Did it again! Settled Taxes with an Offer in Compromise

Who did your offer in Compromise - What were they thinking?

Now as I promised this is the latest war story. Of course before you read this, I am warning you that it is my bragging forum. So if you can't take me feeding my ego, then stop right here. On the other hand you might learn something or stimulate a new idea.

About a month ago I got a call from a CPA who is a friend of mine. I will call him Ron but that is not his real name. He had submitted an offer in compromise for a couple and the Offer Specialist had rejected the offer and countered with an offer to settle for $45,943. The taxpayers owed about $86,000. The couple could not afford the $45,000 counter offer. Ron the CPA did not know what to do and asked for my help. I had him fax over the IE and AE Tables that the Offer Specialist sent with the rejection letter. The worksheets showed $8,647 in equity in assets, future income of $37,296, and no retired debt. (Hence the 45,943 counter offer) Ron had offered $4,500 for to settle the taxes in full and solve the couple’s tax problems. I looked at the worksheet for a few minutes and told Ron what I thought. He told me that he would rather I handle the matter and sent the couple to see me.

The couple came to see me. The husband was on disability and the wife was a school teacher. They had one minor child and the wife had a small business on the side.

The AET showed $5,347 in a bank account. I challenged the inclusion of this amount on the AET. Turns out that this account was in the name of the minor child with the child’s social security on the account. The majority of the funds in the account could be traced back to SSI income to the child, which she received as a result of her father’s disability.

The AET also included $1,300 equity in a 2000 Chev Blazer and $1,200 equity in a 1991 Ford F150 pickup which was valued at $2,500. I challenged the $2,500 Net Realizable Equity in the vehicles. The couple had traded the 2000 Blazer for a 2005 Tahoe when GM had employee discount for everyone sale. There was no equity in the new vehicle. I also challeneged the $2,500 value placed on a 15 year old pickup truck.

The IET showed a Future Income Value (Present Value of an Installment Agreement, also fondly referred to by the acronym PVIA) of $37,296, which was based on 48 times the installment amount of $777.

Included in the income and consequently the installment amount of $777 was the SSI income of the minor child. The child was receiving $544 per month in SSI payments. I challenge the inclusion of the SSI payments to the minor child.

The original IET had allowed only $960 for transportation. I argued that since wife’s old car became undependable and she was required to purchase a new one that the transportation allowance should be increased to reflect the increased monthly note on her new vehicle. This increased the allowable transportation expense by $51 and decreased the Reasonable Collection Potential by $2,488. (Hey every little bit helps)

When I met with the OIC Specialist, he agreed to the increase in transportation allowance, the change in equity in the vehicles, to remove the kids SSI income, and to lop off most of the kids bank account ( all but money deposited by the couple). Any way the out come was........ (drum roll) $7,040. I got the OIC Specialist to agree to settle the taxes and solve my clients tax problems for a measly 7 grand. I saved my clients over $39,000 in on the offer in compromise more than the CPA had done with his best offer. NOT BAD. My clients thought so too.


compromise tax settlement Tax Attorney Irs Levy IRS Lien Irs Problems

Offer in Compromise War Story Central

Tax Settlement Negotiation War Story Central

You now have arrived! Yep. My next post will be my first war story on IRS Offer in Compromise negotiation.

I have a good friend who is a CPA. His name is Jim. He is a great CPA and has referred several Offer in Compromise clients to me. He had recognized before that the client needed an expert in tax settlement and compromise negotiation so he has sent them to me. The last guy he sent me was a train wreck and owed a boat load of money to the IRS. Anyway I settled his tax, and resolved his IRS problems with and offer in compromise, for literally pennies on the dollar. (This settlement is a war story in itself) So several weeks ago I was surprised when the clients showed up and told me Jim had referred them but that he had submitted and offer for them. The OIC specialist had rejected their offer cold and told them that they could full pay. Yesterday, I settled their case for $7042. This was less that seven cents on the dollar. Next time I will tell you how. Right now it is Friday night and I am tired. Did someone say it was cocktail hour?

