Revenue officers have absolute power within the law to collect any taxes you currently owe.

Revenue officers have absolute power within the law to collect any taxes you currently owe, but have failed or refused to pay. Among other things, they can:

• Make phone calls
• Visit you at home or work
• Issue levies on your income or bank account
• Send you mandatory summons
• Seize your valuable property
• Help you set up an affordable payment plan
• Place you in a protected status such as Currently Not Collectible Status

When are you assigned an IRS revenue officer?

You may attract the attention of the IRS and they will assign you a revenue officer if:

• The IRS cannot collect your taxes via notices, levies, liens, or phone calls.
• You have a history of not paying your full tax liability
• You fail to pay certain taxes
• Your tax liability is very high

What Should You do if a Revenue Officer Contacts You?

Revenue officers are assigned specific caseloads and have substantially more power available to force you to pay off your tax liability.

If contacted by a revenue officer, here are some options you have:

1. Keep in mind revenue officers are skilled at what they do, and they may not always do the fair or right thing. Instead of speaking with the revenue officer, speak with a tax attorney who can help you navigate the situation more successfully than you can on your own. Only an attorney can offer you the protection and privacy of attorney-client privilege.
2. Contact the IRS call center and make sure you filed all necessary tax forms.  Request the total amount you owe, including penalties and interest.  You may be able to simply pay off your tax liability right away.
3. File all tax returns you may have accidentally left out. Be sure to pay the total balance on your return, and who knows, you may receive a refund large enough to pay part or all of the past tax liability you owe.

If you still have a tax liability after taking those steps, gather your pay stubs and bank statements from the past three months, complete IRS Form 433 F (which helps you determine if you can pay your taxes in full), and call your revenue officer.

If you or your attorney is able to speak with your revenue officer, he or she will help you determine how much your current financial situation allows you to pay.  If your current tax liability is unaffordable, you will be placed in Currently Not Collectible status, which protects you from any further IRS collection actions.

If you are already subject to IRS collection actions, you can request for them to be released.

If You Don’t Know What to do, Ask for Help!

Fighting the IRS on your own is possible, but it’s difficult and time-consuming. If you find yourself in the middle of a difficult situation, ask Mr. Fouts for help. Mr. Fouts has practiced tax law for 19 years and during that time has handled over 3,000 cases in all 50 states. Mr. Fouts operates his tax law practice from a small town where expenses are low — this allows him to offer you hourly rates 35-50% lower than a similarly experienced attorney in a major U.S. city.

Related posts:

1. Conflict of Interest by an IRS Officer

How Does an Audit Reconsideration Differ from an Audit Appeal?

You might have found yourself in a situation where you don’t quite agree with the IRS’s decision to audit your taxes. While your first reaction might be terror, there’s likely nothing to be afraid of.

As long as you respond politely with the requested documentation in the requested time frame, you’re working well within your rights as a tax payer. Of course, this may not be the time where you want to go it alone, so requesting the assistance of an experienced tax attorney may be very helpful.

The Primary Difference

An audit reconsideration and an audit appeal are two fairly similar processes with one primary distinction: audit reconsiderations are more informal and can be resolved without a court appearance, while audit appeals are more structured and may require a court appearance.

Now that you know the primary difference between these two processes, take some time to learn a little more about each as an individual.

Audit Reconsideration

This is the more informal of the two processes. You may request an audit reconsideration
if:

• You disagree with the result of an IRS tax audit you received
• You were required to file a tax return, but did not, and the IRS created one for you

To maximize the chances of having your audit reconsideration approved, you will need to submit new information affecting the amount of tax owed, if you were not allowed to take certain credits you believe you should have received, if you believe the IRS made errors preparing your assessment, or if you filed a tax return prior to the IRS creating one for you.

To begin the audit reconsideration process, you need to file a tax return if you haven’t already, write a letter stating the changes you would like the IRS to reconsider, include as much documentation as you possible to support your argument, submit an examination report (typically a form 4549), include your contact information, and finally you must mail all of this to the IRS campus indicated on your examination report.

