The Offers in Compromise (OIC) program, through which thousands of delinquent taxpayers negotiate down their debt to the IRS each year, has been revised and the new application package is now available, NAEA [email protected] reports. While negotiating an OIC has never been an option for the majority of taxpayers, key features of the program have changed dramatically enough that it will no longer be feasible for some and will be available to others for the first time.
Designed for taxpayers who might never be able to pay off their entire assessed liability for tax, penalties and interest in the years covered by the offer—“uncollectible accounts,” in IRS parlance—the OIC program has seemed like a lifesaver to many taxpayers in over their heads and has resulted in IRS collection of some debts that might otherwise have remained on the books.
Among the changes, which result from the Tax Increase Protection and Reconciliation Act of 2005 (TIPRA), taxpayers filing a lump-sum offer must pay a non-refundable 20 percent of the offer amount with the application. This upfront payment may be too steep for many taxpayers in trouble.
“The 20 percent nonrefundable deposit will stop all Offers funded by a mortgage on property, or large dollar OICs where the deposit exceeds $250,000,” says Dave Levine, EA, an enrolled agent in Reno Nevada and former IRS Revenue Officer. “For the past few months I’ve been telling my clients that if the debt is over $100,000, plan on going through the appeals process, since large dollar offers are seldom approved at the lower levels.”
On the other side of the coin is the new income level threshold at which applicants must pay the 20 percent down payment or an initial installment payment. The new threshold is set at approximately 250 percent of the Health and Human Services-calculated poverty level, making an OIC accessible to many Americans with low incomes.
Included in the changes is a redesigned checklist to help taxpayers determine whether or not they are eligible to file an OIC before they invest time in preparation. If they feel they are and choose to go this route, the National Association of Enrolled Agents (NAEA) recommends consulting a licensed tax professional.
“The program is tough and self-prepared OICs have a very low rate of approval,” comments Levine, whose experience as an IRS Revenue Officer has given him insight into the inner workings of the OIC approval process. “On the other hand, it’s workable with a highly-trained professional.”