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Ernharth Perspective � Blog Archive � The Fair Tax Ain�t so Fiscally Responsible

Ernharth Perspective � Blog Archive � The Fair Tax Ain�t so Fiscally Responsible

A national sales tax? pooh! The only feasable fair tax is a flat rate broad based income tax. We tax income at a percentage needed to pay the bills. The tax revenue comes from earned income and it does not matter who earned it.

Easier official Information From IRS on Offer in Compromise

The IRS has redesigned its web site. They have tried to create a more usable “look and feel” for the site. The navigation has changed and so has the search engine. They promise a more enhanced search feature. They have also promised more content. Will this help you solve your IRS problems or get out of tax debt easier? Maybe. See the new site and get the latest official word on IRS offer in compromise.

So if you are fighting off a wage levy or bank levy you might want to check out my IRS Levy News Blog

The are some new cases on IRS offer in compromise I have not gotten to, but will be bloging in a few days. If you need information on how to get out of tax debt and settle taxes with the IRS you need to check out IRS Offer in Compromise News
Every thing you need to know about Offer in Compromise with the Internal Revenue Service

Moving this Blog to Blogger

This blog has just not been real active. I started up again with a lot of new information and the a plan to keep all the new cases involving offer in compromise up to date. So you will find all the news on my new blog "IRS Offer in Compromise News" I will keep this one going but reserved for my general commentary on the IRS and their audit and collection efforts. I have also started a blog on IRS levies and you can get the latest news on levies there. Check out IRS Levy News

Quatloos! Anti-IRS Theories: Inane tax protestor theories which never, ever win as developed by the pro-wrestling crowd.

Quatloos! Anti-IRS Theories: Inane tax protestor theories which never, ever win

As a tax practitioner I often see first hand the misery caused by tax protester arguments. I get clients who have bought into some scam showing them that they don't have to pay the income tax. And when I say "bought" I mean that literally. They have paid hard cash for the so called information.

The scam artist gives them a voodoo incantation and convinces them when the evil IRS comes calling all they have to do is to repeat the words of the magic spell and the IRS will slither cowardly away.

They live comfortably for a while and as time goes by they even get comfortable with their new found anti tax weapon. The fact is that the IRS is under staffed and it may take years to find these people. Some actually do slip by and are never detected. This lends even more credibility to the effectiveness of the voodoo curse.

However, when the IRS search beam finds them and they come face to face with powerful machinery of the Internal Revenue the voodoo curse simply does not work. The fear, disbelief and disappointment in their eyes as the IRS steam roller crushes them, is not a pretty site.

Usually by this time the amount of tax, penalties and interest due is more than they can pay and they loose every thing.

The only out is to try an offer in compromise using my techniques.

Tax Court refuses to help old man settle taxes

Sal and Ruth Alaniz vs Commissioner of Internal Revenue
January 2005
Sal Alanz was a 73 year old insurance salesman with high blood pressure and sever vision impairment. Ruth his wife does not work. Sal and Ruth owed $221,000 for the tax years 1994, 1996 and 1997. In 2002 the Internal Revenue Service issued a notice of intent to levy against Sal and Ruth. Sal and Ruth sought a Due Process Hearing on the notice of intent to levy. In the context of the CDP hearing they offered to settle their taxes for $2,000.

The Appeals officer determined the collection potential to be 46,000 which was future income for 48 months of $34,176 plus $11,000 for the value of a 1964 Ford T Bird which they transferred to their son for less than adequate consideration.

They could not reach an agreement. The Appeals Officer rejected their offer and sent them a notice which allowed them to file a petition in the Tax Court.

The sole issue before the court was whether the IRS Appeals Officer abused his discretion.

The Court focused on procedural issues to reject the Tax Payers claim for relief.

The case is not a monumental decision but is a very good case to learn some important lessons I will be discussing in future blogs.