Once the process is finished, the IRS will contact you and request more information or provide you with your new tax liability, if it changes.

If you disagree with the results, it’s now time to file an Audit Appeal.

How to File an Audit Appeal

Attached to your results will be a letter containing instructions on how to begin the IRS appeals process. Typically, you have to fill out form 12203, which is a Request for Appeals Review, and mail it to the appropriate address indicated.

If you owe more than $25,000, you have to write a Formal Written Protest.

Eventually, your appeal request will be granted, and you are given an appointment with an appeals officer. You can represent yourself if you’d like, but you can also use the help of a tax professional, or ideally, a tax attorney.

Be sure to bring documentation and witnesses to support your case. The appeals officer will make a determination regarding your case. If you would like to dispute the results of your case, it is now time to take the case to court.

Seek the Help of a Competent Tax Attorney

This process becomes quite complicated, and while it is possible for you to fight the IRS on your own, you have the best chance of obtaining the results you desire by using the assistance of an experienced tax attorney.

Related posts:

1. What to Do When You Need to Appeal
2. The Tax Audit Process and IRS Audit Selection Method

The IRS is trying to get the word out about lost or undelivered tax refunds. As of November 2011 the IRS had close to one hundred thousand undelivered tax refunds valued at $153 million! You can avoid this problem in the future by selecting direct deposit for your tax refund.

Here’s a special number you can call to check the status of your refund 1-800-TAX-1954. I am also attaching a transcript below of a recent IRS audio alert on the topic of unclaimed tax refunds (see below).

—

IRS Transcript

Hi, I’m Michelle and I work for the Internal Revenue Service. Did you know that the IRS has millions of dollars in tax refunds that can’t be delivered to taxpayers? This happens every year and yes, millions. Sometimes the taxpayer moves and forgets to tell the post office or the IRS. Sometimes the address on the tax return is wrong or incomplete. Whatever the reason, the postal service returns these checks to the IRS as undelivered.

Are you missing your refund? If so go to IRS.gov and use the “where’s my refund” tool, or you can call 1-800-TAX-1954. That’s 1-800-829-1954, and next year be sure to use direct deposit. That way you will avoid an undelivered refund and you can get your money faster. Again, for more information go to www.IRS.gov

Disclaimer: This tax audio recording is not owned, reviewed or endorsed by tax attorney Jeff Fouts (TaxHelpAttorney.com), and is provided here for informational purposes only. Neither the creator or the publisher of this audio are affiliated with the Fouts Law Firm. A link to the original audio appears adjacent to all audio if you wish to contact the author. Thank you.

Link to original audio

Related posts:

1. IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers

What is the “Tax Gap”?

The IRS justifies many of its actions based on “closing the tax gap”.

The term “tax gap” is used by the IRS to describe the concept of tax compliance, and the amount they estimate is under reported each year. The larger the tax gap the greater the non-compliance. Non-compliance is when tax payers don’t file their tax returns or don’t pay the correct amount of tax on time.

The IRS seems to believe that amount to be approximately $350 billion and that the non-compliance rate is about less 16% than the true tax that should rightfully be collected from US citizens.

Whether the IRS is asking Congress for more money to hire more Revenue Officers (collectors) or to modernize their computer system, their reasoning is always that it will help “close the tax gap”.

The IRS claims it recovers about $55 billion of the tax gap through enforced collection and audits.

The tax gap can be divided into three areas according to the IRS.

1. - nonfiling
   This occurs when tax payers don’t file a required tax return on time, or at all.
2. - underreporting of of tax
   This occurs when tax payers either understate their income or overstate their deductions, exemptions, or credits.
3. - underpayment of tax
   This occurs when tax payers file their tax return on time, and properly, but fail to pay the amount due by the due date.

In my opinion Congress loves the concept of the tax gap because it justifies allowing the IRS to aggressively collect tax revenue.

