Timing of Offer in Compromise

[nhesketh]

Hi all,

I have a client who came to me having not filed her taxes since 2001. She was already getting collection letters from 2002 and 2003 piling up interest and penalties. She had the '02 and '03 taxes done somewhere else and had just not sent them in (IRS had estimated her taxes for those years based on the W-2s and 1099s she had gotten.) I did her 2004-2006 returns. She got a refund for her 2005 return that they have already applied to her outstanding 2003 balance, she owed $1400+ for 2004 that she did not pay when we filed, and about $500 for 2006 that she did pay. She is head of household with her elderly mother as a dependent, and has virtually no assets and very low self-employment income (most of her tax due is self employment tax.) I am going to file an OIC for her for all the tax years she owes for, including for the 2004 tax, penalties, and interest. She has gotten no correspondence from the IRS with regards to that 2004 liability. My question is, should I wait for them to get back to her about the added penalties and interest before filing the OIC? According to the OIC instructions: "You can not submit an offer that is solely for a tax year or tax period that has not been assessed. ' Am I reading that right when I interpret it to mean that we need to wait for the IRS to assess the tax, penalties, and interest for the 2004 return before filing the OIC? Does their use of the word "solely" mean that we can file the OIC and include the 2004 tax year along with the others since she has been assessed penalties and interest for the other two years? Or will they only take into account the amounts for the 2002-3 liabilities since they are the only ones that they have (so far) gotten in touch with her about? Thanks for any help anyone can give me with this. This is the first OIC that I have had to deal with, though from the calls I have been getting lately it may not be the last.

neil

[Bees Knees]

You can only make an OIC for taxes that have been assessed. If new taxes have been assessed after you submitt the OIC, they do not get rolled into the OIC.

You should also note that under the new rules, you must pay 20% of the offer amount with the application.

[JON]

If you are in collections

stay there and negotiate. The problem is gettign all the returns to the collection phase. Collections used to be better to negotiate with. OIC is do the formula and pay the 20% and hope.

[New York Enrolled Agent]

Hi all,

I have a client who came to me having not filed her taxes since 2001. She was already getting collection letters from 2002 and 2003 piling up interest and penalties. She had the '02 and '03 taxes done somewhere else and had just not sent them in (IRS had estimated her taxes for those years based on the W-2s and 1099s she had gotten.)
neil

If I read your post correctly, the IRS has filed SFRs for 2002 and 2003 and the IRS has begun collection activities on these years. If this is a correct reading, you should file the 2002 & 2003 returns and request audit reconsideration to have the correct tax assessed for those years. You posted the IRS "estimated" her taxes. File the returns & get the current assessment reduced to the correct tax(I'm making an assumption that the correct tax is less than the IRS calculation).

You asked about assessment. If the taxpayer filed her 2004 return, she has already made her tax assessment. The IRS records a taxpayer's self-assessment as indicated on the tax return.

[August @ ADG Financial]

I would agree with Jon. I would doubt that your client has the 20% nonrefundable payment. Also your fee for this should be upfront. We do alot of this work and I would think you have a better chance of just working out an Installment agreement. I had a face to face with an IRS agent, my Client and myself here at my office to tried and do an Installment plan at the conclusion the agent just wrote it off as uncollectable. OIC's are usually the last resort. You have to let some years grow on them. Quite honestly I haven't been very successful with them.

Last week I got the State of Ct. to forgive $4,200 in back debt for a client from 2002 by just talking to them and discussing the case over a 6 week period.

Good Luck

[ED SMITH]

You are much better off doing an I/A first. Whatever payments are set up could be the basis for an OIC, if it is warranted. It is also possible that she is currently uncollectable.

Whatever you do, your first step should be to get the clients Account Transcript for at least the last ten years. This is only way to know exactly how she stands. You will need a POA for this, or the client can request it herself. The penalties and interest for 2004 will be on the 2004 transcript.

You will also want to get a Wage and Income Transcript for all years, just to be sure that nothing is missed, particularly in preparing the 2003-03 returns. Often times clients have overlooked items that should have gone on the returns.


When the IRS does an SFR, they do it as single and no dependents. And of course any business expenses are not taken into account. To speed up the processing of these, call collections and get the exact address where to send them. I believe it is Cincinnatti for Sch C SFR's, but it is a special address routing.


This transcripts are especially important if you do an OIC. You don't want to have an offer accepted and then have the client assessed something that wasn't covered, because they will have to pay the full amount of the new assessment, or the OIC can be cancelled. If this occurs with an I/A, it can be redone and the new taxes added to it.

Because, the client has to come up with the estimated tax payments for the year, OIC's for self-employed people are much more difficult to obtain than for a wage/salary earner. Also, the IRS considers the last three years income instead of a recent 3 month period. If your clients income was increasing over the three years they will say that the client can be expected to make more money in the future and thus pay more. If the income has gone down, they will say that the client is capable of making more money.


Good Luck!

[joanmcq]

I just got an OIC through for a self employed client, and they only took the last three months of income into consideration. This was actually not in the client's favor as income was steadily decreasing, and her work usually decreased in the summer months and the three months were winter/spring. But I was able to argue the decreasing income to push the acceptance through, I think. Also, that it was 'hey they are selling their house to make the payment, so this is pretty much the last chance to collect...'.