Health & Fitness
Should You File an Offer-in-Compromise with the IRS? It depends.
Though an Offer-in-Compromise with the IRS may seem very appealing, whether you should file an Offer depends upon a number of factors.
The focus of our practice is assisting taxpayers with tax and complex financial issues, including bankruptcy & financial restructuring and civil and criminal taxpayer representation, and we represent many taxpayers in Greenwich, Connecticut who owe back taxes to the IRS. Inevitably the discussion arises about whether they should file an Offer-in-Compromise with the IRS.
The answer to this question is – it depends (don’t you hate hearing that from a lawyer!). As the creator of the CCH training program to teach tax practitioners how to represent taxpayers before the IRS, and as a columnist for CCH’s Journal of Practice & Procedure, I would like to think I have some insight into this process.
There are a number of factors that need to be considered when deciding whether to file an Offer-in-Compromise, including:
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The taxpayer’s Reasonable Collection Potential
How old the tax is
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Are there dissipated asset issues
Reasonable Collection Potential (“RCP”)
In calculating whether to accept a taxpayer’s Offer-in-Compromise (“OIC”), the IRS will perform a calculation referred to as determining the taxpayer’s Reasonable Collection Potential, or RCP. The RCP is determined by looking at net equity in assets and future income. The reason our firm has such a high percentage of our OICs accepted when the national average is 37% is because we spend time calculating the RCP before we have the taxpayer drop a lot of money to move forward with an OIC. We do not file Offers that have no chance of success.
How old the tax is
The IRS has ten years to collect an outstanding tax debt. That may be increased due to some actions taken by the taxpayer, including a bankruptcy or filing OICs that were rejected. These activities will toll the statute from running, just adding time on for the IRS to try and collect. If the tax debt is old and nearing the running of the ten year statute, then an OIC may not be the way to go: it will just stop the statute from running and if not accepted just wasted time and money. If, however, the debt is reasonable new then an OIC may be the best option to settle the back tax debt. Nobody wants an old tax debt hanging over them for 10 years.
Dissipated Asset Issues
A dissipated asset is an asset that could have been used to pay the tax debt but was instead used by the taxpayer to pay a different creditor. An example of this would be that, while the taxpayer owed money to the IRS, they made monetary gifts to their children. The IRS looks back three years to see if there were any dissipated assets, generally by reviewing tax returns to see if assets were sold off or gifted away. If there are dissipated asset issues, then an OIC may not be an option until after the three year look-back period has run.
If you have any questions about Offers-in-Compromises in Greenwich, Connecticut or elsewhere please feel free to contact me at (203) 285-8545 or by email at egreen@gs-lawfirm.com.
243 Tresser Boulevard, 17th Floor
Stamford, CT 06901
Ph. (203) 285-8545 x 102
Fax (203) 286-1311
