What is IRS Collections? How much tax resolution work is there to do? What does the tax resolution process look like?
What is the “secret” federal tax lien? How do I resolve tax debt cases? What is CNC? What are the different types of IRS Installment Agreements?
If you’ve had zero prior exposure to IRS Collections representation, then these are likely the types of questions you may be asking yourself. This video, recorded as a live CPE webinar on June 22, 2017, provides a very high level overview of tax debt resolution processes.
Free CE/CPE class: To attend the latest version of this class, in continuing education format, go here.
Watch on YouTube: https://www.youtube.com/watch?v=qm4Bwsc0MpE
Note: Video replays of webinars are not eligible for CE/CPE/CLE credit. Information was accurate as of the date of recording, but since tax laws, regulations, policies, and procedures are constantly changing, please refer to the most recent available guidance for updated information.
Note: This is a raw, unedited transcript of the recording that was produced with an automated transcription tool, not a human transcriptionist. It’s provided merely for reference and to help you find specific sections of the video you might want to jump to.
Good afternoon, everybody. This is Jassen Bowman, and welcome to this presentation of an overview of IRS collections or representation.
Before we get started, I want to let you know, certificates of completion, I’ll get those done over the weekend as well as the IRS reporting. To in to receive your CPE credit, you must answer all three polling questions.
This is usually an issue for the IA’s because you’re not necessarily used to doing this on some of the IRS webinars and whatnot. But now Zarba has stricter requirements than the IRS does for sea completion. So you’ve got to answer the following questions. The handouts of the the slides for today’s presentation are available in the reminder link that were sent to you by go to webinar. They are also available in the handouts, pain of the go to webinar control panel. If you can’t find it, just click on View, then handouts and then you can download it.
If you have questions during the presentation, don’t hesitate to ask via the questions pain.
So the presentation that we’re doing today is kind of a kind of a Frankenstein, actually what I did is I went through all the slides for our our level one and level two presentations, each level comprising an entire day in a life seminar format. And I picked out what what I what I felt were the most important elements for somebody to see if they were getting into tax resolution for the first time, if there were thinking about getting into collections representation, if they just wanted a big picture, you know, thirty five thousand foot survey overview.
And so that’s kind of what I’ve created here for you is the equivalent of a survey class in college where we’re not going to go in-depth on any one particular thing. OK, so please keep that in mind before you start asking questions. The purpose here is not to go in depth on any particular area. What I want to give you is exactly what I promised a sweeping overview of the IRS collections process. So that starts with taking a look at what IRS collections activity looks like.
Now, this information is something that I look forward to every single year. In fact, that’s the the annual IRS publication I look most forward to, and it’s from the IRS data book on the preceding fiscal year. And this usually comes out around March, end of March, early April of each year. And Table 16 is the piece that I am most interested in because table 16 shows the IRS collections activity. So in fiscal year 2016, the fiscal year, don’t forget, runs October 1st to the end of September of of each year.
So in FY 16, there were over seven and a half million new collections cases opened by the IRS. Now, they also closed seven million collections cases. Either because they were entered into via installment agreements, they were closed out as Don collectible collection statute expiration date expired, the 10 year statute of limitations ran out, et cetera. So we started fiscal year 2017 with 14 million open IRS collections cases, a net increase of over six hundred and thirty four thousand cases over the previous year.
Now, don’t forget, this is not the tax gap, which is an estimate of underreporting nanay. This is actually representing assessed tax penalties and interest. So assessments that have already been made and currently over one hundred and thirty eight billion dollars outstanding. And for reference, that is twice the annual budget of the US Department of Education. Taking a little bit further, look at this there in 2015, there are over three million delinquent tax return cases, investigations open.
The IRS has been doing a special enforcement the past couple of years special enforcement initiative to reduce the number of of open collections cases. And, yes, even if they’re in C and C, the case is currently considered closed until unless it comes up for review. Then it opens up again in collection. So these deliberator investigations are dwindling because obviously the IRS needs to know how much somebody owes in order to build them. That’s why the failure to file a return is a crime, whereas we did away with with debtor’s prison many, many moons ago.
So the failure to file is potentially a crime, whereas the failure to pay isn’t necessarily so. Also want to point out that the number of tax liens being filed every year is literally half what it was when I got into this industry in 2008, almost a million tax liens filed in 08, well under half a million filed in 2016. This has to do with some changes in filing thresholds from the IRS Fresh Start program. But it also has a lot to do with the budget crisis, right?
