An offer is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the amount owed.

1. 1844-AYAR-LAW
844-AYAR-LAW
AYARLAW.COM

2. 2844-AYAR-LAW
THE IRS OFFER IN COMPROMISE
PROGRAM
Presented by: Venar Ayar, J.D.,
LL.M.
Founder of Ayar Law
Southfield, Michigan

3. 3844-AYAR-LAW
Venar Ayar, founder
AYAR LAW
Michigan tax lawyer, Venar R. Ayar, founder of Ayar Law, holds ten years of
experience as an accounting specialist and tax lawyer. He earned his Juris
Doctor at the University of San Diego School of Law, receiving a Master of
Laws in Taxation, the highest degree available in tax. His main focus has
become Michigan tax resolution as well as IRS tax resolution, including
individual and business tax matters; tax planning, tax compliance and white-
collar criminal defense. His business background has helped him to become
personable and understanding in his work. Representing clients before the
IRS, Ayar's practice and experience has proved him as an honest and
dedicated leader in the realm of Michigan tax lawyers.
Venar R. Ayar, LL.M

4. 4844-AYAR-LAW
PART 1
OVERVIEW OF THE IRS OFFER IN COMPROMISE
PROGRAM

5. 5844-AYAR-LAW
What is an Offer in Compromise?
 An offer is an agreement between a taxpayer and the government
that settles a tax liability for payment of less than the amount owed.
OIC OVERVIEW

6. 6844-AYAR-LAW
Authority
IRC §7122 grants the Secretary of the Treasury broad authority to
compromise tax liabilities
Treasury Regulation §301.7122-1 lays out three grounds for
accepting an offer
1)Doubt as to Collectability (DATC)
2)Doubt as to Liability (DATL)
3)Effective Tax Administration (ETA)
Denegation Order No. 5-1 delegates the Commissioner’s authority
to accept, reject, terminate, or acknowledge withdrawals of offers
OIC OVERVIEW

7. 7844-AYAR-LAW
Objective of the Offer Program
Effect collection of what can reasonably be collected at the earliest
possible time and at the least cost to the government
Achieve a resolution that is in the best interests of both the
individual taxpayer and the government
Provide the taxpayer a fresh start toward future voluntary
compliance with all filing and payment requirements
Secure collection of revenue that may not be collected through any
other means
OIC OVERVIEW

8. 8844-AYAR-LAW
PART 2
HOW THE OFFER IN COMPROMISE PROGRAM
WORKS

9. 9844-AYAR-LAW
Step 1: Compile / Send OIC Package
Form 656 (656-L for DATL Offers)
433-A (OIC) and/or 433-B (OIC) (Not Required for DATL Offers)
Attached explanations, documents, computations, etc.
Application Fee (not required for low income)
Initial Payment (not required for DATL or low income)
Low-Income Certification
THE OIC PROCESS

10. 10844-AYAR-LAW
Step 2: Initial Processing / Processability Determination
A. Conditions for Processability
Bankruptcy check
Check for application fee / initial payment
Jurisdiction Check (DOJ Cases)
Unassessed Liabilities
Expired CSEDs
B. If processable, client placed in pending CNC status, otherwise
offer is sent back
Note: No collection hold until this happens
THE OIC PROCESS

11. 11844-AYAR-LAW
Step 3: Initial Compliance Screening
Shortly after the initial processing of the offer
Check for unfiled returns
Check for ES payment compliance
“delay of collection” determination made
If there are compliance issues, processing agent will contact you
and give the taxpayer an opportunity to come into compliance
THE OIC PROCESS

12. 12844-AYAR-LAW
Step 4: Full Analysis of Offer
Agent will look at package and determine if additional information is
available
Information exchange
Determination is made
1)Reject
2)Proposed Increase
3)Accept
THE OIC PROCESS

13. 13844-AYAR-LAW
Step 5: Appeal (If Rejected)
If you don’t like the results, there are options to file an appeal.
Details on that are beyond the scope of this presentation
THE OIC PROCESS

14. 14844-AYAR-LAW
PART 3
WHAT MAKES A DATC OFFER ACCEPTABLE?

