433-A, Collection Information Statement, you can expect your agreement to be rejected. Lastly, if you defaulted on a previous installment agreement, your new proposal may receive skepticism and be subsequently rejected.
Installment Agreement Default: What to do
The Internal Revenue Service defines default of an installment agreement as the taxpayer providing inaccurate information or the taxpayer not meeting the terms of their agreement. In this case, the agreement may be terminated. A taxpayer may appeal a proposed termination.
Form 9465 and Form 433-F
Form 9465
Taxpayers can use Form 9465, Installment Agreement Request to request consideration for a monthly installment plan if they cannot pay the full amount shown on the tax return. Taxpayers making payments on a current installment agreement cannot use Form 9465.
More about IRS Installment Agreements
Partial Payment IRS Installment Agreement
Taxpayers are encouraged to pay in full and immediately all delinquent tax liabilities. However, “if full payment cannot be achieved by the Collection Statute Expiration Date (CSED), and taxpayers have some ability to pay, the Service can enter into Partial Payment Installment Agreements (PPIAs)” (IRS.gov, “Part 5. Collecting Process, Chapter 14. Installment Agreements, Section 2. Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED),” 8/21/2013). Before the PPIA can be granted, the equity in the taxpayer’s assets will have to be evaluated to determine if it can be used pay down the tax liability.
Streamlined Installment Agreement
The streamlined installment agreement helps taxpayers catch up on their back taxes. The streamlined installment agreement is part of the Fresh Start initiative. The initiative offers benefits to the taxpayer. The benefits are specific to the maximum dollar criteria and the maximum term for the agreement. For example, “the maximum dollar criteria for streamlined installment agreements has been raised from $25,000 to $50,000 and the maximum term has been raised from 60 months to 72 months” (IRS.gov, “Fresh Start Installment Agreements,” 8/20/2013).
Automatic IRS Installment Agreement
An automatic IRS installment agreement is an agreement by which taxpayers can make monthly payments utilizing one of three online payment options as well as self-certifying through an online payment agreement application, which allows taxpayers to work out their payments online rather than face-to-face with a representative. The IRS offers an online payment agreement tool that requires information specific to the taxpayer such as balance due notice from the IRS, Social Security or Taxpayer Identification Number, and a personal identification number generated online.
What is an IRS Installment Agreement?
Taxpayers that are responsible for an outstanding tax liability with the government are responsible for ensuring they meet the obligation. Overdue tax balances are subject to interest and monthly late payment penalties. The IRS advises taxpayers to pay their balances in full to minimize additional charges. “Penalties are also assessed for failure to file a tax return so you should file immediately even if you cannot pay your balance in full” (IRS.gov, “Topic 202 – Tax Payment Options,” 8/19/2013).