Offers in Compromise Strategies: Using OICs to Challenge Assessments and Request Reconsideration of Tax Bills

Description

The OIC program is one of the most misunderstood of all IRS taxpayer initiatives. For most practitioners, their exposure to the OIC program is limited to circumstances where a taxpayer has difficulty paying a tax bill due to financial hardship. There are, however, other grounds which a taxpayer may utilize in submitting an OIC, which may be less dependent on the taxpayer’s financial situation and may have a greater chance of success.

In circumstances where a taxpayer is facing a tax assessment over which there is a dispute as to the accuracy of the liability, the taxpayer may file a DATL. An offer filed under DATL carries some limitations: taxpayers may not combine a DATL with any other basis for an OIC.

However, a DATL can offer some significant advantages for taxpayers facing a disputed tax bill. Unlike other OIC requests, taxpayers filing a DATL do not have to make a financial disclosure. A DATL filing also preserves the right of the taxpayer to contest the merits of the assessment. The Service generally treats DATL filings as similar to an audit reconsideration, so practitioners should be prepared to summarize the basis for any liability challenge in filing the Form 656-L.

Tax advisers may also file an OIC based on the argument that a compromise would promote effective tax administration (ETA). This provides more of a “catch-all” reasoning based on an equity argument. This approach, however, generally requires asset and income disclosure, as well as being the last course the IRS may review.

Listen as our experienced panel provides a thorough and practical guide to the OIC program, from selecting a strategy through required filings, to minimize tax exposure.