Q: What Do You Do?
A: Basically, what we do is send out letters or postcards to taxpayers with tax liens. Then, when they call in, the whole purpose of our existence is to resolve their tax liens, levies and debt. We resolve anything concurrent with the tax lien and debt. I would say that eighty-five percent of what we do is the Offer in Compromise program. This is the best program that the IRS offers because, if a taxpayer qualifies for the Offer in Compromise, they stand to save the most money. There are other programs that we do provide; and they are the Installment Agreement, Penalty Abatement and the Innocent Spouse. With the Penalty Abatement, a taxpayer saves all accrued penalties and interest on the penalties.

Q: How is an Offer in Compromise Evaluated by the IRS?


A: The IRS makes the Offer in Compromise available for taxpayers with debt. You’ll see many advertisements sent to taxpayers to ‘settle your debt with the IRS for pennies on the dollar.’ Well, there is a certain formula that we have to use for the Offer in Compromise. It’s a straightforward formula and most States do not use this formula because congressional law does not reign theStatess in, as they do the IRS.
The Offer in Compromise formula, simply stated, the way I like to describe it, is two sides of the same coin. On the one side you have equity in/and assets. That is, whatever equity you have, whether it’s liquid equity in a bank account or the current value of a life insurance policy or it’s equity in a home or an automobile, that’s half of the taxpayer minimum offer to the IRS. The other half of the minimum offer to the IRS is if a taxpayer has any monthly disposable income. This amount of income is multiplied by forty-eight months because the IRS uses a four-year period of collectability. So, if you have $100 disposable income per month, it's multiplied by forty-eight months. Now your minimum offer is $4800. If you have $1,000 in the bank, your minimum offer to the IRS is now $5800.

Q: What form does the IRS requre for an Offer in Compromise?

A: The Offer in Compromise, offered by the IRS is basically the federal form 656. (See Download Section). This is, in fact, the Offer in Compromise. It’s just one form; it’s just the form 656. However, this form usually needs supporting documents ninety percent of the time.
There are two distinct Offers’ in Compromise. One is a personal Offer in Compromise and the other is a business Offer in Compromise. There is a $150 application fee for each Offer in Compromise.
Most taxpayer Offer’s are based on ‘Doubt as to Collectability.’ This accounts for about ninety-five percent of the way Offers’ in Compromise are submitted. Doubt as to Collectability means that I, the taxpayer, have insufficient assets and income to pay the full amount of my tax debt. In these cases, it is necessary to support your Offer with the financial information form 433-A if you are filing a personal or sole proprietor Offer. A 433-A and a form 433-B are necessary if you are filing as a partnership or corporation. In some instances a personal form 433-A is not necessary for a business Offer. Usually, however, if you own one-hundred percent of the business or a large portion of the business, the IRS will require a 433-A because a conversion from business taxes to a personal Trust Fund Recovery Penalty can be undertaken by the government if they sense any increase of collectability.

Q: What is a Trust Fund Recovery Penalty?


A: Another form of personal tax is the Trust Fund Recovery penalty (TFRP-a Civil Penalty). The Trust Fund Recovery Penalty should be put on a personal Offer in Compromise ninety percent of the time. Ten percent of the time, it can on a business Offer in Compromise without your Offer in Compromise having to be amended or having it returned to you at a later time by the IRS. The employer 941 tax represents those tax monies that the employer holds out from his or her employees for the purpose of turning the monies over to the United States government. When an employer subsequently doesn’t turn over those funds to the government, but instead uses them to stay ‘afloat’ then that business owner owes business taxes. Later, these business taxes are converted and assessed against the owners as a personal TFRP tax. A Trust Fund Recovery Penalty is assessed against anyone who owed a business tax debt and/or was an officer of the company or had the ability to sign checks for the company.

Q: Are there any other ways to file an OIC other than inability to pay?


A: There is one other way that you, the taxpayer, can file an Offer in Compromise. That is under ‘Effective Tax Administration.’ Under Effective Tax Administration you are saying that ‘I owe the amount that the government says I owe and that I have sufficient funds to pay the full amount, but, due to my exception circumstances, requiring full payment would cause an economic hardship.’ This would apply to a taxpayer that is now disabled, living on a fixed income, but in the past, had money and acquired assets. Under this category, you need to make sure that the taxpayer has the income and/or assets to pay the full liability. For instance, if you owe $30,000, under the Offer in Compromise formula, you need to show that you have, at least, the ability to pay that $30,000 but it would be a hardship to make you do so. If your money comes from a pension or social security and this is your entire income but you have a home paid in full, then you have no mortgage but are barely able to pay your bills. If you sold the home, sure, you could pay the IRS your tax debt, but you couldn’t afford to pay rent, because you are already just making it on your monthly income.

Q: How do I pay for my Offer if it’s Accepted?


