SERIES 1 we talked about the factors you need to consider before you decide choosing OIC, and meeting the compliance requirements before proceeding.
Series 2 we explored on what you can do if your offer is rejected and you have disagreed items.
In general following are grounds for compromise: 1) Doubt as to liability: valid disagreement against the tax liability, 2) Doubt as to collectibility: demonstrate incapacity to pay, and if 1) and 2) is not applicable, a compromise may still be accepted based on 3) Promote effective tax administration. Let us consider compromise to promote effective tax administration.
When would a compromise to promote effective tax administration applicable? There are two types:
1. The full amount of tax liability could be attained but will result to economic hardship to taxpayer Federal Regulation §301.7122-1 paragraph (b)(3)(i):
• There are dependents with no other source of income that the taxpayer is supporting, exhausting the monthly income.
• There are assets but there is no equity to borrow to settle tax liabilities.
• There are assets and liquidation of these assets would result to inability to sustain basic living expenses.
• The financial resources is foreseen to be exhausted to support long term medical condition either for the taxpayer or taxpayer’s dependent who has no other source of income.
2. Based on public policy and equity provisions of paragraph (b)(3)(ii)
• Specialized IRS group handles these offers.
• These are situations that impose challenge to public confidence that tax laws are managed fair and equitable.
In the overall, the acceptance based on to promote effective tax administration will be based on all facts, conditions, situations, and taxpayer’s overall track record of compliance with the tax laws.
If the IRS appeals officer at collection due process hearing fails to consider based on effective tax administration public policy and equity provisions, rejecting an offer in compromise is considered an abuse of discretion.
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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.
