Tax lawyer Mitchell Port of California Tax Attorney Blog notes that Congress is considering passing a bill that will eliminate the 20% downpayment requirement for IRS settlement offers:
To submit an Offer In Compromise (OIC) with the Internal Revenue Service in order to pay pennies on the dollar, a nonrefundable 20% downpayment is required. Combined with a very low acceptance rate by the Internal Revenue Service of OICs, the downpayment has the effect of discouraging people from applying for an Offer.
A Congressional bill was recently introduced the title to which tells it all: “Repeal of the Partial Payment Requirement on Submissions of Offers in Compromise”.
If this is enacted into law, the struggle with your tax debts may be a bit easier.
If this bill passes, it’s good news for both taxpayers and the IRS.
The more legitimate offers that are filed by taxpayers and accepted by the IRS, the narrower the tax gap becomes.
3 responses so far ↓
1 HappyTaxDude // Aug 31, 2009 at 4:23 pm
Another reason why it would be beneficial to enact this is that a good many offers that were previously submitted were offers funded by a taxpayer’s family members who wanted to provide some financial help. However, it’s a major disincentive to provide those funds if there is no guarantee that they can be returned if the offer is deemed unacceptable. It has been the proverbial cutting off of the schnoz to spite the face for the government.
2 Tony M // Dec 5, 2010 at 2:44 am
Does anyone have a good feel for what percentage of the debt is acceptable to the IRS in an Offir in Compromise? I have a legitimate debt (non-disputed), but don’t have the ability to pay. Does it depend on the size of the debt? Is 25%, as an example, an acceptable offer, or shouldn’t I bother to file unless I’m willing to offer a much higher percentage? The 20% is a major deterrent; I would have to borrow that money without any idea if it will be accepted. Obviously, millions are in that boat, hence the proposed bill to eliminate the 20% requirement with the application.
3 Peter // Dec 5, 2010 at 8:54 am
Tony,
There is no magical percentage. Every Offer is evaluated on its own basis.
In short, the IRS accepts Offers in Compromise for the amount equal to the taxpayer’s reasonable collection potential. It is not tied to the amount of the debt, but rather determined by adding the equity you have in your assets to the present value of your expected net monthly income over the next five years.
Leave a Comment