Make an Offer the IRS Can t Refuse!

Transcription

1 Make an Offer the IRS Can t Refuse! Nationwide Tax Solutions

2 Intro to the IRS Offer in Compromise IS AN OFFER IN COMPROMISE RIGHT FOR ME? There are a handful of ways to reduce, or eliminate, your tax debt with the IRS. But if your debt is considerable, an Offer in Compromise could bring a great deal of relief to your situation. An Offer in Compromise, or OIC, is a legal agreement between you and the IRS to reduce your overbearing tax debt, create a payment plan to get you caught up and keep you on the right track in the future. It's not for everybody, but if you're serious about eliminating your sizeable tax debt and moving on with your life, then read on for: The benefits of an Offer in Compromise Useful resources to get you started Tips for making your offer When to consult a professional And more!

3 Intro to the IRS Offer in Compromise OUR CLIENTS NEVER HAVE TO MEET WITH THE IRS! At Nationwide Tax Solutions, our expert staff works with our clients to create tax solutions for both small and large-scale debts. We will carefully organize, prepare and negotiate your case for you so that you never have to deal with the paperwork yourself, make calculations that you don't understand, or meet with the IRS in person. It's an enormous reprieve at a time when any stress-relief is welcomed. For more information on how we can help you to prepare and negotiate your Offer in Compromise, or to learn about more options, contact us today for a free consultation.

4 Intro to the IRS Offer in Compromise TABLE OF CONTENTS Introduction 5 A Brief History of the Offer in Compromise Program 6 The Benefits of an Offer in Compromise 8 Offer in Compromise Changes 32 Glossary of Forms 39 Steps to Submitting Your Application 41 Important Links, Resources & Contact Info 44 Let Nationwide Tax Solutions Help (Bio) 45

5 Intro to the IRS Offer in Compromise 5 INTRODUCTION This book is intended to be used as a tool and a resource. An Offer in Compromise is a complicated process, but it is our intent to break it down into manageable pieces for you, in order to give you a more thorough understanding of what it is, how it works, what it does and does not do, how to make an offer, and when to seek professional guidance. With careful planning, research and patience, you can successfully prepare an Offer in Compromise and submit it to the IRS for consideration. If approved, an OIC can considerably reduce your tax debt, penalties and interest, as well as create a payment plan to get you caught up. The ultimate goal is to find you moving on with your life without the IRS harassing you every step of the way. If ever, at any point during your reading, you have a question or feel overwhelmed, please contact us at Nationwide Tax Solutions, where we can help you to negotiate with the IRS from start to finish, ensuring that you receive the proper reduction to your tax obligation allowed by law. We are committed to making this a manageable and achievable solution for your growing tax debt, with compassion, understanding and competent expertise.

6 Intro to the IRS Offer in Compromise 6 A BRIEF HISTORY OF THE OFFER IN COMPROMISE PROGRAM The OIC Program, also known as the 'Fresh Start' Program, is Congresses solution to the growing mound of back-taxes owed by the American taxpayers and an attempt to stop the penalties and interest from piling up, as well. Many other debt-reduction options simply were not effective solutions for the size of some tax-payers' debts, so a more comprehensive and flexible alternative was developed for these larger accounts. With an increasingly unstable economy, tax debt is becoming more and more common, and often larger and larger, and Congress and the IRS recognize the dire need to allow its debtors the opportunity to settle for less than what they owe in order for the IRS to at least put a dent in its rising accounts receivable pile. After all, getting paid something is better than nothing; even for the U.S. government. In 2012, the IRS announced its most liberal OIC policy change in history, loosening many rules and making it easier for taxpayers to qualify for the program. Some of the most notable changes include your ability to pay off delinquent local and state taxes within the program; an option not available in previous years.

7 Intro to the IRS Offer in Compromise 7 Understanding the OIC Program's many ins-and-outs is critical to making a successful offer. If you can effectively navigate the process, though, you could end up with a reduction in your tax obligations that could completely change your financial outlook. The IRS currently approves more than 20,000 offers per year! Tens of thousands before you have successfully navigated the Offer in Compromise process, and it continues to be a feasible solution for many more facing sizeable tax debts today.