The IRS has to pay state and local county filing fees in order to file that six, six, eight y. OK, so the number of tax liens being filed on public record is dwindling. Also, the number of levees being issued is decreasing. In fact, last year was the single biggest decrease in levee issuance since I started in the industry. And Paul, this industry I’m talking about the tax resolution service industry as a whole, OK, it is an industry unto itself.
It is a sub specialization in a niche of practice within the overall tax and accounting industry. So that’s what I’m referring to. The biggest thing that I want to point out here is that last year the IRS accepted 27000 offers in compromise out of sixty three thousand applications. OK, now, yes, that’s a four over a 40 percent acceptance rate. The other 60 percent mostly represent offers in compromise that should never have been filed in the first place. I personally have a one hundred percent offer and compromise acceptance rate because I didn’t run an offer mill.
I only submit offers that they qualify for. So always run the numbers, make sure that they qualify for the OIC before you ever submit it. A lot of offers being submitted or either by people that don’t read the the, the, the form and so don’t actually qualify or they’re submitted by offer mills that are out there. You know, I call them the the big national scumbag rip off con artists of the industry, those firms that are out there selling everybody the pennies on the dollar dream and saying, yeah, we can sell your tax debt for 100 bucks.
Not a problem. OK, so a lot of offers get submitted by those con artists out there that are out there ripping taxpayers off. The key point here is twenty seven thousand offers accepted out of seven million collections cases that were closed out. OK, that I think is pretty important. OK, so again, seven million collections cases closed out. I’ve never used the highlighter before. I didn’t know that work. OK, so compare that to. The twenty seven thousand offers that were accepted, that is a zero point three eight percent, less than half a percent of tax debt cases are resolved through a reduced settlement.
OK, bottom line, tax resolution does not equal offers and compromise, OK? That’s why on our level one full day seminars, we don’t even talk about offers in compromise because it is the least useful, the least important and the least utilized. Resolution tool at your disposal. So for those of you that haven’t had any prior exposure to this, the whole industry in general that we call tax resolution, if you’re coming into it thinking that it’s all about offers and compromise, I want to kind of knock that out of your noggin right off the bat.
OK, so where do tax debts come from? I would hope that I to spend a whole lot of time on this. I would expect that most of you would already realize that assessments come from either the filing of a return. They come out of examination and they can also come out of the substitute for return. SFR substitute for a return program now after both a SFR is is filed by the IRS or any changes are made by the by examination.
There is a Snod issued. This is the 90 day letter, the statutory notice of deficiency, Snod. And then 90 days after that, the assessment becomes fixed. Now, of course, there are additional penalty assessments and various other avenues, but these are the primary ways that a tax debt gets issued. All right, before we get too far along here, let me put up our first polling question and and remember IA’s included. Must answer the following questions and Stephen, yeah, unfortunately, the the seas are what are most advertised by the big national Fly-By-Night companies.
That’s what’s advertised. But that is obviously not what most people qualify for. Hardly anybody does. OK, this isn’t a marketing webinar, but the benefit of all those big companies doing all that marketing is that over the past decade plus, it has raised public awareness of the fact that there are resolution options. So it actually helps to start the conversation and it helps make your advertising that much more powerful and gives you something to to launch off of know, especially when everybody else, you know, you get to say, I know everybody out there is promising you just pennies on the dollar thing.
But I want you to know that if you pay them money and you hire them, you may not qualify for the offer less than half of one percent of all taxpayers due to. All right, so we’re at 90 percent on the polling question. You get the rest here and there, it’s about five or six people. Looks like most of you want to pass through entity class. That’s interesting. All right, five more seconds on the polling question and then it’s gone.
If you don’t answer this one, well, you’re not going to get all three. You’re not going to get credit. So. Three to one and bye bye, it goes. All right, so what is this thing that we call the IRS collections cycle, you obviously know that the IRS is very forms driven, their notis driven, their checklist oriented. I’m a I’m a firm, firm proponent that everybody should spend time reading the Internal Revenue Manual.
And once you start reading through the IRS form, you quickly realize that’s just a big book of checklists processes. OK, so the the IRS runs off of processes. Now, the IRS is required by law to send at least one notice in demand for payment, that’s a bill by administrative courtesy they send to OK, and I’ve got a typo here. This should be an FTL, not in TFL. That’s the notice of federal tax lien. So after an assessment, there’s a bill, they send another courtesy bill, and then if the liability is over ten thousand dollars, they’ll typically file the notice of federal tax lien.
