Understanding an Offer in Compromise

    So, it is the top of the hour. So, we officially get to start. And again, I want to welcome everybody to today's webinar, "Understanding an Offer in Compromise." We are so glad you are joining us. And my name is Karen Russell. I am a Stakeholder Liaison with the Internal Revenue Service, and I will be your moderator for today's webinar, which is slated for 60 minutes. Now, before we begin, if we have anyone in the audience with the media, I would like you to please send an email to the address shown on this screen or on the slide and include your contact information and the news publication that you are with. And our media relations or Stakeholder Liaison staff can assist you with any questions you may have. And, I mean, I mean I can't see, so I'm going to read the email address in case anyone else on this call cannot see either. So, the address is CL.SL.Web.Conference.Team@IRS.gov. And as a reminder, this webinar will be recorded and posted to the IRS Video Portal in a few weeks at www.irsvideos.gov. All right. We hope that you don't have any technology issues during the webinar. But, in case you do, the slide shows helpful tips and reminders. And we have also posted a technical help document that you can download from the Materials button on the left side of your screen. And it gives you the minimum system requirements for viewing the webinar along with best practices and quick solutions. And if you have completed and passed your system check and are still uh having problems, then try one of the following. The first option is to close the screen where you are viewing the webinar and relaunch it. Close it entirely and relaunch it. The second option is to click the gear icon, if you have it, some of you may not. Uh, but, if you do see it, it will be in the top right corner of your slide and photo boxes. When you click it, you'll be given two choices. Just select Flash instead of HLS. Now, if you don't have the gear icon and relaunching your viewing screen doesn't fix your problem, try using a different browser to launch and view the webinar. And one other thing we suggest is you may want to close all the windows and apps you have open on your viewing device. It might be causing you a problem, with, with the webinar. We hope you received the PDF version of the PowerPoint for today's webinar in a reminder email. But, if you didn't, you can download it by clicking the materials button on the left side of your screen. And, then, closed captioning is available for today's presentation. And if you are having trouble hearing the audio through your computer speakers, please click the CC button on the left side of your screen. This feature will be available throughout the webinar. Now, of, of, during today's presentation, we will take uh, a few breaks to share knowledge based questions with you. And at those times, what'll happen is you'll get a, there is a polling-style feature that we use that'll pop up on your screen with a question and multiple-choice answers. Select the response you believe is correct by clicking in the radio, the radio button next to your selection and, then, click Submit. If you don't get a pop-up box for responding, enter your response timely, that's the word we are looking, timely, in the Ask Question feature so that we can track your participation. If you have a topic-specific question today, please submit it by using the Ask Question feature. You click the Ask Question button, type it in, click Submit And I, we repeat this over and over in all our webinars. We emphasize it over and over. Do not, please do not enter any sensitive taxpayer-specific information. And, and please wait for your specific topic to be addressed before submitting your question because you don't want, it, if it's covered and you're typing in a question, you might, you might miss the, what you are looking for. So, wait for your topic.

    If, if your question isn't answered, then, by all means, please send us the question. OK?OK. So, moving along with our session. I want to introduce our wonderful speakers today. We have Anna Falkenstein and Richard Furlong. And they are Stakeholder Liaisons, like I am, and they represent the IRS at outreach and educational events working with tax professionals, industry and small business owners. And they've been employed with the IRS for many, many years, which is a way to say that they don't want to tell you how long they have been here. (Laughing) I'm kidding. And I'm going to turn it over to Anna. Anna, I, I apologize for mispronouncing your last name again.

    You can beat me up later. So, Anna, take it away. ANNA FALKENSTEIN: Thank you, Karen. (Laughing)

    I answer to a lot of things, actually. I'd say. Um, let's, let's go ahead and get started. Uh, today's presentation is the IRS' Offer in Compromise program. And we'll be covering a lot of information, um, from what is an Offer in Compromise, also known as an OIC, and why it is used as a Collection tool. We'll also be discussing the Offer in Compromise Pre-Qualifier Tool. We'll also look at a general overview of the OIC calculation and address some special circumstances, um, later in the presentation. Uh, we'll also conclude with some helpful hints and also some resources that will help you navigate the offer process if that's the direction you decide to go in. Now, before we start, I do want to clarify that there are three possible bases for an offer.

