The Offer in Compromise engagement is a contract between a person or entity and the Treasury Dept or more commonly the IRS. This contract will negate the person or entities tax liabilities to the IRS for alot less then what is owed. If the IRS believes that an alternative form of payment can be obtained they will exhaust all options before engaging the Offer In Compromise for the taxpayer or entity.

In most engagements of Offer In Compromise, the IRS will reject the Offer In Compromise if the cash amount offered by the person or entity is equivalent to or greater then the reasonable amount the IRS could collect through normal IRS collection procedures. The reasonable amount of collection is the crucible that the IRS measures that a person or entity can repay through normal channels through liquidation, of homes, cars, and on hand bank accounts. The Reasonable Amount of Collection also includes future capitalizations by the person or entity as to their ability to repay there total tax debt in a 5 year period. These considerations must be calculated before attempting to file for an Offer In Compromise.

There are three types of Offer In Compromise engagements

Doubt as to Liability When and if there is a dispute in regards to engaging your Offer In Compromise in regards to the amount, computer error or even possible identity fraud Doubt as to Liability can be invoked. Doubt as to Liability can be invoked to negate and wipe out any and all back tax debts, and bring the taxpayer or entity into IRS compliance, this is an option that must be reviewed when submitting your Offer In Compromise.

Doubt as to Collectibility in reference to Filing an Offer In Compromise is determined by the IRS counselor assigned to your case . To reinforce this doubt as to collectibilty the taxpayer or entity must submit there tax documents and all relevant evidence, to back up any claim so there is no doubt that the tax liability will never be repaid and the submission of the Offer In Compromise agreement is the formal document to convey this fact and acceptance by the IRS of this fact will actually negate the total tax liability, no matter how much is owed.

Effective Tax Administration When exercising this option in the offer In compromise agreement there is no contest as to the amount owed and the IRS would have no problem in collecting the full amount, but a serious circumstance or series of circumstances has and will prevent you form making the full tax liability payment to the IRS . For this stipulation to work, the taxpayer or entity must demonstrate that undue and unfair economic hardship would result from the IRS pursuing repayment options.

An Offer in Compromise when engaged correctly is the taxpayers magic wand in making all of there tax liabilities disappear. The only catch is knowing if you qualify for this program. Most taxpayers do not. If you have the ability to pay,
then you probably do not qualify for this option.

You must prove beyond a shadow of a doubt that you do not have the ability to repay the IRS. You can not have any cash, little or no income, no assets and the ability to withstand a possible IRS Audit, there are many avenues available to the taxpayer to prove financial hardship. Being declared as Currently Non Collectible is One, Performing an Offer in Compromise with zero as the offer will work even better. To recieve the best possible outcome when dealing with the IRS, takes planning and patience. During the actual determination of Financial Hardship the IRS does not take into account past performance, Only Your ability to currently pay, Or pay in the near future. There are some professions that would prevent this declaration from being engaged, being a physician is one, A physican even if they do not have assets or cash on hand, have the ability, thru the nature of who they are, to workout some sort of repayment plan with the IRS. Their declaration of being in financial hardship will be rejected.

Negotiating an Offer In Compromise other wise known as an (OIC) is the taxpayers ultimate weapon in eliminating all monies owed to the IRS in one fatal swoop, meeting the criteria to determine if you do qualify for an offer in compromise is of paramount importance. To qualify for the (OIC) the taxpayer ideally should have an enormous tax debt little or no assets no equity and ideally no valuables, The IRS will want all asset’s and any equity if available to satisfy the (OIC). The Problem arises when the taxpayer has assets or available cash, When an (OIC) is submitted to the IRS you must also submit your Offer in cash or negotiable instrument to the IRS and if they decline your offer they automatically keep what was offered and apply that to your outstanding tax debt’s and the taxpayer is left in the same position from which they started.

Negotiating an Offer In Compromise other wise known as an (OIC) is the taxpayers ultimate weapon in eliminating all monies owed to the IRS in one fatal swoop, meeting the criteria to determine if you do qualify for an offer in compromise is of paramount importance. To qualify for the (OIC) the taxpayer ideally should have an enormous tax debt little or no assets no equity and ideally no valuables, The IRS will want all asset’s and any equity if available to satisfy the (OIC). The Problem arises when the taxpayer has assets or available cash, When an (OIC) is submitted to the IRS you must also submit your Offer in cash or negotiable instrument to the IRS and if they decline your offer they automatically keep what was offered and apply that to your outstanding tax debt’s and the taxpayer is left in the same position from which they started.