Putting aside what the Congress thinks, and whether the tax gap is as large as the IRS says it is or not, one cold fact remains – the IRS is getting more and more aggressive about collecting taxes, and the “tax gap” is just another justification they use to hammer delinquent tax payers.

Collecting the Tax Gap Money

If there really is a Tax Gap, then what methods does the IRS use to hunt down this huge amount of unpaid taxes?

The methods are pretty simple:

• matching program
• more filing requirements on returns
• more audits
• filing of more tax liens, and filing them more quickly
• less mercy (there’s no such thing as a “kinder and gentler” IRS)

The IRS is putting great effort into making it ever harder to remain hidden, whether you are a non-filer, or whether you have filed an incorrect tax return.

Until next time,

Jeff Fouts, Tax Attorney

Bio: I live with my wife and two kids in a small town (Ellijay, pop. 1,584) where I am an IRS tax lawyer . I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries and have 18 years experience, thousands of satisfied clients and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court and U.S. Tax Court. I deal directly with my clients and have a small, tireless staff of tax specialists.

You can put off your tax problem, or put us to work.

No related posts.

Listen to official IRS Audio overview on how to get your Undelivered Tax Refund

Disclaimer: This tax audio recording is not owned, reviewed or endorsed by tax attorney Jeff Fouts (TaxHelpAttorney.com), and is provided here for informational purposes only. Neither the creator or the publisher of this audio are affiliated with the Fouts Law Firm. A link to the original audio appears adjacent to all audio if you wish to contact the author. Thank you. Link to original audio http://1.usa.gov/uvRXRX

Ellijay, GA — Tax Help Attorney .com

While it never pays to avoid paying your taxes, many Americans did just the opposite last year by overpaying on their taxes. And it cost Taxpayers plenty – the IRS had $153 million in undelivered refund checks as of November 2011.

WASHINGTON — In an annual reminder to taxpayers, the Internal Revenue Service announced today that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors. Undelivered refund checks average $1,547 this year.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool here. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.

What can you do to avoid the IRS owing you money, you owing the IRS money, or the IRS losing your refund check?…

• Use a tax professional to estimate your taxes for the upcoming year. It’s worth getting advice here so you don’t have to guess or worry if you made the correct calculation.
• If you don’t use a tax professional you can use our handy online tax calculators that will give you an estimate of your tax liability.
• Either way, pay right about what you expect to owe, no more or less.
• Save a small percentage of your income (above your tax witholdings) to a separate bank account via direct deposit and hold it in savings for tax time (you’ll earn interest on your savings instead of the IRS).
• File your tax return electronically and select direct deposit for any refund you have to eliminate the risk of lost paper returns or checks.

The key is using direct deposit to SAVE and get your refund. Direct deposit turns mere mortals into saving superstars, and today, even small businesses can afford direct deposit services. If you end up owing the IRS money, direct deposit will have helped you save that extra money for tax time. If you don’t owe taxes then you’ve earned interest on your money (instead of losing money to the IRS) and peace of mind from taking control of your tax finances. Plus, your check won’t get lost in the mail!

Bio: I’m happily married with two kids where I live and work in a small town as an IRS tax lawyer (Ellijay, GA pop. 1,584). I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court and U.S. Tax Court. I deal directly with my clients and have a small, tireless staff of tax specialists.

No related posts.

Unfortunately there are always scammers and spammers who are looking to trick people into giving away sensitive information, and one way they do this is by sending out false ‘phishing’ emails pretending to be urgent IRS notices. The IRS does not send email requests to taxpayers, so you should disregard any IRS e-mail received, and call the government office directly instead.

Identity thieves send out emails purporting to be from the Internal Revenue Service and they do so in an attempt to obtain personal and tax information from the recipients to commit identity theft and credit card fraud.

A new online phishing scheme has recently surfaced claiming to be from the IRS announcing “important information about your tax return,” with message content such as “we are unable to process your tax return.” The message continues “Our records indicate that the person identified as the primary taxpayer or spouse on the tax return did not provide all the required documents shown on the tax form. Our records are based on information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked.”