8 Intro to the IRS Offer in Compromise 8 THE BENEFITS OF AN OFFER IN COMPROMISE As noted, an Offer in Compromise is not the right solution for everybody facing tax debt. There are very specific requirements for eligibility, and the process to prepare your offer, collect ample documentation to back it up, and complete all of the required paperwork can be daunting. However, if you meet the initial requirements, and it is reasonable to believe that your offer will be accepted, the task of preparing it can be well worth the time and effort it takes for a number of significant reasons. When weighing your options for tax debt elimination or reduction, you should take into consideration the pros and cons of each. Here, we've provided you with a breakdown of the most notable advantages to resolving your tax debt through an offer in compromise with the IRS. 1. An Offer in Compromise allows you to strike a deal with the IRS that will give you permission to pay only what you can afford (which is often pennies on the dollar) and the remainder of your balance is forgiven. 2. It's a fresh start! Upon completion of a successful OIC, you will be left with zero back taxes to pay, all penalties and interest will be resolved, and you can move forward with a completely clean slate.

9 Intro to the IRS Offer in Compromise 9 3. There are safeguards to keep you on the right track. Because an OIC requires that you stay current on all taxes for the next five years, it's actually great incentive to stay up-to-date on future taxes. While some may see this as a potential con, we consider it a built-in plan to never get behind again. 4. A submitted offer immediately suspends collection efforts. Interest and penalties will continue to accrue, of course, but the IRS cannot hassle you or pursue other means of collection during the review and approval process. 5. The IRS actually considers whether or not paying the full amount due would create a 'financial hardship' for you. The IRS will look at your unique facts and circumstances (which is why they require so much documentation) so that they can truly determine if paying your full tax debt would create an unnecessary financial burden on you and your family. If so, you may qualify. 6. Your property and wages are safe during the review period. This is another aspect of collection efforts being suspended. All of your property and wages are untouchable during the review process.

10 Intro to the IRS Offer in Compromise Improved credit rating. The IRS may file a Notice of Federal Tax Lien once the offer is approved, in order to protect their interests. However, a Notice of Release of Federal Tax Lien will be issued after the accepted terms have been paid in full. This will improve your credit rating because it shows that you're making good on your debts; even sizeable ones. 8. You are not required to make payments on an existing installment agreement. In addition to all collection efforts being suspended during the review period, you are not required to make payments on any current agreements with the IRS. 9. When filing the initial offer, and while the offer is being reviewed, you may designate in writing how the IRS should apply your initial payment. This means that you can make payments on your most pressing tax debts first, in the order which you choose. Keep in mind, though, that without this written designation, the IRS will apply the payments as they choose, and in their best interested, not yours. So, take advantage of this opportunity.

11 Intro to the IRS Offer in Compromise 11 The IRS will generally approve an offer if the amount offered is a fair estimate of what they believe they can expect to collect from you over a reasonable period of time. In other words, if you carefully prepare an Offer in Compromise, and the amount you offer is a genuine attempt on your part to pay as much as you can, the IRS is likely to be willing to accept the compromise and settle with you for the amount offered. This is often more agreeable than alternative options that would require you to pay the full amount owed and/or establish lengthy payment plans.

12 Intro to the IRS Offer in Compromise 12 POTENTIAL DISADVANTAGES Having said all this, there are, of course, some disadvantages to making an offer for OIC. Here are a few notable challenges to an OIC that should be taken into careful consideration. 1. As noted, an OIC is not a quick-fix, so if that's what you're looking for, this probably isn't right for you. However, understand that an OIC is a thorough option that is often worth the effort. 2. An OIC does require that you disclose, in detail, your complete financial history. If there are things that you've hidden in the past, this could present a problem. However, the full financial disclosure serves to help the IRS determine if you've genuinely just reached a financial breaking point. If you're experiencing a legitimate hardship, the full financial disclosure will actually help to make that case for you. 3. Finally, the ten year collection statute is extended while your OIC is being considered. In other words, there is a 10-year time-frame for the IRS to collect on back taxes. This will be extended during the OIC review, if your back taxes are that longstanding. Overall, an Offer in Compromise is a viable option for those of you who have suffered a true financial hardship and are looking to make

13 Intro to the IRS Offer in Compromise 13 right on your sizeable tax debt to the best of your ability. If this sounds like you, then an OIC might just be well worth the effort, and could give you the fresh start that you're looking for. In our next chapter, we will go over an Offer in Compromise in detail, cover the most commonly asked questions, and discuss how it works. It is filled with a number of useful facts and tidbits to help you get a grasp on the process from beginning to end and is designed to break it down piece-by-piece for you. Our suggestion is to use this chapter as a guide. Read it carefully to get the most thorough understanding of the process as a whole. If there's something that we haven't answered for you, or if you still have lingering questions about your specific situation, please give us a call at for a free, no obligation consultation and to be on your way to debt freedom once and for all.

