STARTING March 27, 2017, new applications for offer in compromise (OIC) plus the application fee will be returned by the IRS if all required income tax returns are not filed and there is no valid extension filed for the current year income tax returns. The initial payment submitted with the returned application will be applied to reduce the outstanding balance.
An OIC is an option to settle your income taxes due for less than the amount you if you qualify. There are guidelines whether a proposed OIC is adequate to be accepted.
Below are the factors you need to consider before choosing this option:
• Doubt as to liability for the amount of taxes assessed. There is a disagreement as to the existence of the correct tax liability. You are not required to provide a financial statement under code section 7122 (d) (3) and amended by P.L. 109-222. Use Form 656-L to submit you offer and there is no application fee required.
• Doubt as to collectability of the full amount of tax. Your assets and income is substantially less than or will not satisfy the full amount of the outstanding tax liability under Reg. §301.7122-1(b)(2). See also Rev. Proc. 2003-71 other collection remedies.
• Effective tax administration. Full collection amount of outstanding tax liability will result to economic hardship. See 13,005.15 Reg. §301.7122-1(b). The reasonable collection potential of a taxpayer is assessed based on the completed Form 433-A or B financial statements. The following components are considered: realizable equity in assets, future income, collection from third parties through administrative action, and income and assets available but are beyond government reach under IRM 5.5.4.3.1.
• Economic hardship or financial hardship. When reasonable basic living expenses are not met if full collection of tax liability is enforced. Basic living expenses includes production of income, health, and welfare for the taxpayer and it’s family under the national and local standard expense amount except for provision of an adequate substantiation that standard amount are not adequate under IRM 5.5.11.2.1.
• How to submit your offer for OIC: 1) submit your offer for OIC using Form 656 and Form 433-A or B, 2) the Form must be signed under penalty of perjury, 3) you are not in bankruptcy, 4) you are in compliance with all filing and payment requirements set in Form 656 instructions, 5) have enclosed the non-refundable application fee of $186, and 6) non-refundable initial payment either in lump-sum cash of 20% of the total offer amount or periodic payment in monthly installments. If you meet the low income certification guidelines you do no need to send the application fee or the initial payment.
• When an OIC offer is accepted: You will receive a notification of acceptance from the IRS
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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.
