Lawrence Lawler: Hi! I am Lawrence Lawler, National Director of the American Society of Tax Problem Solvers. We are discussing solving common tax problems.
The next segment will include the Offering Compromise program which many referred to as the government's let's make a deal program. When taxpayer owes the money they can't afford and the IRS is willing to inter settle for less than what they are owed.
There are three types of Offering Compromise. They are based on Doubt as to Collectibility, Doubt as to Liability, and Effective Tax Administration. We'll discuss each one of them separately.
Doubt as to Collectibility, as the name implies, has to do with a taxpayer who owes money but cannot afford to pay it, that is, far and away the most common type of an offering compromise. It has to do with a taxpayer owing beyond what he can afford to pay and documenting to the IRS the fact that he cannot afford to pay it. These offers must include full documentation which is done on a Form 433-A, which discloses all of the taxpayers financial information. From the 433-A Form, they take figures onto a 656 which is the actual offer itself. There's a worksheet that accompanies that. The tax payers got to complete that worksheet to determine how much of an offer he has got to make to the IRS to make it an acceptable offer.
Once the offer is prepared and submitted to the IRS, the taxpayer then has to wait for the IRS to evaluate it, often has to provide some additional information at the IRS's request, and then the IRS will make a determination as to whether or not the taxpayer is entitled to that offer. If they are, you have the terms of a contract, the offer being made by the tax payer, the acceptance by the IRS, and therefore a settlement, that is a contract by definition.
The next type of offer is an offer based on Doubt as to Liability. That's simply the taxpayer saying that for some reason they don't owe the tax that the IRS thinks that they owe. This also is a Form 656, although it's a different 656 version. It's a 656-L, and it does not require the taxpayer to fill out that 433-A Form that I mentioned earlier and disclose all of their financial information. Because they are saying they don't owe the tax, it's not that they can't pay it, it's that they believe they do not owe the tax.
There is no fee, by the way, for filing this form. The Doubt as to Collectibility Form, unless you are low income taxpayer, has $150 filing fee attached to it that does not apply to the Doubt as to Liability type offer.
Moving on from that, they have a third type of an offer that is very little used within the IRS. They don't accept many of the Effective Tax Administration offers. It's something they Congress put into the law a short time ago that allows the taxpayer who has the ability to pay and has the liability, they confessed to both of those, in effect that they owe it and that they have the money to pay it, but has a special reason not to pay it. For example, they have medical bills coming up and they need the money that they have in their bank account to cover those medical bills rather than to pay the IRS the back taxes they owe. So there is this special provision, but it's very little used within the IRS.
That's pretty much what you need to know to understand the Offering Compromise program. The most common one being the offer based on Doubt as to Collectibility unless you are contending that you do not owe the tax.
Next up, we're going to discuss payment plans or installment arrangements with the IRS.