30 days after that, you get the first notice of intent to levy the CP five, 04, which is also the only required warning indicating that they can take your state tax refund. Thirty days after that, if it’s in the field, it’ll be a letter ten, fifty eight, if it comes out, it asks a service center, it’ll be a L t 11. That is the final notice of intent to levy. And just like by law, the IRS is only required to send one bill, they are only required by law to send one notice of intent to levy.
They send two as a courtesy, OK, because we all know that the IRS is a gentle, gentle creature. Right. So understand also that most tax debtors have been through the process at least once. The majority of of 10 40 debtors owe for anywhere from three to five years. That’s that’s the the typical 10 40 case. And then this is obviously an annual cycle. A lot of these the most people have gotten their bills by now. Right now, as we sit here at the end of June, twenty seventeen, a lot of these notices of federal tax lien are going out on return on returns that were just filed in the latest filing season.
And pretty soon we’ll be getting the cup final fours. So right now is what I refer to as second tax season or tax resolution season for the ten forty side of the House. I should also point out that over 60 percent of that one hundred and thirty eight billion dollars in outstanding tax penalties and interest is actually nine forty one. The bulk of the money owed to the government is nine forty one, not ten forty. That that is with the where the bulk of the money has to be made in this industry.
And again, Paul, by this industry, I mean tax resolution. The other nice thing about nine forty one and focusing on nine forty ones is that they are the highest SBC enforcement priority because federal tax deposits are what fund the day to day cash operations of the federal government. And they’re on a quarterly cycle, so you’ll notice that this cycle right here lasts about four months, 940 ones run on a three month cycle. And so for a nine forty one Dederer that continues to accrue a tax liability.
They are forever in this endless vicious loop of this cycle. So the key to breaking the key to resolution is breaking this cycle, especially on the nine forty one side where it comes up so frequently throughout the year. Now, let’s talk about those tax liens. This is covered by section sixty three, twenty one of the Internal Revenue Code, which is under title twenty six of the US code, which states that if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount, including any interest, additional amount in addition to tax or assessable penalty, together with cost of collections, shall be a lean in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.
So if you owe the government money. They have a lean against everything you own. Or everything you have a right to including. What’s a what’s a future paycheck that’s rights to future property? OK, so that’s the statutory basis for wage garnishments, for example. Now, here’s the other part of the lean puzzle that a lot of practitioners even don’t fully realize. And this is in the very next section of the code. Unless another date is specifically fixed by law, the lean in close imposed by the prior section shall arise at the time the assessment is made.
At the time the assessment is made, so the lead, the statutory tax line that arises against a tax debtor. Arises the very instant that an assessment is fixed, so after the IRS processes processes of tax return and issues the assessment, there’s a tax lien 90 days after the statutory notice of deficiency issued via an examination or SFR process. Bam, there is a lead. The IRS does not have to file the notice of federal tax lien in order for there to be a lead.
Some people call it the secret or the silent lane. It’s definitely not secret and it’s definitely not silent, OK? It is a statutory lead and you as a tax professional need to know that that line exists against anybody that owes the IRS money, even if the six, six, eight Y has not yet been filed. Now, why should you care about leads? All right. Linework, as I call it, which includes Leane withdrawals, subordination, discharges, et cetera, will be central to approximately five to 10 percent of your case resolutions if you are doing a large volume of tax resolution work.
Remember, this is all I did for eight years was I was strictly tax resolution, OK? I didn’t do seasonal tax prep. I didn’t do examination. I’m a one trick pony and that’s collections. Like a lot of times you can get a tax lien withdrawn or discharge an asset or subordinate the tax lien in order to facilitate collection. And we talk about this for for two full hours and our level to tax lien class. Also note that any real estate transaction involving a tax debtor is going to require your assistance.
This is a great referral marketing opportunity for you with with mortgage brokers, real estate agents, etc. And there is an entire business model that you can have where all you’re doing is linework. And of course, all taxpayer assets are subject to the lean and require IRS permission to finance, refinance or dispose of the asset. Generally, the government has 10 years to collect on the debt. This this starts the date. The assessment is made and runs for 10 years until the see said collection statute expiration date.
