The offer in compromise process is generally a very lengthy one. I described the offer in compromise process in a previous post.
There are some situations where you can theoretically have an offer in compromise submitted and a decision made within 90 days. This is by following the emergency offer in compromise procedures outlined in the Internal Revenue Manual §5.8.2.6.
This procedure is allowed in an emergency situation or perceived emergency situation. The IRS lists a few examples including:
- A contract or business agreement requiring the taxpayer, as a condition of the contract or agreement, to resolve the tax liability by a specific date.
- Availability of the money to fund the offer is limited to a certain time.
- A terminal illness may affect the ability to complete the payment terms.
Once an offer in compromise is submitted with an “emergency request” the IRS manager will review it to make sure it deserves the special treatment. The IRS is to make “every effort” to close the offer in compromise within 90 days. However, the taxpayer must be ready, willing and able to provide documents to the IRS at their request and at warp speed for the emergency review to go to completion within 90 days.
I recently wrote a post about the rules that govern whether taxes can be discharged in bankruptcy. Today, I would like to focus on related question: should I file bankruptcy? My general advice is, “if the taxes are the only thing that you are behind on, then there are some options other than bankruptcy that you should consider.” However, sometimes bankruptcy is the only way out.
There are some things you should keep in mind about how filing bankruptcy affects your tax situation. First, when you file bankruptcy, your “account” at the IRS is frozen. A stay is placed on everything so the IRS cannot collect from you in any way or send notices to you. This is good. But the collection process is not the only thing that is halted. The clock that is counting down the statute of limitations is also running. If you are filing bankruptcy and the taxes are going to be discharged, then this isn’t a problem. However, an offer in compromise or the filing of a Collection Due Process hearing request also freezes your account.
This can be a problem. If the time has not elapsed for the taxes to be discharged in bankruptcy and you stop the clock, then you essentially take that threat away from the IRS in accepting the offer in compromise or the taxpayer is going to file bankruptcy and you won’t get a dime.
I guess the moral of the story is, before you file anything that is going to stop the statute of limitations from running you need to consider the big picture and take care of all aspects of your case. While it used to be malpractice not to file a Collection Due Process request, today it may very well be malpractice to file one.
QUESTION:
My husband and I have always filed separate returns, but we still live together. Each of us has some unpaid tax liability over several years. Some of the years are the same for both of us and some are not. Can one of us file an Offer In Compromise or must we both file one?
ANSWER:
If you retain me to help you I, of course, want to solve both of your problems with the IRS so you can both rest easy. Therefore, I will have to determine the best way to file your Offer, whether joint or separate. Since you have been filing separate returns, the IRS will generally require separate Offers from each of you. I can do this one of two ways, either two completely separate Offers with independent supporting documentation and sent at different times, or two Offers sent together with one set of supporting documentation. One determining factor will be how you handle your day-to-day finances, e.g. joint bank accounts and if bills are paid from joint funds. The other big factor is how your assets are held, e.g., if one party has significantly more assets than the other. After considering these and other factors, I will be able to decide the best way to submit the Offers to minimize your eventual payment.
I will be happy to talk with you about your situation and detail how I can help
In general it takes many months to have an offer in compromise reviewed by the IRS. This is mainly due to the fact that there are approximately 75,000 or more offers filed each year and only a handful of offer examiners. Now keep in mind that the offer examiners don’t handle every offer in compromise that comes in because some are handled by appeals officers or revenue agents depending on the timing of the filed offer in compromise or the type of offer in compromise that has been filed.
Usually, it takes the taxpayer several weeks to gather together all of the required financial information for the offer in compromise. After I have had an opportunity to review that information and make a determination on the amount I feel would be accepted as an offer in compromise, I meet with my client and discuss with them all of the resolution options. If the client chooses to submit the offer in compromise, we prepare the form 656 and send it to the IRS.
