Offers in Compromise

[JohnH]

Upselling

What next?
Oh, I don't know.
Maybe "Would you like a RAL for that nice tax refund?"

[Black Bart]

Apples, oranges, and watermelons

Here are the figures/results per IRS on their FY 2006 OIC program:

Accepted offers - 14,734
Rejected offers - 14,945

Returned offers - 12,350
Withdrawn/terminated - 5,407

Processable offers - 47,436
Non-processable offers - 16,733

Acceptance rate - 49.6%
Returned offers - 26.0%

Acceptance rate of all processable offers disposed - 31.1%

I have to admit that Ed and Zee have a point. Also puzzled by these numbers, I thought maybe I was just too (to quote Tim Robbins) obtuse, or was looking at it the wrong way and the boardfolk might understand it.

I don't have any problem with the source -- these stats are quoted verbatim from our tax seminar's 2007 University of Illinois Federal Tax Workbook. It's a very good book and has proven to be very reliable over the years. No case details are given (sorry, Zee), but I'm fairly sure they're authenic IRS numbers (who else would have exact figures?).

The report seems overcomplicated and begs the question "Why so detailed?" Why not just subtract offers declined from offers received and that's the acceptance rate.

At first glance the opening stats of "Accepted-14,734/Rejected-13945" sounds good (50% acceptance), but it's not 50% of total offers received. Then they quote 31% acceptance in the last line, but the 31% is right only if you divide "Accepted offers" (14,734) by "Total processable offers" (47,436), which is not the same as Total offers, period.

Apparently, in order to present the thing in a favorable light, they toss out all the crumby offers first and then the acceptance rate is a percentage of the "good" offers. This, as Ed said, is a lyin' statistic.

Just last year our local post office began "upselling" -- the trendy term for the trendy practice of asking customers "Do you want fries with that?" The "old hands" didn't do it, but they hired a new clerk and every time I went in he'd say "Do you need stamped envelopes today?" At first, I thought he was just a nut (it's hard to get used to our government institutions actin' like flim-flammers) until one day something clicked/sunk in and I realized he was givin' me the McDonald's routine.

What next?

[ED SMITH]

I'm quite surprised with the acceptance rate. It seems to be much higher than I remember a few years ago, and I thought the OIC rules were actually much "tighter". It'd be interesting to see the details, wouldn't it of actual cases accepted/rejected.

You have to be compare apples to apples as this is a good example of how to lie with statistics.

TOTAL number of offers submitted is 81926, if the number of accepted offers of 14,754, is divided by the total offers, it comes to 18%, or a failure rate of 82%.

[DaveO]

Another Factor

The 433a and 433b forms totally lay bare the taxpayers situtation. A level of honesty is required beyond that of tax prep. I tell my clients upfront there will be no hiding of assets or fudging on the worth of things. I have discovered that a client lied in the early phases of preparation and just sent them packing. Even if everything is current when sent in it will be 2 or 3 months before it's processed at which time the IRS may ask for updates. If it goes to appeals it's updates all over again. Our charge is comparable to the "pennies on the dollar" guys. Start to finish we will be at least $2000 maybe much more if it's complex involving several years. However no one is out more than $50 before I tell them they won't qualify.

[joanmcq]

What is so time consuming is the records you are required to compile. 3months reciepts of ALL household expenses...3months of gas bills, electric bills, health insurance, doctor bills, prescriptions, rent or mortgage, auto insurance, auto payments, research what the FMV of the auto is, get loan balances. last tax returns, if SE, also need a last 3 months P&L from the time filed. Bank statements. Etc, etc, etc. If the client is a laggard and gets some of the stuff, and then dogs you for a few months, you've got to start all over, since its 3 months previous to the time you file the offer. If your client throws all this stuff out, then it takes at least 3 months for them to compile the required docs. This takes hours and hours and hours to compile. Then there are a lot of calls to the officer assigned to the OIC. And since your client is a deadbeat to begin with, you need to be paid up front, although if you do rudimentary calcs and determine there is no way it will get through, you can return any unused retainer, which the 'pennies on the dollars' guys won't do. If she 'piddled' her dollars away, but without piddling will have the resources to pay, she will have to pay.

[Jesse]

I don't mean to be stupid, but I've never worked on and OIC and am wondering what is so time consuming?
Is it the actual forms that need to be filled out?
Is it getting the information from the client that is necessary to fill out the proper forms?
The actual negotiating with the IRS?

