Atlanta & Fulton County Offers in Compromise Attorney
Many people who owe back taxes are surprised to learn that it is possible to negotiate a settlement with the government rather than paying the full amount owed. In the tax context, an agreement to pay less than is owed is known as an “offer in compromise.” However, the IRS rejects far more offers in compromise than it accepts. An experienced tax attorney can analyze your tax and financial situation and give you the best opportunity to have your offer in compromise accepted by the IRS.
What is an Offer in Compromise?
An agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed is formally known as an offer in compromise (OIC). The IRS agrees to accept a smaller amount than the real amount owed; the debtor pays, and all move on with their lives.
While asking for an OIC is quite common, and some tax relief companies make it seem like the whole thing is quite simple, it is actually a very complex process that requires a lot of careful planning and attention to detail. We can help you with every step of the OIC process, even if it goes to litigation or requires an appeal.
Who is eligible for an OIC?
There are really only three circumstances in which the IRS will agree to an OIC:
- First, the IRS can accept a compromise if there is a genuine dispute as to the existence or amount of the correct tax debt under the law. This happens when nobody knows what the actual amount of debt is, and everyone can agree to something reasonable.
- Second, the IRS can accept a compromise if there’s doubt as to the collectibility of the debt. When the taxpayer’s assets and income are less than the full amount of the tax liability, so the government knows they will never be able to collect the full amount, they will consider an OIC.
- Third, the IRS can accept a compromise based on effective tax administration. In these cases, there’s no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
At the Wooten Firm, we help tax debtors gather the evidence they need to demonstrate that they fall into one of the eligible categories above. To do this we dive deeply into our clients’ financial lives. We need to know not only what debt exists, but what our clients’ financial lives are like now, so that we can tell their story truthfully and persuasively. Our clients must fully trust that the work we are doing for them is in their best interest, and they must feel comfortable being completely transparent and honest with us. We then prepare and file all documents needed for your offer in compromise. If an OIC is an option for you, we will make every effort to get you the most aggressive deal the law allows.
What else is required?
Even if you can show that you are eligible for an OIC because there is doubt as to liability or collectibility, or an argument for effective tax administration, there are additional criteria that must be met. If the taxpayer is a business owner with employees, in order to qualify for an OIC, he or she must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter.
The more years a debt covers, or that have passed since it was incurred, the more difficult it becomes to file the necessary tax returns. The difficulty also increases as the amount owed increases. The attorneys at the Wooten Firm have years of experience sorting out complex tax issues so that our clients can take advantage of OIC and other tax debt reduction strategies. While we have built up a lot of knowledge in-house, we are not opposed to working with our clients’ accountants and financial advisors. Our focus is always on what is best for our clients, doing what our clients want rather than hoarding work so we can charge more for our services.
It is important to note here that when working with CPAs we do so under what is known as a Kovel agreement. This ensures our client’s communications with the CPA go through us and are therefore protected from discovery under the attorney-client privilege. This is necessary since there is no such thing as accountant-client privilege under federal law.
But wait, there’s more.
Despite the fact that tax debtors have all of their ducks in a row and should be eligible for a OIC, the IRS may still demand full payment if the settlement amount offered by the taxpayer is not equal to or greater than what the IRS thinks the taxpayer’s reasonable collection potential (RCP) is.
The RCP is how much the IRS thinks it can realistically expect to recover from a debtor. The IRS takes into account the value of the taxpayer’s assets, like property, automobiles, bank accounts, and anticipated future income, minus certain amounts allowed for basic living expenses. The resulting RCP is the magic number the IRS sets as a floor for negotiation.
At the Wooten Firm, we can usually estimate our clients’ RCPs and whether an OIC is a viable option for them. Our goal is to help our clients pay off their debts as quickly and cost efficiently as possible, so knowing how low an offer we can proferand be taken seriously is important.
OICs Bind You Going Forward
Many more taxpayers attempt to obtain an OIC than successfully get one. Those who do get one should be grateful. But they must also be cautious.
Failure to comply with an OIC or with tax law going forward will land a taxpayer in hot water. If the taxpayer doesn’t abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed (less payments made), plus interest and penalties. Contact us to schedule a OIC consultation today.