IRS Offer in Compromise - will mine be accepted or rejected?

An IRS Offer in Compromise is an agreement between a taxpayer and the Federal Government that settles a tax liability for payment of less than the full amount owed. Absent special circumstances, an Offer in Compromise will be rejected if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

What are your chances of having your IRS Offer in Compromise accepted?

The IRS Data Books for 2016 and 2015, show the number of IRS Offers in Compromise received, number of Offers accepted, and the total dollar amount of the Offers accepted as follows:

FYTTL Offers ReceivedOffers Accepted% Accepted% RejectedAverage $ Amount of Accepted Offers (Derived)
201663,00027,00042.8657.14$225,946,000 /27,000= $8,368.00 Average
201567,00027,00040.359.7$204,748,000 / 27,000= $7,583.00 Average
201468,00027,00039.7160.29$179,354,000 / 27,000= $6,642.74 Average

YOUR FACTS AND CIRCUMSTANCES AND SKILLED REPRESENTATION DETERMINE YOUR RESULT

While the above percentages may be of interest, the fact is that it is your particular facts and circumstances, and how you fit into the IRS formulas for calculating an acceptable IRS Offer in Compromise payoff, that will determine if your Offer is accepted or rejected. It is clear, that more than half of the IRS Offers in Compromise are still being rejected. Professional representation by an experienced Tax Attorney is important. You need to have someone with experience to advise you as to whether an Offer is even realistic for you, and the potential result. To negotiate favorably, one must understand the investigative process as to your income, living expenses, and assets, and integrate such with the IRS process. There is no “one size” fits all, and there is no magic percentage.

The number of accepted IRS Offers in Compromise remain about the same. The IRS Offer in Compromise process is long. If the end result is rejection, then the effort was counterproductive, while you have merely given the IRS more time on its statute of limitations to pursue the tax debt.

During the past years, modifications have been made to the IRS Offer in Compromise program in order to improve it, and the program is continuing to evolve. For example, the IRS Fresh Start Initiative (FSI) of 2011 made it easier to qualify for an Offer in Compromise. Currently, as to a Lump Sum Offer in Compromise (paid in 5 or fewer payments within 5 months) the IRS now uses a cash flow valuation factor of 12. For a Short-Term Periodic Offer in Compromise (paid within 6 to 24 months), the IRS uses a cash flow valuation factor of 24. These valuation factors are more favorable than in the past. Of course a determination needs to be made on whether Special Circumstances apply. The IRS has an Offer in Compromise pre-qualifier tool; however, this doesn’t take into account a taxpayer’s particular facts and circumstances, and merely “plugs” in the IRS Standards from its tables. This may have the negative consequence of having you turn away from an Offer because your facts and circumstances were ignored in this plug and play “evaluation”.

CURRENT RECOMMENDATIONS TO IMPROVE THE IRS OFFER IN COMPROMISE PROGRAM

In order to assist is further streamlining of the IRS Offer in Compromise process and make the program better, the Taxpayer Advocate has continued making recommendations for improvement.

The National Taxpayer Advocate Purple Book (December 31, 2017) made several recent recommendations concerning the IRS Offer in Compromise program. One of the recommendations is to modify the existing requirement that the Office of Chief Counsel Review Certain Offers in Compromises. The second recommendation is for the purpose of improving taxpayer’s accessibility to the Offer in Compromise program by repealing the Partial Payment Requirement.

IRC Section 7122(b) requires that in civil cases where the unpaid amount of tax assessed (including any interest and other additions) is $50,000.00 or more, the Treasury Department’s General Counsel review and provide an opinion in support of accepted Offers in Compromise.

The Taxpayer Advocate believes that the present Counsel review procedure burdens taxpayers and the government by significantly delaying Offer in Compromise decisions. Factors include: impeding taxpayer’s ability to make other financial decisions while waiting for a response; jeopardizing a taxpayer’s ability to pay the amount offered if the taxpayer’s financial circumstances change; additional burden on the government due to the Office of Chief Counsel staff having to learn the facts of each case, and write supporting opinions; and the Chief Counsels work is many times duplicative of work already done by the IRS. The Taxpayer Advocate proposes that the Dollar criteria for Chief counsel be repealed and replaced with requiring review in cases that present significant legal issues.

The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Even the Treasury Department acknowledges that the partial payment requirement may be “substantially” reducing access to the Offer in Compromise program. See IRSLevyRelief discussion Here.

By engaging an Offer in Compromise Attorney with experience, and the tenacity to vigorously pursue your case, you are setting course to resolve your tax problems.