How to get into court on a rejected offer.
Transfer of Assets for less than adequate value.
Importance of presenting all your evidence to the Appeals Officer
Standard of Review
On Shot
Pleading your case properly
Age and Health Considerations
and more...

Anyway the score on Tax Court siding with a Taxpayer on a rejected offer keeps piling up. Another win for the government. Does a Taxpayer have any chance at all in the Tax Court on a rejected offer?

Where oh where is my Offer in Compromise?

For each of the last three years the IRS has received approximately 125,000 offers in compromise. That is a lot of Forms to process for the relatively new Centralize Offer in Compromise (COIC) Units. There are only two COIC units. On is located in at the Memphis Service Center in Memphis, Tennessee and the other at the Brookhaven Service Center in Holtsville, New York. While these units are now several years old they are still youngsters in an agency that is approaching a centennial birthday.
Putting together a new unit to handle the 125,000 or so offers each year has been no easy job. The Service has attempted to automate and streamline the process. This attempt has lead to some major problems with the processing of individual offers and on occasion has resulted in absurd outcomes. With the acceptance rate going down to 20% from a high of 39% in 2001, one has to wonder whether the decline in the acceptance rate is the result of a flawed system or an intentional tightening of the criteria for acceptance of offers by agency management with a bias against offers in compromise.
In August of 2003 the IRS revised its procedures for the initial processing of the offer in compromise. Previously, an individual Revenue Officer (RO) who received an offer in compromise while working an assigned case would make some initial determinations and would "load the offer" into the Automated Offer in Compromise System. (AOIC system). Additionally the RO will no longer determine the processability of the offer. This is a major change in the procedure. The job of loading the offer into the AOIC system is merely ministerial and does not represent a big procedural change. However, taking the processability determination from the RO in the field is a major change.
The processability determination is the threshold inquiry made by the IRS. If an offer is determined not to be processable then it is returned to the taxpayer and the taxpayer has no appeal rights. The distinction between a "rejected" offer and a "returned" offer is a big one. The taxpayer whose offer is rejected has appeal rights while the taxpayer whose offer is returned has no appeal rights. An offer that is not processable is "returned" not rejected.
It is no secret that ROs often get confrontational with taxpayers and sometimes this can lead a zealous RO to come down on a taxpayer who is not being as cooperative as the RO would want. In such a case an RO could arbitrarily determine that an offer in compromise submitted by a taxpayer is not processable and the taxpayer would have no avenue to appeal the arbitrary determination.
Another important change was implemented at the same time. As of August last year the COIC sites will now retain, for investigation, all wage earner cases that are deemed processable. I found this hard to believe, but the memo I saw was quite clear. I have yet to see an exception to this procedure but keep expecting one for large tax debts or high income individuals. This also is a major change.
There are two classification of employees that investigate offers in compromise. There is the Offer Examiner and the Offer Specialist. The Offer Examiner is located at the COIC unit in the Service Center. The Offer Specialist is located in the various posts of duty across the county.
The Offer Examiner is likely to have a different background from the Offer Specialist.
Most Offer Specialist were promoted from a Revenue Officer (RO) position. They were trained in and have field experience in investigating a taxpayers ability to pay past due taxes. They have developed a "feel" for collection and utilize not traditional sources of information. Often times they may have a "blood hound" mentality and work hard to collect every penny owed the government. This often leads to a bias against accepting an offer in compromise. The Offer Specialist can drive by the taxpayers home, see what vehicles are parked there, search the local court records for real estate or recent transfers. On the other hand the Offer Specialist, may conduct a personal interview with the taxpayer and is in a better position to recognize that the account is truly uncollectible.
The Offer Examiner is not likely to have been a Revenue Officer and is very likely to have spent most of their career at the Service Center, with a processing background. The Offer Examiner has to rely on the traditional and electronic investigative tools such as Department of Motor Vehicle Records, Secretary of State Reports, Credit Reports, and items reported to the IRS by payors such as W-2s and Form 1099s. The disparity in the investigative ability is lessened somewhat when the offer in compromise was obtained by a Revenue Officer during the investigation of an assigned case. A Revenue Officer receiving an offer in compromise from a taxpayer must fill out the Form 657 and either recommend that the Service withhold collection or that collection not be withheld. An assigned case will have a case history prepared by the Revenue Officer and this history will usually contain the type of information that an Offer Specialist would look for. The Offer Examiner may well rely heavily on the case history and the investigation prepared by the Revenue Officer. However, not all offers in compromise are originated during and investigation by a Revenue Officer and it is in these cases where the Offer Examiner is somewhat handicapped in their ability to get third party information about the taxpayer.

