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Offer in Compromises.
- DOUBT AS TO COLLECTIBILITY (DATC).
The most common offer in compromise is when the taxes owed are so great that it will be impossible to ever pay off the tax debt. Our firm has an extremely high success rate with DATC offers. A DATC offer is a procedure where the taxpayer offers the IRS an amount equal to the equity in most of the taxpayer’s assets, plus and additional amount based on what the taxpayer could reasonably pay over a certain period of time pursuant to taxpayer documentation and IRS guidelines.
For offer purposes, assets are valued at “quick sale value,” which is typically about a 20% discount from fair market value. The IRS will then subtract out secured debts—such as mortgages—from the quick sale value to arrive at the taxpayer’s equity. A taxpayer does get a limited exemption for basic household goods and furniture, including automobile(s).
- DOUBT AS TO LIABILITY OFFERS (DATL).
If for some reason you legally owe the tax, but the amount is not correct, then a taxpayer might be eligible for an offer based on doubt as to liability. Essentially a taxpayer refigures their taxes and offers the correct tax plus interest. Our firm successfully prosecutes DATL offers based on expert tax preparation by refiguring lower taxes, and forensic accounting to reconstruct records. Candidates for DATL offers are taxpayer who have money, but their taxes are not correct.
- EFFECTIVE TAX ADMINSTRATION OFFERS (ETA).
The IRS will also consider compromising taxes to promote effective tax administration. ETA offers center around hardships (not mere inconveniences), for example—individuals with sufficient assets but who have medical conditions, illnesses, or a disability and they will run out of money for basic necessities if they pay off the taxes in full. Sometimes the IRS will consider an offer for taxpayers who have income but exhaust it all by providing for the care of dependents with no other means of support. Our firm has been successful with ETA offers based medical hardships.
- CONCLUTIONS ABOUT OFFERS
Offers should be considered in a variety of circumstances. Perhaps the best candidates for offers are taxpayers, including businesses, with little or no equity in their assets and have sufficient cash flow to meet basic expenses. Offers require documentation, but with perseverance and follow up the IRS will consider your offer. If the IRS agrees and full payment is made, they will promptly release federal tax liens. I have further found the IRS to be reasonable with their negotiations and payment plans with respect to offers. Thus, an offer is an excellent tool for individuals and for businesses owing payroll taxes. Offers should typically be considered before making a determination whether to file bankruptcy or file in addition to bankruptcy.