IRS Focuses on OIC Scams – Makes Unannounced Office Visits to National Firms Who Make Unsubstantiated Offer-In-Compromise Claims

IRS Poses as Taxpayer with IRS Tax Debt to Identify Tax Practitioners Who Promise Offer-In-Compromise (OIC) Solutions Without Performing Financial Analysis

BACKGROUND

The IRS is working hard to identify OIC scams. One of the most misunderstood IRS programs to resolve IRS tax debt is what is known as an Offer-in-Compromise (OIC). An OIC is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a taxpayer’s tax liabilities for less than the full amount owed. While the program is legitimate and is a great way to resolve IRS tax debt for those taxpayers that qualify for the program, the problem rests with unscrupulous tax resolution firms that take advantage of those seeking to have their tax debt settled for “pennies on the dollar”. These unscrupulous firms tell the uninformed taxpayer that the IRS has this great program where tax debts can be totally forgiven by making the IRS a monetary offer to have their debt forgiven, charge a significant up-front fee, and then inform the taxpayer that the IRS rejected their offer.

To combat these unscrupulous firms, the IRS is sending agents to the national tax resolution firms posing as a taxpayer with substantial IRS tax debt. If the firm agrees to represent the taxpayer before the IRS for a fee to file an OIC without doing a financial analysis to determine if the taxpayer qualifies, the IRS will take action against this firm.

THE PROBLEM

To qualify for this program, the taxpayer must complete a financial analysis (IRS Form 433-A (OIC)) that reports the taxpayer’s assets, liabilities, sources of income, and allowable expenses. This data is used to compute the taxpayer’s RCP, reasonable collection potential. In other words, the form is used to compute the taxpayer’s ability to repay the IRS. If the taxpayer is eligible for an OIC, this financial analysis is used to determine the taxpayer’s minimum offer to the IRS (IRS Form 656). The misconception of some taxpayers is that they make some monetary offer to the IRS that they consider equitable to settle their tax debt, rather than understanding that the IRS requires full financial disclosure and that the IRS determines the amount (RCP) that the taxpayer can afford to pay.

There is much financial analysis that needs to be done to determine if a taxpayer qualifies for the OIC. When an OIC is sent to the IRS, much supporting detail is required by the IRS. The taxpayer needs to substantiate the fair market value of the taxpayer’s assets; mortgage, auto loan, bank loan, etc. statements need to be submitted to substantiate liabilities; W-2s to substantiate income; and a listing of actual household expenses. The IRS usually requires a minimum of three months of bank and credit card statements and proof of payment for the expenses listed.

When a tax resolution firm informs a taxpayer that it will file an OIC for the taxpayer, and charges a substantial  fee for doing so without doing the required financial analysis to determine if the taxpayer qualifies for the OIC, this is the type of activity the IRS finds egregious.

TAX PLANNING TIP #1

When a firm promises to settle your tax debt for a fraction of the outstanding balance and has not done a financial analysis of your ability to pay the IRS, you are dealing with a unscrupulous firm that is going to gladly accept your fee and very likely will do little to resolve your tax problem. It is quite easy to file an OIC claim without substantiation and then notify the taxpayer that the IRS did not accept the offer.  Run, don’t walk away, from this type of firm.

TAX PLANNING TIP #2

While it’s possible that you may find a reputable national firm to work with and telephone correspondence may suit your needs, consider working with a local tax resolution specialist that you can visit, interview, get to know, and who answers your calls. The American Society of Tax Problem Solvers (ASTPS) offers a free referral service. Its telephone number is (716) 630-1650.

If you have any questions or wish to schedule a consultation on how to resolve your IRS tax issues at our Exton office, please contact us by clicking here or calling us at (610) 594-2601.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent. His tax consulting firm, Keystone Financial Solutions, Inc., specializes in helping taxpayers solve their IRS tax debt problems. Located in Exton, PA, his firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Copyright © 2019 Keystone Financial Solutions, Inc.  All rights reserved.  Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.

