Offer in Compromise Part 2
The Truth about Your Chances of getting an approved OIC – Email to Prospective Client Continued
To give you further insight into what the IRS would do during their review of your Schedule C business, please refer to the following IRS, Offer in Compromise, guideline:
Business as a Going Concern
- Evaluation of a business as a going concern is sometimes necessary when determining RCP of an operating business owned individually or by a corporation, partnership, or LLC. This analysis recognizes that a business may be worth more than the sum of its parts, when sold as a going concern.
- To determine the value of a business as a going concern consider the value of assets, future income, and intangible assets such as:
- Ability or reputation of a professional.
- Established customer base.
- Prominent location.
- Well known trade name, trademark, or telephone number.
- Possession of government licenses, copy rights, or patents.
Generally, the difference between what an ongoing business would realize if sold on the open market as a going concern and the traditional RCP analysis is attributable to the value of these intangibles.
- Request the assistance of an IRS valuation engineer when a difficult or complex valuation is necessary.
- When determining the equity to include in RCP for an individual taxpayer who has an interest in a business entity, consideration should be given to the taxpayer’s control over the business.
- The justification for the value used should be clearly documented in the case history.
For your additional reference, please see the information contained in the IRS’ Offer in Compromise, Financial Analysis internal procedures.
There are additional questions that the IRS will consider as part of the overall offer in compromise approval process. Depending upon your answers, these can be additional mines that can “sink” your offer in compromise request.
They are as follows:
– Are you the beneficiary of a trust, estate, or life insurance policy?
– Are you currently in bankruptcy? (as noted above)
– Have you filed bankruptcy in the past 10 years?
- Discharge/Dismissal Date
- Location Filed
– Are you or have you been party to a lawsuit?
- If applicable, date the lawsuit was resolved
– In the past 10 years, have you transferred any assets for less than their full value?
- If applicable, date the asset was transferred
– Have you lived outside the U.S. for 6 months or longer in the past 10 years?
– Do you have any funds being held in trust by a third party?
- If yes, how much $
- Where are they kept?
The IRS will also adhere to the following general Collection procedures when deciding the best case resolution, including an Offer in Compromise. These guidelines are yet more reasons that the IRS can give for rejecting an offer in compromise.
Making the Collection Decision
- The analysis of the taxpayer’s financial condition provides a basis for making one or more of the following decisions:
- Request payment in full or a partial payment based on the liquid equity in available assets.
- Consider filing a notice of federal tax lien. See IRM 5.12, Federal Tax Liens.
- Enforce Collection. After taxpayers have been given the opportunity to resolve their accounts and failed to do so, consider enforcing collection. See IRM 5.10, Seizure and Sale.
- Installment Agreement. See IRM 5.14, Installment Agreements.
- Currently Not Collectible. When financial analysis indicates no means of payment, see IRM 5.16.1, Currently Not Collectible (CNC) Handbook.
- Offer-in-Compromise. For detailed Offer in Compromise information see IRM 5.8, Offer in Compromise
- The following issues should be considered when deciding the best case resolution:
- Past compliance history — How long has the taxpayer been in business? Is there a history of non-compliance?
- Reason for non-compliance — Was the current tax problem related to a specific, identifiable event, e.g. loss of a key supplier, failure of a primary customer, impact from a natural disaster, etc.? Is there reason to believe the taxpayer is recovering from this event?
- Current compliance — Is the taxpayer current and has the cause of past non-compliance been corrected?
- Current financial condition — Can the taxpayer meet current obligations, including FTDs?
- Future financial condition — Can financial adjustments help the taxpayer experience future profits?
- Collection statute — Does the case resolution being considered provide for payment within the collection statute?
- Interest in assets— Is the government’s interest in assets protected, will the value of assets increase or decrease, and will the taxpayer’s interest in assets change?
- Impact — What impact will the case resolution being considered have on third parties?
- Collection Potential— Will potential for collection increase or decrease for the case resolution being considered?
For your additional reference, please refer to the IRS’ Financial Analysis Handbook.