Month: March 2018

Offer in Compromise acceptance rate

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What are the current IRS statistics on the Offer in Compromise acceptance rate?

The Offer in Compromise acceptance rate is 40.32 percent. The IRS Data Book for 2017 (released March 29, 2018) shows that  62,000 Offers were received with 25,000 being accepted. Thus, the Offer in Compromise acceptance rate was  40.32 percent and the Offer in Compromise rejection rate was 59.68 percent. The Average Dollar amount of the Accepted Offers was $10,234.48.

The Offer in Compromise is a collection alternative.  The policy behind the Offer in Compromise program is to afford taxpayers a “fresh start”, while collecting what is potentially collectible at the earliest time, and at the least cost to the government. As such, an Offer in Compromise may be a more attractive alternative than a protracted installment agreement. The Offer may also be a good alternative to having the IRS place an account in currently not collectible status (with interest continuing to enlarge the bill).  Another benefit to the Offer in Compromise is the release of federal tax liens. However, one must remember that the Offer in Compromise is a proposal by a taxpayer to the Federal Government to settle a tax liability for payment of less than the full amount owed. It is a long process, and over the last 4 years, about 59.20 percent of Offer in Compromise proposals are rejected.  Absent special circumstances, an Offer in Compromise will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. There has been a continuing history of the IRS not administering the Offer in Compromise program in a proper manner to achieve the intent of the law.

When you compare the above most recent Offer in Compromise acceptance rate statistics (Fiscal Year 2017) with Fiscal Years 2014 through 2016,  the acceptance and rejection percentages are about the same.  The average Offer in Compromise acceptance rate for such years being 40.80 percent. The average Offer in Compromise rejection rate is 59.20 percent.   However, the Average Dollar Amount of Accepted Offers is steadily increasing each year (i.e., from $6,642.74 to $10,234.48).

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:

FY TTL Offers Received Offers Accepted % Accepted % Rejected Average $ Amount of Accepted Offers (Derived)
2016 63,000 27,000 42.86 57.14 $225,946,000 /27,000= $8,368.00 Average
2015 67,000 27,000 40.3 59.7 $204,748,000 / 27,000= $7,583.00 Average
2014 68,000 27,000 39.71 60.29 $179,354,000 / 27,000= $6,642.74 Average

Your specific facts and circumstances and skilled representation determine your specific results.  The Taxpayer Advocate has made recommendations to improve the Offer in Compromise program.

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.The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Hopefully, such recommendations will be acted on.

IRS Collection Standards revised March 26, 2018

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The IRS has issued revised National and Local standards (IRS Collection Standards) for calculating repayment of delinquent taxes. These revised IRS Collection Standards are effective March 26, 2018.

These “standards” are used by the IRS in cases requiring financial analysis to determine a taxpayer’s ability to pay on delinquent taxes. As such, they impact, installment agreements, Offers in Compromises, determinations of undue hardship, and collection matters.

Overview of Changes to IRS Collection Standards:

National Standards – Food, Clothing and  Other Items.

The revised Total allowances for Food, Housekeeping supplies, Apparel & Services, Personal Care Products & Services and Miscellaneous were increased by varying amounts for each Family Size category ranging from a .435 Percent increase to a 6.183 Percent increase. The Additional Person allowance (above 4 persons) was increased by 9.84 percent.

National Standards – Out of Pocket Health Care Expenses.

The Out of Pocket Health Care Expense Allowance was increased by 6.122 percent (from $49. to $52.) for the under age 65 category.

But, the allowance for the age 65 and older category was decreased by 2.56 percent (from $117. to $114.).

Local Standards – Transportation.

The Public transportation allowance was reduced from $189.  to  $178.

On the other hand, the Ownership Costs for one car and for two cars were each increased by 2.47 percent.

Operating Costs by region were revised, with some geographic regions having increased allowances while others were reduced.

Local Standards – Housing and Utilities.

          These standards were also revised by state and county.

IRS Collection Standards – Not in compliance with the law?

A substantive legal problem, apparently ignored by the IRS, continues to exist as to the IRS Collection Standards. The law mandates that the IRS collection standards are to provide for an adequate means to provide for basic living expenses.  In contrast, the IRS computation is based upon what people spend to live, not what goods or services actually cost to live.  Just because your family can’t afford to pay for a basic living expense, doesn’t mean that it is no longer a basic living expense. But, this is how the IRS determines its allowances.  The Taxpayer Advocate has continued to recommend that the IRS adopt proper standards. The IRS has not. See Your basic standard of living and determining “ability to pay”. Is the IRS not following the law? ; and providing for retirement is necessary for a family’s health and welfare). Also, IRS Collections continues to routinely “impose” these “standards” and ignores the legal requirement that they take into account a taxpayer’s particular facts and circumstances.

The Current IRS Collection Standards are referenced at this link.