A: Now there are different ways you can offer to pay your offer, basically three ways. The first is a cash offer, ‘I offer to pay $1,000, payable in a lump sum within 30 days after acceptance of my offer.’ You can also make it 60 or 90 days after acceptance of the offer. I see no benefit to choosing 30 or 60 days, so you would always mark 90 days. You can pay it sooner if you can. Now, when does acceptance of an Offer arrive? Normally, it’s not for at least twelve months after submission of the Offer, because that’s the way the Offer in Compromise process is working right now.
Right now, there are two locations in the United States that are Offer in Compromise Centers. One is in Memphis, Tennessee and handles all Offers from the West Coast, and the other is in Holtsville, New York, on Long Island, and handles all Offers from the East Coast. These centers handle all personal Offer in Compromise’s. If you have a business Offer in Compromise, your Offer in Compromise may be processed at these centers or sent out to the field, to an IRS location near the taxpayer’s residence.
Then, you have the option of paying via the Short-Term Deferred payment Offer. Here, you offer to pay a certain amount, payable over 24 months. If you use a deferred Offer payment schedule, then, instead of using a forty-eight month collectability multiplier, you would use a sixty-month disposable monthly income multiplier. The same is true for a Long-Term Deferred payment Offer. Long-Term Deferred can be up to the amount of time remaining on the Statute of Limitations on the taxes you owe.

Q: Is there a Statute of Limitations on unpaid taxes?


A: There is a ten-year Statute of Limitations period on collections. If that Statute of Limitations is never extended, then it expires in ten years. If the IRS has not collected from you or has not received a signed extension of the Statute from you, then, at the end of ten years, you no longer owe the IRS any taxes. If you had a lien on your home, it will be discharged. The IRS therefore, likes to get extensions, and, there are certain things that extend the Statute of Limitations. Filing an Offer in Compromise, for example, extends the Statute of Limitations. As a rule of thumb, whenever collections are placed into abeyance, the Statute of Limitations is extended.

Q: Will the IRS collect from me while my Offer is processing?


A: When you file an Offer in Compromise, the IRS no longer has the right to enforce collections. They cannot garnish your paycheck, freeze your bank account or seize your property during the pendency of an Offer.

Q: What kind of information does the IRS need from me for an Offer?


A: The mainstay financial forms for the IRS are the form 433-A and form 433-B. Both forms are Collection Information Statements, with the 433-A being for wage earners and self-employed individuals. These are sole proprietors, not partnerships or corporations. The form 433-B is for business partnerships and corporations. (See Download Section).

Q: What is a Lien?

A: A lien does not allow the IRS to seize or garnish; that’s a levy. A lien simply states that you cannot sell property without first satisfying the IRS debt. It’s like a passive collection tool. The IRS sends an agent to the County Recorder Office to file a lien. The IRS needs to file in every County where real property is located in order to attach that property. Liens work on a ‘first in time, first in right’ basis. So, it you owe the bank a first mortgage, then the IRS lien follows with it’s lien, the bank needs to be paid first before the IRS is entitled to monies. If you have a lien on your property and you sell the property, don’t pocket any money before satisfying the lien; that’s tax fraud.
Keep in mind, that when the IRS files with the County Recorder, they will send you a Notice of a Federal Tax Lien wherein you will have 30 days to Appeal it from going into effect. To do this, you would file a form 12153, Request for a Collection Due Process Hearing. (See Download Section).

Q: What is a Levy?


A: A levy is where the IRS, knows that you owe them money, and they collect. They can collect by garnishing your wages or account receivables, seizing bank or real property. So, levies are to be avoided at all costs. Oddly enough, most taxpayers don’t seek the help of a tax professional unless and until they are levied. Levies can be released and levies can be avoided. For the IRS to levy, they must’ve followed due process procedures of giving you notice and an opportunity to be heard. Usually, they send out a series of letters reminding you of your tax debt, each asking you to contact them within ten days. However, it is not until you receive the ‘Final Notice of Intent to Levy’ with 30 days notice that you need to worry. You must file the same form 12153 (used for liens as well) to exercise your Appeal rights.

Q: What is a Collection Due Process Appeal (CDP)?


A: If you file your form 12153 within 30 days, then your request is forwarded on to IRS Appeals and you will be contacted for your hearing. This can normally delay liens and levies from taking effect for up to three months or more. Remember, all lien and levy hearings before IRS Appeals can be appealed again to the U.S. Tax Court for judicial review. So you could get even longer, enough time to settle your debt wherein the lien is released anyway.

Q: Are there any other things we as tax professional can do for you if you receive a tax lien or levy?


A: If the IRS has levied on you, a Levy release can be simply or difficult. In many instances, all it takes is a phone call. In more difficult cases, documents will need to be submitted to show a hardship. If it’s a bank levy, it’s a one shot deal and the IRS is only entitled to the money in your accounts at the time the levy is hit. If it’s a garnishment, it is continuous until stopped. If it’s on an account receivable you seldom use, it’s a one shot deal. However, if the levy is on an account receivable you use often, it is continuous until released.
Banks need to hold you funds for 21 days before turning them over to the IRS. Usually, your tax professional can work out a release of levy to be sent to the bank before the 21 days expires. If you are levied by a revenue officer instead of the Automated Collection Service, a release may be a little more difficult. Basically, there are three reasons to release or modify a levy. The first is to full pay your debt, which is usually not an available option. The second is to work out a deal with the revenue officer and the third is to show a hardship. We normally show a hardship with past due notices or other showing of financial need for necessary living expenses. Remember that no levies can issue during the pendency of an Offer in Compromise. This is pursuant to the IRS Reform and Restructuring Act of 1998, which became effective in 1 January 2000.
Your Tax Law Specialist does have many tools at his disposal to get you levy release, including going to the Taxpayer Advocate Service for 911 emergency assistance. (See Download Section). Please, if you have any question or comments, direct them to patryan02@yahoo.com or call 800-480-4907.