CTEA-November 2010Offer-in-Compromise The Capital of Texas Enrolled Agents November 2010 The...

CTEA-November 2010 Offer-in-Compromise

The Capital of Texas Enrolled AgentsNovember 2010

The Offer-in-Compromise


What is an Offer in Compromise?

Internal Revenue Code (IRC) §7122 provides the legal guidelines establishing the basis and definition of an Offer-in-Compromise

An Offer-in-Compromise (OIC) is an agreement between a taxpayer and the Government that settles the taxpayer’s tax liability (if accepted) for less than the full amount the taxpayer owes.


IRS-OIC Objectives Implemented to resolve taxpayer/liability disputes

Allows the Government to collect what they can now

Also allows the Government to obtain cash, assets & other cash equivalents through other means, other than levy/seizure

Provides taxpayers a fresh start with tax compliance (to include filing and paying)


Basis of the OIC

The OIC program generally has three typical bases upon which the taxpayer is allowed to submit an OIC as follows:

Doubt as to Collectibility (DATC) Doubt as to Liability (DATL) and Effective Tax Administration (ETA)


Doubt as to Collectibility

The taxpayer must owe a liability they cannot pay based upon their “Reasonable Collection Potential” (RCP) & additionally requires the following:

Form 656, “Offer in Compromise” Form 433-A or 433-B “Collection Information

Statements” A $150 Offer fee applies 20% of OIC amount or 1st Installment Payment And three months financial support data


Doubt as to Liability

A genuine dispute must exist with respect to the validity, correctness or accuracy of the tax liability, and the following form and information is required:

Form 656-L, “Offer in Compromise-Doubt as to Liability”, with the required legal argument/basis

NO Form 433-A or 433-B NO $150 Offer fee applies NO 20% of OIC amount or 1st Installment Pmt And NO three months financial support data


Effective Tax Administration

When the enforced collection of a tax would in effect create an “economic hardship” or would be detrimental to the “voluntary compliance” of a taxpayer, the Government is authorized to accept an OIC based upon ETA

ETA’s differ in that taxpayers must have or be able to demonstrate the ability to full pay the tax, however extenuating situations must exist, such as medical and/or mental considerations

And three months financial support data


Effective Tax Administration

The following items are yet required: Form 656, “Offer in Compromise” Form 433-A or 433-B “Collection Information

Statements” A $150 Offer fee applies A $150 Offer fee

applies 20% of OIC amount or 1st Installment Payment And three months financial support data


Types of DATC Offers

Cash Offer or “Lump Sum Offer”Must be paid in five or fewer installmentsTP must continue to pay existing installment

agreement amountTP may correct 20% shortfallSee IRC §7122(c)(1)(A)



“Short Term Deferred Offer”Allowed to be paid over a “two year period”TP is not required to continue to pay any

existing installment agreement amountFailure to pay the required payments is

considered a “withdrawal”See IRC §7122(c)(1)(B)



“Long Term Deferred Offer”Allowed to be paid over a “five year period”

and/or allowed to be paid over the remaining CSED-“Statute of Limitations”

TP is not required to continue to pay any existing installment agreement amount

Failure to pay the required payments is considered a “withdrawal”

See IRC §7122(c)(1)(B)


Other OIC Issues

The taxpayer has the “right” to designate OIC payments

Failure to designate may be considered an “ethical violation”

See IRC §7122(c)(2)(A) for designation rights


Other OIC Issues

The taxpayer has the “right” to Appeal the rejection of an OIC

The taxpayer does not have the “right” to Appeal the return of an OIC

An OIC may be deemed unprocessable if the payment, substantiation, documentation or other requirements are not met


Other OIC Issues

Currently as OIC is deemed accepted if it is not rejected before the date which is 24 months after the date of submission

Note: If the tax liability is pending dispute via any judicial proceeding, the 24 month period noted above is tolled

Under Consideration: Effective July 16, 2011, the 24 month period may possibly be reduced to 12 months


OIC Issues-Q & A

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The Capital of Texas Enrolled Agents

The Offer in Compromise

LG Brooks, EA

3102 Maple Ave. Suite 450 Dallas, TX 75201

215 Dalton Dr. Suite E, De Soto, TX 75115

(972) 223-4000 voice (972) 223-2636 facsimile

website: www.thetaxpractice.net

email: [email protected]

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