[Video] How to Qualify for an IRS Offer In Compromise and Alternate Payment Plan Options

Getting behind in your tax filing requirements and tax payments happens to many taxpayers. Many people approach me about settling their tax liabilities, often after they have heard radio or television ads for reducing tax payments or paying only a mere portion of their outstanding tax liability. This is an Offer in Compromise.

Only some taxpayers qualify for an offer in compromise, and there is no guarantee or right to having an offer in compromise granted by the IRS.

As a tax lawyer, I am not always able to say for certain if you will qualify for an offer in compromise., however, I am usually able to let taxpayers know if they will NOT qualify.

What makes you ineligible to file an offer in compromise?

Not all tax returns have been filed
The IRS has made it clear that beginning March 27, 2017, the IRS will return any offer in compromise applications if not all required tax returns have been filed. This means that if you have failed to file required returns, you are not eligible for an offer in compromise.

Expenses in excess of the standard will not generally be allowed
The IRS will consider the ability to pay, asset equity, income, and expenses. However, not all expenses are allowed when computing a taxpayer’s ability to pay. The expenses that are allowed are limited to the IRS Collection Financial Standards which are available on the IRS’s website. A household of two people will be allowed a food expense of $345.00, and a household of four people will be allowed a food expense of $845.00. Financial standards for other items such as housing, utilities, clothing, transportation, and others are all available on the IRS’s website. Expenses in excess of the standard will typically not be allowed absent exceptional circumstances.

The IRS typically will only grant an offer in compromise if the amount offered is the most the IRS can expect to collect within a reasonable period of time.

The IRS typically has ten years to collect a tax liability, so if a taxpayer has significant equity or significant net income after allowing for permitted expenses, it is very difficult to qualify for an offer in compromise.

How can a tax attorney help?

Using my expertise and understanding of the law, I able to go over a taxpayer’s chances of obtaining, or being rejected, from an offer in compromise based on their circumstances. Taking the time to determine whether a taxpayer qualifies for an offer in compromise can save them a lot of money. Also, in the event that a taxpayer likely will not qualify for an offer in compromise, I am able to assist clients in obtaining a payment plan with the IRS.

Looking for a tax attorney in Blackhawk, Danville or the greater East Bay?

Get in touch with Christina Weed, your trusted, experienced estate-planning attorney today!

Christina Weed has worked with clients in San Francisco, Walnut Creek, Oakland, and San Jose, and throughout the United States.

As a licensed attorney with an LL.M. in Taxation from the University of San Diego, and a Bachelor’s Degree in Accountancy, Christina offers a unique combined focus on Trusts & EstatesTax LawTax Litigation, and Business Law. Christina is Chair of the Tax Section of the Contra Costa County Bar Association and is also a member of the Estate Planning Council Diablo Valley and the Tri-Valley Estate Planning Council.

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Tax Tips from the Tax Lawyer: What IRS Collection Payment Alternatives are Available to You?

Tax Tips from the Tax Lawyer: What IRS Collection Payment Alternatives are Available to You?

When the IRS attempts to collect the taxes you owe, it can be overwhelming to try to pay everything at once. While it is always best to pay your taxes in full as soon as possible, the IRS collections department offers alternative payment methods to paying in full on the due date. Let’s take a look at some of the options available if you cannot pay your taxes in full right away.

Keep in mind: it is important to properly assess your financial situation and the tax amount you owe so that you make the right tax payment choices. A tax attorney who is experienced with IRS tax collection alternatives can ensure that you have the best possible outcome.

IRS Extension of Time to Pay

If you cannot pay the taxes you owe to the IRS by the due date, but you know that you will be able to pay in full in the near future, you can apply for an Extension of Time to Pay.

In order to apply, you must fill out IRS Form 1127 and explain why you cannot pay in full by the due date. The IRS wants you to prove that paying in full would cause what they call “Undue Hardship.” As the IRS says in Page 3 of Form 1127, an Undue Hardship means “You must show you will have a substantial financial loss (such as selling property at a sacrifice price) if you pay your tax on the date it is due.”

If your application is approved, an Extension of Time to Pay will give you up to 120 additional days to pay the IRS the tax amount that you owe in full. This can make a big difference in your financial planning.

IRS Installment Agreement (IA)

If you are able to pay a portion of the taxes you owe the IRS over the course of a series of monthly installments, you can file to enter into an Installment Agreement with IRS collections. The basic payment plan typically spreads installments evenly over a 36-month period.

