New 1/19/15, updated 2021-12-10
IRS Tweaks Policy to Help People Settling Tax Debts with an Offer in Compromise Keep Refunds (2021-12-10)
Beginning with offers in compromise accepted on or after Nov. 1, 2021, the IRS will no longer recoup refunds for the calendar year in which the agreement was reached, according to interim guidance dated Oct. 28, 2021. The agency will no longer apply those refunds to outstanding debts for the year, or years, covered by the offer in compromise agreement. To prevent gaming, there is an exception to the new policy for individuals who reach a settlement with the IRS and then subsequently file amended returns seeking a refund for a year not covered by the agreement.
The IRS also made a change to allow certain individuals experiencing financial hardship to seek an offset bypass refund while their offer in compromise agreements are pending. To deliver that type of refund, the agency agrees to circumvent its normal policy of putting that money toward the person’s outstanding tax liabilities.
New IRS OIC How To Videos (2021-12-10)
The IRS announced new how-to video series enabling taxpayers to avoid potential scams by considering and applying for an Offer in Compromise (OIC) themselves have been added. An offer in compromise allows a taxpayer to settle a tax debt for less than the full amount you owe if you qualify.
is available after unsuccessful Offers in Compromise and Trust Fund Recovery Penalties 1/27/15
New OIC forms
New revision of the Form 656-B booklet, with forms and instructions for submitting an Offer in Compromise (OIC), will be available on IRS.gov in January, 2015. The use of earlier versions after January 1, 2015 will delay the processing of OIC applications. 8/13/14
You can use the OIC Pre-Qualifier tool to see if you qualify and what a reasonable offer might be. 8/13/14
The IRS has a new Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise dated January 2014. The OIC user fee has increased from $150 to $186 in January 2014. The IRS will return applications submitted on older versions of the form with the old user fee. 3/10/14
Since 2003, the offer in compromise fee has been $150, $0 if an offer is based solely on doubt as to liability or is made by a low-income taxpayer. After January 1, 2014 the fee is $186. The IRS determined the full cost of an offer to compromise, including examination of the taxpayer’s financial position, processing payments, and monitoring compliance, is $2,718. TD 9647, Reg. §300.3. 12/3/13
IRS issued proposed regulations that, effective January 1, 2014, would increase the user fees charged to taxpayers who seek to pay their taxes either through an installment agreement or an offer in compromise (OIC). The IRS currently charges $105 for an installment agreement, reduced to $52 for a direct debt agreement, authorizing monthly payments, and $43 for low-income taxpayers. The charge is $45 to restructure or reinstate a defaulted agreement. The IRS determined that the full cost of an agreement is $282; $122 for a direct debt agreement; and $85 for a restructure or reinstatement. The IRS proposes to raise the installment agreement fee to $120, and the restructuring fee to $50. Other fees would not be increased. The IRS currently charges $150 [$186 1/2014] for processing an OIC. No fee is imposed on a low-income taxpayer. The IRS claimed that the full cost of an OIC is $2,718. The IRS proposes to raise the user fee for an OIC to $186. 9/5/13
Fresh start program streamlines OIC
IRS Fresh Start Program Helps Taxpayers Who Owe the IRS. Fresh Start expanded and streamlined the OIC program, and the IRS has more flexibility when analyzing a taxpayer’s ability to pay (it also made changes to the installment agreement and lien filing and withdrawal procedures). Use the Offer in Compromise Pre-Qualifier tool on IRS.gov to see if you may be eligible for an OIC. 4/17/13
Here are the OIC changes: 7/12/12
IRS Announces More Flexible Offer-in-Compromise Terms IR-2012-53, May 21, 2012 5/24/12
Changes announced include:
- The IRS will now calculate a taxpayer’s reasonable collection potential looking only at 1 year of future income for offers paid in 5 or fewer months, down from 4 years, and 2 years of future income for offers paid in 6 to 24 months, down from 5 years. All offers must be fully paid within 24 months of the date the offer is accepted (Long deferred OICs apparenlty no longer available).
- Taxpayers can make minimum payments on post-high school student loans guaranteed by the federal government . Proof of payment must be provided.
