OIC 101: Effective Tax Administration

An Effective Tax Administration OIC , aka ETA is not well known when it comes to OIC'S. The reason for that will be very apparent as we go through the qualifications to successfully get one accepted. First of all there can be no doubt you owe the tax. So if your the typical delinquent tax fugitive who thinks they shouldn't owe that stinking tax anyway. Hang it up! There has to be no doubt that you owe the tax. You also cannot be a candidate for a doubt as to collectability. Another words you got the money to pay it in full or the ability to pay it over time.Compared to Doubt as to Collectibility (DATC) In a Doubt as to Collectibility (DATC) offer, the tax liability equals or exceeds the taxpayer's reasonable collection potential (RCP) which is:
Net equity, plus
Future income
In an Effective Tax Administration (ETA) offer, the tax liability is less than the taxpayer's reasonable collection potential (RCP). The taxes owed can be collected in full either:
In a lump sum, or
Through an installment agreement (IA) as stated previously.
Now that you know what will disqualify you what does a tax payer have to do to get an ETA offer accepted ?Here are the 3 basics.

Before we can consider a compromise based on economic hardship or public policy/equity considerations, three factors must exist:
A liability has been or will be assessed against taxpayer(s) before acceptance of the offer.
The net equity in assets plus future income or reasonable collection potential (RCP) must be greater than the amount owed.
Exceptional circumstances exist, such as the collection of the tax would create an economic hardship, or there is compelling public policy or equity considerations that provide sufficient basis for compromise.
A very narrow amount of these offers are accepted. Only a tax resolution firm usually has the expert staff IE enrolled agents to get a ETA offer accepted.

OIC 101: Doubt As To Liability

In some cases tax payers are convinced they either don't owe their tax liability at all or in part. This is known as "Doubt As To Liability ." Normally you file an OIC on a form 656-A. In this case you would be referred to the alternatives to offers and compromise section in the IRM (Internal Revenue Manual). You may also use these remedies if you disagree with the accuracy of the tax. These alternatives are usually allot less complicated than OICs.

If you choose to compromise the tax amount, you must submit in writing why you think you don't owe the tax. You must also describe in detail the circumstances how the said totals are inaccurate. Include any documentation and evidence you have to support your claim. If you believe you owe none of the tax, see the alternatives section. One thing to consider is that an OIC will not be accepted on any tax that has been finally determined by tax court, any other courts or by the commissioners final closing agreement.

OIC 101: Doubt As to Collectibility

With this OIC you get to bare your soul and say "I did it! I owe it! But I cant pay in this life time or in two life times. Woo I feel better ! NOW that I got that off my chest."

Actually it is a little less dramatic than that. If you owe a tax and there is not enough time left on the statute of limitations to pay it, you could qualify for this offer. There are some circumstances that could disqualify you—namely assets that could be liquidated. Also, if you have a high enough monthly income the IRS feels you could pay enough of a payment. They will look at these first by doing a full financial investigation. This will include documentation proving your monthly income, assets, and liabilities.

To have a chance at the OIC do not attempt to put this information together on form 433 by yourself. This is a common mistake of your "do it yourself people". The IRS loves this but you will not like the outcome. Seek out a professional tax resolution firm.

OIC 101: What Can I Offer?

This would be a comical subject if it were not such a serious problem. I would not be exaggerating to say that over 3/4 of the OICs I see offered probably should have been given a second look. The amount offered often looks like the taxpayer and the CPA sat across from each other and said "what do you feel like you want to offer them?" As if they were buying a house.

Another trend is to offer too much, usually due to lack of information and expertise. When I have browsed through our software system and the minimum offer amount is revealed, it is usually lower than the client's proposed amount (originating from advice from non "tax resolution" sources). This is an expensive way to play darts and hope you hit a bull's eye. If you have filed an OIC and you did not consult a Professional tax resolution firm, withdraw your offer immediately, BEFORE you get a denial letter. All minimum offer amounts must generally be equal to, or greater than, a taxpayer's reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer's realizable value in real and personal assets, plus future income. Sound like you could just whip that data up real quick? Right.

OICs 101 : Do You Feel Lucky, Punk?

Have you ever known that guy or girl who always wins raffles or contests, or they win stuff from radio stations by being the 8th caller? Do you personally know anyone who has won a jack pot in Vegas? I wish there was at least someone in my family who won the lottery. That would be close enough to lucky for me.

For the rest of us, here are the odds we have to beat to be one of the lucky ones with the IRS. As of last count, there are 8.2 MILLION delinquent tax payer accounts actively in the IRS's system for the year of 2007. Out of those delinquent accounts there were 12 thousand OICs accepted. I hate math but this math I really didn't enjoy. You have less than ONE % chance with those numbers to come out with an OIC accepted.

I mentioned luck in my title. There really isn't any room at all to rely on luck. Self representation (doing it yourself) or calling a firm that promises everyone an OIC is definitely a good way to be another statistic. Tax offers or OICs need to be done the first time by a reputable tax resolution firm.

OICs 101: SHOW ME THE MONEY

Yes, it will cost you money right up front to even submit an OIC. Starting in 2001 the IRS started off setting costs of frivolous OICs being submitted. This due to alot of "do it yourself", "self representation" being attempted by the public. There were also many inappropriate offers submitted by less-than-scrupulous tax firms, CPAs and/or tax lawyers to delay enforced collections. This $150.00 filing fee, according to the Commissioner of Small Business/Self-Employed Division, will help redirect resources to the processing of acceptable offers.

"Taxpayers who file an OIC will have to pay the application fee with their submission unless the offer is based solely on doubt as to liability, or the taxpayer’s total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines. Taxpayers who claim the poverty guideline exception must certify their eligibility."