If the IRS does file the notice of federal tax lien to put it on public record, that is a self releasing document. So it’s got a date on it. And and within 30 days after that date, the the the lead self releases, OK. Now, in the rare circumstance, very rare. Where the government sues the taxpayer and state court and reduces the tax debt to judgment, then the sea said kind of goes out the window and the judgment expires under state law.
And so check your state laws on this. Well, over half the states have a judgment time period that lasts for 20 years or more. OK. Also note that there are administrative actions that can extend the ten year period of time. For example, if you file an offer in compromise, the clock stops. If you file a CDP appeal, the clock stops. If the taxpayer files bankruptcy, the clock stops. If the taxpayer is overseas for more than six months on that one hundred and eighty third day or whatever it is, boom, the clock stops.
OK, there are other sea set extenders refer to Ihram five point one point nineteen for the exhaustive list. But the ones that you see here on the slide, these are the predominant ones you need to be aware of. So what is the difference between a tax release, a tax lien release and a tax lien withdrawal? The release is a formal public notice of the release of the statutory lane under sixty three, twenty one, the section of the code we already talked about.
The way that the release looks on a tack on a credit report, for example, is it will show the tax that was there and then it was paid. OK, but the tax lien is still on the credit report. OK. To remove the adverse public impact of the NFL, there’s another typo man, the what you want is a 10 nine 16 C from the IRS, which is a withdrawal. What this does is you send it to the credit reports, the credit bureaus, and they actually delete.
Delete the tax lien entry from the credit report entirely, and that removes the entire adverse impact. And again, we cover Leane withdrawal processes in our Level two program.
So next, I want to talk about Resolution Pathway’s, this is something that I created as kind of a handy reference for myself, something I encourage you to kind of embody within your your tax resolution practice as well. It’s a very basic flow chart showing the options that a taxpayer has at their disposal. So. If the taxpayer has assets and they are beyond streamlined criteria, meaning they do not qualify for a streamlined installment agreement, the IRS is going to expect that the taxpayer attempt to tap into equity they have in assets.
OK. So it’s a good idea, again, if there are not streamlined eligible, that you get two or three loan denial letters in advance because a revenue officer is going to ask for them. You also may need to be looking at Leane discharge, withdrawal or subordination processes so that you can refinance or sell assets. Assuming that there’s no assets to tap into or if the taxpayer is eligible for streamlined installment agreements, then what you need to be looking at is their disposable income.
The proper Irish term is remaining income, but most of us. Is under the collection financial standards, OK, now for for a business. Obviously, the financial standards don’t apply, but you’re allowed reasonable and customary business expenses and step. The trick to minimizing an installment agreement payment is to maximize the allowable expenses and minimize income, and we talk about some some perfectly legal, perfectly legitimate, perfectly ethical tips and tricks to help you do this in our level one class.
Now, if the taxpayer has no assets and no disposable income, then chances are they’re ACNC candidate currently not collectible status. Fifty three. And then, of course, throughout this whole process. If if the taxpayer has less assets than the tax debt and they can’t pay the liability under an installment agreement, then the question is, will they be eligible for an offer in compromise? OK, don’t forget that the formula for the offer and compromise is the quick sale value of their assets, minus any encumbrances plus the taxpayers disposable income times either twelve or twenty four months, depending on which of the two doubt is to collectibility payment plans they’re going to be under.
If the sum of those assets and the and the the disposable income over one or two years is less than the debt, then they may be eligible. However, bear in mind that the 2012 Fresh Start changes that reduced this multiplier from forty eight and sixty down to twelve or twenty four, and that also allows credit for credit card payments and student loan payments. That was a twenty twelve change that could be rescinded at any time. So if your, your, your taxpayer, your client is interested in the offer and compromise program, get him, get him in and do it now.
In order to get them into the the better offer and compromise climate that we’re currently in and have been for about five years now, but I would expect those changes to be rescinded sometime in the next few years. Don’t forget that the resolution pathway that they’re eligible for is based primarily on their financial condition. Now, here are going to be talking primarily about 10, 40, because that’s where this really applies the most. Form four thirty three, a Section five, this is the income and expense table, the IAT is what you’ll hear referred to within the OIC world.
