IRS finally fixes the worst problem with the Offer in Compromise program

Yesterday, the IRS rolled out a shiny, brand new version of Form 656-B, the Offer in Compromise application booklet. After years of complaints from every corner of the tax world, including tax professionals, taxpayer advocacy groups, the government’s own Taxpayer Advocate panel, and even members of Congress, the IRS has finally fixed the worst problem that has ever existed with the Offer in Compromise program.

For the past 15 years, the IRS expected you to include in your offer amount the equivalent of your next 4 or 5 years worth of disposable income. In other words, the IRS would look at your current income, deduct your allowable household expenses, and then multiply that number by either 48 or 60…and then expect you to come up with that amount of money (plus the value of your assets) within the next few months, which obviously isn’t practical and defeats the very purpose of the OIC program.

Here’s an example: If you make $4,000 per month, and the IRS “allows” you credit for $3,500 in monthly expenses, then you have $500 per month left over. If you agree to pay your Offer amount in 5 months or less, they multiply that $500 times 48 months, which is $24,000. If you also happen to have $20,000 of equity between a car and your house, your minimum offer amount suddenly becomes $44,000, or almost an entire year’s salary…and they expect you to come up with that amount in 5 months. And if you owe the IRS less than this amount, then you’re not even eligible for the program.

In other words, the Offer program was really only an option for people that owed hundreds of thousands, if not millions, of dollars, and could come up with that kind of cash to make a lump sum payment, OR was only good for people that were absolutely destitute, with absolutely no assets and so little income that they couldn’t even realistically put a roof over their head.

Well, the IRS finally wised up after years of effort by tax consultants such as myself, advocacy groups, and the Taxpayer Advocate. Under the new rules announced yesterday, the IRS has dropped the “multiply by 48 or 60” rule and made it a “multiply by 12 or 24 rule”. If you are paying your offer amount in full within 5 months, this means that your minimum offer amount you must send the IRS just … Continue reading

Expanded OIC Criteria Create Incredible Marketing Opportunity

Just in case you don’t keep up with IRS regulatory changes on a day to day basis, yesterday was a momentous day. After 15 years, the IRS finally fixed the single greatest problem with the Offer in Compromise program, and reduced the remaining income multiplier from 48 or 60 down to 12 or 24 when calculating the Reasonable Collection Potential (RCP).

In addition, the IRS is now allowing Federal student loan payments and delinquent state and local taxes as an allowable expense, and has expanded the national standards under the miscellaneous category to allow room for minimum credit card payments.

What does this mean for you? It creates an incredible marketing opportunity, as the minimum acceptable Offer amount for prospective clients just dropped by as much as 80%. This will drastically increase the number of people that can (and will) file processable Offers.

In particular, I see this as an opportunity to tackle two distinct target markets:

1. High dollar Trust Fund Recovery Penalty (IRC 6672) cases, particularly those with lien amounts between about $100,000 and $250,000.
2. Mid-range 1040 debtors (those that owe approximately $15,000 to $50,000) that have traditionally been blocked from the Offer program because of the remaining income multiplier.

This kind of marketing opportunity has been handed to us on a silver platter by the IRS approximately once per year for the past three years now. If you missed this opportunity in 2010 and 2011, then be sure to take advantage of it now.

Here are my suggestions for exactly HOW to take advantage of this policy change:

1. Utilize the 80% reduction in the minimum Offer amount statistic in your direct mail pieces, email newsletters, blog posts, and telemarketing scripts.
2. If you traditionally only market to businesses, start marketing to individuals using the criteria I suggested above.
3. Create a limited-time flat fee Offer in Compromise service, and market it heavily.
4. Go through your list of prospects from the past 6 to 9 months that did not hire you, and call, email, and mail them in regards to the new OIC criteria.

I guarantee you that some astute practitioner out there that doesn’t subscribe to this newsletter is thinking along the same lines as this, and is going to take action. The relaxation of the OIC criteria is going to create a slew of potential new clients in the marketplace, and you can choose to either take advantage … Continue reading

Why Are There Only X Number of Liens For My Criteria Available?

On the old tax lien database system, we got a lot of questions pertaining to why only so many liens were available for a given set of selection criteria. This is a very good question, and I will attempt to answer it here.

First and foremost, one must understand that liens are a finite resource. In other words, there are only a limited number of them. In 2010, the IRS filed 1.1 million Notices of Federal Tax Lien (NFTL). The vast majority of these liens were against individuals owing less than $10,000.

In Fiscal Year 2012, the IRS only filed 707,000 tax liens. That’s for the entire United States.

In 2013, the IRS only filed 602,005 tax liens.

So, the number of lien filings is going down. As of March 2012, the IRS changed the threshold for filing a lien, raising it from $5,000 to $10,000. Anybody with a lien filing less than that amount is a repeat offender, and is pyramiding their tax debt liability.

Let’s go back to that 707,000 liens filed in 2012. Keep in mind that, under most circumstances, we don’t collect lien data on liens less than $5,000. Therefore, those smaller liens won’t even be in our system, and those liens (for repeat offenders that are growing their tax debt) are usually only a couple thousand dollars.

Last year (2012), we collected data on about 250,000 federal tax liens. Since these liens are mostly $5k and above, this represents new tax debtors.

Think about a business that owes 941 taxes, and has for years. They could owe a total of $80,000, and are growing that by several thousand dollars each quarter. 941 debtors represent about 40% of all new debtor lien filings, but these same folks also have an additional 1 to 4 liens filed against them per year. When you have one existing debtor with up to 4 new liens filed per year, that’s a significant portion of the “missing” liens we’re not collecting.

Also consider your search criteria. If you are only searching for liens above $25,000, for example, then you’re simply searching above the range at which most tax liens are filed. In other words, there are simply fewer tax debtors that owe more than $25,000, in comparison to those that owe less than this amount. The percentage distribution in our system is skewed high because we cut off at the $5,000 mark, but even at … Continue reading