I have a client that has not filed since 1999 and I have finally just finished all tax returns thru 2006. She is a single person that basically has next to no assets - just piddled her monies away. SE and income tax are in excess of $80,000 not including any penalties or interest. She will also have a balance due for 2007 so she is behind on her estimated payments as well so can't do an OIC at this moment.

What would one suggest whether I do the OIC or someone else does:
Send in all returns now, file 2007 ASAP and wait until accounts actually go into collection and then start OIC?
Wait until 2007 returns are completed, then send in all returns and start OIC immediately?
Other suggestions?

Would this be a good candidate for one of the pennies on a dollar people?

[joanmcq]

I've gotten two OICs through; one was pretty much destitute, and the other sold their house (had quite a bit of equity) to make a lump sum payment (and also had extenuating circumstances).

These are hard to do because they take a lot of time, and most people wouldn't be doing offers if they had a lot of money. The 433 pretty much tells you what you need to know, and the worksheet will calculate the minimum offer they will accept. A lot of people, as has already been mentioned, simply don't want to pay their taxes. Another problem, is that if the offer is accepted, they have to stay current with their taxes for 5 years, or the offer will go into default. GET A RETAINER!

The 'pennies on the dollar' claims can be true (one of my guys owed about $45,000 and we settled for $2500, and then he went into default), and the other owed about $450,000 (mostly penalties & interest) and they settled for $106,000. But my first guy had all of $850/month social security and they still made him pay $25/month.

[Zee]

Here are the figures/results per IRS on their FY 2006 OIC program:

Accepted offers - 14,734
Rejected offers - 14,945

Returned offers - 12,350
Withdrawn/terminated - 5,407

Processable offers - 47,436
Non-processable offers - 16,733

Acceptance rate - 49.6%
Returned offers - 26.0%

Acceptance rate of all processable offers disposed - 31.1%

Other notes:

The IRS reports that the Brookhaven and Memphis COIC (centralized offer in compromise) sites are processing 94% of their offers with 0-6 months. The IRS field groups are reporting that 70% of their offers are processed with 0-9 months.

COIC usually processes all offers that indicate an ability to pay the account in full on their application. This type of case is referred to as an "Obvious Full Pay."

I'm quite surprised with the acceptance rate. It seems to be much higher than I remember a few years ago, and I thought the OIC rules were actually much "tighter". It'd be interesting to see the details, wouldn't it of actual cases accepted/rejected.

[Black Bart]

Some relevant statistics (from Nov. tax seminar)

Here are the figures/results per IRS on their FY 2006 OIC program:

Accepted offers - 14,734
Rejected offers - 14,945

Returned offers - 12,350
Withdrawn/terminated - 5,407

Processable offers - 47,436
Non-processable offers - 16,733

Acceptance rate - 49.6%
Returned offers - 26.0%

Acceptance rate of all processable offers disposed - 31.1%

Other notes:

The IRS reports that the Brookhaven and Memphis COIC (centralized offer in compromise) sites are processing 94% of their offers with 0-6 months. The IRS field groups are reporting that 70% of their offers are processed with 0-9 months.

COIC usually processes all offers that indicate an ability to pay the account in full on their application. This type of case is referred to as an "Obvious Full Pay."

[ED SMITH]

Suggestion

Download form 433Fand check out the IRS Collection financial standards - http://www.irs.gov/individuals/artic...=96543,00.html

Then fill out the expense part of the form and see what the difference is between that and her takehome pay. This should give you a fairly good idea whether an I/A or an OIC is in order.

The food/clothing, etc allowance is only $494/mo. For many single woman that can put a big crimp in their lifestyle, clothes, shoes, hairdressers, manicures, etc.

[Black Bart]

A couple of notes

I'm going to first determine whether this lady qualifies. She is gainfully employed, and makes $50,000 per year. It's going to be tough for her to qualify...

I had a client ask me about OIC, but wasn't a real hardship case (like yours -- also made $50K); owed $10K, lived well, and, basically, just didn't want pay his income taxes. I told him, in my opinion, it was futile. He went to the national OIC mill (Harris) anyway and, like Jiggers said, they took his money ($1,500) upfront, wouldn't return his calls, and got him zero results. I don't think the locally advertising -- "pennies on the dollar" -- lawyers would do much better.