This is where the collection of financial standards are actually applied, and this is what determines the monthly installment agreement payment or the offer and compromise remaining income that goes into the offer calculation. OK, and this is what that looks like. Now, when you’re looking at this, you have to take your tax preparer hat off, OK? You have to take your tax preparer hat off, because what this is is an actual cash basis. Personal budget is what it is, it’s a cash flow statement, income statement, so, for example, child support is not taxable income.
And so if you’re wearing your tax preparer hat, you’re going to look at this line 30 and be like, will child support is not taxable. That doesn’t go on. They’re wrong. It does go on the form because even though it’s not taxable income, it is still cash available to the taxpayer to pay their bills. OK, so again, take that hat off. It’s the same thing when you’re looking at a four thirty three, B, you know, for a tax return, you’re going to take half of the meals and entertainment.
You don’t do that stuff on a four thirty three B because it’s not the tax basis, it’s the actual cash outflow. So it’s one hundred percent of meals and entertainment that are allowable. OK. So you should become intimately familiar with this form, even recommend that you have copies of this of this grid that are just on a blank eight and a half by 11 piece of paper. And I routinely use them as scratch paper for when I’m doing consultations.
Kind of helps it helps do back of the envelope calculations for clients.
OK, the briefly the purpose of the financial standards.
Never forget that the IRS sets the collection financial standards based on a middle class income based on a lot of statistical inputs. They use the remaining income amount to calculate the installment agreement payment, calculate your offer and compromise amount and even determine eligibility for currently not collectible status. OK, so in other words, the vast majority of our resolution options for 10 40 cases depend entirely upon what’s on this part of the four thirty three a. Real quick, let’s get to our next polling question.
Why did the chicken cross the road? Was A to avoid lame and outdated jokes. B, because Popeyes was on her side of the street, C, to seek solace and meditate. D to prove to the squirrel that it could be done. Or E, because Dag’s now this is America and a chicken can go wherever a chicken wants to go.
Now, forget polling questions do not have to actually apply to the material being taught. And be glad that you guys have are not in the eye affectionately refer to it as the dad joke era and that was all of 2016, we’re all pulling questions were really, really bad. Dad jokes. I do my best to lighten up the C.P.E.. Train make it a little bit more fun. All right, give you 10 more seconds. Ten more seconds. Five, four, three, two.
All right. So let’s talk about Ayas again, why should you care about installment agreements? Well, it’s because hardly anybody, OK, less than one out of every two hundred tax debtors will resolve their case through an OIC. I see. OK. Ever since the offer and compromise program was created in nineteen sixty five. Yes, the OIC was originally created in 1965. It has always been the least common option due to the strict eligibility criteria. Roughly 15 percent of tax debtors will be placed in C and C, five to 10 percent of them will involve either full pay or something involving their assets.
Everybody else, over 75 percent of the cases you work will be resolved through a payment plan, whether the taxpayer likes it or not. OK, that’s what they’re going to be eligible for. And so this is your workhorse installment agreements are where you make your living. So that is why you should care. There are six different types of instalment agreements, it would take a full two hours for me to go through all six of them. But of course, we cover that in our level one class.
We have an entire two hour session on Ayas. So there’s the guaranteed installment agreement, which has the ten thousand dollar income tax cap. There’s the streamline installment agreement, which, according to IRS data, 90 percent, 90 percent of taxpayers on and. Are on the streamline program, and that number is has gone up because for twenty seventeen only, this expires at the end of the current fiscal year. So in September, they’ve upped the the threshold amounts for 10, 40 deaths.
It’s one hundred thousand dollars and then four. They’ve adjusted the lean filing threshold as well. So there’s some good things going on with the test criteria for streamline installment agreements. For businesses that trust fund taxes, particularly payroll trust fund taxes, there are two types of in business, so businesses still operating in business trust fund installment agreements, the Investors Trust Fund Express installment agreement has a twenty five thousand dollar cap on the liability. The regular inbusiness trust fund installment agreement does not have such a cap, and both of these programs are great because they provide an option for the operating business to full pay the liability and help avoid a personal assessment of the trust fund recovery penalty.
Because the IRS has all these specially named type of installment agreements, they had to come up with a different name for just a normal installment agreement. And so they called it a regular IÉ, you know, because it’s regular. So nothing special about it. All right. So if you don’t qualify for any other types, you’re in a regular installment agreement territory. There is also something called a partial pay installment agreement. This is when the taxpayer can only afford X dollars a month and that there is not enough time in the statute of limitations at that payment amount to full pay the tax liability.