    Uh, there is the doubt as to liability, doubt as to collectability and the effective tax administration. Now, today's presentation will focus mainly on the most common bases for an offer. And that is doubt as to collectability. Put simply, a doubt as to collectability offer means that absent special circumstances, which we'll talk about later, the taxpayer cannot pay the full amount that they owe. Uh, we will briefly touch on those, those special circumstances and how they may affect and offer investigation and determination later. All right. So, we're going to review today's objectives very quickly and then get into the meat of the topic. First, we're going to define an Offer in Compromise. You'll hear us using the acronym OIC during the rest of today's presentation. Uh, we'll also, describe the objectives or goals of the OIC program, uh, and why we feel that it's a very, uh, useful tool in collection. We'll also demonstrate the use of the online Pre-Qualifier Tool. We'll discuss the factors that are considered by the IRS when they are reviewing an offer submission. And, then, we'll wrap it up with some helpful hints for taxpayers when preparing an offer submission package. All right.

    Definition. Uh, the Offer in Compromise, OIC, is a contract between the taxpayer and the IRS that settles the tax debt for less than the full amount owed. Now, for reasons we'll get into shortly, the IRS does recognize that it is both sound business practice and also good tax policy to settle some cases for less than the total amount owed. Now, we want to show you some recent offer program results. There's quite a bit here on this slide, so I'll give you a moment to take that in. Uh, but, there are four main reasons why an offer is determined not to be, or is not processible. And that's one of the first dispositions you'll see here on this slide, the applicant may be in an open bankruptcy; the required fee is not paid with the application, the taxpayer is not compliant with filing, and the initial payment is not included in the application. So, as you can see on this slide, about 13 percent of offer submissions result in a "Not processible" determination. So, basically, one of those four items I just mentioned occurred when they, uh, sent in the offer. Now, all processability determinations are made at a centralized Offer in Compromise site. Acceptances are pretty self-explanatory. About 39 percent, uh, of Offer in Compromises that were, um, reviewed and were accepted in 2018. Uh, and, and now, let's talk just briefly about reject, rejected offers. Now, there are some common reasons for a rejection of an Offer in Compromise. Some of those include that the reasonable collection potential can't or won't be paid by the taxpayer Uh, the taxpayer is determined that they can pay in full. Um, or there may be missing or incorrect information which results in an inaccurate determination of the reasonable collection potential. Uh, and I, I believe Rich will talk a little more about that later. Um, and, and that reasonable collection potential, that's the appropriate offer amount that we believe would, would make an acceptable offer. So, as you can see here on this chart, about 17 percent of the offers were rejected in 2018. The main reason offers are returned is that a taxpayer is not in compliance or doesn't respond to a request for additional information. Remember, if an offer package is returned, there is no appeal right.

    Um, taxpayers can withdraw their offers at any time during the process. And, uh, you'll see word, term, here, termination. Uh, if a taxpayer dies while the IRS is in the process of evaluating an offer, the service can no longer consider that offer. Uh, the offer has to be considered terminated as of the, as of the date of the, um, the death. As I mentioned just a moment ago, I, I said that the OIC is a collection tool. So, so here is why we consider it a collection tool.

    One, it achieves a resolution that is in the best interest of both the taxpayer and the government. It effects collection of what can be reasonably collected. That's, that's what we, we can expect at the earliest possible time and at the least cost to the government. Uh, it also can secures, uh, revenue that, that perhaps the IRS could not collect through any other means.

    Uh, and what we mean by that is sometimes taxpayers will, um, actually fund their offer either through loans or gifts from friends or family. Now, before you consider if an Offer in Compromise is right for you or your client, um, you need to explore all collection option. So, absent special circumstances, if, if the client can full pay via a lump sum or through an installment agreement, then they probably are not a candidate for an Offer in Compromise. Now, even in situations where the taxpayer's ability to make monthly payments may not pay, um, the entire delinquency, the IRS has, uh, now set up what we call partial payments installment agreements.

    And they allow the taxpayer to make payment in accordance to their financial ability even if the agreement may not completely liquidate the tax debt within the collection statute expiration period. So, um, just be aware that that is still one of our collection tools. And if that's the only way we can get the funds, then then that may be an option. Um, so now, I'm going to turn it over to Rich. And he is going to tell you about the next step in reviewing the Offer in Compromise application. Rich? RICHARD FURLONG: Thank you, Anna. And good day, everyone. It's great to be here with you. So, let's take, talk about compliance as it applies to an offer submission. Now, prior to submitting an offer, the taxpayer, and the taxpayer might be your client if you have a, have a valid power of attorney on file with the Internal Revenue Service.

