April 7, 2020

Offer in Compromise

An Offer in Compromise is a proposal that you submit to the IRS in which you offer to pay something less than the full amount of your tax liability.

As you might imagine, the IRS has very detailed rules about what it takes to qualify for an Offer in Compromise (OIC). The big picture in the OIC universe is that the IRS will accept an Offer when it is unlikely that the tax debt will be collected in full and that the amount offered reflects the taxpayer’s best efforts to pay.

In order to consider an OIC, you must provide to the IRS a detailed “Collection Information Statement” which is, in effect, a detailed list of your assets and sources of income. The danger here, of course, is that the IRS will know exactly where to go to collect if your Offer is not accepted or if you fail to pay what you have promised.

As your tax attorney, my job is to prepare an Offer that meets the IRS criteria and to negotiate on your behalf to encourage the IRS to accept your proposal.

The IRS’ Collection Information Statement is called a Form 433-A – a copy of which you can review by clicking on the link. If you are engaged in business, you will need to fill out a similar form, called a Form 433-B. As you review the Form 433-A, you will note that the IRS asks you to identify all of your assets, as well provide information about your income and expenses.

Along with the 433-A form you will be asked to provide documentation supporting the entries. For example, in a recent OIC that I submitted, I showed as an asset my client’s 1/2 interest in her family home. During processing, the IRS asked me to provide a copy of the deed to show that my client was only 1/2 owner of the property. In addition, the IRS asked me to provide three month of household bills to substantiate our budget.

If you are considering an OIC, therefore, I would encourage you to get in the habit of saving receipts and bills for everything you spend.

The IRS also has specific rules about how to value personal and real property – our goal, of course, is to paint a picture of your assets and resources that is both truthful and verifiable, and puts you in the best light for OIC purposes.

The 433-A form also helps the IRS to calculate how much you must pay under an accepted OIC. The 433-A form contains a space for a budget. Unfortunately, you do not get to choose the figures on your budget. Instead, the IRS has published a schedule of permitted expenses, based on your family size, your gross income and where you live. IRS collection standards include national standards for food, household items, clothing, personal care and “miscellaneous.” Local standards have been established for housing and transportation.  Other budget categories have been established by IRS procedure and custom, and, of course, by zealous negotiation. You can review the IRS collection standards at the IRS web site.

You may find that the IRS collection budget numbers are not particularly generous. For example, the IRS does not care that you have credit card debts or that your child is in private school.  Their position can be that these expenses are not “necessary” and that you should not pay them with money that can be used to pay your tax debt.

As your attorney, my job is to review your budget and identify claimed expenses that are likely to draw an objection from the IRS. Further, if the IRS objects to certain budget items, my job is to negotiate and argue on your behalf that disupted budget items should be allowed.

My new client questionnaire asks for information I will need to evaluate your options under an Offer in Compromise.


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Jonathan Ginsberg

Attorney at Ginsberg Law Offices
Attorney Jonathan Ginsberg helps taxpayers work out negotiated settlements of tax debt with the IRS and Georgia Department of Revenue.

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