OK, so that option is out there as well for your taxpayer that is staring down the barrel of a pépé, it is wise to run the calculations and determine their eligibility for an offer in compromise. Now, all of these types of instalment agreements can also be set up as a direct debit installment agreement, often for additional good treatment from the IRS. OK. Pending status. Briefly want to talk about this pending installment agreement status. Provides protection from levee action.
OK, you can request an installment agreement through a variety of different means. You can watch it on a stone tablet and drop it off at the office if you want. In my practice, I would always send installment agreement requests in triplicate, certified mail, return receipt, fax and keep the the fax confirmation and also leave the details on a voicemail to the revenue officer. That way, they can never say they didn’t get it in order to have a valid installment agreement request, you must provide sufficient information to identify the taxpayer and the tax types and periods to be covered.
You have to propose payment terms. For example, if the taxpayer has a seasonal business and the installment agreement payment is going to go up during their busy season and down during their slow season, you need to state that. The taxpayer also needs to be compliant with filing requirements and current with other with current period payment obligations, so they got to be making their estimated tax payments, they got to be making their federal tax deposits. They’ve got to have their W4 adjusted to have enough taken out from their paychecks to cover their their current year liabilities.
OK, otherwise, they’re just not eligible for the payment plan.
Those are the requirements to get pending status. I try to get my clients here as quickly as possible, and I should also point out I have never once filed a form ninety four, sixty five. If you are currently using that form to request your instalment agreements and you’re doing it based on the the per form charge that’s built into your tax prep software. Stop it. Because all you’re doing is cheating yourself out of additional revenue. The value of the installment agreement service, even for a guaranteed installment agreement, is more valuable than the tax preparation that you’re doing.
Therefore, you should collect a separate fee for it. Now, what if the taxpayer is broke? Well, back in 1980, the IRS decided what we are simply going to remove from active collections inventory those cases that we don’t think we can collect on. As a general rule, these accounts will be reported as see and see when the taxpayer has no assets or income, which are by law subject to Levy. However, if they have limited assets or income, but it is determined that levy action would create a hardship, the liability may also be reported as currently not collectible.
A hardship exists of the levy. Action prevents the taxpayer from meeting basic necessary living expenses. In each case, a determination must be made as to whether the levy would result in actual hardship as distinguished from mere inconvenience. OK, yeah, Paul, don’t use the 90 for 65, write a letter and charge money for it, OK? Unless you don’t care about revenue, if you don’t care about your revenue, then just ignore that. So. CMC is they have no income or assets that are subject to Levy, or if they do, the levy action would create hardship, for example.
Retirement plans for one Kaze IRAs, even college savings plans, 529 plans and Coverdale plans, those are all available. The IRS can and does levy those assets, however, by policy. If the only thing that a retired taxpayer has to live on is the money in their IRA. What you do is you look at the life expectancy of the client minus their current age, divide that out by the assets in the the the the retirement account. And then you apply the collection financial standards, which form the basic necessary living expenses.
And you say, look, you can’t let me just ask that because the taxpayer is retired and this is all they have to live on for the next 20 years. OK, and this is what the numbers break out to applying the current collection financial standards, OK, levying that asset would create a hardship, therefore, put the taxpayer to see and see BAMN done, even though they have the asset. When a taxpayer owns nearly nothing and there’s no remaining income beyond what is required to live there, probably eligible for see and see, the nice thing about CNCI is that the clock on the 10 year statute of limitations doesn’t stop, OK?
And this is a resolution option unto itself. Just let the 10 year run run out. Once the 10 years expires, the IRS can’t do squat. OK, and the debt just goes away. So the statute of limitations can expire while they’re in S.A.C. status. Now, there’s supposed to be an annual review of the taxpayer’s financials. But because of all the budget and staffing issues, these can go for years without coming up, perhaps even never. This is simpler in the long term than in I.A. or an offer in compromise, it’s just simpler for the client, but it is technically it is temporary, OK, and for true hardship cases, case closure is very simple and quick by IRS standards.
A lot of these can be a one call close. Paul asks, if you have a client currently in an installment agreement, can you get them moved in to see and see? Absolutely. If the installment agreement payment is creating a financial hardship. And you can demonstrate that by applying the clutch and financial standards or if the business is tanking and can no longer afford the payment, then absolutely. Because guess what? Businesses can be put into CSC as well.