    The taxpayer must be current with filing all required federal tax returns and also making all required estimated tax payments for the current tax year. And for the business taxpayers considering submitting an offer, they must be current with all federal tax deposits. In fact, if the returns are not filed, then the offer will not be processed by IRS and any required payment submitted with the offer will be applied to the balance due on the delinquencies and that payment will not be returned. Now, occasionally, you might see a situation where a tax return is filed close to the time that an Offer in Compromise is filed with IRS. If the tax return was filed within 60 days of the offer submission, then we ask that you include a complete copy of the tax return with the offer submission. Mark it "Copy" though. This will help eliminate offers that might be returned for non-compliance due to that filing requirement issue if the IRS had not processed completely that tax return. So, with that, Karen, I think we're ready to test our audience with our first polling question. RUSSELL: OK. You are absolutely, absolutely correct.

    And our first polling question, uh, hopefully, is going to be a give me. So, let me read it to you. Prior to the offer submission, a taxpayer must have, A, Filed all tax returns; B, Made all required estimated tax payments; C, Made all required federal tax deposits; D, All of the above; or, E, None of the above. So, remember, click on the radio button for the correct answer and hit Submit. And based on the information that was just shared, do you think the correct answer is A, File all tax returns; B, Make all required estimated tax payments; C, Make all required federal tax deposits; D, All of the above; or, E, None of the above? If you didn't get the polling question from the popup, submit your answer using the Ask Question feature. Let me give you a few more seconds. OK. Let's stop the polling now. And we will share the correct answer on the next slide and, hopefully, we have 100 percent for this. And the correct response is D, All of the above. Hopefully, we have 100-percent accuracy. And we have 88-percent accuracy. I'm completely with that, that is a fabulous accuracy rate. So, um, let me turn it back over to Rich to discuss the IRS Offer in Compromise Pre-Qualifier Tool. FURLONG: Well, thanks, Karen. And, um, before we get into the Pre-Qualifier Tool, we'll have, have a chance later on in the presentation to come back to, uh, the compliance requirements for submitting an offer. But, before you put in the time and effort to prepare and submit an offer, we recommend that you use our IRS Pre-Qualifier Tool to see if an Offer, Offer in Compromise is actually a viable option for the taxpayer or, possibly, your client. So, you or the client, uh, if you have a power of attorney, can use the Pre-Qualifier Tool on IRS.gov. And that will help you determine if the taxpayer is a good candidate for an offer. And it will also help determine what a reasonable offer amount might be. Now, I want to make two key points about our IRS Offer in Compromise Pre-Qualifier Tool. First, the tool is a simplified version of the offer application and evaluation process. So, it is only a guide. It does not pro, provide a definite answer to the questions of whether the taxpayer is a good candidate and what a reasonably acceptable offer amount might be under the particular set of circumstances because all of those final determinations on offers are based on the written application and any, and the necessary supporting requirements, the documents, I should say. And that would include consideration by IRS of any special or exceptional circumstances that the taxpayer might have. The second point I want to make about the Pre-Qualifier Tool is that, remember, as Anna indicated earlier, there are three possible bases for an offer submission. One is doubt as to collectability, the second is doubt as to liability, and the third is effective tax administration. The Pre-Qualifier Tool, though, only evaluates offers based on doubt as to collectability. And put simply, that means the taxpayer is saying that they cannot pay what they owe. Another point I'd like to make about the tool is that it is completely anonymous. It does not require or use any personally identifiable information. And the user does not have to specifically identify their income sources, assets and liabilities. And we'll see how that works when we go through a couple of examples of the Pre-Qualifier Tool. The information that the user does enter into the Pre-Qualifier Tool is dumped when they close their session or when they hit the Start Over button in the Pre-Qualifier Tool. So, we here at the IRS have invested a lot of time and effort into the Pre-Qualifier Tool.

