WHAT IS A FEDERAL OR CONNECTICUT OFFER-IN-COMPROMISE (OIC)?
If you want to know: What is a Federal or Connecticut Offer-in-Compromise (OIC)? contact a lawyer at the Law Offices of Neil Crane.
An Offer-in-Compromise (OIC) is the taxing authority’s agreement to accept less than the full tax due from a taxpayer based upon extraordinary circumstances and calculation of each taxpayer’s reasonable collection potential. The granting or denying of any Offer-in-Compromise with the Federal or State taxing authorities is entirely at their consent. As a result, the successful granting of an offer in compromise demands the best possible professional with experience and specific knowledge of your case and all the factors and calculations involved in the approval process; including:
- Reasonable collection potential
- Proper income calculation
- Allowable expenses
- Total offer amount
- Proper grounds for accepting an OIC
- Exceptional circumstances
The most common mistake in the vast majority of all requests for tax relief from State and Federal authorities is a poorly crafted, poorly submitted Offer-in-Compromise. Nearly all taxpayers who go it alone or use national, unknown companies file improper Offers-in-Compromise that create temporary relief but eventual long-term problems. Offer-in-Compromise denials are deadly to the taxpayers, as interest and penalties accrue.
Thorough Customized Preparation is Essential
All Offers-in-Compromise are based on a thorough calculation of qualified assets and a proper income analysis. The combination of available assets and allowable income is the key to a granted Offer. The accurate calculation of available assets and allowable income requires the knowledge and experience of a true tax specialist with a customized plan and a commitment to your success. The due diligence process starts with the collection and analysis of substantial financial documentation to determine if a taxpayer is qualified or a potential candidate for an offer in compromise.
The initial income analysis requires a careful examination of monthly pay stubs, bank statements, past tax returns, credit card statements, mortgage statements, assets, liabilities, and monthly expenses. Understanding what constitutes “allowable” monthly expenses is the critical element in determining excess monthly income. It is a complicated process that requires the knowledge and experience we’ve built over more than three decades of successful tax relief for clients throughout Connecticut.
Understanding the Application Process
The application process begins with the preparation and submission of Forms 656 and 433-A. These forms provide the IRS with a complete assessment of the taxpayer’s financial condition. They also allow the IRS to calculate the taxpayer’s reasonable collection potential, (RCP). The RCP calculation determines the lowest amount acceptable in an OIC. It measures the taxpayer’s ability to pay in accordance with:
- Realizable asset values: This is the amount that would be obtained through a hypothetical liquidation of all hard and soft assets, including cash, bank accounts, vehicles, business assets, and real estate.
- Monthly disposable income: This is a calculation of the monthly amount available from all income sources over a one-to-two-year period minus allowable expenses as determined by household size and geographical area.
Determining the Proper Income Calculation
In order to determine the proper offer amount for an Offer-in-Compromise, all individual circumstances must be calculated and customized to the specifics of your total tax debt and your allowable income and expenses. To make the proper income determination, it is essential to understand what sources of income will be included by the IRS in the taxpayer’s proper income calculation. Income from various sources and overall household income must be properly analyzed, reviewed and revised in accordance with the IRS’s definition of income for your specific Offer-in-
Compromise calculation. Improperly excluded of unrecognized income can result in rejection of any offer submitted in an Offer-in-Compromise application, which causes a serious set-back and expensive delay.
Determining Allowable Expenses for Your Application
In order to properly determine the appropriate offer to submit in an Offer-in-Compromise application, experienced tax relief counsel needs complete working knowledge of the IRS guidelines for allowable expenses. Not every expense in a taxpayer’s monthly budget will be considered by the IRS as an allowable expense when determining monthly income available to fund a properly calculated Offer-in-Compromise.
At the Law Offices of Neil Crane, LLC, we use IRS guidelines, calculations every day for every county in Connecticut, providing us with complete knowledge of the IRS calculation of allowable monthly expenses. This makes us uniquely suited to best advise you on the proper calculation and determination of an Offer-in-Compromise.
Total Offer Amount and Successful Offers-in-Compromise
Understanding and calculating “allowable living expense” is a complicated and ever-changing area of tax law involving local standards, guidelines, and detailed criteria.
The combination of properly determined realizable asset values and monthly disposable income is the basis for calculating proper settlement amounts for a successful Offer-in-Compromise. Each calculation is based on the individual circumstances of a requesting taxpayer and determines the proper total offer amount. At the Law Offices of Neil Crane, LLC, we understand that small budget adjustments and proper calculation of the reasonable collection potential are the key factors in making sure your Offer-in-Compromise is granted.
To learn more about Offers-in-Compromise and the application process, contact a lawyer at the Law Offices of Neil Crane, LLC. Contact us online or call us at 203-230-2233. Your first consultation with us is free of charge. We have office locations in Hamden, Bridgeport, Ridgefield, Waterbury, and Rocky Hill.
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