 

Tax Cuts and Jobs Act of 2017: Impact on IRS Collection Financial Statement Submissions and Substantiation

To determine the allowable National Standard for food, clothing, and other items, the IRS generally bases the allowable National Standard expense on the number of persons allowed as exemptions on the taxpayer’s most recent year income tax return (see IRS National Standard, food, etc…, as of March 14, 2018).  However, for tax years 2018 through 2025, H.R. 1-115th Congress (the Tax Cuts and Jobs Act) reduced the deduction amount for personal exemptions to “zero”.  The IRS will be modifying the tax forms for this and other changes. However, for tax year 2018 and future individual returns, it would appear necessary that the IRS continue to have at least some information for personal exemption information on the tax form (e.g., pages 1 and 2 of F 1040).  Why?  Other tax provisions still utilize the number of taxpayer’s “dependents”.  For example: to determine property exempt from levy – Tax Cuts and Jobs Act Section 11041 (d)(4)(A) and (B);  wage withholding rules – Tax Cuts and Jobs Act Section 11041 (c)(2)(B); and, Child Tax Credit – Tax Cuts and Jobs Act Section 11022(a).  If this “exemption” / “dependent” information doesn’t continue to be set forth on the face of the F 1040 returns (for tax years 2018 and following), then it would appear that additional forms and/or documentation may be required as part of the substantiation process for IRS Collections Financial  Statements  (e.g., for 433 A,  433 F)  to determine (and verify) your “allowable” National Standard expense Allowances.

STOP IRS Wage Garnishment - Economic Hardship

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An IRS Wage Garnishment can be devastating. An individual’s wages, salary, and other income ( includes payment for personal services in a work relationship) can be levied. But, Economic hardship can stop an IRS Wage Garnishment.

IRC Section 6343(a)(1)(D) states that a levy shall be released if the Secretary has determined that “such levy  is creating an economic hardship due to the financial condition of the taxpayer”.  For example, the IRS wage garnishment is causing an economic hardship and preventing the taxpayer from paying necessary living expenses (rent, utilities, food, car payment, medical bills, etc…) for the taxpayer and family.

Unlike other levies, when the IRS levies your wages and salary, the levy is continuous. That means an IRS wage garnishment attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar type compensation. In comparison, a bank levy attaches only the monies in the account when the levy is served. It does not reach money deposited later.

A limited part of an individual taxpayer’s wages, salary, (including fees, bonuses, commissions and similar items) and other income, as well as retirement and benefit income, is exempt from levy.  When the IRS wage garnishment is served on the employer, the employer is to provide the employee with a statement that the taxpayer is to complete and return within 3 days. If not provided, then the exempt amount will be figured as if the taxpayer is married filing separate with one exemption.

When there is a joint liability, the IRS will generally not levy on both  incomes of husband and wife, except in flagrant cases of neglect or refusal to pay.  If the taxpayers are separated, then the IRS will consider collecting from both spouse’s income by serving an IRS wage garnishment on the employer of each.

By IRS policy, a levy attaches only to the taxpayer’s usual take home pay. However, voluntary deductions can be disallowed. For example, if the taxpayer has deductions for a savings account or to buy shares in a mutual fund, the IRS will require that those deductions be stopped so that the funds will be applied to the levy.

The IRS wage garnishment is not an installment agreement.  If you ignore the wage garnishment, other seizure actions may still take place.

ECONOMIC HARDSHIP CAN STOP WAGE GARNISHMENTS.

An IRS wage garnishment can be stopped by proving that you have an economic hardship.

IRM section 1.2.14.1.14 (Policy Statement 5-71) provides, in part:  “A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”

Generally a detailed financial statement will be required.  This process can become involved and complex  due to various factors. For example:

Not preparing the financial statement forms correctly.

A picture is worth a thousand words, and the financial statement is the portrait of your economic situation, and your particular facts and circumstances.  Most taxpayers simply do not fill these forms out properly because they may not recognize what factors are important to the IRS.

Statute of Limitations:

What if the Statute of Limitations is about to run out on the ability of the IRS to take collection actions (e.g., wage garnishment, bank levy, seizure, etc…)  as to an older year? In these situations, the IRS may become increasingly aggressive by demanding payments which the taxpayer truly can’t pay without suffering economic hardship.

Failure to meet deadlines

Taxpayers having a history of failing to comply with previously agreed deadlines for submitting financial statement information. This can result in a more aggressive administrative posturing by the IRS.

IRS National and Local Living Expense “Standards”

The IRS may very well seek to impose  its National and Local living expense standards when the facts and circumstances show that a deviation from such standards is necessary to avoid an actual hardship.  There are ongoing “issues” (problems) with the IRS position in these matters. For example, The Taxpayer Advocate issued its 2013 Annual report To Congress –  listing as  Most Serious Problem #7, that the IRS Continues to Levy on Taxpayers it Acknowledges are in Economic Hardship and then Fails to Release the Levies. Then,   as to your basic standard of living and determining “ability to pay”,  there is a fundamental issue as to whether the IRS is following the law.  And,  If you owe back taxes, then there is no retirement savings provision for you. The Taxpayer Advocate disagrees with such position.

Unfiled tax returns – and undue hardship 

Where there are unfiled returns, it is not only an abuse of discretion, but illegal for the IRS to proceed with an IRS levy where the levy is creating an economic hardship (see Vinatieri v. Commissioner of Internal Revenue, 133 T.C. 392 (2009).  However, your mere assertion of such status is not going to win the day.  It is important that taxpayers provide the required financial information, with supporting documentation, to substantiate economic hardship. Further, do not make frivolous arguments as they detract from the claim of economic hardship.

When you need assistance, call a tax lawyer with over 30 years of experience. 1-866-482-9767

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:

FY TTL Offers Received Offers Accepted % Accepted % Rejected Average $ Amount of Accepted Offers (Derived)
2016 63,000 27,000 42.86 57.14 $225,946,000 /27,000= $8,368.00 Average
2015 67,000 27,000 40.3 59.7 $204,748,000 / 27,000= $7,583.00 Average
2014 68,000 27,000 39.71 60.29 $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.