    And we look at it, look at it as a burden reduction tool for taxpayers because, again, before going through that considerable time and effort of preparing and submitting an offer with the related fees and payments, taxpayers or their representatives can use the Pre-Qualifier Tool to see if they are an offer candidate and also, importantly, get an idea of an acceptable offer amount. Now, this tool is very simple to use, as you will see later, and you can go through it rather quickly. Now, I want to come back to the point we were making earlier. And that was addressed in the, uh, first question that, that Karen asked you. We can only consider an offer for taxpayers who are current with all of their filing and payment requirements. Also, keep in mind that taxpayers in an open bankruptcy proceeding are not eligible to file an offer. The Offer in Compromise Pre-Qualifier Tool was created to assist taxpayers to confirm their eligibility to file an offer and, then, prepare a preliminary proposal. The tool only helps the taxpayer evaluate whether they're qualified to apply, again, for a doubt to collectability offers, that's one of the three, only doubt to collectability, and what an acceptable offer amount might be. It does not guarantee acceptance. And the final determination is based on a complete offer, OIC application investigation. So, now, we'll, we'll start to look at the Pre-Qualifier Tool. But, first, we have to find out where to find it, of course. And it's very easy to find by going to IRS.gov, not surprising there. And you can find the link to the offer page, um, by using our keyword search in the upper right-hand corner of our landing page at IRS.gov. I recommend using "OIC" or "Offer in Compromise" because when I tested it this morning, it comes , it brings me directly to the Pre-Qualifier tool as the first tip. So, enter either "OIC" or "Offer in Compromise" to take you right to the Pre-/Qualifier Tool. And with that, with that, Anna, let me turn the mic back to you. FALKENSTEIN: OK. Thanks, Richard. Now, once you've clicked on the link for the OIC Pre-Qualifier Tool, uh, taxpayers are going to be asked a series of questions.

    And these will be on five input screens that will help them determine if they are actually eligible for the Offer in Compromise. So, if you will see here listed on the slide, um, the questions will include, uh, things like "Are you currently in bankruptcy?", um "Are you current with your filing?", "Where do you live?", "How many dependents do you have?", um your household income and expenses and value of assets. This questionnaire format will assist in gathering enough information so that it can provide the taxpayer with instant feedback as to whether they are eligible to submit an offer and, if they are qualified, provide a preliminary offer amount, a suggested amount that they should offer. And that information is confidential and, again, it is not saved. Now, if the preliminary indication is that the taxpayer does qualify, the tool will then direct the taxpayer or the power of attorney uh to the Form 656-B. This is the Offer in Compromise Booklet. And they will need to complete and submit the application using that booklet. The tool provides uh preliminary determination on their qualification to um file that offer. But, remember that the final determination is going to be based on the completed Offer in Compromise application and the subsequent investigation. The tool simply shows information about your tax debt, asset equity, monthly income, the remaining amount available for a monthly payment and an estimate for a reasonable offer amount along with your payment option. So, I think this is a good time to, to walk through a scenario now. So, here is our first scenario. We have a married couple with a dependent child. They live in Suffolk County, New York, with a zip code of 11738. And that's needed for our national standards. Their tax liability is 12,500 and the most recent tax year owed is the year 2011. So, Rich, can you take us through the Pre-Qualifier tool input screens and explain a little bit about what they will be inputting on those screens?

    FURLONG: I'd be happy to, Anna. uh, Now, what you are looking at here is the first of six screens that are part of the Pre-Qualifier Tool. And you see those tabs that turn dark blue as you go through the screens. So, the first screen, as you can see, is entitled Status. And the initial questions on the Status screen help determine if the taxpayer is qualified to file an OIC. So, as Anna just mentioned, to move up, the taxpayer cannot be in an open bankruptcy proceeding. So, if that question is answered "Yes," then uh the OIC Pre-Qualifier Tool will stop right there and tell you that the taxpayer is not a candidate for an offer. And, then, coming back to the points we made earlier about compliance, again, the taxpayer must be in current in filing and payments compliance including current estimated tax payments that might be required for the year. And you see two questions, "Have you filed all required federal tax returns?" and "Have you made all required estimated tax payments?" uh And, also, if you have employees, uh have you made all federal uh tax deposits? So again, remember, if the taxpayer is either in bankruptcy or not in compliance with their filing and paying requirements, then the tool will advise the taxpayer that the taxpayer does not qualify for an OIC and no further information they, may be input into the tool. Now, we move on to screen two, uh, entitled "Basic Information" . So, here is the basic information that is being requested. And in, and in our scenario, it mirrors the fact pattern given you previously by Anna, where the taxpayer lives, so, in this case, you see it's Suffolk County in New York. And you see the zip code. Um. If you enter the zip code, it populates the County. Uh. You enter the State. Uh. It asks for the number of taxpayers in the household, uh the total tax debt, which you can see is $12,500 and, then, the most recent year for which the taxes are owed. So, in our example, that's 2011. So, all these entries on the screenshot, screenshot are the same that Anna just provided to us. And, then, we move on to the next screen, which is entitled "Assets." So, it should come up now. Now, here, there are, are a greater number of fields to consider and, where appropriate, to populate. So, the data fields, and going right down in order, would include, Total bank balances. And that is the sum of all of the taxpayer's checking accounts, savings accounts, uh any money market accounts that the taxpayer might have.

