Author Topic: Success and failures with Offer in Compromise (OIC)  (Read 5637 times)

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tocm

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Success and failures with Offer in Compromise (OIC)
« on: June 27, 2015 05:23:14 AM »
Wanted share my success and failures regarding OIC's with the IRS and California Franchise Tax Board (FTB)...

Owed $180,000 to the IRS and $36,000 to the FTB.

Did an OIC through an awesome attorney who did it pro bono!

IRS accepted my offer of $1,000 to settle the $180,000 debt!!!  :woohoo:

FTB said no to an offer of $100...most recently, made another OIC to the FTB for $12,000 to settle my tax debt...apparently, I have the potential to work for another 20+ years, so the FTB said that they don't want to accept any OIC's from me.  :soapbox:  Unfortunately, in California the SOL for tax debts owed is 20-years from the date of assessment.  For me, that was back in 2007, which leaves me another 12-years to go.  Unbelievable...

Flyingifr

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #1 on: June 27, 2015 06:47:35 PM »
I have been doing Offers in Compromise for almost 20 years, for taxpayers in 10-15 States so I have some understanding of the process.

All of the States are harder on OIC's than the IRS - because Congress mandated IRS to accept OIC's while no State has yet mandated cooperation, so while all OIC's are evaluated by the various tax collection areas, the OIC's are looked at very differently.

Here's how the IRS evaluates an OIC: First of all, IRS has a 10 year SOL to work around. Second, they have published Collection Financial Standards which they must adhere to. Third, the Internal Revenue Manual requires them to process an OIC in a certain way.

So.... if there is no monthly surplus of income and here is no net realizable equity in assets, acceptance of the OIC is almost guaranteed. I have had Offers of $25 accepted with tax debts in the mid 5-figures (actually, the amount of the debt is irrelevant).

If there is no monthly surplus of income but there is net realizable equity in assets, if the Offer is equal to or greater than the Net Realizable equity, the Offer will be accepted.

If there is a monthly surplus of income and no net realizable equity in assets, then if the Offer is a "cash" offer - payable in 6 installments or less, then an Offer of 12 times the monthly net surplus of income will be accepted. If the Offer is for more than 6 monthly payments and less than 25 then the Offer amount of 24 times the monthly surplus of net income will be accepted. In cases where secured debt will be paid off shortly, that will change the monthly net surplus of income, so the amounts may change. In no case can the payment time extend past the Collection Statute Expiration date (CSED or SOL).

If there is a monthly net surplus of income and net realizable equity in assets, add the net realizable equity in assets amount to the 12 or 24 times net surplus of income amount and that will be the minimum acceptable Offer amount.

The States look at it solely as a collection issue - meaning that they must be convinced that the taxpayer's financial condition will not improve before the applicable State SOL expires. Keep in mind that some States, like New York, have no SOL for tax debts. A New York Revenue Officer once told me "New York will not accept any OIC if the taxpayer has any assets. If the taxpayer has $1 to pay towards an OIC then that $1 is an asset and NY will reject the OIC." Others, like Kansas, will not consider any OIC. Others, like Massachusetts, have rules designed so that no OIC will ever be accepted. The Massachusetts rule is this - Mass DOR can reject any OIC for any reason, so if the OIC is for less than the total taxes due, it will be rejected. The taxpayer is free submit another OIC but it must be for more money than the one that was rejected. Now, where is the incentive to accept ANY OIC?  If the taxpayer is not dead, dying, permanently disabled or retired, it is highly unlikely a State will accept an OIC because they feel the taxpayer's condition may improve and the State will lose out on the abvility to collect the old (compromised) taxes. Often, when they do accept an OIC, a State will insist on a "Collateral Agreement" whereby if the taxpayer's income increases beyond a certain amount in a certain time (California generally uses 5 years after acceptance of the OIC) then the Offer amount increases with it.)

Some States will sometimes see the futility of collecting taxes currently but even though the taxpayer can demonstrate they have NO ability to pay anything, the State will insist on token payments. I had a California OIC like that and they insisted on 5 years of monthly $25 payments plus a Collateral Agreement that survived the payments by 5 years claiming 20% of any increase in the taxpayer's income over the current amount by 40%, meaning if the taxpayer's income increased by 50%, California would get 20% of the 50% for ten years).
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

tocm

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #2 on: April 20, 2016 01:16:10 AM »
Want to revisit this with Flyingifr...for my state tax debt, it is now dischargeable through BK (confirmed with a tax attorney).

From your expertise, do you think that I can leverage BK with the California Franchise Tax Board (FTB) so that they will accept my OIC?  I figure that something is better than nothing from their perspective.  Thoughts? 