14 Intro to the IRS Offer in Compromise 14 OFFER IN COMPROMISE 101 What is an Offer in Compromise? An OIC is, quite literally, an offer to the IRS to compromise on your tax debt, pay less than what you owe and call it even. The IRS has full discretion as to whether or not they accept your offer or reject it altogether. This is not something owed to you by law. Your best chances at success are to: Familiarize yourself with the process Follow it step-by-step Have complete backup documentation to support your offer, and Seek professional advice if you're ever unsure of something The process consists of completing a number of forms, all of which can be found on the IRS website, and all of which include step-by-step instructions on filling them out. Later in the text, we'll provide you with a breakdown of the required forms. For now, it's sufficient to be aware of this part of the process. You will also be required to provide backup documentation to verify your financial hardship, which we will also cover a bit later.

15 Intro to the IRS Offer in Compromise 15 Also included with your offer will be your initial payment, which will be dependent upon the payment option that you choose. What are the Eligibility Requirements? Eligibility for an OIC is an all-inclusive assessment, taking into consideration a wide range of factors, and will mostly be determined after your offer is submitted. However, there are a few initial requirements that must be met in order for your offer to even be considered. 1. You must be current filing all tax returns that you are legally required to file. 2. You must make all estimated tax payments on the current year's return. 3. You cannot be in an open bankruptcy proceeding. This is an automatic disqualification for an OIC. 4. You must complete all of the required forms. Incomplete offers will be rejected, or, at the very least, delay the already lengthy process even more. We'll discuss the necessary forms in more detail in Chapter Seven. In addition to the general eligibility requirements, consider your financial situation from the IRS's point of view before submitting an offer. Are you genuinely facing a financial hardship that makes it impossible for you to pay your entire tax debt in full? Remember, the IRS is going to consider

16 Intro to the IRS Offer in Compromise 16 every aspect of your financial situation and tax debt, so enter into this process with honesty. The IRS rarely misses something. If, however, you're facing true financial misfortune, and there is no way that you could pay back the full amount you owe, then read on to carefully consider and prepare your offer. If you own a business with employees, there are other eligibility requirements to consider. For more information, contact us at Is There a Fee to Apply? The IRS charges a $150, nonrefundable application fee. If you are living below the poverty line, you may complete Form 656-A to request that the fee be waived. The application fee should be paid with a check, cashier's check or money order and be made payable to the 'United States Don t Forget Before submitting your offer, be sure to make copies of everything you ve submitted for your records. This will come in handy if the IRS requests additional information, or has questions. You can always reference what you ve sent them. Treasury.'

17 Intro to the IRS Offer in Compromise 17 What Does an Offer Look Like? Once you've completed the necessary forms, calculated your offer and payment, and collected all of your necessary documentation, you'll submit all of this along with your non-refundable application fee to the IRS. Collectively, this is known as your 'offer package.' Offers are submitted by mailing the entire package to the IRS. Later in this book, we'll provide you with the IRS's Application Checklist, which you should review prior to mailing your offer. What Will Happen Once I Make My Offer? Once your offer is submitted to the IRS, it becomes a waiting game. The IRS can take anywhere from a few months to a year to review your offer and determine if they will accept it or not. Occasionally, the IRS may send you requests for additional information. Keep in mind that these have due dates, so be sure to provide any additional information they request within the timeframe given to prevent your offer from being rejected and returned without a right to appeal. During the review process, be sure to make all required tax payments for the current year, as well as any periodic payment offers that may be required. The more engaged and aware you are during the review process,

18 Intro to the IRS Offer in Compromise 18 the more your chances of approval go up. Respond quickly to requests, pay attention to deadlines on all filings and payments, and keep in touch with your CPA if you've sought professional help. What Categories Does the IRS Consider During the Review Process? There are three potentially qualifying categories for an OIC; Doubt as to collectability Doubt as to liability, and Effective Tax When considering your offer, the IRS will determine the likelihood that they'll ever be able to collect the full amount owed from you, within the 10-year statute of limitations. The IRS will take into consideration your assets, debt and projected income, among other things. If there is genuine reservation that they will ever be able to collect the full amount of your debt, then you could potentially make a successful offer. A second qualifying determination is doubt as to your liability. This involves issues such as a change in your tax return that creates a new