- Allowing monthly payments to state tax authorities in certain circumstances if the taxpayer can’t pay them in full.
- Expanding the Standard Living Expense allowances incorporate average expenses for basic necessities for citizens in similar geographic areas, including to cover expenses such as credit card payments and bank fees and charges.
- Narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential.
- Equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.
- Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer’s post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.
IRS Can Reject Offer-In-Compromise Based On Assets “Dissipated” Through Day Trading 4/1/11
In Tucker v. Comm., Dkt. No. 3165-06L, TC Memo. 2011-67, 3/22/11, the Tax Court has found that the IRS can include dissipated assets in a taxpayer’s reasonable collection potential (RCP) when evaluating an offer-in-compromise (OIC), and money lost while day trading was considered dissipated. Not only was the investment itself highly speculative, but the taxpayer had no experience and compounded the risk by trading on margin. The Tax Court found that the IRS did not abuse its discretion when it rejected the taxpayer’s OIC because the taxpayer’s RCP exceeded his tax liability.
The IRS won the battle, and won the war, but did not receive any tax payments. The taxpayer’s offer would have paid over 90% of his tax liability. The offers rejection demonstrates the IRS’s tough approach to handling OICs.
The IRS is expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers 3/3/11
IR-2011-20, Feb. 24, 2011
This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.
OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.
The IRS announced more flexible evaluation procedures for taxpayers who are unemployed or underemployed 3/17/10
IRS personnel may use a taxpayer’s current lack of income or reduced income in the analysis of the taxpayer’s future ability to pay an OIC, effective March 10, 2010, for any OIC currently under consideration and OICs previously rejected that are in their appeal period or where the taxpayer has requested Appeals consideration. If a taxpayer is unemployed and is not expected to return to his or her previous occupation or level of earnings, IRS personnel are instructed to contact the taxpayer to discuss the expected future level of income, and should also allow anticipated increases in necessary living expenses and/or applicable taxes. If a taxpayer is long-term unemployed, the interim guidance instructs IRS personnel to use the taxpayer’s current income in the future income calculation. The same treatment applies to taxpayers who are long-term underemployed. The IRS did not remove the requirement that a taxpayer generally must include a nonrefundable 20% payment (in a lump sum offer) when submitting his or her offer. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment. The IRS also may be flexible for missed payments under an OIC or installment agreement where taxpayers have a record of compliance. IR-2010-29, SB/SE 05-0310-012.
Note that the IRS will require you to update your financial information when the offer specialist finally gets around to reviewing it, typically 6 to 12 months after the OIC is submitted. Consequently, your circumstances could change substantially.
IRS guidance for current economic difficulties 2/4/10
The IRS Small Business/Self-Employed Division (SB/SE) released 3 interim optional guides recognizing how the current economic downturn impacts OICs:
- An additional review must be initiated before rejection if the difference between taxpayer’s offer and IRS determined “reasonable collection potential” is solely attributable to a disagreement on real property equity.
- Taxpayers are not required to include a 20% payment or periodic payments to change an accepted offer. No specific form is required (e.g., Form 656), but the proposal must be in writing. IRS employees are to review updated financial information and supporting documents and negotiate based on taxpayer’s current financial situation, recognizing how quickly circumstances change in the current economy.
- Although IRS procedures require any OIC without Form 656-A, low income fee waiver, be returned as not processable, the OIC will be processed if the offer meets IRS Low Income Guidelines.
Revised forms 9/30/09
The IRS posted a simplified version of the OIC application form on its web site, splitting old Form 656 into 2 new forms: Form 656 (reduced to 4 pages), Offer in Compromise, and Form 656-B, Offer in Compromise Booklet.
Missouri news and cases
Missouri Department of Revenue Director’s rejection of offer in compromise was not reviewable 9/17/14
Under Mo. Rev. Stat. §32.378(6) the Director’s decision to reject or accept an offer in compromise is not subject to review by the AHC or any court. Meshack, Yourshack, & Abedtogo/MYA, LLC v. Director of Revenue, Mo. Admin. Hearing Commission, No. 14-1091 RS, 08/05/2014.