Thanks!

wombat_ma

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #3 on: April 20, 2016 03:16:43 AM »
...Others, like Massachusetts, have rules designed so that no OIC will ever be accepted. The Massachusetts rule is this - Mass DOR can reject any OIC for any reason, so if the OIC is for less than the total taxes due, it will be rejected. The taxpayer is free submit another OIC but it must be for more money than the one that was rejected. Now, where is the incentive to accept ANY OIC? 

Massachusetts, however will agree to no-interest  payment plan (I am currently on such a plan) provided the taxpayer will consent to a tax lien and an automatic monthly debit from his account. My plan is 24 months, but could be longer if the taxpayer will agree to fill out a financial statement (I did not). Under such a plan the taxpayer also agree to be current on future state taxes while the plan is in force - if this or other terms of the plan are breached, the full remainingg balance is due.
I am not an attorney. My posts here are not legal advice.

Flyingifr

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #4 on: April 20, 2016 01:54:12 PM »
Want to revisit this with Flyingifr...for my state tax debt, it is now dischargeable through BK (confirmed with a tax attorney).

From your expertise, do you think that I can leverage BK with the California Franchise Tax Board (FTB) so that they will accept my OIC?  I figure that something is better than nothing from their perspective.  Thoughts? 

Thanks!

If you were in year 18 of the 20 year SOL that may work. Remember - State Revenue Officers are debt collectors, and debt collectors hear the threat of BK every HOUR. Now, if the proposal came from an attorney who specializes in bankruptcy with a sample petition showing CA FTB prominently as a creditor in the Unsecured Debts page, THAT may work.

BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

tocm

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #5 on: April 20, 2016 09:37:12 PM »
Some States will sometimes see the futility of collecting taxes currently but even though the taxpayer can demonstrate they have NO ability to pay anything, the State will insist on token payments. I had a California OIC like that and they insisted on 5 years of monthly $25 payments plus a Collateral Agreement that survived the payments by 5 years claiming 20% of any increase in the taxpayer's income over the current amount by 40%, meaning if the taxpayer's income increased by 50%, California would get 20% of the 50% for ten years).

If you were in year 18 of the 20 year SOL that may work. Remember - State Revenue Officers are debt collectors, and debt collectors hear the threat of BK every HOUR. Now, if the proposal came from an attorney who specializes in bankruptcy with a sample petition showing CA FTB prominently as a creditor in the Unsecured Debts page, THAT may work.

First and foremost, thanks for your expertise...as always!

I am in the same position as your old client...the fact that California is soooo unreasonable (and lacks any common sense given each individual situation), is perplexing and infuriating.

I figure that my SOL is on year 17 of 20...unless it has been tolled due to me being placed on a hardship status with no collection efforts by the State.

Anyways, I may need to contact my old tax attorney (who also does BK's), and see if your suggested tactic may fly...I figure that I will have a 50/50 shot (although based on California's asinine standards, it will be more like 20/80).

Thanks, again, for your wisdom!


tocm

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #6 on: April 20, 2016 09:38:11 PM »
Massachusetts, however will agree to no-interest  payment plan (I am currently on such a plan) provided the taxpayer will consent to a tax lien and an automatic monthly debit from his account. My plan is 24 months, but could be longer if the taxpayer will agree to fill out a financial statement (I did not). Under such a plan the taxpayer also agree to be current on future state taxes while the plan is in force - if this or other terms of the plan are breached, the full remainingg balance is due.

Thanks, wombat, for the reply.  I wish California was just as reasonable as Massachusetts!

Flyingifr

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #7 on: April 21, 2016 01:09:31 AM »
First and foremost, thanks for your expertise...as always!

I am in the same position as your old client...the fact that California is soooo unreasonable (and lacks any common sense given each individual situation), is perplexing and infuriating.

I figure that my SOL is on year 17 of 20...unless it has been tolled due to me being placed on a hardship status with no collection efforts by the State.

Anyways, I may need to contact my old tax attorney (who also does BK's), and see if your suggested tactic may fly...I figure that I will have a 50/50 shot (although based on California's asinine standards, it will be more like 20/80).

Thanks, again, for your wisdom!

Currently Not Collectable status does NOT toll the SOL. Bankruptcy and absence from the State/Country do.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

tocm

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #8 on: April 21, 2016 01:31:52 AM »
Currently Not Collectable status does NOT toll the SOL. Bankruptcy and absence from the State/Country do.

Great!  Thanks, for this info!  FYI...will be donating to the site shortly.  Thanks, again.

tocm

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #9 on: April 21, 2016 01:59:19 AM »
First and foremost, thanks for your expertise...as always!

I am in the same position as your old client...the fact that California is soooo unreasonable (and lacks any common sense given each individual situation), is perplexing and infuriating.

I figure that my SOL is on year 17 9/10 of 20...unless it has been tolled due to me being placed on a hardship status with no collection efforts by the State.