19 Intro to the IRS Offer in Compromise 19 liability, disputes with an ex-spouse, etc. While it's not unheard of, most OIC's do not fall under this category. It is generally much more difficult to prove that you aren't actually liable for a tax debt than it is to prove that you owe it, but won't ever be able to pay it in full. If you're seeking to file an OIC based on 'doubt as to liability' you will need to complete a separate form when submitting your offer. Also, be sure to consider speaking to a professional before submitting an offer based on liability Did You Know? As of May, 2010, the IRS only approves approximately 24% of Offers in Compromise submitted. To increase your chances of success, contact Nationwide Tax Solutions today! doubt. This usually requires an expert's touch. Finally, under the 1998 Restructuring and Reform Act, the IRS made available a third option called 'The Effective Tax' OIC, taking into consideration equity, hardship and public policy. The most important point to remember with this option is that even if you have the assets to pay the full tax liability, the IRS will take into consideration your age, future income potential, and other financial hardships, outside of the typical OIC formula.

20 Intro to the IRS Offer in Compromise 20 It's important to note, however, that less than 1% of all offers fall under this category. For more details about 'The Effective Tax,' contact us today. What Are the Terms & Conditions of an OIC? Your actual contractual terms will be issued by the IRS upon acceptance and approval; however, in a nutshell, an approved OIC will consist of the following terms: Your agreement to voluntarily pay the full amount you've offered The IRS will keep any refunds payable to you in the current tax year and apply it to your negotiated balance Any payments or credits applied to your tax debt prior to submission of the OIC is non-refundable upon approval of the offer And, you agree to file your tax returns on time for the next five years Other terms and conditions will apply, but these are a few of the hardline conditions that are standard with all OIC's.

21 Intro to the IRS Offer in Compromise 21 What are the Payment Options? An initial, non-refundable payment is due at the time your offer is submitted. There are two payment options to consider and the payment option you choose, along with your settlement offer, will determine your non-refundable payment. 1. Lump Sum Cash This option requires that you pay at least 20% of the amount offered with your application packet. Upon approval, you will pay the remaining balance in five or fewer payments, within 24 months of the date your offer is accepted. This is the perfect option if you're looking to compromise a lump portion of your debt, and pay it off in a relatively short amount of time. 2. Periodic Payment This option requires the first regular payment to be made with the offer and the remaining balance paid in accordance with the terms of your offer. Under this option, you still have to pay the total amount offered within a 24 month period. Often the payments are a bit higher under this option, though, because it doesn't include a large lump sum to be paid up front. Under this option, you must continue to make all subsequent payments while the IRS is evaluating your offer. Failure to make these payments will cause your offer to be returned.

22 Intro to the IRS Offer in Compromise 22 How Long Does the Entire Process Take? This can vary. From preparing the offer and backup documentation, to waiting for IRS approval, and then paying off the debt, it can take you Did You Know? The IRS often rejects offers because they are too low. For help determining how much you should offer, and a better chance at approval, contact us today. Contact Nationwide Tax Solutions anywhere from several months to two or more years. It's not exactly a speedy process. It does, however, get the job done if you're looking to reduce and eliminate your tax debt and put it behind you for good. The benefit is that once your offer is approved, the balance is paid off in no more than 24 months, so there's no long or drawn-out payment plan. The paperwork and preparation can sometimes be more time consuming than the actual payments themselves, but it's well worth the effort to settle for far less than what you really owe and get it paid off fairly quickly. In the grand scheme of things, it can be a much quicker fix than other payment options. The process is detailed and tedious, but the reward is generally worth it.

23 Intro to the IRS Offer in Compromise 23 Can I 'Compromise' on my Payroll Taxes? Yes you can! But only if you're filing as the responsible person for a corporation. Payroll taxes are considered a trust fund made up of employee tax withholdings, such as social security, income taxes and Medicare taxes. If the Trust Fund Recovery Penalty determination has been made on the potentially responsible person of a corporation, the payroll taxes would be eligible for submission within the OIC. Will my Offer Stop a Levy or Lien? Yes and No. If you have received notice from the IRS that they are going to place a levy on your property or income, you should contact us immediately to stop the process. The IRS has a customary notice period of 30 days prior to a levy taking place, so you have a brief window of opportunity to stop it before it starts. If you already have a levy in place, the IRS will continue to enforce it up until an IRS agent has officially signed your offer as 'pending.' The IRS will keep any proceeds from the levy paid up to that point. But during the review process, all levy activity will be frozen, and then fully released upon approval of the offer. If any levy activity does take place after your offer has been signed as 'pending,' you should immediately seek professional help.

