Unlocking the Secrets of an Offer in Compromise: A Comprehensive Guide Chapter 5

 Chapter 5 How to appeal the IRS when your offer in Compromise is Rejected.

 

Take One Last Chance at the Offer Specialist Level

 

Don't Fall For the Misleading Commercials!

Lately I’ve seen a commercial on various social media outlets touting IRS Debt Relief, The Fresh Start Initiative and an Offer in Compromise. The commercial illustrates a taxpayer settling a large tax debt for $100. For the record, the only way to accomplish this is to be out of a job, with not job prospects, and living on the edge of homelessness – it’s all a fiction and does a real disservice to educate taxpayers as to how this process work. Set reasonable expectations for yourself – if you live in an expensive house, send the kids to private school, have late model cars, season tickets to local sports team and vacation two or three times a year – it isn’t going to happen for you.

 

An IRS Settlement Officer (SO) is a trained professional who is responsible for evaluating and negotiating offers in compromise (OICs) on behalf of the IRS. Here are some of the key roles and responsibilities of an SO in the OIC process:

 

• Reviewing the application and supporting documentation: The SO will review your OIC application and the supporting documentation you have provided to ensure that it is complete and that you have met all of the requirements for submitting an OIC.

 

• Verifying financial information: The SO may verify the financial information you have provided by conducting an investigation to ensure that it is accurate and complete.

 

• Determining your ability to pay: The SO will use the financial information you have provided to determine your ability to pay your tax debt in full and whether paying your tax debt would cause undue financial hardship.

 

• Making a recommendation: After reviewing your OIC and verifying your financial information, the SO will make a recommendation to either accept, counter, or reject your offer.

 

• Negotiating the terms of the OIC: If the SO determines that your OIC may be accepted, they will work with you to negotiate the terms of the OIC, including the amount of the offer and the payment schedule.

 

• Monitoring compliance: Once the OIC is accepted, the SO will monitor your compliance with the terms of the agreement. This includes ensuring that you make all required payments on time and file all required tax returns.

 

• Communicating with you: Throughout the OIC process, the SO will communicate with you regarding the status of your offer and any required actions on your part.

 

It's worth noting that the SO's role is to review and make a recommendation on the OIC based on the information provided by the taxpayer and the IRS policies and guidelines. The ultimate decision to approve or reject an OIC is made by the IRS. However, the SO's role is important and can be crucial to the process and the outcome of the OIC.

 

Now that you know what the role of the Settlement Officer, did you know they are in the first position to listen to and evaluate your counter-offer? Remember, you’re not buying a car and the SO does not get paid on commission. However, they do have an incentive to close out cases, and if you can counter with a well-reasoned number, supported by good financial data, there is no reason not to use the turn down to make that counter offer.

One strategy that has been passed down by many senior tax professionals is to make sure that you are in front of a sympathetic ear. If not, by all means use your appeals to try and get before someone else that may be little less harsh or listen with a more sympathetic ear.

If you find the SO already fits that role, don’t be afraid to ask them to expand on the reasons why your offer was rejected. You may discover something that is not apparent to your eye, and is something you can shore up with more data. Most SOs are gracious with their information and I’ve always found that since they work remotely, they are usually hungry for some good conversation, even if it not tax related. It’s all about relationships.

Why go through this process of trying to understand where and why your offer falls short? Why not appeal? Read on.

 

Moving on to the Appeals Division

Professor Bryan Camp at the Texas Tech School of Law is one of the foremost experts on the nuts and bolts of the IRS collection process. He repeatedly points out that IRS collections are a process, not an event. The quicker you as taxpayer figure this out, the quicker you’ll get to a resolution.

Taxpayers have two potential appeal paths, after deciding to forego further conversation with their settlement officer. The first is the normal appeals process and the second is a Collection Due Process Hearing Request in the event the taxpayer receives a Collection Due Process Notice, threating sometime of collection action such as garnishment, placing a lien, etc.

 

Benefits of the IRS Appeals Division

Quoting Professor Camp, in an appeal, “You don’t get a new person to work the issues, you get a new set of eyes to review the work done.” Lessons From the Tax Court: The Difference Between Rejecting an OIC andReviewing a Rejection.

For all you sports fans, you know that successful teams from professional to college to high school, self-evaluate and grade out their own play. How else do you identify strengths and weaknesses and places for improvement? It’s the same thing in this area, if you did not ask, or take into account the defects in your OIC, how can you expect a different result? If you truly believe that the SO made a specific mistake in their calculations or failed to consider an essential item, how will you know if you don’t ask? This information will serve as the foundational piece of your appeal.

Appeals will not rework the case. They review the process and the rejection, which is different that re-working the case.

Based on this, you could and should present the new evidence you uncovered to amend your offer, or to formulate a new offer. But you had that opportunity at the SO level also.

The Internal Revenue Service (IRS) has a multi-level appeal process to provide taxpayers with an opportunity to contest certain decisions made by the IRS. The appeals process consists of the following levels:

• Office of Appeals: The first level of appeal is the Office of Appeals, which is an independent and impartial organization within the IRS. The Office of Appeals reviews cases to resolve disputes between taxpayers and the IRS and to reach a fair and impartial resolution.
•  Settlement: If the Office of Appeals is unable to reach a resolution with the taxpayer, the case may be settled through a settlement conference. During the conference, the taxpayer can discuss their case with an appeals officer and negotiate a resolution with the IRS.
•  Decision: If the case is not settled, the appeals officer will issue a written decision, which is binding on both the taxpayer and the IRS. The taxpayer may then accept the decision, pay the tax owed, or pursue further legal action.
•  United States Tax Court: If the taxpayer is not satisfied with the decision of the Office of Appeals, they may file a petition in the United States Tax Court. The Tax Court is an independent judicial body that provides taxpayers with an opportunity to contest tax deficiencies and other issues before an impartial judge.
•  United States Court of Appeals: If the taxpayer is not satisfied with the decision of the Tax Court, they may file an appeal with the United States Court of Appeals. The Court of Appeals is a higher court that reviews decisions made by the Tax Court.

 It is important to note that the appeals process can be time-consuming and there is no guarantee of a favorable outcome at each level of appeal. However, the appeals process provides taxpayers with multiple opportunities to have their case reviewed by impartial and neutral parties and to potentially reach a more favorable resolution.

 

 Collection Due Process Hearing

The name says it all – did the IRS provide that taxpayer with Due Process before taking any punitive collection action?

Here are some reasons why a CDPH is so popular:

1.         Time Out! – this stops the clock. It temporarily stops any collection action allowing the taxpayer and counsel to figure out what to do. It is not an indefinite delay, but it is a great asset to have in your pocket.

2.         IRS will review their collection procedures. Did they follow their own manual and procedures? I find that most SO and Appeal personal are sticklers for following their protocol, often reissuing notices, letters and agreement to comply with them.

3.         Collection Alternative – Can the taxpayer explain why they cannot pay the full amount due (Remember Reasonable Collection Potential?). Can the taxpayer and the CDP Officer come up with some alternative to pay the tax?

 

Key points here is that you don’t get second bite in CDP for the Rejected OIC. Remember, the CDP officer review the process, not the result. Second, noting precludes you from filing a new OIC, hopefully one based on the feedback you receive through this process.

 

Summary

The lesson I hope you learn by reading this article is that success or failure or your OIC, indeed of you overall collection process, depends on the taxpayer’s willingness to spend the time and effort to fully document their case, and to ask for and process the information you receive back from the IRS. Tailor your response to feedback you received and you may not get everything you envisioned, but you'll get something you can work with to get back on feet tax wise.