She will also think that...lots of other personal expenses are allowed in trying to qualify for an OIC. They are not. You are allowed only the national standards for living, housing, auto.

I think he's right about this too. I haven't submitted any OICs, but I did work with the Taxpayer Advocate a few years ago attempting to reduce a monthly installment from $300 to $200 and I believe they use some of the same forms as the OIC guys. My bookless client claimed very high monthly expenses and came up with a net monthly surplus of $200 cash available to pay IRS, but about half were thrown out (they only allow certain amounts for basics). The agent said my client should now be able to pay $2,000 per month rather than the $300 he had been paying. Flabbergasted (some "help"), we dropped the whole thing.

My seminar's IRS speaker said last month there were changes (Feb.-'07) to the program:
https://www.irs.gov/newsroom/article...168404,00.html. He's not specifically an OIC guy, but specializes in putting practitioners in touch with IRS people that can (supposedly) help. He passed out cards, encouraged us to call, and, I'm assuming, since our state's right next door his jurisdiction might apply to Tennessee. Good luck.

Agent: Greg Metcalf, Senior Stakeholder
E-mail: GREGORY.O.METCALF@IRS.GOV
Telephone: 501-324-5328, Ext. 264

[Jiggers]

Taxpayer caused the problem

[QUOTE=Golden Rocket;46457]Thanks to all of you for sharing your experience and knowledge.

I'm going to first determine whether this lady qualifies. She is gainfully employed, and makes $50,000 per year. It's going to be tough for her to qualify, even though she says she has extenuating circumstances.

QUOTE]

Most, if not all clients, think that they are NOT the problem. They think that they should be the exception to all the rules. Remember in representing her that she caused the problem and don't let her try to make her problem your problem. Continue to represent her, but follow this important advise. Us old-timers have learned that.

She will also think that her credit card monthly payments and lots of other personal expenses are allowed in trying to qualify for an OIC. They are not. You are allowed only the national standards for living, housing, auto.

Keep up informed as to the outcome.

[Golden Rocket]

Thanks to All

Thanks to all of you for sharing your experience and knowledge.

I'm going to first determine whether this lady qualifies. She is gainfully employed, and makes $50,000 per year. It's going to be tough for her to qualify, even though she says she has extenuating circumstances.

If she somehow qualifies, I will have to decide whether to turn her over to someone else, or go on my own. I don't think the "pennies on the dollar" people are very forthright and will choose some other option if we proceed.

[ED SMITH]

You don't say whether your friend is self-employed, but if she is, she probably shouldn't be thinking OIC, because she would have to be current with estimated tax payments for the year and would have to stay current. I have found this to be the biggest roadblock in doing OIC's. In addition, with self-employeds, the IRS looks back at the last 3 Years of income and will usually base its decision on the year with the highest income. With a wage earner, they usually only look at the last 3 months. If she has enough equity in her home, then any offer will get rejected (except in the case of an elderly person on fixed income).

Since these are recent returns, the statute of limitations has a long way to run. (When amended returns are filed, this reset the clock). So, the IRS has less incentive to settle with an OIC if they think they can eventually get the full amount.

The first thing she should consider is an Installment Agreement. If your friend can pay $830/mo, she can set up a 60 month installment agreemente and pay off the $40,000. If she can only pay a smaller amount, then this could become the basis of an OIC. She should seek the help of someone experienced in doing this, someone who is familiar with using the IRS collection standards, otherwise she could end up making higher payments than necessary.

The fear of having her home seized is unfounded. This only happens in the worst cases of unreported income. However, bank levies and wage garnishments are a reality. Once an I/A or OIC is entered into, a lien will be filed in the counties where she has any property.
This will attach to any current or Future assets she might acquire.

Yes, there are cases of people settling for pennies on the dollar. In fact this comes from the IRS. Accepted OIC's generally settle for 12-15% of the amount owed. In the company I am associated with, I saw a check for $147,000 made out to the IRS to settle a debt of $1.25 million. The problem with most of the firms on TV is that they sign you to an OIC contract without first determining whether or not an OIC is even feasible. So they submit the Offer knowing full well it will be rejected.

Ed

[Zee]

and can you post or PM to me a link to it?

Sorry, I tossed the software when I decided not to move forward in offering OIC services a few years ago. I'll see if I have any record whatsoever (it's doubtful) and post if I can find it. I'd suggest a google search. It was very good software, reasonably priced, but did require annual updates. It may have even offered a CPE component.