24 Intro to the IRS Offer in Compromise 24 Having said that, if the IRS believes that your offer was made as a stall tactic on a levy, the levy will not be released, and payments will continue to be applied to the entire liability, and not within the compromised plan. Finally, lien activity will not necessarily be paused. A lien is a way for the IRS to protect itself, and it can be placed or enforced, at any time, at the IRS' discretion. There is no guarantee that an Offer will stop a lien from being enforced. If I Want to Make an Offer, What Should I Do First? An OIC is a very formal process, and to have the highest chance at success, it should be followed step-by-step. First things first, you need to make sure that you're current on all filings. If you're not up-to-date on your filings, then you are automatically disqualified and there is no point in moving onto the forms and checklists. If you are caught up on all of your filings, including the current year, and you are not currently involved in a bankruptcy proceeding, then you can move forward with the process of compiling your offer and completing the forms. The IRS suggests beginning with collecting all of your financial information, including:

25 Intro to the IRS Offer in Compromise 25 Cash on hand Bank accounts Assets Investments Available credit Income Debts Gross monthly household income and expenses, and Any other details that will shed light on your financial situation Having this information on-hand, up-front, will give you a more detailed understanding of your own financial situation, will be helpful as you're completing the necessary forms, and will be readily available when you need to provide documentation and proof to the IRS in your offer packet. Next, the IRS suggests completing Form 433-A (OIC). We'll discuss the rest of the forms later, but this is the most practical form for beginning the process and will serve as a guide for what will come next, the type of information that you'll need to be able to provide, etc. Once you've begun filling out the forms, you will most likely know if you are going to be comfortable completing this process on your own or not. If you become overwhelmed with the forms, have too many unanswered

26 Intro to the IRS Offer in Compromise 26 questions, or are unsure of your negotiating skills with the IRS, consult your CPA immediately, or give us a call at Nationwide Tax Solutions. Our expert staff will walk you through every step of the process to ensure your greatest chance at success. If you're still feeling comfortable at this point in the process, then continue reading for the list of forms, links to each, and information on how to determine your offer amount.

27 Intro to the IRS Offer in Compromise 27 How Do I Determine What Amount to Offer? IRS Form 433-A (OIC) is a 6-page form that collects all of your financial information and then provides a calculation of what a reasonable offer would be. Essentially, the IRS is looking for what they call your 'realizable value' or 'reasonable collection potential.' This means that the IRS wants to see how much they can reasonably expect to collect from you over the next 24-month period, based on your debt, income and expenses. The amount that you offer should be at least equal to this number, if not a little bit more. If you offer less than the reasonable collection potential, then your offer is likely to be rejected and returned. In order to make an acceptable offer, the IRS wants to see that you're making a valid effort to pay as much as you can on your debt, without causing yourself undue financial hardship. In addition, the IRS will consider whether or not you have other means of paying the full amount due in the future, or in installment payments. When determining your offer amount, consider how much room you have on your credit cards to use for payments, any family members that may be able to offer assistance, etc.

28 Intro to the IRS Offer in Compromise 28 It's also worth noting here that when calculating your expenses, there are specific items the IRS will not accept, including: Tuition for private schools Some college expenses Charitable contributions, and Unsecured debt payments, such as credit cards The IRS essentially considers these unnecessary expenses and will not excuse them, or count them towards your financial hardship. For a full list of unacceptable expenses, contact us today. The bottom line is that you need to follow Form 433-A very closely, and utilize the IRS's free downloadable instructions on how to make your calculations. And, if necessary, consult a professional. What Does an OIC Not Do? As we noted earlier, an offer will not stop penalties and interest from accruing. Nor will it stop a bankruptcy proceeding from moving forward. An OIC was not designed to be a quick-fix for a sticky situation. It's not an emergency break, and it's not a lifeline when you've deliberately avoided your taxes. An Offer in Compromise is meant to be a source of relief when you've genuinely reached a point in your life where your necessary life

29 Intro to the IRS Offer in Compromise 29 expenses have far exceeded your income, and will continue to do so for the foreseeable future, making it impossible to get caught up on your back-tax debt. What if my Offer is Rejected? If your offer is rejected, you do have a few immediate options to consider. Did You Know? If you and your spouse own joint AND separate assets and tax debts, you may need to complete two Forms 656? For details on filing jointly, contact us today. Contact Nationwide Tax Solutions First, you can appeal within 30 days of a rejection, using Form Keep in mind that if you're going to appeal, you should be very sure that you have plenty of documentation to back it up and make your point. Remember, your best bet is to seek professional help from the beginning, in order to reduce your chances of rejection, and radically increase your chances of getting approved in the first place. If you've already submitted an offer that has been rejected, now is the time to seek professional help, as this could be your last chance to successfully negotiate with the IRS.

