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303-322-0846 Español:
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Frequently Asked Questions – Offer In
Compromise (FAQ) Q. What is an Offer in Compromise? A. An Offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer’s liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may legally compromise for one of the following reasons: Doubt as to Liability: Doubt exists that the assessed tax is correct. Doubt as to Collectibility: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income. Effective Tax Administration: There is no doubt that the tax is correct and no doubt that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise. The taxpayer bears the burden of proof to show their OIC qualifies for public policy or equity considerations. They must show that their circumstances are compelling enough to justify acceptance of their OIC compared to other taxpayers in similar circumstances. Q. The IRS recently levied my bank account. Will the levy
proceeds be returned if I file an offer in compromise? A. The IRS will keep all payments and credits made, received or applied to thr total original tax liability before the OIC was submitted. The IRS may also keep any proceeds from a levy that was served prior to the submission of an OIC, but which were not received at the time the OIC was submitted. Q. What happens if I do not file my tax return or pay my
taxes next year? A. The OIC will be defaulted. An OIC requires future compliance for a period of five (5) years from the date of acceptance of the OIC, or until the offered amount is paid in full, whichever is longer. “Compliance is the timely filing and paying of all required returns and taxes. Q. Will I be entitled to receive tax refunds if my OIC is
accepted? A. As additional consideration beyond the amount of the taxpayer’s offer, the IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts an OIC. Q. What happens if I have a life change, such as a new
baby, marriage or divorce during the OIC process? How will this affect my tax
problem? A. In short, life changes will have a direct affect on the OIC process. For example, a new baby will increase your allotted National Standard housing allowance. In addition, your healthcare expenses and possibly your dependent care expenses will also increase. This in turn will reduce available monies that would otherwise go to pay your tax bill. This is a good thing. On the other hand, a marriage will increase your household income and most likely increase the assets available for the IRS to consider for tax repayment. This could be a bad thing. Nevertheless, please contact our offices if an expected life change occurs. Q. The IRS has filed a lien, how will this affect my
credit; short-term and long-term? A. The lien filed by the IRS will appear on your credit report. If you are in the process of securing a loan the lien will most likely have an adverse affect. Even when the IRS files a Withdrawal of Filed Notice of Federal Tax Lien, record of the lien will remain on your credit report for up to 10 years. We recommend that you request a copy of your credit report from one of the three credit reporting agencies. You are entitled to one free report a year starting June 2005 from each of the three credit reporting agencies.
Q. How long does the OIC process take? A. It varies, but usually 6-12 months. The Process is systematic and slow. If necessary, once un-filed tax returns are filed and you stay compliant with your quarterly estinated tax payments (EP) for two quarters, only then will the IRS consider an OIC. Thus before submitting an OIC for consideration to the IRS, as much as 6 months have passed. Q. How did the IRS catch me and why did it take so long? A. For “Self Employed” individuals who receive a 1099 for contractual payment, the contractor when filing their returns also includes all 1099 individuals along with their social security number. The IRS the expects these 1099 social security number to file their respective tax returns, when the IRS computers don’t match, that’s when you’re found out. This process takes about 3 years. Three years is also the amount of time the IRS has to assess any given tax year. Q. I think the whole tax system is unfair, that’s why I
never filed a return? A. Tax reform is a passionate topic every year among congress. Although an overhaul of the current system would be welcomed, historically that would be very unlikely. Nevertheless, recent events surrounding the retooling of Social Security, making permanent the recent tax breaks and the changing of the bankruptcy laws have created an atmosphere where serious tax reform is again being discussed. Ideas such as a flat tax and a national consumption tax are being considered given the recent endorsement by Alan Greenspan. Nevertheless, as it stands today failing to file a return is a criminal offense; however, not paying your taxes is not. |
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