When taxpayers get divorced, the separation is not always amicable as Jane Lassek (TC Memo 2019-145) can attest. Lassek’s husband reported his 401(k) distribution on their joint federal income tax return as nontaxable. In general, married taxpayers filing a joint federal income tax return are jointly and severally liable for the tax reported or reportable on their tax returns. In other words, the IRS can collect the tax due from either spouse.

Jane Lassek claimed that she was not liable for any portion of the tax seeking relief from joint and several liability under Code Sec. 6015(c), seeking innocent spouse relief. She explained that she was not involved in preparing the return, except for providing her husband with her tax documents. She stated that she never reviewed the filed return because her ex-husband never asked her to do so and she had no knowledge of his omission of income.

Prior to going to trial, the IRS agreed with Lassek. Great news, except that her ex-husband challenged the wife’s entitlement to the relief. He must have believed that “All is fair in love and war.” He contended that the wife knew about his 401(k)-plan distribution and her knowledge disqualified her from innocent spouse relief. He also contended that the wife many have had “reason to know” about the understatement of tax shown on their joint tax return. The court found no support for his argument that the 401(k) distribution was used to pay the mortgage and household expenses nor did the husband discuss with his wife why the distribution was non-taxable and did not give her an opportunity to review the return before its filing.

It was not lost on the court that if the wife was granted innocent spouse relief, that the husband then became 100% liable for the tax deficiency. In cases where the IRS favors granting relief and the non-requesting spouse intervenes to oppose it, the burden of proof shifts from the spouse requesting relief to the IRS. In this case, the IRS agreed with the spouse (Mrs. Lassek) requesting the relief.

For those taxpayers who wish to learn more Innocent Spouse Relief, we suggest you visit our Innocent Spouse Relief web page and read chapter twelve of our book How to Resolve Your IRS Tax Debt Problems.

If you have any questions or wish to schedule a consultation on how to resolve your IRS tax issues at our Exton office, please contact us by clicking here or calling us at (610) 594-2601.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent who owns and operates Keystone Financial Solutions, Inc., a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Copyright © 2019 Keystone Financial Solutions, Inc.  All rights reserved.  Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.

When taxpayers fail to pay their taxes and receive the IRS final assessment showing the total amount due the IRS, penalties and interest can sometimes exceed the total taxes due. Often taxpayers will ask the question: “If I pay the IRS the taxes that are due, will it forgive the penalties and interest?”

Let’s start with the forgiveness of interest because it is straightforward. The assessment of interest is governed by the Internal Revenue Code. Hence, the IRS has no authority to forgive interest. In other words, the IRS has no statutory authority to override Congressional law.

Since the interest assessment is based on the taxes and penalties owed the IRS, interest can only be reduced if the tax liability or penalty assessments are reduced. Accordingly, it often pays for a taxpayer to engage a tax resolution specialist to review the IRS assessments of additional taxes due and penalties. The IRS does have the authority to forgive (abate) penalties in certain circumstances. We will discuss the abatement of penalties for reasonable cause in a later blog post.

What may be a surprise to some taxpayers, the IRS does occasionally make mistakes when assessing additional taxes. We sometimes find that the IRS misinterpreted or failed to understand the law when assessing taxes due. If a taxpayer is represented by a tax resolution specialist who understands the tax law, the IRS exam division may be “shown the light” to reduce or eliminate the tax assessment. If exam does not make the requested change, the experienced tax resolution specialist will then represent the taxpayer at the Appeals Office where more experienced and knowledgeable IRS personnel will review the case and reconsider exam’s assessments.

Some taxpayers, after the IRS assesses additional taxes, interest and penalties, find themselves unable to pay the IRS in full and are placed in collections by the IRS and may have liens and levies placed on them, damaging their credit. If you find yourself in this position, Click Here to learn more about our 3-step process to resolve your IRS tax debts.

For those taxpayers who wish to learn more about IRS penalties, we suggest you read our book How to Resolve Your IRS Tax Debt Problems.

If you have any questions or wish to schedule a consultation on how to resolve your IRS tax issues at our Exton office, please contact us by clicking here or calling us at (610) 594-2601.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent who owns and operates Keystone Financial Solutions, Inc., a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester,  Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Copyright © 2019 Keystone Financial Solutions, Inc.  All rights reserved.  Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.