30 Intro to the IRS Offer in Compromise 30 Your second option is to consider establishing an installment agreement, or some other agreement, with the IRS. This is another topic, altogether, but it is a viable option if you don't quite meet eligibility requirements for an OIC. Finally, be sure to seek professional advice to weigh all of your tax debt options. There are a number of other possibilities if you don't quite qualify for an OIC, including: Partial-pay installment agreement Bankruptcy, and Being declared 'Currently Not Collectible' How Can I Protect My OIC from Being Revoked? If your offer is accepted, you are entitled to breathe a sigh of relief; but you're not through yet, so don't just tune out! Your offer can be revoked by the IRS, at any time, if you fail to meet or maintain any of the terms in your agreement. File your taxes on time, for the next five years If there's no way that you can file by April 15 th, be sure to request an automatic extension and be sure not to miss the extension deadline! Pay your taxes on time

31 Intro to the IRS Offer in Compromise 31 If your agreement does get revoked, the IRS will show no mercy. Your tax debt owed to the IRS will go back to its original, pre-oic amount, plus new penalties and interest and the IRS will aggressively attempt to collect it in full. So, if you make a successful OIC with the IRS, you must make sure to maintain your end of the bargain and see it through to the end.

32 Intro to the IRS Offer in Compromise RULE CHANGES In its 149-year history, the IRS has issued a lot of rules. We have all become accustomed to the myriad of tax regulations and the inevitable changes made to them yearly; so much so, that entire professions have been developed just to keep up with the IRS rules and regulations. Rarely, though, does the IRS make a rule change that actually makes life easier on the taxpayer. But this time, they've actually done it. In May of 2012, the IRS released its newest guidelines for taxpayers with significant debt wanting to consider the Offer in Compromise option. The new rules and terms were deliberately designed to be more flexible, and give more taxpayers the opportunity to take advantage of the program. Truly a 'Fresh Start' program, now, the OIC rule changes were written with the recent economic hardship in mind, understanding that now, more than ever, millions of taxpayers are financially distressed well beyond their limitations and desperately in need of some relief. This is good news for those of you considering an OIC.

33 Intro to the IRS Offer in Compromise 33 On May 21, 2012, the IRS issued a press release to announce the program's expansion and new rules. IRS Commissioner Doug Shulman had this to say, "This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years. It is part of our multiyear effort to help taxpayers who are struggling to make ends meet." Many of the most significant changes pertain to the financial analyses used to determine which taxpayers qualify for the program. Taking into consideration the financial hardships, recession and stock market crashes of recent years, the IRS realized that many tax payers are truly struggling just to pay their basic bills, and that tax debts would continue to rise if relief didn't become available. With that in mind, the IRS made some common-sense changes that reflect the reality of our current economy, and the financial situations of taxpayers like yourself. Now that you've familiarized yourself with the OIC process and have a better understanding of the basic qualifications, we'll walk you through some of the finer points of the 2012 changes. Some of these changes could make a significant difference in your qualifications and your offer amount, so please read carefully.

34 Intro to the IRS Offer in Compromise 34 The Three Primary Components of an OIC Settlement Amount The settlement amount is calculated using three primary factors, all of which help to determine if you qualify for an OIC, and, if so, what the settlement amount should be. The three components are: 1. The quick-sale value of your assets 2. Your disposable income, and 3. The income multipliers The 2012 policy reform changed all three of these calculations, at least to some extent. All of the changes were made in the taxpayers' favor and represent some of the most significant modifications that were made. We'll cover each of them in detail, including the advantage of each change and how, together, they will make it easier for you to qualify for a settlement. As you read, evaluate your own financial situation and in doing so you should see how these changes could help you to qualify and how they offer a much better reflection of current financial circumstances across the board.