There is no way to know if you would be better off in COIC with an Offer Examiner or with your case being assigned to an Offer Specialist. A lot depends on the personality of the Offer Specialist and the individual facts of your case.

You can find help with your OIC in my ebook Offer Secrets Revealed available at Offersecretsrevealed.com.

New COIC assault Tactic

It continues to be very obvious to anyone working in the offer in compromise area that COIC is aggressively looking for new and better ways to reject or return an offer in compromise. The latest tactic is to invoke a little obscure section of the manual which states that an offer should not be accepted if the taxpayer could pay the liability in full in the the time remaining on the statute of limitations plus one five year extention. I call it the Full Collection Test. If the amount of the Full Collection Test calculation exceeds the taxpayers liability then the IRS will reject the taxpayers offer to compromise no matter how much the taxpayer offers.

The Full Collection Test calculation involves finding a multiplier and then multiplying the installment amount by it. If the liability of the tax payer is greater the offer passes the test. If on the other hand the liability of the taxpayer is lower then the taxpayer fails the test and his offer will be rejected.

To find the multiplier you must determine the number of months left on the statute of limitations for the most recent tax period and add sixty months to the number. For most people this will be over 150 months. The total number of months becomes the multiplier which is used to calculate the Full Collection Test. Then the installment amount, the amount by which the taxpayers income exceeds the allowable expenses will be multiplied by the multiplier. If the result is greater than the tax liability then the offer in compromise will be rejected.

Here is an example: The Taxpayer has no equity in assets and his monthy income exceeds his allowable expenses by $300. There are 98 months left on the statute of limitations for the most recent tax period in the offer. The "reasonable collection potential" or the amount the IRS should accept to settle the tax liability in full on a cash offer is $14,400. ($300 times the 48 month multiplier). In the past the IRS would accept a $14,400 offer as long as the taxpayer owed more that this.


However, now the taxpayer must pass the Full Collection Test. To calculate the Full Collection test for this taxpayer, 60 months is added to 98 months left on the statute of limitations for the most recent tax period on the offer in compromise. 60 + 98 = 158. Now 158 is multiplied by $300 (the installment amount). 158 times $300 = $47,400. If the taxpayer owes more than $47,400 then he passes the Full Collection Test and is still eligible to compromise his taxes. However if the the taxpayer owes less than $47,400 then his offer in compromise will be rejected.

If you find the Full Collection test is an impediment to an offer in compromise you should not withdraw your offer but appeal the rejection. An offer specialist has the authority to negotiate. For example the taxpayer may be close to retirement. The offer specialist could use this as justification to waive the Full Collection test and compromise the liability.

If you need help in submitting an offer in compromise you will find my book Offer Secrets Revealed to be very helpful. http://offersecretsrevealed.com

Dissension in the Ranks: COIC vs Appeals.

Just a note to you bloggers about a little new information I was able to squeeze out of an Offer Examiner today. There is apparently some dissension in the ranks and some inter agency dispute going on. I have been blogging about how the COIC is using every technique that middle management can come up with to reject or return an offer. It appears that the Offer examiners are being coached to encourage a taxpayer to withdraw their offer once the Examiner has found some excuse to reject the offer. Once an Offer Examiner finds a reason or excuse to reject an offer the taxpayer has two choices. Withdraw the offer or take an appeal.

