California taxpayers can resolve their federal tax debt liability by paying less than the full tax liability they owe by an agreement called Offer in Compromise. The federal government will accept an Offer in Compromise if it will expedite the collection for tax debt and cost the federal government less than collecting the full tax debt. The Internal Revenue Service has the authority to accept an Offer in Compromise and settle the IRS tax debt for the following reasons:
- Doubt as to Liability – There is doubt as to the accuracy of the federal tax debt liability assessed against the taxpayer.
- Doubt as to Collectibility – The Internal Revenue Service does not believe they will be able to collect the full amount of federal debt owed. The California taxpayer will need to convince the IRS that an Offer in Compromise offer will allow them to pay more money than the IRS would receive if they continued their collection efforts.
- Effective Tax Administration – The tax liability assessed is not in question, and the Internal Revenue Service can collect the tax debt, but the California taxpayer has some type of extenuating circumstance which would case economic hardship which would be unfair and inequitable if the tax debt was collected. This condition is most frequently used for the elderly and handicapped.
The Internal Revenue code allows the Internal Revenue Service to use aggressive collection tactics to collect federal taxes. If a taxpayer fails to pay their taxes with in 10 days of receiving a notice to pay, the Internal Revenue Service has the authority to institute wage garnishments, levies against your bank accounts, and repossess your property.
Offer in Compromise can eliminate your federal tax debt, interest and penalties. At the completion of the OIC, federal tax liens will be released. California taxpayers who are considering filing an OIC should consult with a tax professional and avoid some of the common taxpayer mistakes such as offering too much money or committing tax fraud. Tax professionals such as enrolled agents, tax accountants and tax attorneys are familiar with the OIC negotiation process and current tax laws. Tax professionals will have the experience necessary to settle Offer in Compromise cases for the lowest possible amount.
Rejection of Offer in Compromise in California
An independent administrative reviewer will perform an independent review of each OIC rejection. The Internal Revenue Service has sole discretion to accept or reject Offer in Compromise offers. California taxpayers do not have the legal right to sue the Internal Revenue Service for failing to accept their OIC offer.
Many Offer in Compromise offers will not be accepted. Unfortunately, if the Internal Revenue Service rejects your OIC offer, they will have sufficient information about your financial situation to continue collecting federal back taxes. Penalties and interest will continue to accrue until your OIC application is accepted.
Written notification must be sent to the taxpayer explaining why the Offer in Compromise was rejected and the amount the IRS would consider accepting. Low offers is one of the most common reasons given for denying OIC offers. Under the Freedom and Information Act, California residents have the ability to access information concerning their Offer in Compromise.
OIC negotiations can be done by discussing your OIC offer with the administrator who made the decision to deny the original offer. A formal appeal can also be done by sending written notification to the Internal Revenue Service with in 30 days of the denial. New 656 forms will only have to be resubmitted if there is a drastic change in the taxpayer’s financial situation or if the date to appeal the Offer in Compromise has expired. The Internal Revenue Service often is willing to negotiate for IRS tax payment.
Requirements for Offer in Compromise for California Residents
To request an Offer in Compromise the taxpayer must complete the following actions:
- All federal tax liability must be paid except for the period outlined in the OIC
- Self-employed workers must estimate and pay federal tax obligations quarterly
- Tax returns must be file
- Accurate financial data must be provided to the Internal Revenue Service as it is requested
Completion of the following forms:
- IRS Form 656- Offer in Compromise. This form will give the Internal Revenue Service information about your financial situation and determine the amount of money you could pay to resolve outstanding IRS debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. This form will include more information about your financial status and your ability to pay IRS tax debt.
- IRS Form 443-B- Collection Information Statement for Businesses. Similar to Form 443A but will provide information about your business. If you are not including your business taxes in your Offer in Compromise, you will not need this form.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form should be submitted if you are not able to pay the fee for the OIC.
California Tax Professionals
California tax professionals will have the knowledge and skills to help you determine if Offer in Compromise is right for you. There are a variety of tax settlement options available for California taxpayers who have outstanding tax liability.