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Understanding the IRS Tax Reform Act
By Staff Writers
In 1998, the IRS received 105,255 offers-in-compromise, but accepted only 25,052 offers—a mere 24%; and the exact number for medical professionals is unknown.
The IRS Reform Act
However, the IRS Reform Act later revamped the provisions for offers-in-compromise and the IRS, reacting to the changes, announced that it would be more flexible in considering offers-in-compromise in the future. In addition, under new rules, taxpayers can have up to two years to pay the accepted compromise amount.
Re-trained Staff
The IRS now trains staff specifically to handle such offers. In accordance with the Act, rejected offers will be reviewed to determine whether the action was in the best interest of the taxpayer. The IRS has updated Form 656 to process the offers.
Submitting the Offer
When submitting an offer-in-compromise, the offer must specify the maximum amount a taxpayer can pay after taking into account basic living expenses. Essentially, this means the IRS will consider each taxpayer’s financial situation individually. But, college education for children is an expense most people pay, yet the IRS generally does not factor in educational expenses when determining a taxpayer’s living expenses. .
In the past, the IRS relied on a standard cost-of-living formula to determine what taxpayers could afford, not on each taxpayer’s own expenses.
The IRS automatically can accept offers if: 1) there is doubt about the liability for the tax, and 2) there is doubt that the taxpayer can ever pay the full amount of the tax. If a taxpayer is claiming there is doubt about the liability, the taxpayer will need the help of a tax professional to spell out the rationale for his or her position. If the offer is based on inability to pay, the financial information in the worksheets to the IRS, Form 656, should be completed.
Quick-Sale Value
Remember, as a medical professional or other, the IRS can consider the taxpayer’s future income, as well as his or her current assets when evaluating an offer. Individuals can exclude certain minimum assets of household effects, and trade and business tools. The value of the taxpayer’s assets is based upon a “quick-sale” valuation. Again the taxpayer may need to help to justify his financial position.
The key is determining the full value of the assets and the discounts for quick sales, in addition to the taxpayer’s living expenses. An amount higher than the IRS standard generally cannot be permitted. Again, this will be based on the taxpayer’s documentation.
Collection Procedures
The IRS’s ability to begin collection procedures while an offer-in-compromise is under consideration has been sharply limited by the Act. This is true even if after an offer is rejected, but the taxpayer appeals the decision.
Cash offers must be paid within 90 days of acceptance. For deferrals, payments must be made within two years after the offer is accepted. Alternately, the taxpayer can pay the offer over the statutory period for collecting the tax.
Innocent Spouse Rule
The IRS also has added innocent spouse relief to offers-in-compromise, so now the IRS will not collect from a taxpayer’s spouse if the taxpayer defaults on his or her compromise agreement.
Assessment
As noted previously the taxpayer has a right to appeal rejected offers. In addition, he or she can submit another offer. But, in the end, only time will tell if the IRS remains taxpayer friendly.
Conclusion
Your thoughts and experiences are appreciated; please comment and opine. Is this a real or perceived new IRS OiC ploy? IOW: The gentler side of Uncle Sam?
Related Information Sources:
Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759
Physician Financial Planning: http://www.jbpub.com/catalog/0763745790
Medical Risk Management: http://www.jbpub.com/catalog/9780763733421
Physician Advisors: www.CertifiedMedicalPlanner.org
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