OK, it’s a little bit a little bit more difficult, but not not much. All right. So absolutely. If they can’t afford the payment, move them to see and see. Now, of course, everyone wants to know about the pennies on the dollar program, remember, this is the least commonly used resolution pathway and there are actually three different types of offer and compromise. One is doubt as to liability. So this is the six, five, six L and it’s processed by the examination department.
And this is when the taxpayer says, I don’t know this money. There’s the doubt as to collectibility, which is processed by the OIC centers, operated by collections. And this is the taxpayer saying, I can’t pay this money, and then there are also offers which are also filed on the same six fifty six form as the Dow is to collectibility. But you check the box and these are processed by examination, but within or by collection, but with input by exam and by IRS legal counsel.
Effective tax administration offers are saying, I’ve got the money to pay the tax debt, but because of my special circumstances, you shouldn’t make me pay it. That’s what an ETA is, every single one of these. I’m sure that there are other scenarios, but every one of these that I have ever seen or heard about is related to a chronic medical condition where the taxpayer needs the assets to provide for health care and so that those are the ones that I’ve seen.
OK. Reasonable collection potential RCP. This is the bottom line number that if you walk through the worksheets in the offer and compromise six, five, six booklet the the the the four thirty three a C or the four thirty three B C, the bottom line number that you come up with that they expect as your offer amount is called reasonable collection potential. This represents the total amount that the IRS could collect from the taxpayer within either a one or two year window.
It used to be either a four or five year window.
It includes net equity in assets, including assets that cannot be seized, such as a primary residence. The IRS requires a district court judge to sign off on a primary residence seizure. They hardly ever happen. So it’s the quick sale value of the asset minus any loan amounts. That’s what the IRS expects to see. They’re taking a look at present and future income. They’re looking at amount’s collectible from third party, such as a business’s account receivable list, OK?
They’re also taking into account the value of assets that were transferred. After the tax liability arose in which a certificate of discharge was not properly received, the IRS is going to track down those asset transfers and tack on that money back. The minimum offer amount is the total of all these monies. So, again, eligibility for the offer and compromise program is purely absolutely one hundred percent mathematical unless there’s an effective tax administration argument to be made and those are few and far between.
So if your reasonable collection potential exceeds the tax liability, your client is not an OIC candidate unless they meet Hetta criteria. Now, I highly recommend that you always calculate RCP. Always do a quick back of the envelope calculation of our RCP because guess what? Revenue officers do it. It also helps you quickly determine program eligibility. So if they’re a reasonable collection, potential is greater than the liability, then you’re looking at a payment plan. If the RCP is less than the liability, then they’re potentially.
No, I see candidate. If RCP is negative, then they’re probably ACNC candidate. OK, this is the fastest way to help you determine the best resolution option for your client is to simply calculate RCP. And compare it to the liability. A couple of quick things, kind of unrelated, I guess, to sort of an effective March. Twenty seventh, twenty seventeen two things happened. One, the offer and compromise processing units. So Brookhaven, Long Island, Memphis, Houston, they are going to return six fifty six forms.
On accounts that have unfiled returns, so if you file an OIC application and the taxpayer still has unfiled returns.
OK, they’re going to keep the deposit you send in and kick back the application and never even log it, OK? And they’re going to apply that deposit in the best interest of the government, so to the oldest tax liability. Do you bear in mind that for offering compromise purposes, a substitute for return A 60 20 B is a valid return? And SFR is a valid return for OIC purposes. OK, so you don’t necessarily always want to replace SFR for that in a number of other reasons.
Also, the new collection, financial standards took effect. So take a look at that. Just do a Google search for IRS collection, financial standards that will take you straight to the page. Across the board, most numbers went down.
OK, most numbers for allowable living expenses went down this year by by depending on category five to five to 15 percent reductions across the board. On average, they went down by nine percent last year. So for two years in a row, the IRS is claiming that the cost of living in the United States for a middle class family has gone down. OK, feel about that as you may, real quick, appeals, appeals as an independent division with the IRS that is tasked with preventing litigation, they handle a lot of different aspects of disputed tax liabilities.
What you’ll you’ll discover in your practice, you’ll find two primary things that you’re going to use appeals for. No. One is the CAP program collection appeals program. This is where you’re going to do most of your Lévy release action. OK, so if a taxpayer gets levied, you file a ninety four twenty three so that you get your group manager conference and then your appeals conference all has to happen within five days and appeals decisions are binding on collections.