    And any CDs, Certificates of Deposit, that the taxpayer might have. Bring them all together cumulatively and put that into the bank balance account. We ask for the fair market value of the taxpayer's home and, also, the outstanding loan balance of mortgages, let's say, on that home.

    Now, there are two separate fields for equity amounts in vehicles that could possibly be owned by the taxpayer. So, you want to enter uh up to two vehicles in the equity in those vehicles in those separate uh data fields. Then, we ask about the equity in all of the taxpayer's retirement accounts. And that could include a combination of IRAs, 401(k)-type plans. Bring them all together and the equity in those accounts and put that into that, that data field box. Possibly, the taxpayer has equity in real estate that is not their home. So, that could be equity, for example, in rental property, uh business property. It could even be uh equity in a land share or, conceivably, a timeshare. So, whatever equity in real estate other than the taxpayer's home is entered into that data field. Now, the taxpayer might uh have assets in, uh equity in assets, uh that are not identified specifically above. So, you would enter that in that data field. And, then, there is a separate data field for stocks, bonds and other investments that you see there on the screen. And, finally, we have a Miscellaneous data field for items that could, for example, be for collectible items, a stamp account, uh a stamp collection or a coin collection.

    So, once the taxpayer gathers all of their basic asset information and input it into the scenario, uh into this screen, you see the scenario that came up. So, in our example that Anna teed up for us earlier, the taxpayer had only a bank account and equity in two vehicles. So, once all of the asset information is in, we move on to the Income screen. Now, here, the taxpayer enters various income types. One point I want to emphasize here. When you look at these data fields, some of these, uh data fields could be for income that is not taxable, for example, child support. But, we do want and do need that information as to income, whether it's taxable or non-taxable, that the taxpayer might be receiving for purposes of the uh of the, for purposes of using the Pre-Qualifier Tool. So, in our example, we see here that on a monthly basis, this taxpayer only has gross wages of $5,520. And, then, we move on to the expenses side of the house.

    So, here, we are going to be looking at expenses for mortgage rent uh excuse me, uh expenses for mortgage payments and/or monthly rent; also utility payments all of that would be in the first data field monthly payments, again, for up to two vehicles; estimated monthly vehicle operational cost gas oil et cetera the total number of vehicles that the taxpayer owns; and the monthly public transportation costs that the taxpayer might incur; very importantly, next, monthly health insurance premiums. There is a data field for that entry. Below that, there is an entry for the combined amount of federal, state, and local taxes incurred by the taxpayer. Now, if the taxpayer is making any court order payments that could be things such as child support or alimony payments, those would go any court order payments would go into that data field.

    Any monthly cost for child and dependent care for, for a dependent or a child would go in a data field. And then, finally, there is a data field for monthly life insurance premiums. So, as you can see, the taxpayer enters all relevant basic expenses on the screen except for one category.

    And you may be wondering now when you are looking at these expense fields, what about things like food, like clothing and certain miscellaneous expenses as well as out-of-pocket medical costs. There are no data fields and they do not have to be entered into the Pre-Qualifier Tool.

    Now, the reason for that is that these specific costs for food, for clothing, for miscellaneous expenses and out-of-pocket medical costs these are calculated by IRS using the allowable living expenses national standards. So, when we get to the end of the Pre-Qualifier Tool, they are calculated automatically. So, with that, now that we have entered all of this data into our example, Anna, let me toss the microphone back to you to show the results of these entries.