This is where patience comes in handy. Approximately one month after the IRS receives the offer package that we submit we will receive a letter that indicates the offer in compromise is processable. (More on what a processable offer in compromise is another day). The letter also informs us that the offer in compromise package is being sent to the revenue officer/offer specialist responsible for that offer.
Generally, it will be another month or so before we receive any communication from the revenue officer regarding the offer. At that time they usually request more information, or just an update of the financial information and attachments since it has taken several months to make its way to the revenue officer.
After this, there is usually lots of communication between my office and the revenue officer discussing the attachments and the determinations being made by the revenue officer. And finally, after several months we will receive a determination from the revenue officer - acceptance or rejection. If the offer has been rejected then we usually have some grounds to appeal on and we will do so. This extends the process even longer.
The short answer to the question is that it may take up to a year or more for your offer in compromise to be examined by the IRS and any decision made. It may take even longer than that to appeal any decision made to IRS appeals. Worst case, if you are still not satisfied you can appeal on up to the tax court which. Any time “court” is involved you know you’re looking at a lengthy process.
QUESTION:
I have not filed my 2006 tax return yet because I know I am going to owe the IRS money. I also owe personal income taxes for several past years, but those returns have been filed. Can I file an offer in compromise now that includes the 2006 taxes?
ANSWER:
In order to file an offer in compromise, you must have all of your tax returns for the last seven years filed. However, what happens a lot of times is the tax return is filed, but it takes several months for the IRS to actually assess the taxes against the taxpayer. The Internal Revenue Manual states that a tax liability may be considered for compromise before it is assessed, however, before a compromise can be made final the taxes must be assessed by the IRS. This is because before the tax is actually assessed, there is technically no balance due to the IRS. In theory, this could pose problems, but practically speaking it takes several months for an offer in compromise to be considered for acceptance by the IRS so there is generally plenty of time for the tax to be assessed. Once you are ready to take care of your tax liability, I can assist you in determining what steps need to be taken to get your situation ready for filing an offer in compromise. Your initial consultation is free and you will be under no obligation. The sooner you take action to solve your tax or other debt problem, the sooner you can rest easy and cease worrying about those taxes and debts! My firm also handles divorce, real estate, and probate matters. We also prepare wills, powers of attorney and provide other estate planning services. Please call today for a free consultation.
I just finished reading the new book by Timothy Ferriss, The 4-Hour Work Week, where Mr. Ferriss talks about how he broke free from his job working crazy hours each day, sleeping under his cube at night, and never doing anything he wanted to the “job” of his dreams where he is able to manage a global business from anywhere in the world in less than four hours per week. Tim tells of how he was about to go crazy when he decided to drop all of his work and leave the country for a much needed break. He made a promise to himself that he would only check his e-mail once per week. The book is not a time management book, but rather it is designed to explain how you can reduce the amount of “work” that you do by having low cost help take as much away from you as possible and free you up for the important things. One of the ideas that really hit home with me was you don’t have to be at work from 8:30 to 5:30 each day if you don’t have the work to do. Do your work and get out of there. I have caught myself many times in the past thinking up crap to do just so I could stay at the office and get the full fourty hours in.
Now when I think about that and compare it to my law practice, I see many similarities to Tim’s old job. I have to work a lot of hours to make sure I get the work done, but also to stay informed, to stay on top of the law, and then to take care of the administrative office stuff. I sure spend a lot more time at the office than I do at home. When I think about how possible it would be to run a law firm working four hours per week, I have to admit that would be a daunting challenge - and nearly impossible. While it may not be totally impossible, because, hopefully, you’re spending at least four hours each week meeting with prospective clients, but there are ways to increase your productivity, decrease amount of time spent on “junk” and get paid for providing your professional service and not based on how many hours you work to complete it.
I recently read a blog post about “The 4-Hour Work Week” and another interesting series of posts about the perfect law practice over at the Lawyer Profit Systems blog. It’s my goal moving forward in my practice to define my ideal practice and develop a way to make that fit my ideal lifestyle that I want rather than let it control me. More on that to come.