So if Appeal says to release the tax lien or the levy or the loan, then you get it released. This is the first place you should go in a levy situation, not taxpayer advocate. Taxpayer advocate is there to help you with IRS procedures that are broken. OK, if you haven’t gone through this procedure, appeals first, then taxpayer advocate is is is most often going to say you didn’t go to appeals yet. You didn’t follow the IRS procedures.
Therefore, there’s nothing broken for us to look at. Go to appeals. OK, so file a cap first on most levy situations. The real quick, the CDPR appeal collection, due process appeal, a lot of times are going to file a CDPR appeal on a final notice of intent to levy in order to kick your case away from a revenue officer in into appeals. Over the course of my career, over 50 percent of the instalment agreements that I’ve negotiated for clients, the revenue officer didn’t want to play ball, and so I had to get the installment agreement in appeals.
OK, so over half my case resolutions have come out of appeals, not revenue officers in the field. So be aware of that opportunity when an 11 year old or ten fifty eight shows up on your door for a client that you have 30 days to file that CDPR appeal. Now, we’ve barely scratched the surface here. Dan Hene, CPA and I are going to have five more webinars that we’re doing in July. So be sure to check out the website Free Tax Dot Dotcom for those.
And also next Wednesday, if you’re interested in the marketing side of things, you know, those of you that have kind of been living on Planet Jason for for a while, there’s not going to be anything new here. It’s stuff you’ve all seen before. But if you are kind of new to my world and want kind of an introduction to the marketing processes to help you launch your IRS collections representation side of your business. Then coming out on next Wednesday, I’ll be doing a free two hour introduction to tax resolution marketing because don’t forget, you know, services like tax preparation and bookkeeping, those are commodities.
And they don’t really require much in the way of of sales and marketing skill for you to sell those services. But optional services, especially services that people aren’t as aware of, they require you to have a bit more sales and marketing knowledge and and application. All right. So because of that, I think it’s important that if you’re going to be in this business, in the tax resolution business, you’re going to be doing representation work for your clients.
You have to become good at marketing. OK, so let’s go to tax resolution webinar dotcom and you can register for that webinar next week. And again, for those of you who have been around my my world for a while, it’ll all be repeat. There’s nothing new there that you haven’t seen before in the past couple of years. But if you want a refresher, come on by as well. All right. Our last polling question. All right.
Dan and I do a fair number of multiday seminars teaching our level one, two and three classes. So all of it is basically getting into the weeds, the nitty gritty detail of everything I just talked about.
So we’re we’re planning out our fall twenty, seventeen and our twenty eighteen schedule. So we’re always curious, you know. How much of a radius out are you willing to to drive for a three day seminar? Notice we do most of those at hotels and so there are usually hotel rooms right upstairs.
All right, so that’s what I got for you today, folks are really appreciate you being here. I hope that this was helpful. Gives you at least a little bit of an idea of of. Of kind of what the business looks like, what some of the casework processes look like, and if you want to learn more again, go to three tax C.P.E. Dotcom. Dan and I will be doing more webinars here soon. And then also, if you want to participate in the tax resolution marketing webinar that we’re doing next week, then go ahead and visit tax resolution webinar dotcom for that.
All right, so again, thanks for being here. Really appreciate your time and to close out the polling question. Paul says, this is cool, my first time looking forward to learning from more hope to see you next Wednesday. Absolutely, Paul. Thank you for being here. Appreciate it. Stephen, you’re too kind. Stephen says you’ve done it again. I attended a presentation by a CPA for another organization in January. The CPA didn’t say that.
You only file. Oh, I see. If the numbers support it. He told everyone else that it was his knowledge that was needed for your client referral and ethical presentation. Haha, yeah, it’s it’s yeah. It’s purely numbers based. And unless it’s an ETA situation which are even rarer than offers in compromise in general, just see the IRS only accepts, as you can count on one hand, the number of offers they accept most years. OK, it’s very they’re very few and far between.
So, yeah, most of them just collectibility offers, they’re they’re mostly financially driven. Shirley, thank you. Glad you found it valuable. So I’ll close out the polling question. Thank you, everybody, for being here. I hope you have a wonderful rest of your day.
And be sure to check out the additional sessions we’re doing here in the next few weeks. Thanks a lot. Bye bye.