Offer in Compromise

[GTS1101]

I am going to submit about three or four OIC's in 2011. My question is let's say you owe the IRS 50,000 and they accept an offer of 20,000. You pay the 20% 4,000 and pay the rest over 24 months. Does an OIC work like an Installment Agreement where you still get charged interest and penalties until the balance is paid in full or do you just pay the balance agreed upon within the offer for 24 months?

Also one of my clients asked if the IRS will issue a 1099-C for cancellation of debt income for the amount they forgive in an OIC. I said most likely not but I wasn't sure. It wouldn't make sense if they did but I wouldn't be surprised if the IRS did issue a form 1099-C after an OIC.

GTS1101

[taxea]

The way I understand it there is actually a "formula" that the IRS uses to determine what the TP can afford to pay. Yes they can make installment payments but if I were you I would bone up on the OIC rules and procedures. Also if they pay the first 20% without having an agreement in place before hand and the IRS denies the OIC offer, the IRS will not return the 20%.
Perhaps you should send your client/s to IRSfixer.

[joanmcq]

taxea is correct. The first thing is to determine through the OIC form (I can't remember the number offhand) and the 433 to find out if the taxpayer qualifies. There is a determined amount of income permitted based on formulas for housing, healthcare, food, gas, utilites, etc. If the taxpayer gets the lower of the predetermined amount or what they show they actually pay per month. All assets are taken into account; equity in the house (if there is any), life insurance, equity in autos, anything that could be sold to pay the tax bill. Then you get what the formula determines you can pay over 5 years. No 1099-C. The balance due includes any interest & penalties; it is a total amount. The taxpayer must stay in full compliance for 5 years, including making proper estimates (if required) during that time.

[geekgirldany]

5 Years Compliance

I have a client that went to one of the big box OIC offices. Clients are in their 70s and only get social security income. I told them they did not have to file tax returns for 2010 as they did not make enough. Told them to check with OIC office because there may have to because of the OIC. That office said I was correct.

Well client got a letter stating that the OIC went through but they must stay in compliance for five years by filing tax returns on time. I told them I would try to research it if I had time but to call OIC office first as they handled it.

My question is should they have filed a tax return for 2010 and years forward even though they don't make enough to file? Haven't talked to them since that call so not sure what OIC office told them.

[MLINDER42]

Oic

The rule is that they must stay in compliance.If no return is necessary than they do not have to file they are staying in compliance.

[GTS1101]

Thank You!

Thank You! joanmcq provided the answer I was looking for and that helps. That is what I assumed but I wanted to verify it.

I have never done a OIC before but I would never send my clients anywhere else. I am learning a lot about the formula and how to determine how much to offer. I know I don't have much experience but I also had no experience in taxes when I started 17 years ago with 20 clients. I love a challenge and the OIC is challenging. I will make sure that I learn as much as I can before I submit an offer.

Thanks again for your help and your opinions.

GTS1101

[Gretel]

..and please keep us posted.

I was looking at the OIC for a client of mine but we had to go with CNC status. While still researching I also contacted a specialist (not big box a real specialist lawyer who deals heavily with collections. He said that it had become very tough to impossible to get any OIC's approved and studying the formula I couldn't see how anyone could come up with the cash required for the OIC (not just the down payment but the offered amount).

I am most interested in the outcomes. I also decided to go to the NAEA tax conference to get started with their collection program. It seems there is an awful lot to learn.

I think the IRS is revising their OIC program as we speak since they also realized that the OIC is basically dead. One of the things they want to change is the downpayment.

Good luck.

[taxea]

check ASTPS. they have yearly seminars and provide a certificate at the end.