15. 15844-AYAR-LAW
3 Step Analysis
Step 1: Does a DATC Exist?
Step 2: What is the minimum settlement amount?
Step 3: What is an appropriate settlement amount?
DATC OFFER ACCEPTANCE

16. 16844-AYAR-LAW
Step 1: Is there a Doubt as to Collectibility?
It must be unlikely that the tax liability can be collected in full before
the debts expire
Need to determine Reasonable Collection Potential (RCP) and
compare to amount of debt
General formula for determining RCP
1)Liquidation Value of all Assets, plus
2)Monthly ability-to-pay, multiplied by
3)Months remaining on CSEDs
Exceptions to formula do apply
DATC OFFER ACCEPTANCE

17. 17844-AYAR-LAW
Step 2: What is the minimum offer amount?
Lump sum offers
Net value of assets, plus
12 x Monthly ability-to-pay
Periodic payment offers
Net value of assets, plus
24 x Monthly ability-to-pay
DATC OFFER ACCEPTANCE

18. 18844-AYAR-LAW
Step 3: What is an Acceptable Settlement Amount?
“Not in the Best Interest of the Government”
My preferred strategy is to always offer the bare minimum, and that
used to be enough
Lately seeing more and more rejections of offers that otherwise
qualify
Offer Specialist is supposed to compare RCP to offer amount and
make common-sense determination
DATC OFFER ACCEPTANCE

19. 19844-AYAR-LAW
Example
Debt is $75,000, full 10 years on the statute, monthly ability to pay is
$500, and taxpayer has no assets
RCP is $60,000. (120 months x $500/month)
Less than the liability amount, so DATC exists
Minimum lump-sum offer amount is $6,000 (12 months x
$500/month)
Offer of $6,000 likely to be deemed “not in the best interest of the
government”
Acceptable amount depends on discretion of offer examiner and/or
appeals officer
DATC OFFER ACCEPTANCE

20. 20844-AYAR-LAW
Financial Analysis Rules
Offer Examiner will attempt to verify 433-A figures through
independent verification
Will look at:
1)Taxpayer Provided Documents
2)Public Records Search (Accurint)
3)Simple Google Searches
4)Credit Report, with manager approval
5)Verification though Taxpayer contact
DATC OFFER ACCEPTANCE

21. 21844-AYAR-LAW
Equity in Assets
IRS will look to independent sources to find assets of value
Divorce decrees / separation agreements
Insurance policies to look for high value personal assets
Financial statements provided to banks in loan applications
DATC OFFER ACCEPTANCE

22. 22844-AYAR-LAW
Special Considerations
Valuing Real Estate (80% rule)
Valuing pre-tax accounts (be sure to deduct taxes from amount)
Income Producing Assets (remove the income)
Business as a going concern (argue around it)
Dissipation of Assets (3 year look back)
DATC OFFER ACCEPTANCE

23. 23844-AYAR-LAW
PART 4
ETA OFFERS

24. 24844-AYAR-LAW
ETA / DATC with Special Circumstance
Three Grounds for ETA Offer
1)Economic Hardship
2)Public Policy
3)Equity
First must consider DATC offer
ETA OFFERS

25. 25844-AYAR-LAW
What is Economic Hardship?
Must show that collection of tax based on formula would create an
economic hardship
Hardship occurs when taxpayer is unable to pay reasonable basic
living expenses
Only available to individuals
ETA OFFERS

26. 26844-AYAR-LAW
Factors that Support an Economic Hardship Determination
TP Incapable of earning living because of disability, and it is
foreseeable that savings will be depleted
TP has fixed monthly income and it is exhausted each month in
caring for dependents
TP has assets, but unable to borrow against them, and liquidation
would leave TP unavailable to meet basic needs
ETA OFFERS

27. 27844-AYAR-LAW
Examples
TP is retired and on fixed pension income, and it’s not enough to
live on. Only asset is retirement account (enough to full pay
liability). Liquidation of account would leave TP unable to meet
basic needs. 0 TA Granted
TP’s only real asset is principal residence. Can’t borrow against it
because not enough income. Can’t sell it because it was modified
to suit disability. ETA appropriate
ETA OFFERS

28. 28844-AYAR-LAW
PART 5
DATL OFFERS

29. 29844-AYAR-LAW
Public Policy / Equity Offers
Very rare. Only a handful accepted each year
Fact specific
DATL OFFERS

30. 30844-AYAR-LAW
DATL Offers
Procedurally, much like audits. Send in offer, case sent to Revenue
Agent to work. Full discussion beyond scope of this presentation
DATL OFFERS

31. 31844-AYAR-LAW
Thank you
AYARLAW.COM
844-AYAR-LAW