Delinquent taxpayers should consider the new IRS Regulations dealing with offers in compromise. It may be possible to settle back tax liabilities for less than the full amount. However, there are certain strings attached to an offer in compromise, most of which can be found on form 656. You can be download form 656 from Internal Revenue Service.
IRS authority to compromise tax liabilities is contained in Section7122 of the Internal Revenue Code. IRS recently issued temporary regulation Section 301.7122-1T, which explains the new grounds for making offers in compromise, and sets forth the procedures for submission of an offer.
New Procedures for Offer In
You still start with form 656. However, the onerous form 433-A is no longer required for certain offers. Other rules for processing offers have been liberalized. Most importantly, taxpayers can now appeal if IRS rejects their offer in compromise.
IRS Has a Better Attitude Regarding an Offer In Compromise
The reason is because Congress said so. In recent years, it has become politically popular to bash IRS. As a result, taxpayers are granted new rights and new opportunities every election year. In the House Report to the "Internal Revenue Service Restructuring and Reform Act of 1998" Congress instructed IRS to be more liberal and flexible in the processing and acceptance of an offer in compromise in order to "promote effective tax administration." This positive change is apparent in the revised instructions to form 656. IRS is certainly more receptive to Offers In Compromise these days.
New Grounds for
Making an Offer In Compromise
The 3 grounds for compromise are as follows:
Doubt as to Liability. If there is a genuine dispute as to the correct amount of the tax liability you should consider an offer in compromise.
Doubt as to Collectibility. If your assets and income are less than the amount of the tax liability you are a good candidate for an offer in compromise.
To Promote Effective Tax Administration. This recently added justification creates a whole new arsenal for delinquent taxpayers. Exactly what does IRS mean by the phrase "effective tax administration?" For one thing, IRS must now consider any "exceptional circumstances" or "economic hardship" that may arise from collection of the full tax liability as a grounds for compromise. In our opinion, these very broad definitions have opened the floodgates for a variety of offers never before envisioned by Internal Revenue Service.
Examples of Cases that may be Compromised
The IRS regulation gives several examples of cases that may be compromised. According to IRS, the following illustrations are factors supporting the determination of "economic hardship:"
"Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;
Although taxpayer has certain assets, liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses; and
Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and disposition by seizure or sale of the assets would have sufficient adverse consequences such that enforced collection is unlikely."
Conditions Attached to an Offer In Compromise
Among other conditions, you must agree that you will file and pay all your taxes for a period of 5 years after the offer. If you don't, IRS has the right to rescind the compromise agreement. Consider this requirement very carefully, for it may be difficult for you to keep up with current taxes at the same time you make payments for back taxes. This will be particularly difficult if you are already financially strapped and owe other creditors in addition to Internal Revenue Service.
Our Fees For Preparing an Offer In Compromise
Our fees generally depend upon the amount of work involved, which may or may not be commensurate with the amount of the tax debt. In our experience, even the simplest offers involve a considerable amount of time, research, and paperwork. Thus, our minimum fee for preparation and submission of an offer in compromise is $1,500.
To contact us Email to Masullo@catskill.net
Peter G. Masullo, CPA
IRS Offer in Compromise