This fake IRS email is filled with spelling and grammatical errors, and is not a lucid and polished document that any professional organization would send.

The fake email claims that to get any expected tax refund, the recipient needs to reply to the message with all their personal financial and tax records.

Recent tax phishing efforts have referred to a real IRS Notice.

The IRS does indeed have a real tax notice that it sends to filers when they were unable to process your tax return or they need to have more taxpayer information. These IRS letters and notifications are clearly explained on the link above, and will only follow the protocol setup by the Internal Revenue Service. If you receive any notice from the IRS you should contact your tax preparer immediately to stay ahead of the IRS and fend off any potential problems before they become large expensive tax issues.

The biggest difference is that the real IRS will notify you via the U.S. Postal Service through regular mail. Don’t fall for any email communication that’s allegedly from the IRS, no matter how realistic it might seem as it is always a scam.

If you are awaiting a tax refund, examine your tax money’s status on the IRS’s Where’s My Refund tracking tool.

If you receive scam emails claiming to be from the IRS, ignore them and then forward the spam email to the IRS at phishing@irs.gov.

Until next time,

Jeff Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my website ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a tireless staff of tax specialists.

You can put off your tax problem, or put us to work for you.

Related posts:

1. Be Aware of Suspicious E-Mails Claiming to Be From The IRS

If so, you’ll want to review the IRS Tax Audit Technique Guides, or ATG’s. They chronicle just this type of information by business type. Here are some examples of specific guides:

• Architects and Landscape Architects
• Attorneys
• Business Consultants
• Child Care Provider
• Cash Intensive Business
• Construction Industry
• Veterinary Medicine

Here’s a specific example of the IRS ATG for architects and landscape architects View »

Even if the IRS hasn’t prepared a specific Audit Technique Guide for your business type, reading a guide for a similar business type will quickly acquaint you with the kinds of things the IRS looks for. Here are some examples of the topics discussed in the ATG’s:

• Methods of accounting
• How a business charges for their product or service
• Typical business relationships and costs
• Business structure
• Expense reporting
• Kinds of income
• Personal Service Corporations
• Information Document Request

The IRS is a well organized machine that has seen every imaginable kind of tax avoidance scheme you can think of, and many more that you haven’t. They have created guides for cash intensive businesses, in home businesses and international import export companies.

Don’t under estimate the IRS or think you’re going to outsmart them.

If you haven’t been playing by the rules, then it’s time to fix your business practices and get your IRS debts and penalties dealt with once and for all. You’ll sleep better at night and you’ll end up with a more well run and organized business if you do.

View a full list of IRS Audit Technique Guides here

Until next time,

Jeff Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my Google ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff of tax specialists.

You can put off your tax problem, or put us to work for you.

Related posts:

1. Is Your Business A Target for A Worker Classification Audit?
2. The Tax Audit Process and IRS Audit Selection Method
3. Jerry Seinfeld and His IRS Tax Audit

Note: The IRS conducts presentations via Phone Forums. These presentations are archived on the IRSVideos.gov website for individuals, small businesses and tax professionals. The links to all IRS phone forums are shown at the end of this phone forum transcript.

Q1. I have been asked to file returns for a taxpayer who has no assets, little income, and owes many years of taxes. After all tax returns past due are filed, can an OIC immediately submitted or should the OIC be filed after the returns are processed and notices are received by the taxpayer?

A. Taxpayers may submit, and the IRS will consider, an offer to compromise taxes due on returns which have been filed but have not yet been assessed. If the offer in compromise is received before the returns are pending or assessed, the offer will be returned.

Taxpayers must be up to date with estimated tax payments for the current year at the time the offer is filed and throughout the offer investigation. For individuals the amount of the estimated tax payment due is based on 100% of the prior year’s tax or 90% of the current year’s tax due at the time the offer in compromise is filed, whichever is less. To figure the current estimated tax due, see Publication 505, Tax Withholding and Estimated Tax, and Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ).

Q2. What are some other options if an OIC is rejected?

