Offer in Compromise

The IRS has the authority to settle or compromise federal tax liabilities by accepting less than full amount under the program of Offer In Compromise. One of the three circumstances must be established in order for the IRS to accept IRS Offer in Compromise and resolve the debt:

1. Inability of the taxpayer to pay off the tax debt in full. This is the most common type of Offer in Compromise (OIC). Under this type of OIC the taxpayer makes a representation that based on the taxpayer's financial condition IRS will not be able to collect the entire tax bill from the taxpayer. The amount of this OIC must reflect the amount of the equity in taxpayer's assets plus the amount that the IRS could collect from taxpayer's future income.
2. Actual presence of tax liability. The taxpayer must prove that the amount of tax or any penalties being billed by the IRS are erroneous. This OIC is generally used if a taxpayer was unable to defend himself against an assessment by the IRS, and has now discovered additional evidence to prove that the amount being billed is wrong.
3. The settlement would promote effective tax administration. This type of offer requires the taxpayer to explain his exceptional circumstances, showing why requiring the payment of the tax liability in full would either create an economic hardship or would be unfair and inequitable.

A successful Offer in Compromise can provide to the taxpayer such significant benefits as:

• The IRS will hold collections while the OIC is being considered;
• Tax liens will be released once the o OIC is completed;
• OIC allows the taxpayer to stay out of bankruptcy, and even reduce taxes that would not have been dischargeable in bankruptcy.

There are also downsides of the Offer in Compromise process. The main negative features of making an OIC are as follows:

• The taxpayer must make a full financial disclosure to the government;
• Certain tax benefits will be waived if OIC is accepted;
• A federal OIC does not resolve state taxes or any other debts.

The acceptance of the IRS Offer in Compromise requires that the taxpayer must remain current on all tax obligations for a period five (5) years. That means the IRS might revoke the OIC, if the taxpayer's OIC is accepted and paid in full, but he later fails to pay current income taxes or other taxes.

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The 10 most important things you need to know about Offers in Compromise

In order to qualify to file an OIC, you must have filed all of the tax returns you are required to file; however, you do not have to make payment on those filed returns. In the case of self-employed individuals, “compliance” means filing and full payment for two consecutive quarters.

The settlement procedures depend on how much is collectible from you. It has nothing to do with how much you owe to the IRS . For example, a $4 million tax liability could be settled for $1,000 if you are only collectible for $1,000.

For collectibility, the IRS looks at both assets and income.

In analyzing income, the IRS is required to allow you to offset your income with reasonable and necessary living expenses (e.g., housing, food, transportation, heath care, court ordered payments, child care, etc.).

The IRS will discount assets to their “quick sale” value. In the case of real estate, cars and other fixed assets, the IRS discount is at least 20% in almost all cases.

If you disagree with an IRS determination by an Offer Specialist, the offer can be appealed to an IRS Office of Appeals. The appeal conference is informal.

If the IRS is actively pursuing a collection action against you (either a levy, lien or garnishment of wages) , you can appeal that collection action in what is called a Collection Due Process Appeal. During that Appeal hearing, you can offer an Offer in Compromise or an Installment Agreement as an alternative to the collection action.

All tax liabilities of individuals and corporations can be compromised, including payroll tax liabilities and tax liabilities for tax fraud, and any tax liability not dischargeable in bankruptcy.

The Congress requires the IRS to have a “liberal acceptance” policy for offers in compromise. The legislative tax policy for offers-in-compromise is to give taxpayers a “fresh start.” The IRS adopts that tax policy.

A tax liability can be settled, even if you are collectible for the full amount of that tax liability, if you can demonstrate “special circumstances” for those assets or income. This can be done if the settlement is important for “effective tax administration."

 

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Md. man sentenced in prisoner tax fraud

A Baltimore man has been sentenced to 25 months in prison for his role in a plot to file fraudulent tax returns on behalf of state prison inmates.