35 Intro to the IRS Offer in Compromise 35 Quick-Sale Value of your Assets While determining a taxpayer's total net worth, the IRS requires that you enter the estimated quick-sale value of every asset you own; cars, homes, businesses, jewelry, furniture, etc. Anything you own, that has real value, is taken into consideration. The IRS doesn't actually require that you sell off everything you own, but they do calculate the hypothetical value to help determine your overall financial situation. With the new changes, the IRS has drastically changed the way that your cash, vehicles and a few other assets are considered and Did You Know? There are measures that you can take to protect your tax refund after your Offer in Compromise is approved. To discuss the appropriate tax withholdings during your OIC review, call us today! included in your quick-sale value. Ultimately, it potentially helps you to calculate a much lower quick-sale value, which aids in proving that you could never pay back the size of your tax debt.

36 Intro to the IRS Offer in Compromise 36 Disposable Income In years past, the IRS has defined 'disposable income' very narrowly, trying to get taxpayers to pay as much on their debt as possible after paying necessities such as mortgage, rent, food, etc. We briefly discussed this in previous chapters, noting that certain expenses are not considered necessities and would not be included in your disposable income calculation. In other words, with the previous calculations, your disposable income would have looked much bigger because the IRS wouldn't have included certain monthly payments towards your overall debt. However, the IRS has changed their attitude about this quite a bit, now considering many expenses as justifiable expenses, helping your disposable income to look smaller, and thereby increasing your chances at approval. Some of the most notable expense allowances under the rule changes are student loan debts and state tax debts. This may come as a tremendous relief for many recent college graduates who have mounting student loans and tax debts, but are unable to find work.

37 Intro to the IRS Offer in Compromise 37 Income Multipliers This one is a hefty improvement. The income multiplier is the final calculation in determining your reasonable collection potential. This is the number by which the IRS multiplies your monthly disposable income, and it's dependent on how many installment payments you propose in order to pay off your settlement. For example, prior to the policy change, the IRS would multiply a taxpayers' monthly disposable income by up to 60 to determine the settlement amount. That's because the IRS would estimate a taxpayer's future income for up to as much as five years. Under the new rules, the IRS will only look at your future income for up to 2 years. Specifically: If you propose to pay off the IRS in five or fewer installments, the IRS will multiply your disposable monthly income by 12 (One year of income). If you propose to pay off your debt in 6-24 installments, the IRS will multiply your monthly disposable income by 24 (Two years of income). For an example of how this impacts final settlements, consider that if you had submitted an OIC last year and your monthly disposable income was $400, your reasonable collection potential would have been $19,200.

38 Intro to the IRS Offer in Compromise 38 Don t Forget For a full list of the revised allowable expenses, call us today! These changes are significant and could make a tremendous difference in the amount that you qualify to settle for! Under the new rules, though, your reasonable collection potential would only be $4,800. As you can see, that's a tremendous improvement! These new policy changes are a welcome adjustment to a program that has been widely criticized in past years as being too difficult to qualify for and ultimately unfair to taxpayers in regards to their other financial obligations. While many have successfully navigated the program and used it to effectively reduce and pay off their tax debt, it has also excluded many taxpayers who badly need the help. With the new calculations reducing the amount needed to settle by up to 75%, the OIC program will likely become an appealing option to thousands, if not millions more Americans facing substantial tax debt.

39 Intro to the IRS Offer in Compromise 39 GLOSSARY OF FORMS As we discussed earlier, there are a few critical forms to complete and include with your offer packet. They're all available on the IRS website, and we will provide you with links to each in just a bit. First, here is a rundown of the required forms and their purpose: 1. Form 656 (Offer in Compromise) Classifies the tax years and type(s) of tax that you would like to compromise and negotiate on. This will also identify your final offer amount and the payment term of your choice. 2. Form 433-A (OIC)(Collection Information Statement) This is the form used to calculate your offer by inputting your income, assets, debts, and other identifying financial information. This is when it helps to have all of your financial information collected in advance. This form is used for individual wage earners and/or self-employed taxpayers. 3. Form 433-B (OIC) (Collection Information Statement for Business) This form essentially collects all of the same information as a 433-A, but tailored to a corporation, partnership or LLC. Contact us if you have questions about whether or not to submit an offer as a business or individual.