A. If an offer in compromise is rejected, the taxpayer has 30 days from the date of the rejection letter to file a formal appeal. If the taxpayer does not wish to appeal the rejection determination, they may speak with the offer investigator about possible alternative resolutions; such as an installment agreement. If the offer investigator is unable to assist the taxpayer with an alternative resolution, they will refer the taxpayer to the appropriate contact. See Publication 594, The IRS Collection Process, for more information about possible collection alternatives available to the taxpayer.

Q3. If a self-employed taxpayer submitted an OIC for several years, essentially compromising SE tax (minimal or no income tax), will the taxpayer be credited for social security and Medicare taxes for the compromised self employment taxes?

A. Yes, the taxpayer will receive credit for the amount reported on their tax return, whether collected or paid. In some instances, the IRS may determine that an adjustment to the assessed liabilities is in order and any changes to the original data will affect the initially reported Social Security and Medicare credits at that point.

However, if the offer has already been accepted, those adjustments cannot be made due to the contractual nature of the accepted OIC. Social Security and Medicare records would remain as originally reported.

Q4. If a contractor owes more than $75,000 for Form 941 taxes, including penalties and interest, would they be considered a good candidate for an OIC if they could submit $35,000 with their Form 656 and can show they have little or no equity in assets? Or would an installment agreement be a better option?

A. IRM 5.8.1.1 states: IRS will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. It goes on to say, “In cases where an OIC appears to be a viable solution to a tax delinquency… The taxpayer will be responsible for initiating the first specific proposal for compromise.” The taxpayer must make an adequate compromise proposal consistent with their ability to pay.

They will be given the opportunity to increase the OIC amount if the reasonable collection potential is determined to be more than the amount offered. Offers will not be accepted if it is believed that the liability can be paid in full through an installment agreement extending through the remaining statutory period for collection, or other means of collection, unless special circumstances exist.

Q5. Is an OIC acceptable for previous payroll taxes due? If so, please provide an example of a case where an OIC would be accepted and the contractor would be allowed to go forward.

A. The type of tax is not the deciding factor on whether an offer is a solution to a tax debt.

An offer should be considered as a viable solution if it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential Offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, installment payments extending through the remaining statutory period for collection, or other means of collection, unless special circumstances exist.

Each offer is investigated and a determination is made based its own merit and circumstances, no examples can be provided.

Q6. Provide examples and reference citations for research purposes, regarding situations that would qualify as a special circumstance for granting an OIC due to economic hardship, compelling public policy or equity considerations.

A. Unfortunately, no specific examples can be provided since each case is considered under its own merit and consideration of special circumstances. The citation for special circumstances for an offer in compromise is IRM 5.8.11, Effective Tax Administration. Within that IRM section, are examples and basis for application of special circumstances and effective tax administration procedures.

Q7. Should more than one check be submitted with the OIC if I’m not sure of the total amount that IRS will accept as an appropriate offer amount or the number of installments? Since some amount is required – should this be the minimum amount we believe the IRS will accept?

A. If one makes a cash offer 20% of the total amount offered should be submitted. If the offer will be paid in installment payments, one must submit the initial payment and continue making the proposed payments throughout the investigation. A single payment for the total amount of the offer is not required. The taxpayer is responsible for initiating the first specific proposal for compromise and the offered amount should reflect their calculated reasonable collection potential.

If the final investigation reflects the taxpayer could pay more, the taxpayer will be given the opportunity to increase the offer amount. The full amount of the offer would then be due at the time of acceptance, depending on the agreed terms.

Q8. Are there guidelines for the dollar amount to be submitted for an OIC? What happens to the down payment submitted if the IRS determines that the amount the taxpayer sent in did not meet the required amount?

A. If a cash offer is sent, it must include 20% of the total amount offered. If the offered amount is to be paid in installment payments, the initial payment must be included with the offer and the taxpayer must continue making the proposed payments throughout the investigation. The taxpayer must make an adequate compromise proposal consistent their calculated reasonable collection potential. All payments are applied to the liability(s) and are nonrefundable.

