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Pros and Cons of Offer In Compromise

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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. The OIC process is demanding: financial disclosures, Form 656, a detailed collection information statement, and months of waiting. When the IRS rejects the offer—which happens frequently when assets or income exceed the threshold—that preparation time and application fee could have gone toward an installment agreement, Currently Not Collectible status, or another resolution that actually fit the taxpayer’s situation.

Key Takeaways

  • 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.
  • In addition, keep in mind several other keep in mind that the IRS cannot collect on your federal tax liability forever.
  • On the upside of the pros and cons of offer in compromise, choosing to pursue an offer in compromise may be worthwhile in terms of reducing your tax liability to a level that is consistent with your current ability to repay.

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What is an Offer in Compromise?

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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.

Key Takeaways

  • To be eligible for the offer in compromise program, the taxpayer must have already filed all tax returns, made the required estimated tax payments for the current year, and made also all required federal tax deposits for the current quarter (IRS.
  • The IRS provides all of the tools necessary for taxpayers to pursue multiple options with regard to settling taxpayer liability.
  • Taxpayers currently in an open bankruptcy proceeding will not be eligible for an offer in compromise. Tax liabilities and other financial debts are resolved through the process of bankruptcy only.

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Abuses of the IRS Offer in Compromise Process

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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.

Key Takeaways

  • 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.
  • Tax Masters is another company accused of committing fraud. A Texas jury found TaxMasters, a tax advisory firm, guilty of using deceptive practices in its bid to lure customers and . ..

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What to Do If the IRS Rejects Your Installment Agreement

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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.

Key Takeaways

  • 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.
  • To resolve this hurdle, contact the collection manager and speak with him or her directly. “Just making this request is sometimes enough to soften the collector up.
  • Taxpayers can appeal most collection actions. The main options for appealing collection actions include: Collection Due Process (CDP) and Collection Appeals Program (CAP).

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Installment Agreement Default: What to do

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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.

Key Takeaways

  • 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.
  • Taxpayers that do not meet the terms of the installment agreement “will be notified in writing and given 30 days to comply with the terms of the agreement before the agreement is terminated” (IRS.gov, “Part 5. Collecting Process, Chapter 14.
  • The IRS will first make a lien determination before considering the request for reinstatement. Default and reinstatement terminations due to the taxpayer missing and/or skipping payments will require manager approval.

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Form 9465 and Form 433-F

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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.

Key Takeaways

  • Accounts and lines of credit also include reports of stocks and bond holdings. You must list all real estate you currently own and/or plan on purchasing. You will need the county description.
  • List all credit cards whether you have a balanced owed or not. In addition, you must list accounts receivables owed to your business as well as information about business credit cards. Section F requires that you include employment information.

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More about IRS Installment Agreements

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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.

Key Takeaways

  • Partial Payment IRS Installment Agreement
  • Regular IRS Installment Agreement (over $50,000)
  • IRS Installment Agreement and Set-up Fees

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Streamlined Installment Agreement

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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).

Key Takeaways

  • To qualify under the second category, the balance due must be within a range of $25,001 and $50,000. Similar to the first category, if you owe more than $50,000, then you will need to pay down the balance before initiating the agreement.
  • Under each category, taxpayers must file Form 1040 and may be subject to the Trust Fund Recovery penalty. Defunct businesses under each category must also submit one or more of the following forms: 940, 941, or 943.

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Automatic IRS Installment Agreement

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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.

Key Takeaways

  • automatic IRS installment agreement
  • online payment agreement
  • Payroll Deduction Agreement
  • Form 2159, Payroll Deduction Agreement

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What is an IRS Installment Agreement?

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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).

Key Takeaways

  • 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 offers various options for taxpayers making payments.
  • The IRS charges an installment agreement user fee of $105 when you enter into a standard installment agreement or a payroll deduction installment agreement (“Topic 202”).

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