Anyways, I may need to contact my old tax attorney (who also does BK's), and see if your suggested tactic may fly...I figure that I will have a 50/50 shot (although based on California's asinine standards, it will be more like 20/80).

Thanks, again, for your wisdom!

Sorry...had to make this correction.  I'm still another 10-years away...will go speak with my old tax attorney based Flyingifr's recommendation...

jacko

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #10 on: July 01, 2016 07:13:24 AM »
The state of MN filed a tax lien for years 05/06 for nearly $8000 in 2012.    Never filed a return for those two years.  Out of the blue, while living in another state, they contacted me via voice in the last quarter of 2013.  Wanted to settle for $1000(could raise the funds from family, which I stated).  Nope, they wanted me to fill a OIC to send along with $50.  Asked for fee waiver, but they declined.  But it dawned on me, that it was a ruse to locate my assets with out them doing the leg work.  They already levied my checking, but only had $100 in it along with $200 in my Roth IRA.  Told the collector, you know how to reach me, but don't call unless you can offer settlement.  Had nothing to lose.  In the first quarter of 2014, the state released the unpaid lien.

However, months before the call, they issued returns for unfilled years 07/08 with a tax bill for $1500.  Had exactly $1500 in my emergency savings to pay it.  Since that time, after the lien was released, I was able to save $7000 which came in handy.   I never filed returns for years 05-08 for fed/state.  Last year, the IRS came calling for $6660 for year 08, which I paid.  Since 09, I filed each tax year.

Flyingifr

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #11 on: September 22, 2016 02:40:28 PM »
The state of MN filed a tax lien for years 05/06 for nearly $8000 in 2012.    Never filed a return for those two years.  Out of the blue, while living in another state, they contacted me via voice in the last quarter of 2013.  Wanted to settle for $1000(could raise the funds from family, which I stated).  Nope, they wanted me to fill a OIC to send along with $50.  Asked for fee waiver, but they declined.  But it dawned on me, that it was a ruse to locate my assets with out them doing the leg work.  They already levied my checking, but only had $100 in it along with $200 in my Roth IRA.  Told the collector, you know how to reach me, but don't call unless you can offer settlement.  Had nothing to lose.  In the first quarter of 2014, the state released the unpaid lien.

However, months before the call, they issued returns for unfilled years 07/08 with a tax bill for $1500.  Had exactly $1500 in my emergency savings to pay it.  Since that time, after the lien was released, I was able to save $7000 which came in handy.   I never filed returns for years 05-08 for fed/state.  Last year, the IRS came calling for $6660 for year 08, which I paid.  Since 09, I filed each tax year.

You should realize that the SOL clock doesn't even START ticking until you file a tax return.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

Enufodis

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #12 on: September 23, 2016 12:55:14 AM »
You should realize that the SOL clock doesn't even START ticking until you file a tax return.

Business failed over 10 years ago with PR taxes owed. The trust fund penalty was placed on me personally but has expired. I do not know if the IRS is still holding me responsible for the PR taxes of a business failure.
Please understand I am not a lawyer. My remarks should not be construed to have any kind of legal significance whatsoever. Use them at your own peril.

Flyingifr

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #13 on: September 23, 2016 04:37:35 PM »
Business failed over 10 years ago with PR taxes owed. The trust fund penalty was placed on me personally but has expired. I do not know if the IRS is still holding me responsible for the PR taxes of a business failure.

You may have just found your way out. Go to the County Clerk/Recorder where you lived at the time and see the actual Notice of Federal Tax Lien (For 668-Yc) On it you will see a list of the taxes that the Lien is about. Look at Column "e" - the day AFTER that date is the Collection Statute Expiration Date (CSED) which is the date that lien expires. The Kind of Tax (column a") against you personally should be "CIV PEN". If that is the case then the Trust Fund Taxes that were not paid are a lien against you personally, but that lien also has a CSED.

Also, keep in mind that the IRS has 3 years from the later of the due date or the date of filing of the return (whichever is later) to make the assessment. I am fighting a case right now where the IRS filed liens against a corporation for unpaid Trust Fund Taxes, but the returns were filed more than three years ago, so the Statutory Period to make an assessment against the responsible party had already expired.

ONCE CSED IS REACHED, THE TAX DEBT IS GONE FOREVER AND THE IRS IS BARRED BY LAW FROM TRYING TO COLLECT ON IT.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

jacko

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Re: Success and failures with Offer in Compromise (OIC)
« Reply #14 on: October 21, 2016 07:05:48 AM »
The state filed for 05/06 and issued a tax lien in 2012.  The state released the lien in 2014 with a letter indicating so and the credit report shows it.  Not sure why they did that.  There is a 10 yr state sol for collections.

You should realize that the SOL clock doesn't even START ticking until you file a tax return.