Q9. Is there a minimum dollar limit for which the IRS will not consider an OIC? If so, what is dollar amount for which IRS will consider an OIC?

A. The IRS does not have a minimum or maximum dollar limit for to qualify for an OIC. There is no limit on the amount of the liability. However, an offer cannot be considered if the offered amount is zero. The taxpayer must make an adequate compromise proposal consistent with their calculated reasonable collection potential.

Q10. Is credit card debt considered a deductible expense when calculating personal deductible expenses for an OIC? Also, can payments and fees paid to a debt management company considered a deductible expense?

A. Credit card debt is an unsecured debt. Credit card debt is not an allowable expense for purposes of determining the reasonable collection potential for an OIC. Generally, payments and fees paid to a debt management company will not be considered as an allowable expense.

Q11. Please clarify that if a taxpayer obtains a loan to fund an OIC, the monthly loan payment would indeed qualify as an allowable expense for purposes of calculating the RCP in the income and expense section of the analysis.

A. Generally, if the loan is secured to fund the OIC and the taxpayer provides documentation of that fact, the loan payments would be allowed as an expense when calculating the RCP.

Q12. Does a taxpayer who currently has a wage garnishment qualify for an OIC? If the OIC denied, what happens to the payment submitted?

A. A wage levy does not prevent a taxpayer from submitting an OIC. If the OIC is rejected, all payments received during the investigation of the OIC will be applied to the liability.

Q13. Explain the comparison made of when tax liens are removed in the PPIA process vs. the OIC process. When, exactly, are the tax liens removed during the OIC process?

A. For an OIC, the Notice of Federal Tax Lien is released within 30 days of meeting the terms of the accepted OIC or the liability is paid in full, whichever comes first. For a PPIA, the lien is not released until the statute of limitations expires or the liability is paid in full, whichever is earlier.

Q14. What should a taxpayer do when there is a wage garnishment for tax due and wants to make payments on the amount offered in the OIC, but cannot afford to make both payments?

A. There is no requirement for the release of a levy that was served prior to the offer submission. The taxpayer’s circumstances should be considered when making a determination to release a levy or keep it in place while the offer is pending.

Q15. Is it true that when an OIC is accepted and paid in full, the IRS keeps refunds claimed on Form 1040 for 10 years following when the OIC was paid?

A. The IRS will keep any refund including interest due the taxpayer because of overpayment of any tax or other liability, for tax periods extending through the calendar year in which the IRS accepts the offer.

Q16. Since the amount acceptable for an OIC is the net value of current assets plus the income potential of a period of time (48 months), does this also mean that it is expected that the only way to make that offer is to be able to borrow the amount of the income potential from a source without collateral? Wouldn’t the funds available to cover the income potential be considered part of the current net assets?

A. (1) The taxpayers’ offer (absent special circumstances) must equal Reasonable Collection Potential, which includes equity in assets and future income value. IRS does not advise the taxpayer whether they should borrow the funds or what assets should be pledged as collateral. In certain instances, the offer amount will be provided by third parties who are willing to loan or gift the amount needed to fund the offer and not require collateral.

When a taxpayer is unable to fund a cash offer, the offer terms may also provide for payment of equity in assets over a period of time by submitting deferred payments.

(2)The equity in assets does not include future income potential.
As an example, the taxpayer has been making payments from their past income on a mortgage over a number of years. These payments have increased the equity in that asset. Future payments would also increase that equity, so rather than determining the possible future equity based on the payments, a calculation based on necessary living expenses is used to determine the future income value.

Q17. If an individual cannot pay his debt due to financial capacity (no assets and income is insufficient), should he request an OIC?

A. IRS will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. Generally, an offer amount must equal or exceed a taxpayer’s reasonable collection potential in order to be acceptable.

The exceptions are when special circumstances have been proven and warrant acceptance for less than the amount of the calculated RCP.