Now with the COIC using every flimsy excuse they can find to reject an offer the number of rejections are up and the number of acceptances are down. This also means that for those few taxpayers brave enough to not follow the urgings of the Offer Examiner, more appeals are being taken from offer rejections. Therefore there are more offer appeals being taken than the Appeals office was counting on.

So the word from the ranks of Offer Examiners is that they are beginning to resent the loss of some of their discretion. They have also started to complain that the software they use to evaluate an offer often returns some absurd results creating improvident rejections of good offers. This little dissension has caused many sympathetic Offer Examiners to encourage the taxpayer to take an appeal rather than follow the party line and encourage the taxpayer to voluntarily withdraw the offer. Consequently the number of appeals has apparently soared and the guys and girls at Appeals management are wanting to know what the problem is. Some high level meetings have taken place in the last few weeks and apparently some changes are being made to the software to allow the Offer Examiner a little more discretion to override absurd results returned by the computer program. Has Appeals had their last say? I wish I knew how I could find out. Have any ideas? Send me your suggestions.

New Offer in Compromise Numbers

Well the new numbers are out at the IRS. The 2003 collection statistics show a frightening trend about offers in compromise and confirms what I have expected for some months now. The leadership at the Centralized Offer in Compromise unit at the Internal Revenue Service is working day and night to come up with ever more creative ways to reject or return an offer in compromise and the newly released numbers prove it.
These numbers are in thousands:
Year |Received |Accepted |Percent |Amount
1999 | 105 | 31 |32%|N/A
2000 | 109 | 32 | 29% | $316,214
2001 | 125 | 39 | 31% | $340,778
2002 | 124 | 29 | 23% | $300,296
2003 | 128 | 26 | 20% | $243,942

So the word from the insiders is that the IRS does not like offers in compromise so the Centralized Offer in Compromise employees are being told to find any way they can to return or reject the offer. Is this what Commissioner Everson wants? What about congress? Wonder if they know that choking off the flow of accepted offers in compromise cost the taxpayers $137,000,000 in a 24 month period. Who is running the IRS???

Continuing Saga: Dissipated Assets

The Internal Revenue Manual very clearly requires that justification for the inclusion of dissipated assets in the offer amount must clearly be documented in the case file.

The documentation of the justification for inclusion of dissipated assets should include an analysis of the following facts:

1. When the assets were dissipated in relation to the offer submission,

2. How the asset was dissipated,

3. If the taxpayer realized any funds from the dissipation of assets,

4. How any funds realized from the dissipation of assets were used,

5. If the funds or any portion thereof were recoverable by the IRS or the taxpayer, and

6. The value of the dissipated assets and the taxpayer's interest in those assets.

The IRS manual clearly requires the offer examiner or the Offer Specialist to investigate and consider these factors when determining the wheter to include the value of the dissipated asset in the offer amount. However, in my experience the Offer Examiners at COIC have been given little discretion and are told to include any possible dissipated asset in the offer amount without conducting the analysis required by the manual.

I suspect something is going on at the IRS and that this ill practice is not coming from higher up, but rather is at some mid level management position. My guess is that some goal as to the number of processed OICs is at the bottom of this. Perhaps they are looking for a certain rejection rate or have a quota of offers to work completely and finding dissipated assets is the easy way out by suggesting full pay. There are people who know, but they are not talking. I am trying to get to the bottom of it but as it is with anything at the IRS internal information can be hard to come by. Next time, more discussion on dissipation of assets: examples and exceptions.
Learn more about how to qualify for an offer in Compromise by finding out the 5 Steps to Qualify for an offer in Compromise

Dissipation of Assets

The Dissipation of Assets saga continues. Lets take a little refresher course on the concept of dissipation of assets. Generally during an offer investigator the IRS may discover that specific assets or a portion of certain assets have been dissolved, sold, spent, disposed of or are otherwise no longer available to pay the tax liability and have therefore not been included in the proposed offer in compromise amount. When this happens what should a diligent Offer Examiner or Offer Specialist do?