The U.S. Attorney's office says 66-year-old Giacumo Marzano was sentenced Tuesday for his guilty plea to charges of conspiracy to defraud the United States and aggravated identity theft. He was also ordered to pay $200,000 restitution.

Marzano was one of three people who pleaded guilty in the scheme.

Federal authorities say he gave blank federal tax returns to prison inmates, who then returned the completed forms with false information. Marzano submitted the returns to the IRS and received the fraudulent tax refund checks.

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Berryville Man Busted In Alternative Banking Scheme

A Berryville man pleaded guilty to operating a $100 million alternative banking system that allowed members to shield their financial transactions from the Internal Revenue Service.

Wayne A. Hicks, 52, in a negotiated plea agreement with federal prosecutors, pleaded guilty in Fayetteville to conspiracy to defraud the federal government of income taxes.

According to the U.S. Attorney's Office, the alternative banking system, known as ICIS or MYICIS, was created in 2002 for a group called Americans for Lawful Financial Independence and Information. ICIS is an acronym for several names, including Integral Currency Interchange System, Interactive Currency Interface System or Internet Check Issuance System.

The members were involved in the so-called Patriot Movement and were generally anti-government and did not pay federal taxes. Some schemed to overthrow the federal government, according to prosecutors.

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For Medtronic, the IRS comes calling -- late

When Medtronic Inc. arranged to trim its tax bill by licensing intellectual property to a Swiss subsidiary, Bill Clinton was campaigning for his second term as president and "Braveheart" was playing in movie theaters.

Roughly 12 years later, the Internal Revenue Service informed the Minneapolis-based medical-technology maker hat the arrangement was improper -- and that it owes an additional $53.6 million in taxes as a result. Medtronic disputed the claim and started proceedings in U.S. Tax Court, where it has requested a trial in Chicago.

Medtronic's case highlights the tension between companies seeking to deliver increasing profits to shareholders using so-called "transfer pricing," and regulators struggling to rein in a practice blamed for cheating the government of badly needed revenue.

U.S. companies regularly use transfer pricing to reduce their tax burden by shifting intellectual property abroad, in order to avoid relatively high corporate tax rate in this country. As long as the companies license the intellectual property to a foreign subsidiary at a reasonable price, they're likely to pass muster.

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Taxpayer From West Virginia Hires Roni Deutch's Law Firm After Bad Experiences With A Competitor

The Flohrs of Falling Waters, WV found themselves behind on their taxes, and because of excess IRS penalties and fees their total tax liability had added up to an unrealistic amount. Between huge payments to the IRS, and a skyrocketing cost of living, the Flohrs were unable to meet basic living expenses. They had been working
with another tax settlement company for months before calling Ms. Deutch's office and while the other company was able to reduce the total liability, the settlement proposed was not one that Mr. Flohr could afford.

Shortly after contacting Ms. Deutch's office Mr. Flohr decided to retain the law firm for placement on the IRS' Currently Not Collectible (CNC) status, which protects a taxpayer from IRS collections. It demonstrates to the IRS that a taxpayer cannot afford a monthly payment to the IRS, let alone to full pay their back tax liability. This is done by proving to the IRS that a taxpayer's monthly living expenses exceeds his or her gross monthly income and that the taxpayer does not have any valuable assets that could be easily liquidated to pay off the IRS tax debt.

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Tax attorney pleads guilty to failure to file

Prominent Honolulu tax attorney and accountant Michael "Mickey" Rosenthal pleaded guilty yesterday to failure to file a federal income tax return for the year 2000.

The guilty plea to the misdemeanor offense was part of an agreement Rosenthal and his attorney reached with the U.S. attorney's office.

The government agreed not to pursue claims that Rosenthal also failed to file personal tax returns from 2001 through 2005.

He agreed to pay more than $280,000 in back taxes owed.

Federal Magistrate Judge Leslie Kobayashi sentenced Rosenthal to one year of probation, including a six-month stay in a halfway house.

Assistant U.S. attorney Leslie Osborne cited the defendant's education and background in asking Kobayashi to send Rosenthal to jail for up to a year.

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