Please print & read the following before you begin!
IRS' Complete Offer in Compromise Package

Your client owes money to the IRS and would like to settle the debt owed by the submission of an Offer In Compromise.

If you've read the IRS' package, you should have a thorough understanding of what needs to be done. If you haven't, make sure to do so.

Note: Before you even begin the process, make sure that your client is in "Full Compliance". Also, make sure to review "IRS Representation Engagement Agreement".

The IRS allows us to submit an Offer in Compromise for two reasons:

1. Doubt to Collectibility

2. Doubt to Liability (Note: many don't even know about this one!)

Doubt to Collectibility

From the IRS web site: "An Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability for payment of less than the full amount owed.
The IRS will generally accept an Offer in Compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is
a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government."

Doubt to Liability

This means that a legitimate doubt exists that the taxpayer owes part or all of the assessed tax liability. To submit a Doubt as to Liability OIC, the taxpayer must use Form 656-L, which can be obtained by calling the toll free number 1-800-829-1040, or by visiting their local IRS office, or our web site at www.irs.gov.

Let's assume that your client was unaware that an audit was concluded on one of his/her returns and an assessment was made. Well, this will qualify as "Doubt to Liability" so long as your client can demonstrate that he/she has the proper substantiation for the the adjustments made by the examiner!

For example: Let us assume that you were representing a client and you and the auditor didn't arrive at a mutual agreement. A thirty-day letter was issued to appeal the case and you missed the deadline. A submission of an Offer in Compromise as to "Doubt to Liability" could qualify.

How to Figure the Amount of the Offer?

If you haven't downloaded and read "IRS' Complete Offer in Compromise Package", please do so now. It is important.

If an offer is submitted as to "Doubt to Collectibility", you'll need to arrive at a net monthly disposable income as discussed in the video. This is prepared on form 433-A for individuals, and Form 433-B for a corporation or a partnership. You will also need to arrive at a total sum equity market value of all assets owned by the taxpayer.

Note: Make sure to review "IRS Collections" to learn about the 433-A disposable income.

If your client is making a lump sum offer, then the following is the minimum offer:

(net monthly disposable income*48) + total sum equity market value of all assets = Minimum Offer

Let us assume that your client has a net monthly disposable income of $205 and owns a car that has equity of $800, household items such as furniture and art that has a value of $3,000. The minimum offer for your client would be as follow;

(205 * 48) + $3800 = $12,840.00

The amount of $12,840.00 is filled in on form 656.

Very Important: If the amount of $12,840.00 is greater than the amount owed the IRS, DO NOT submit the offer!

If your client is making an offer as to Doubt to Liability, then the offer amount is up to your client. make sure you offer something for their administrative review!

Note: You will need to include $150 for processing fees of the offer.

Form 656

When you fill out Form 656, make sure to include all tax years owed. This is true for all 1040 returns, 941 returns, and any other returns that have a tax liability. If uncertain of what your client owes, contact Practitioner Priority Service.

Mail Forms 656 and 433-A or "B" to the address as stated on the IRS' Complete Offer in Compromise Package. Make sure to have your client sign both forms and include a check in the amount of $150..

Make sure to include all documents requested as stated on Form 433-A or "B".

Note: On form 656, "Source of Funds", make sure to address this issue such as, my mom, my dad, my friends are loaning me the money, or, I am borrowing the money from my credit union.