First it Should be noted that the Offer examiner or Offer Specialist should expand its investigation in an attempt to find dissipated assets. I happen to believe that COIC is doing just that to find excuses to reject offers.

Now once it is determined that an asset has been dissipated, the investigation should address whether the amount of the dissipated asset should be included in the offer amount. Now this is a little tricky, because if one were to include the amount of a dissipated assets (an asset that is no longer available for payment of the tax liability) in the amount of the offer then the amount of the offer will exceed the Reasonable Collection Potential.

Now the concept of Reasonable Collection Potential is that the IRS will accept in an offer in compromise the amount that it could collect now and in the next five years. This is a difficult number for most taxpayers because they don't have access to 5 years of future income.

Now when the IRS adds to the amount of the Reasonable Collection Potential the amount an asset that is no longer around to arrive at the amount of an acceptable offer in compromise, they will make the case impossible to settle.

It is a catch 22. The IRS is saying we will settle your tax liability for an amount which is the most you can pay plus however much money you had when you got in trouble with the IRS. Duh.

I am not sure where this logic came from but I am not convinced it came from the top. I am trying to run it down.

More on the dissipation of assets saga later. My next blog will discuss when a dissipated assets should be included under the manual and the apparent abuse of Centralized Offer in Compromise in use of the dissipated asset issue to reject offers in a wholesale fashion.

To learn more about offer in compromise you can check out IRS-Offer-in-Compromise.com

I have also written a book on Offer in Compromise which you might find helpful in your dealings with the IRS.

Dissipated Assets dilemma

Every day things the IRS does just seem amazingly stupid. Whenever I discover something new it appears to be absolutely insane. I find this latest discovery particularly disturbing. About two weeks ago I was discussing an offer with an offer Examiner in Oregon. My clients are in their early 60's and after retiring thought they would become "stock traders". Well that was not such a good idea and they suffered very big losses. They had to take all the money they had out of their retirement accounts to cover some options and wound up loosing every thing. Oh, by the way they thought they would come out on the options and would pay the tax later. It did not happen. They had all the income from their retirement accounts and did not pay any tax. A disaster. Perfect candidate for an offer in compromise, or at least I thought so. Turns out they are not eligible for on offer in compromise at the COIC level be cause of "dissipated assets". Dissipated assets are assets the IRS feels you could have used to pay your tax. These dissipated assets are added to the calculation to determine the reasonable collection potential or the minimum the IRS will accept in an offer in compromise.
I was familiar with the dissipated asset concept. It is in the Internal Revenue Manual at 5.8.5.4
Internal revenue Manual on Dissipation of Assets
This little section apparently has been interpreted at least at the Memphis center to be the basis of rejection for almost all offers. If one takes such a broad interpretation of this very small section of the Internal Revenue Manual, then theoretically the Reasonable Collection Potential Analysis goes out the window. This is because that any taxpayer who owes the IRS money presumably had enough money at some time to pay the tax, and did not. This current interpretation can cause the entire process to fail.
As the Offer Examiner explained the new "catch 22" to me we both had a chuckle. She understood the folly but, hey, she was just doing her job. She strongly suggested I appeal the forthcoming rejection. Not only did she agree that this new management twist on Offer in Compromise was nonsensical but that hopefully the appeals personal were not operating under the previous rule.

......More on dissipation of assets later. This is an unfolding story. To learn more about offer in compromise you may want to look at my book. Offer Secrets Revealed on how to process an offer in compromise.

First Post

This blog is to help me and others like me try to cope and sometimes beat the great IRS dragon. There are a lot of people dedicated to trying to help others settle their hopeless tax debt to the IRS. An IRS Offer in compromise provides hope for many people who have have no hope and have resigned themselves to live in the shadows of society for as long as it takes for the statute of limitations (Collection Statute Expiration Date, CSED) to expire. This blog is dedicated to those people who would help others and want to share their successes and failers, their new discoveries and techniques and help forwarn of the fading efffectiveness of sone previously proven techniques.