According to IRS Doctrine the formula that is utilized, is a forensic analysis of the taxpayers current net worth coupled with an appropriate consideration of the taxpayer’s future income potential. Right about the turn of the century, the IRS instituted a new amendment know as the Deferred Payment Offer. The Deferred Payment Offer when invoked allows the taxpayer to pay  the discounted value of all there hard assets plus a nominal recurring payment for the remainder of the statute of limitations for collection due to the IRS.

Execution of an offer in compromise, is first received by an offer coordinator of the IRS where it is examined..  An examination is necessary to determine if the taxpayer is currently in IRS compliance, and is not in the middle of a bankruptcy proceeding. After these prerequisites have been met,  the form is shuttled to the IRS service center for a formal search and further review of all  tax records to determine the exact tax liability due.  The offer can again be rejected if the taxpayer is not in full IRS compliance.

The Offer In Compromise is then sent to a Revenue Officer for an extensive forensic analysis again.  Offer in Compromise Officers do the internal investigation to determine if anything has been missed, The taxpayer may be further questioned by the IRS are asked to supply more information like bank statements, stock ledgers etc.

The IRS has 3 plans which they offer to taxpayers when they submit their offer in compromise.  The Offer part of the offer in compromise can be paid within 90 days in full.  The taxpayer should offer the  (quick sale value) + the total amount the IRS could expect to collect over a 48 month period

The IRS uses this exact formula to make there determinations.

QSV Quick Sale Value +  Present Value of Income Equals Offer in Compromise (QSV + PVI = OIC).  The IRS adds up the quick sale value of everything you own and then adds the amount of the value of your ability to pay.

According to IRS Doctrine they offer a short term repayment plan.  It requires that the taxpayer repay the IRS in full within a 2 year period.  IRS doctrine dictates the (QSV) Quick Sale Value of everything the taxpayer posses plus the total amount the IRS could collect in 60 months or the  ten-year statutory period for collection.

The type of audit that is handed down from the IRS depends primarily on the dollar amount of the tax debt owed to the IRS. Typically the more that is owed the IRS the more personal and aggressive they become with you. From a regular correspondence audit to a highly intrusive field audit, one thing is sure the IRS will get there money one way or another.

Inside the IRS audit itself the IRS determines if what you reported as your income and deductions are correct and not fraudulent. The taxpayer is left with the burden of proof to defend every deduction and every source of reported and unreported income. If the IRS determines that you made erroneous entries you will be assessed additional penalties and interest. Once the IRS initiates an audit 85% of the time they find an error, due mostly to unsupported documentation.

An IRS office audit is a more personal type of audit, Typically when this audit is engaged the IRS has significant supporting documentation that you have entered erroneous information in excess of thousands of dollars, The IRS will set up a specific time and date to come into there office with all your supporting documentation so that they can do a through investigation of your claims. During the Office Audit be prepared to rebuttal all questions as to every deduction and entry on your return. When you are brought in for an office audit, the taxpayer needs to consider if they need to be accompanied by a competent tax attorney.

This is the most intrusive of all audits. This type of audit in any form is not a good sign.. A field agent will show up unexpectedly and ask probing questions as to where you bank, are there any valuables in the house, how much money you have on hand, and how they contact any of your relatives. This type of audit is very serious, only the most seasoned of IRS agents perform these; the likelihood of you outsmarting the IRS in one of these types of Audits is very low. It is highly recommended that the taxpayer retain a tax attorney that specializes in defending against a field audit, if not serious consequences can be levied against a individual or a business.

This type of IRS audit is the most practical of the IRS. In this situation the taxpayer owes little or no money usually 25,000 or less. This type of audit is conducted usually by mail, with all requested documents replied back to the IRS thru the US postal system. Normally the IRS wants supporting documentation for certain items that you listed on your tax return. Most commonly they are looking for unusual real estate transactions, stock purchases, and deductions. As long as you can produce the supporting documentation your file is closed out. If you can not you will be charged penalties and interest and be expected to pay immediate or work out a payment plan with 6% interest.