The Capital of Texas Enrolled Agents
November 2010
The Offer-in-Compromise
CTEA-November 2010
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.
CTEA-November 2010
Offer-in-Compromise
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)
CTEA-November 2010
Offer-in-Compromise
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)
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
Types of DATC Offers
 Cash Offer or “Lump Sum Offer”
Must be paid in five or fewer installments
TP must continue to pay existing installment
agreement amount
TP may correct 20% shortfall
See IRC §7122(c)(1)(A)
CTEA-November 2010
Offer-in-Compromise
Types of DATC Offers
 “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 amount
Failure to pay the required payments is
considered a “withdrawal”
See IRC §7122(c)(1)(B)
CTEA-November 2010
Offer-in-Compromise
Types of DATC Offers
 “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)
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
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
CTEA-November 2010
Offer-in-Compromise
OIC Issues-Q & A
 ___________________________________
___________________________________
___________________________________
 ___________________________________
___________________________________
___________________________________
 ___________________________________
___________________________________
___________________________________
CTEA-November 2010
Offer-in-Compromise
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]
CTEA-November 2010
Offer-in-Compromise