40 Intro to the IRS Offer in Compromise 40 Other Items to Submit In addition to the main forms, your application may also include the following: 1. Form 656-A This form will allow you to claim that you live below the poverty line and request that the application fee be waived 2. Supporting Documentation Form 433-A or B requires that you provide backup documentation, which may include: a. 3 months or more of paystubs, bank statements, credit card statements, mortgage, car loan, brokerage and other retirement account statements, health care expenses, and more b. Complete tax records for each year that you owe the IRS, along with at least 5 years previous returns

41 Intro to the IRS Offer in Compromise 41 STEPS TO SUBMITTING YOUR APPLICATION From the IRS website, you can access each of the necessary forms for submitting an OIC, as well as useful resources, such as videos and guides on how to complete the paperwork. They've also provided a Form 656 Booklet, with important information, checklists and more, for those of you who planning to submit your offer on your own. Even if you do plan to seek professional help, the booklet and checklists will still come in very handy, so it's worth it to view the materials either way. For ease of use, we've provided the IRS's steps to submitting your application below, as well as links to each of the forms. Step #1 Gather your information. We suggested this earlier, but it's important and worth noting a second time. By gathering documentation on all of your back-taxes and finances, you'll be fully prepared to complete the paperwork, and you'll save yourself the time and grief of digging through things as you go. It also helps to pull everything together up front so that you get a clear picture of your own financial situation and can keep that in mind as you move forward and provide details and documentation to the IRS.

42 Intro to the IRS Offer in Compromise 42 Step #2 Complete Form 433-A. We mentioned earlier that this is the most logical form to begin with, as it calculates your offer using all of the financial documentation you collected and will help you to determine if you really qualify. Step #3 Complete Form 433-B, IF and only IF your business is a corporation, partnership or LLC. This will help you to calculate an appropriate offer amount based on your business assets. Step #4 Attach your supporting documentation. Forms 433-A and B include a list of required documentation. Be sure to include copies of everything requested, and do not send originals! Step #5 Complete Form 656, Offer in Compromise. This form will identify which tax years to want to compromise, and the types of taxes. Step #6 Include your initial payment and application fee. Your initial payment will either be 20% of the lump sum, or the first monthly installment, depending on the payment option you choose. Your application fee should be a separate check, and both should be made out to the 'United States Treasury.'

43 Intro to the IRS Offer in Compromise 43 The IRS provides an offer packet checklist at the end of the Form 656 Booklet. Be sure to use this checklist! If anything is missing from your packet, or if it's not submitted correctly, it could potentially be rejected and returned, so don't take that chance. In addition, be sure to make copies of everything in the packet for your own records.

44 Intro to the IRS Offer in Compromise 44 IMPORTANT LINKS, RESOURCES AND CONTACT INFORMATION Official IRS Offer in Compromise home page Form 656 instructional video Form 656-B Booklet (Includes removable forms 433-A, 433-B and form 656) Form 656-L Doubt as to Liability Request for Appeal of OIC (if your offer is rejected) The IRS Collection Process Publication 594 An explanation of the IRS's rights during the collection process Contacting your local IRS office Nationwide Tax Solutions

45 Intro to the IRS Offer in Compromise 45 LET NATIONWIDE TAX SOLUTIONS HELP Nationwide Tax Solutions is a Certified Public Accounting firm specializing in IRS problem resolution. For over 22 years our expert staff has protected our clients' assets from the threat of IRS enforcement activity. By partnering with our clients and effectively understanding the particular set of nuances unique to the IRS collection process, we have maintained a highly successful track record. Our clients never have to meet with the IRS. The Mission of Nationwide Tax Solutions is threefold: 1. Defend our clients from IRS enforcement action. 2. Establish customized solutions that are permanent. 3. Deliver our services with the utmost commitment to integrity. We'll share our insider secrets that the IRS won't tell you and that many accountants and attorneys just don't know. Ask about our 5 Tips Taxpayers Must Know Before Speaking With The IRS. Lastly, don't ignore the IRS because in most cases they won't ignore you.

46 Intro to the IRS Offer in Compromise 46 It is our hope that this book has given you a more thorough understanding of the Offer in Compromise Fresh Start Program and will aid in helping you to determine if it's an option that you would like to consider in reducing your sizeable tax debt. An OIC is not an easy process, but it is well worth the effort if you can qualify, reduce and eliminate your tax debt in a reasonably short period of time. It truly can provide a 'fresh start' for those of you facing crippling tax liability. While it is an exhaustive procedure, it is also one of the most comprehensive solutions to tax debt that the IRS offers. And with the new policy changes, it is easier than ever to qualify. If you have continuing questions about an OIC, or are ready to get started, then please contact us today. We are here to make the experience as easy for you as possible, and get you on your way to tax debt freedom!