Sy Accountancy Corporation
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SHOULD YOU SUBMIT AN OFFER IN COMPROMISE (OIC) TO THE IRS?
By Victor Sy, CPA, MBA
If you cannot pay all your taxes owed to the IRS, you may make an offer to pay a smaller sum to fully pay
all taxes, penalties, and interests. This is called Offer in Compromise (OIC). Let’s discuss the pros and
cons of OIC.
Advantages: If the offer is accepted, you will be left alone; tax liens will be removed and enforced
collection avoided. The IRS, through a policy statement, declared that they will accept an offer in
compromise when it is unlikely that the tax liability can be collected in full and that the amount offered
“reasonably reflects collection potential.” The goal is to achieve collection of what is potentially
collectable at the earliest possible time and at the least cost to the government. The ultimate goal is to
arrive at the compromise that is in the best interests of both the taxpayer and the IRS. Acceptance of an
adequate offer relieves you of a financial burden and gives you a fresh start toward compliance with your
future filing and payment requirements.
1. You must list all your assets. In the process, you are giving them a roadmap to seize and sell your
assets if the offer is not accepted and nothing else works.
2. Offers have been tough to get approved. Offers returned (not even considered) increased from 39% to
57% while rejected increased from 12% to 21%. Accepted offers declined from 34% to 16% fir 2004.
3. The statute of limitations for the assessment and collection is suspended during the period plus
another year thereafter.
4. One missed payment results in a default that gives the IRS the right to resume collection.
5. You must comply with all provisions relating to the timely filing of returns and payment of taxes due
for the next five years.
Of course, if things do not work out, you can always consider the alternatives of installment agreements
and bankruptcy. In the meantime, there is a hold in the collection process that in itself is an
accomplishment as you straighten out your financial affairs. I suggest that you use an enrolled agent,
CPA, or tax lawyer to prepare it for you. If you cannot afford their fees, prepare it yourself and just pay a
professional to review your offer before submitting it to the IRS.
Update 1: The IRS published an electronic bulletin warning of scams enticing delinquent taxpayers to
settle delinquencies for "pennies to a dollar." The IRS also asked practitioners to be vigilant and to report
such scams to protect taxpayers already in need of help.
Update 2: Offers are becoming tougher. The National Taxpayer Advocate disclosed that the number of
offers returned (not even considered) increased from 39 to 57%, the number of offers accepted decreased
from 34% to 16%, while the numbers those rejected increased from 12% to 21%.
Update 3: Under new IRS rules, taxpayers submitting lump-sum offers must make a 20% nonrefundable,
up-front payment to IRS. Similarly, taxpayers submitting a periodic-payment OIC must make
nonrefundable, up-front payments while IRS evaluates the offer.
National Taxpayer Advocate Criticizes IRS's Collection Practices
January 11, 2011
In her annual report to Congress, National Taxpayer Advocate Nina Olson noted her "continuing concern that IRS
collection practices inflict unnecessary harm on financially struggling taxpayers and fail to achieve the IRS's
overriding objective of increasing long-term voluntary compliance with the tax laws." While the IRS filed more
than 5 million tax liens over the past seven years (and 1.1 million in fiscal year 2010 alone), there is no data
showing whether, or to what extent, liens further revenue collection. By filing a lien against a taxpayer with no
money and no assets, "the IRS often collects nothing, yet it inflicts long-term harm on the taxpayer by making it
harder for him to get back on his feet when he does get a job," she said. A filed tax lien on a credit report can render
someone unemployable, unable to obtain housing (owned or rented), and unable to obtain car insurance or a credit
card, at least at reasonable rates. A tax lien can be particularly devastating to small businesses, as it often cuts off
their access to credit. News Release IR-2011-2.