Offer in Compromise 35,000 were rejected in 2017, THAT’S GREAT!

Offer In Compromise 35,000 were rejected in 2017, THAT’S GREAT!

Each year, the IRS publishes a “Book Of Data” which describes IRS activity for the period as well as detailed information regarding the IRS budget, tax collection, taxpayer assistance, and all of the many activities of the IRS. One statistic of interest to taxpayers seeking tax debt relief is the rising trend in acceptance of OIC applications.

Ten years ago in 2008 the acceptance rate was only 25%, and it has been creeping up. In year 2017 the IRS Data Book showed that there were 62,000 Offer in Compromise applications. Only 27,000 or 43.5%, of the OIC’s were accepted. This means that 56.5% failed.  This is great news for the OIC applicant.

Why?

There are a number of reasons. First and foremost, the number of tax resolution companies filing bogus OIC’s has thankfully declined. These companies would advertise “Pennies on the Dollar” bogus settlements. They would simply fill out and file the application without the research and support necessary for a successful OIC application.  But there are still 56.5% that fail.

What makes a successful OIC application? Substantiation!

The IRS requires substantiation of the taxpayers complete and accurate financial situation  in order to approve an Offer In Compromise application. This means absolute proof of all income, assets and expenses. The IRS asserts the OIC application forms; Form 656 along with the financial statement Form 433A, have been created for the average taxpayer to complete, the truth is it can be very complicated and tedious.

An “accepted” OIC is not the same as a “successful” OIC.

There’s more to it. Sure the average taxpayer can fill out the forms and provide the substantiation needed for an application to be accepted, but how do you measure success? To me, success is measured with an approval on the LOWEST DOLLAR AMOUNT the IRS will accept. There are many factors, including timing, to consider that the IRS and the applications do not spell out.

  • Did the taxpayer consider past, present and future financial data?
  • Did the taxpayer know the right time of the year to submit the application?
  • Does the taxpayer know how to reshape the numbers by financially grooming themselves into a better offer?
  • Did the taxpayer know that they should have a plan B?
  • Did the taxpayer even consult with a specialist about any of this?

Example

  • A taxpayer carried a debt to the IRS just under $200,000. They were in an Installment Agreement, paying about $800 per month, and they couldn’t keep that up.
  • The taxpayer submitted an OIC with a $2,000 offer. The Offer Specialist didn’t understand the numbers as presented and modified the numbers. 
  • The IRS counter-offered $25,000 settlement. Normally this would be a reasonable counter offer, however, the taxpayer could not pay $25,000. Offer Specialist concluded that they could make a $2000 per month payment. The $2000 payment became the IRS’s default position.
  • IRS Collections was able to use this information to start collections.

They came to me with the problem.

When they came to me I started over with a fresh look and it didn’t take long to identify the problem, timing. The income from the prior year tax return did not project an accurate picture of their current and planned future income. The taxpayers had been successful independent contractors. They were no longer able to perform the business at the same level as they were able to do in prior years. They were developing health issues. Nearing retirement the understood that their income was going to be much less. The prior year tax returns did not reflect either of these financial changes.

Preparing a new 433A

The new 433A including corrected income the IRS now designated them Currently Not Collectible, with no Installment Payments. By preparing and submitting a new 433A we were able to stop collections while the taxpayer and I worked on their financial picture. This meant waiting about six more months until their new current tax return would reflect their reduction in income. We were able to include new medical records and updated expenses as well to reflect higher expenses.

Success (as I measure it)

Instead of the $2,000 or $25,000 settlement, by waiting for the right time and the ability to provide substantiation on a more accurate financial situation, they were able to settle for $600.

 It’s important to understand that when you send in an OIC there is a three step process. The first step is to review the application. The IRS requires that all necessary 433A substantiation is submitted with the OIC application before the 433A documents are forwarded to the Offer Specialist. The IRS will return the OIC as incomplete if the proper substantiation is not there. The second step is review by an Offer Specialist, whose job is to review all of the data and rework the numbers. The Offer Specials can request updated, missing or additional information, can recommend or reject the application as it is, or create a counter offer based on what they conclude from the data and formula. The third step is for the IRS to secure an Agreement with the taxpayer (and they badly want one) that they can submit to a manager for review and approval.

Appeals

You should know that you can appeal the Offer In Compromise to a higher level and argue your position there. If you have a case where the Offer Specialist will not work with you should not be afraid of the appeal process. If you think that you have a good case the I strongly recommend this. OIC’s in Appeals have a much higher rate of acceptance.

2017 Book of Data

This year’s Book Of Data show and suggests that Offer In Compromises are accepted at a much higher rate today than in the past. Therefore, today, with a properly filled out and fully substantiated application as well as well planned you can greatly increase your chance for a successful offer. Preparing an Offer In Compromise yourself may seem great. Working with a Resolution Specialist to prepare an Offer In Compromise may yield an even greater benefit for you.

Our Practice

In our practice we will review your situation for free. For your consideration we will prepare an FREE Assessment and Proposal for you with no obligation.

Thank You for reading, you might like my post on Optima Tax Relief.

About John

John E. Jones, EA is an Enrolled Agent enrolled by the US Department of Treasury and has been granted the privilege of representing taxpayers before the IRS. John's specialty is general tax debt resolution and more specifically representing extreme hardship cases and seniors with compliance and resolution.
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