Extraordinary circumstances, such as special educational expenses, medical catastrophes, or natural disasters. Inability to obtain loans or liquidate assets due to difficulties. The “exception in special circumstances” in the transaction offer justifies the acceptance of an offer with a potential payment lower than the reasonable total. The IRS anticipates accepting a lower than reasonable collection potential in cases where, despite the proper application of the Service's allowable spending standards and asset valuation rules, the taxpayer is unable to pay the full potential for reasonable collection without suffering financial hardship.
Economic hardship is defined as the inability to cover reasonable basic living expenses. Economic difficulties do not include mere inconvenience or the inability to maintain a luxurious or prosperous standard of living. Under the Service's procedures, the amount accepted must reflect what could reasonably be collected minus the amount the taxpayer must withhold to avoid financial hardship. The IRS pays special attention to people with physical or psychological illnesses.
In particular, the IRS has always preferred offers from people with bleak financial perspectives because of their advanced age, especially those over 60. In addition, the IRS will consider problems related to HIV or drugs or alcohol, as well as a family member's problem, if this has a detrimental financial effect on you. The OIC for Effective Tax Administration is a little different, since it's not based on your reasonable collection potential (your ability to pay) or on doubt as to your liability (whether you owe the tax liability claimed by the IRS). A commitment offer from ETA is based on difficulties, public policies and equity.
In other words, will the collection of the total tax liability create economic difficulties for the taxpayer?. This type of OCI evaluates whether compliance with the tax liability is the most effective use of IRS time. The IRS will not accept your transaction offer unless the amount you offer is equal to or greater than the CPR. Now that we've explained why your customer's offer may be rejected, let's talk about what to do with a rejection.
The three reasons for submitting a transaction offer are doubt as to collectability, doubt as to liability and effective tax administration. Also, remember that interest continues to accrue during the process of negotiating transaction offers, which means that you'll end up owing more than ever if you don't finally reach an agreement. You don't need to file a new Form 656 if you submit a new offer within one month, if your financial situation hasn't changed significantly, and if the new offer isn't radically different from the old one. Keep in mind that ex parte communications are prohibited in the IRS, which means that an appeals officer cannot discuss his client's case with the offer specialist who rejected him.
When a taxpayer's liability can be collected in full, but the collection would cause economic difficulties, an ETA offer based on economic hardship can be considered. A transaction offer (OIC) is an option offered by the IRS that allows taxpayers to settle their debt for less than they actually owe. But why would the IRS accept an offer if the taxpayer can pay and the tax was assessed correctly?. The representative would indicate that the basis of the offer is ETA and will include a detailed description explaining the economic difficulties that would result from the customer having to sell their real estate.
Your down payment must be 20% of what you offer to pay (if you pay in five or fewer installments) or your first monthly installment (if you pay in six or more monthly installments). The offer form must be accompanied by a justification of income received, certain expenses paid and obligations owed for non-monetary assets, such as real estate and vehicles, demonstrating that the taxpayer cannot pay the full balance due. There are a couple of ways you can make sure that these types of errors don't happen in your offers. In addition, the IRS will generally not accept offers from a taxpayer who can pay their debt in full or through an installment agreement.