Does The IRS Always Follow Its Own Offer In Compromise Rules?
by: Anthony Parent
No, The IRS does not always follow its own Offer in Compromise Rules.
When you submit as many Offer in Compromises as we do, and deal with Offer Processing Centers all over the country, you tend to notice certain patterns. That is, some IRS examiners at particular units follow the "unwritten" rules of that particular service center. What kind of things are they getting wrong? The entire Offer in Compromise formula, that's all! We have seen many Offer Examiners look to the percentage of the offer (relative to debt outstanding) as what should and should not be allowed. But that is not the standard. The standard is based on what the Real Collection Potential of any taxpayer is.
Sometimes, the IRS not following their own rules can be your advantage.
If you have the ability to full pay the IRS tax debt with an Installment Agreement within the remaining Collection Period, any Offer you make should be rejected. We have seen situations where those rules have not been followed, and the Offer is accepted anyway.
When the IRS does not follow its own rules, you should be able to get the error fixed in appeals.
The key to winning an appeal is first, having a rock-solid case that is extremely well documented. You need to rebut your Offer in Compromise rejection letter and actually trying to get your Examiner to overrule their own decision --- which they may do if you are persuasive enough. By rebutting your rejection and keeping your issues focused, you will make the appeals officer's job much easier, and that makes it much more likely to find your position acceptable in appeal.
But even appeals does not always follow the IRS' rules. For that, you may need to litigate in tax court.
We have seen Appeals Officers not follow the rules. Perhaps this is our bias, as we are headquartered in Connecticut, but we have seen that IRS Appeals offices in the Northeast (New York, Connecticut, Massachusetts, New Hampshire) are more likely to follow the rules than other Appeals offices around the country.
Many taxpayers do not respond to Collection Due Processes notices
If you do not respond to the notice, you may appeal a rejection of an IRS Offer in Compromise, but you may not appeal that rejection with a tax court petition. It is essential that mail be opened from the IRS! We much prefer to submit an Offer in Compromise as part of a Collection Due Process request, since the appeals officer is required to balance the risk of litigation if an Offer in Compromise is rejected. This is a powerful bargaining tool that too many taxpayers simply just discard.
Our experience is that the Offer in Compromise rules are generally being followed (with sometimes a reminder required), but is always advantageous to present your case as clearly as possible and protect all appeals rights. If you need assistance submitting an OIC, or appealing a rejected OIC, contact us to set up a free consultation. Call us at 888-727-8796 or firstname.lastname@example.org.