OIC Program Overview
The Offer In Compromise program through the Internal Revenue Service can provide thousands of dollars in savings for taxpayers with a large tax debt. But, the process is very complicated and only a fraction of offers get accepted by the IRS. Because of the complexity of the OIC program, many taxpayers want to know what Offer In Compromise Formula will help them get their offer accepted. Here’s a formula from a 30 year tax pro an ex-IRS veteran:
Ingredients of a Winning Offer In Compromise Formula:
- A well-written Offer
- Accurate estimation of equity, assets and projected income
- Fair amount of repayment offered
Key Details About The OIC Process:
The Offer In Compromise is perhaps the most complex, time-consuming, intrusive and intensive negotiations a taxpayer will have with the Internal Revenue Service. The IRS is extremely thorough in conducting their investigation, taking up to 24 months to complete an investigation. It involves counter offers being made by the IRS and requests from the IRS for additional documents/information.
There is no single Offer In Compromise Formula that works for every taxpayer. No two taxpayer’s situations are identical. Also, no two IRS employees / reviewers think exactly the same. Therefore each Offer must be ‘hand-crafted’. This takes skill and perseverance in addition to detailed tax knowledge (and preferably years of experience).
Why the Offer In Compromise Process is so Thorough:
Since portions of accepted Offer information is available for public view at designated IRS offices, the IRS seeks to avoid being embarrassed by making any mistakes in accepting an offer amount which might turn out to be inappropriately low. Only a fraction of the Offers submitted are ultimately accepted.
Word Choice is Important
One component of an Offer in Compromise is written. It is important to remember that words used in an OIC have a specific meaning for the IRS staff and may not be the meaning commonly used outside of the IRS. A successful Offer In Compromise Formula includes carefully chosen words and must be understood and followed in their totality by an IRS representative.
For example, there is a difference between “income” and “adjusted gross income.” There’s also differences between “salary,” “wages,” and “compensation.” An experienced tax professional, like an Enrolled Agent, will know which words are better than others, in addition to crafting a message that will help your offer get accepted.
Accuracy of your Present Value is Critical
The principle of an Offer is that ‘present value’ [ the amount of your equity, assets and earning potential as of today ] is more valuable than the same sum received far in the future. The IRS will thoroughly investigate a taxpayer to determine their ‘present value’ with great accuracy.
The IRS investigation is designed to determine the Minimally Acceptable Offer Amount. A careful, line by line analysis of a completed IRS form 433-A (OIC ) or 433-B (OIC), and all required supporting documents will take place. Therefore you must be extremely accurate and very thorough with the entries on the 433-A / 433-B and the 656 Offer In Compromise packet.
Remember that most likely not all of your living expenses are allowable as priority over repayment of the tax debt. The IRS can and will dictate ‘ceilings’ to certain living expenses. The IRS will determine your Remaining Monthly Income by subtracting ALLOWABLE monthly living expenses [ The IRS defines what is ‘allowable’ ] from the AVERAGE TOTAL GROSS MONTHLY HOUSEHOLD income for the ENTIRE HOUSEHOLD.
The Most Important Part of the Offer In Compromise Formula
The IRS considers the total of two sources of potential funds to determine an acceptable amount of the offer:
1. The current equity in your assets PLUS
2. Your expected /projected Remaining Monthly Income for the next 24 months.
Making an offer based on those two sources will help make you considerably more likely to get your OIC accepted by the IRS.
Other Important Notes
The Statutes for Assessment and for Collection are extended by the submission of an Offer. This is a significant consideration, and you should consult with a licensed professional about the consequences. This means that you could potentially have Interest and Penalties accrue throughout the lengthy OIC process!!
Generally, the IRS will not accept an offer if you can pay your tax debt in full via an installment agreement or a lump sum. You should consider this and all the other potential reasons why the IRS may reject your offer before submitting an OIC to the IRS.
The IRS may file a Notice of Federal Tax Lien during their investigation, which has consequences for your personal finances.
The IRS may contact third parties including credit bureaus without notification to you, which also can affect your personal finances.
This article was contributed by Henry L. [T A] Taro, Enrolled Agent. Mr. Taro is an ex-IRS employee and a Federally Authorized Tax Representative. He is based out of Las Vegas, Nevada. Please feel free to contact us if you would like to speak with Mr. Taro specifically.