Q18. Explain the requirements for making tax deposits while applying for or when an OIC is accepted. Does this also include the trust fund portion of withholding taxes? Also, if an OIC is accepted, and then required monthly payments stop, is the OIC cancelled? If so, how can the OIC be reinstated or continued?

A. Taxpayers must remain in compliance while the offer is being considered. An untimely federal tax deposit made after assignment to an employee investigating the offer and during the investigation will result in a return of the offer.

It is necessary for the taxpayer to be current with federal tax deposits the quarter that the offer was submitted and remain in compliance with the filing and deposit requirements during the offer process. Regarding default and reinstatement see Q&A 22.

Q19. Is it true that there is a process of audit reconsideration when there is doubt of liability for a tax return? How is this different than an OIC or collection due process hearing? Provide statutory/regulatory citations/procedures.

A. In addition to a doubt as to collectability OIC there is a doubt as to liability OIC, Form 656-L. IRC Section § 7122 grants broad authority to the Secretary of the Treasury to compromise tax liabilities.

Treasury Regulation § 301.7122-1, is the authority to compromise a liability on any one of three grounds: Doubt as to collectibality, doubt as to liability, or to promote effective tax administration. A collection due process hearing is a procedure to allow consideration of relief from a collection action, such as a proposed levy or filing of a federal tax lien.

The documentation for a doubt as to liability OIC depends on the type of liability requesting to be compromised. This list below is generally the type of documentation requested:

copies of examination reports and substantiation for the examination finding(s) which the taxpayer believes is incorrect
original tax returns if the taxpayer disputes a Substitute For Return assessment
documentation to support reasonable cause claims for penalty offers

Q20. Explain the ETA basis of requesting an Offer In Compromise.

A. The ETA offer allows for situations where tax liabilities should not be collected even though:

The tax is legally owed, and
The taxpayer has the ability to pay it in full

No compromise to promote ETA may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws. An ETA offer can only be considered when IRS has determined that the taxpayer does not qualify for consideration under doubt as to collectability or doubt as to liability.

Q21. Is there anyway to have the interest/penalty forgiven due to economic hardship so the taxes due can be paid?

A. In the interest of ETA and equity, abatement of penalties based on reasonable cause must be made in a consistent manner and should conform to reasonable cause considerations specified in the Internal Revenue Code, Treasury Regulations, Policy Statements (P-2-7 and P-1-18), and IRM 20.1.

Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations due to circumstances beyond their control. Each case must be judged individually based on the facts and circumstances. Form 843 may be used to request the abatement. There are no provisions for interest forgiveness due to economic hardship.

Q22. Is there any way to have a defaulted OIC reinstated other than reapplying? Are there any other options for a defaulted OIC?

A. Once an offer has been identified as a potential default, the IRS will allow the taxpayer an opportunity to comply with the terms of the offer before defaulting. Once the offer is defaulted, the taxpayer must submit a new OIC and new Form 656.

Q23. IRM, 5.8.9.4(1)(a) permits modifications of an existing OIC. The procedures outlined indicate that the taxpayer should make the proposed payments in lieu of the original agreed monthly payments during the review/approval process of the new OIC terms. If a requested modification has been denied, what happens to the original OIC? The denial pattern letter (Exhibit 5.8.9-3 Pattern Letter 1607(P)) does not address a “catch up” situation for the shortage of payments made while the modification was being considered.

A. If the taxpayer’s proposal is denied and the terms of the original accepted OIC are not met, the OIC will be defaulted.

Q24. (2)How then can a recommendation be made to deny/default an accepted offer, requiring full “catch up” of the terms of the offer, when the IRM permits the taxpayer to make a proposal and live up to the terms of the proposal during the investigation, based upon a compliance issue in a non related entity?

A. An OIC that has been accepted for 1040 liabilities will not be defaulted because of a delinquency of the closely held corporation. However, once the taxpayer submits a proposal for an offer on an accepted offer and the new investigation determines the closely held corporation is not current with filing or payment requirements then the IRS has the latitude to deny the taxpayer’s proposal.

