New COIC assault Tactic
It continues to be very obvious to anyone working in the offer in compromise area that COIC is aggressively looking for new and better ways to reject or return an offer in compromise. The latest tactic is to invoke a little obscure section of the manual which states that an offer should not be accepted if the taxpayer could pay the liability in full in the the time remaining on the statute of limitations plus one five year extention. I call it the Full Collection Test. If the amount of the Full Collection Test calculation exceeds the taxpayers liability then the IRS will reject the taxpayers offer to compromise no matter how much the taxpayer offers.
The Full Collection Test calculation involves finding a multiplier and then multiplying the installment amount by it. If the liability of the tax payer is greater the offer passes the test. If on the other hand the liability of the taxpayer is lower then the taxpayer fails the test and his offer will be rejected.
To find the multiplier you must determine the number of months left on the statute of limitations for the most recent tax period and add sixty months to the number. For most people this will be over 150 months. The total number of months becomes the multiplier which is used to calculate the Full Collection Test. Then the installment amount, the amount by which the taxpayers income exceeds the allowable expenses will be multiplied by the multiplier. If the result is greater than the tax liability then the offer in compromise will be rejected.
Here is an example: The Taxpayer has no equity in assets and his monthy income exceeds his allowable expenses by $300. There are 98 months left on the statute of limitations for the most recent tax period in the offer. The "reasonable collection potential" or the amount the IRS should accept to settle the tax liability in full on a cash offer is $14,400. ($300 times the 48 month multiplier). In the past the IRS would accept a $14,400 offer as long as the taxpayer owed more that this.
However, now the taxpayer must pass the Full Collection Test. To calculate the Full Collection test for this taxpayer, 60 months is added to 98 months left on the statute of limitations for the most recent tax period on the offer in compromise. 60 + 98 = 158. Now 158 is multiplied by $300 (the installment amount). 158 times $300 = $47,400. If the taxpayer owes more than $47,400 then he passes the Full Collection Test and is still eligible to compromise his taxes. However if the the taxpayer owes less than $47,400 then his offer in compromise will be rejected.
If you find the Full Collection test is an impediment to an offer in compromise you should not withdraw your offer but appeal the rejection. An offer specialist has the authority to negotiate. For example the taxpayer may be close to retirement. The offer specialist could use this as justification to waive the Full Collection test and compromise the liability.
If you need help in submitting an offer in compromise you will find my book Offer Secrets Revealed to be very helpful. http://offersecretsrevealed.com
The Full Collection Test calculation involves finding a multiplier and then multiplying the installment amount by it. If the liability of the tax payer is greater the offer passes the test. If on the other hand the liability of the taxpayer is lower then the taxpayer fails the test and his offer will be rejected.
To find the multiplier you must determine the number of months left on the statute of limitations for the most recent tax period and add sixty months to the number. For most people this will be over 150 months. The total number of months becomes the multiplier which is used to calculate the Full Collection Test. Then the installment amount, the amount by which the taxpayers income exceeds the allowable expenses will be multiplied by the multiplier. If the result is greater than the tax liability then the offer in compromise will be rejected.
Here is an example: The Taxpayer has no equity in assets and his monthy income exceeds his allowable expenses by $300. There are 98 months left on the statute of limitations for the most recent tax period in the offer. The "reasonable collection potential" or the amount the IRS should accept to settle the tax liability in full on a cash offer is $14,400. ($300 times the 48 month multiplier). In the past the IRS would accept a $14,400 offer as long as the taxpayer owed more that this.
However, now the taxpayer must pass the Full Collection Test. To calculate the Full Collection test for this taxpayer, 60 months is added to 98 months left on the statute of limitations for the most recent tax period on the offer in compromise. 60 + 98 = 158. Now 158 is multiplied by $300 (the installment amount). 158 times $300 = $47,400. If the taxpayer owes more than $47,400 then he passes the Full Collection Test and is still eligible to compromise his taxes. However if the the taxpayer owes less than $47,400 then his offer in compromise will be rejected.
If you find the Full Collection test is an impediment to an offer in compromise you should not withdraw your offer but appeal the rejection. An offer specialist has the authority to negotiate. For example the taxpayer may be close to retirement. The offer specialist could use this as justification to waive the Full Collection test and compromise the liability.
If you need help in submitting an offer in compromise you will find my book Offer Secrets Revealed to be very helpful. http://offersecretsrevealed.com
2 Comments:
Thanks for blogging Cody. What's new?
Cody, you refer to "a little obscure section of the manual" that allows the Service to reject an offer based on what you refer to as the "Full Collection Test". I have searched the IRM, specifically IRM 5.8.5.5.4., and nowhere does it ever mention this test. I have appealed the application of the additional 60 months in quite a few offers and have never found an appeal or settlement officer who could deny my protest based on this "obsure section of the IRM". My belief is that it does not exist. In fact, IRS Policy Statement p-5-100, states that the Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. In addition, an offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. Finally, the goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government. This leads me to believe that the application of the "Full Collection Test" (adding an additional 60 months which creates a protracted installment agreement) is not founded in the adminstrative procedures of the IRS.
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