There is also a fee associated with entering into an Installment Agreement with the IRS. Fees for Installment Agreements have changed as of January 1, 2017. You can see IRS IA fee updates in the chart at the bottom of this IRS page.

Note: If you are in bankruptcy or the IRS has accepted your Offer in Compromise (covered below), you will not qualify for an Installment Agreement.

IRS Offer in Compromise (OIC)

An Offer in Compromise is an agreement with the IRS that allows you to settle your tax liability for less than the full amount that you owe. This can be a great relief if you are having serious trouble with IRS collections. Please note that before the offer can be considered, all tax filings and previous payment requirements must be up-to-date.

The IRS makes their determinations for whether you qualify for an OIC based on a list of criteria, including:

  • Present ability to pay
  • Income
  • Expenses
  • Assets

IRS Currently Not Collectible (CNC)

If your tax liability cannot be paid at all, you can request Currently Not Collectible (CNC) status. While you are under CNC status, the IRS will not attempt to collect on your debt, including levies and garnishments. In order to qualify for CNC status with IRS collections, you must show that you are experiencing substantial financial hardship.

CNCs are temporary, and though they may last for an extended period of time, it’s important to keep in mind that the amount owed will be collected if and when the funds are available to you. The IRS reviews your financial situation periodically, and may try to collect again when they find that you are able to make payments.

Note: If you are able to pay anything, IA and OIC options are preferable, as penalties and interest may still be applied to CNC status.

Bankruptcy Options

In some cases, bankruptcy can eliminate IRS tax debt through a tax discharge. This is possible with a Chapter 7 bankruptcy. (Alternatively, with Chapter 13 bankruptcy, a repayment plan can be established for IRS tax liability.) This is an option that requires an experienced tax attorney, as the filings are crucial to your long-term financial security.

Keep in mind that some tax debts cannot be discharged. These include debts from unfiled tax returns, trust fund taxes, taxes withheld from a paycheck by your employer, and any tax liens the IRS has already recorded.

Mendes Weed, LLP is a law firm serving local clients in Walnut Creek, San Ramon, and Danville. Their dedicated experience with IRS Tax Law, Trusts & Estates, and Business Law provides enhanced value to clients. Contact Mendes Weed, LLP today.

Disclaimer: The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.

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Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
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Walnut Creek Main Office

1990 N. California BLVd.
Suite 1020
Walnut Creek, CA 94596

(925) 390-3222

San Francisco Office

95 Third Street
2nd Floor
San Francisco, CA 94103

(628) 216-5558

Oakland Office

66 Franklin Street
Suite 300
Oakland, CA 94607

(510) 822-2770

San Jose Office

3031 Tisch Way
110 Plaza West
San Jose, CA 94607

(408) 707-1667

Procedural Considerations for Submitting an OIC: Anderson v. Commissioner

The concept of an Offer in Compromise (OIC) has existed for more than a century.[1] In the past, Offers were rarely made because the procedures and rules surrounding Offers were ambiguous, confusing and not well-known by taxpayers or practitioners.

It was not until the 1990s that the IRS undertook efforts to liberalize and bolster the Offer process. Despite these efforts, the standards a taxpayer had to meet in order to have their Offer accepted remained stringent and nearly impossible for taxpayers to meet.

A method for obtaining Tax Court review of a denial of an OIC was not available until the enactment of Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998).[2] RRA 1998 provided a taxpayer the opportunity to request a Collection Due Process (CDP) Hearing with an IRS Appeals Officer in order to consider collection alternatives and/or dispute a tax liability.[3] 

Click here for the full text. This article was written for Contra Costa Lawyer, a publication of the Contra Costa Bar Association.

SuperLawyers-RisingStars
Best of the East Bay Attorneys
Lisa Janine MendesReviewsout of 5 reviews
Walnut Creek Chanber of Commerce logo
Christina Weed - Taxation Law Specialist
lawyers of distinction badge 2020

Walnut Creek Main Office

1990 N. California BLVd.
Suite 1020
Walnut Creek, CA 94596

(925) 390-3222

San Francisco Office

95 Third Street
2nd Floor
San Francisco, CA 94103

(628) 216-5558

Oakland Office

66 Franklin Street
Suite 300
Oakland, CA 94607

(510) 822-2770

San Jose Office

3031 Tisch Way
110 Plaza West
San Jose, CA 94607

(408) 707-1667