Q25. Are there any nonprofit organizations that help people with offer in compromise?

A. Low Income Taxpayer Clinic represent low income taxpayers before the IRS in audit, appeals, and collection issues, for free or for a nominal charge. There are LITCs in all states, and each has its own individual Low Income Taxpayer Clinic webpage.

However, we do not recommend using them unless it is an absolute necessity, as the speed, accuracy and quality of results is not as good as you would have by using a professional IRS tax attorney.

Some content taken from the IRS national phone forum, listed here

• IRSVideos.gov Individual Phone Forum
• IRSVideos.gov Small Business Phone Forum
• IRSVideos.gov Tax Professional Phone Forum

I hope you found this IRS Q&A on Offers in compromise helpful.

Until next time,

Jeff Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my Google ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff of tax specialists.

You can put off your tax problem, or put us to work on your IRS issues.

Related posts:

1. IRS Collection Process: Offers in Compromise
2. IRS Offer in Compromise Tax Settlement Help by Tax Attorney
3. How To Get Your Offer in Compromise Approved by the IRS

• Estate Tax Exemption: $5,120,000 (up $120,000 from 2011)
• Standard Deduction: $5,950 single/$11,900 joint (up $150/$300 from 2011)
• Income Limit for Full Roth IRA Contributions: $110,000 single/$173,000 joint (up $3,000/$4,000 from 2011)
• Personal Exemption: $3,800 (up $100 from 2011)
• Gift Tax Exemption: $13,000 (same as 2011)
• 401(k)/403(b)/457 Contribution Limit: $17,000 (up $500 from 2011)
• Limitation on Annual Benefit under Defined Benefit Plan: $200,000 (up $5,000 from 2011)

Until next time,

Jeff Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my website ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff of tax specialists.

You can put off your tax problem, or put us to work for you on your tax case.

Related posts:

1. Top Five Facts About Dependents & Exemptions

A federal tax lien is created on past due tax cases where taxpayers received a notice demanding payment of back taxes that has remained unpaid. The IRS then files a Notice of Federal Tax Lien to try to recover money from taxpayers who owe delinquent taxes. These lien notices placed on taxpayers’ property are supposed to be solely for collecting past due tax bills, and there are strict procedures the IRS must follow to create these tax liens.

The IRS must provide written notification to the affected taxpayers within five business days of the lien filings. However the TIGTA audit found that the IRS has not always complied with this legal requirement and occasionally fails to follow its own internal guidelines for filing timely taxpayer notifications of their lien.

The TIGTA report reviewed a sampling of 125 federal tax liens and found that:

• The IRS mailed two lien notices late, which is in violation of taxpayer rights.
• Over 15,000 lien notices filed during the same period could have been mailed late.
• The IRS failed to follow its internal regulations for notifying taxpayers’ representatives, such as their tax attorney, of the lien filing (8 cases).
• Over 60,000 taxpayer representatives may not have been provided lien notices

Based on these findings, the IRS does not have an adequate automated process to updates taxpayer representatives directly using their system that generates the tax lien notices.

The internal processes of the IRS have an organizational problem and this has affected taxpayers. Individual rights to appeal the tax lien filings have been jeopardized, and citizens had their rights violated when the IRS did not file proper notices of the lien filings.

We hope that this report causes the IRS to identify any actions necessary to correct the potential taxpayer violations for the untimely lien notices and fix any problems with the notification process. In addition, we also hope that the IRS audits other internal systems to ensure that taxpayers are all being treated equally.

Read the full report of the Treasury Inspector General for Tax Administration.

Note the disclaimer on the above pdf document created by TIGTA:

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

It make you wonder what information wasn’t fit for public consumption, and if there were more egregious violations that TIGTA didn’t catch while assessing IRS tax penalties on US citizens.

Until next time,

Jeff Fouts, Tax Attorney

Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.

I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my Google ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff of tax specialists.

You can put off your tax problem, or put us to work for you.

Related posts:

1. Is the IRS easing up on tax liens? No.