    FALKENSTEIN: All right. Thank you, Richard. um The next screen here is what we call the Proposal screen. It provides the summary of the result. So, in our scenario, this taxpayer appears to be a good candidate for an OIC. So, we have the information on their tax debt, asset equity, monthly income and the remaining amount available for a monthly payment are shown on the screen. And it also provides an estimate for a reasonable offer amount along with, uh any payment option. So, you'll see the options here in the middle of the screen. um You can either pay uh 5235 within five months or pay uh did I say 50, 2335, excuse me, or 2335 over a 6- to 24-month period. So, in this case, uh the, the figures are the same. But, just be aware that sometimes those options may not always be the same amount. So, it's important to look at both to make a determination what's best for you. Um. On that Proposal screen, there'll also be a breakdown of the monthly expense information. So, if you click on the little orange arrow on the typical month expense line, uh there'll be a listing of the expenses the taxpayer entered, and the allowable amount is displayed there. uh This includes expenses for food, clothing and miscellaneous, as well as out-of-pocket medical costs, which are automatically calculated and entered using the national standards based on where they live. If the taxpayer does not qualify for an offer, they will get a "Not qualified" results screen. And this will happen when you as the taxpayer or the client, if, if you happen to be the power of attorney, has sufficient equity and/or income left over after paying the living expenses uh to pay the tax in full or through an installment agreement. Now, at this point, uh, you or, or the client, if you are the power of attorney, is directed to alternative information to help determine how to resolve the tax liability. So, we do have um some of that information in the Offer in Compromise booklet. So, there are certain exceptional circumstances which the tool does not take into account. So, they uh may have what we call the special circumstance offer. uh. Also, an alternative may be the installment agreement. uh. They may be directed to make a payment page. uh That page provides the information and links to help the taxpayers to make payment through either an electronic funds transfer, uh a credit or debit card or a check or money order. The page will also provide information and links explaining what can happen if the tax bill is not resolved. So, um that includes things such as filing a Notice of Federal Tax Lien, uh refund offsets or perhaps levy on one of their account. So, now, we're going to step through a scenario where the taxpayer is determined to be not qualified. Richard, can you talk us through that one? FURLONG: I'd be happy to, Anna. So, in our second scenario here, as Anna said, when we get to the uh results of the Pre-Qualifier Tool, we will see that this taxpayer, based on the entries, is not eligible for an Offer in Compromise. So, here, we have a hypothetical married couple with two dependent children. All of them are, the parents are under age 65. They live in Tarrant County, Texas, and you see the zip code there. The couple have joint federal tax liability of $35,000. And the most recent year for which they owe federal taxes is 2012. So, with that information in hand, let's move on to the first screen of the Pre-Qualifier Tool, which you will remember is the Status screen. OK. So, the initial questions, again, on this screen help determine if the taxpayer is qualified to file that Offer in Compromise. And I'm going to repeat a couple of very important points that we made earlier because I know in our large audience today there are many of you who are very new to the Offer in Compromise program.

    Taxpayers cannot be in bankruptcy and submit an Offer in Compromise. And they must be current with all filing and payment compliance because if the taxpayer is in bankruptcy or is not in compliance with all of their filing and payment requirements, then the OIC Pre-Qualifier Tool will advise the taxpayer that the taxpayer does not qualify for an Offer in Compromise. So, then, we move on to the basic information. Here, again, this should start to look familiar to you.

    Here, we have uh Texas, Tarrant County in Texas with a zip code. We have a household of four members, um none of whom are 65 or older. And, again, the total tax debt owed by the couple if $35,000 with the most recent year of federal taxes owed 2012. So, then, we move on to the Assets screen. Now, again, this should start to look familiar to you. Now, in this case, the taxpayer has a bank account. uh The taxpayer has no equity in their home. You can see the large amount of the, of the mortgage on the home uh in excess of the fair market value. But, they do have some equity in two vehicles. And you see that the separate amounts one for 3,000 and one for 2500.

    Now, in the next screen, we move on to income. Now, here, the taxpayer uh or taxpayers uh if both are working, are only self-employed. So, you see on this screen the only income amount entered is that net business income monthly amount of $12,000. And, then, we move on to the expense screen. Now, here in this example, there are more fields populated. Uh. You can see the rent or mortgage payments; uh the total number of vehicles; uh the, the uh, uh vehicle loan or lease payments for each of those vehicles; the vehicle operating cost; uh health insurance premiums on a monthly basis; federal, state and tax, and local taxes being paid uh monthly; and, then, um any uh child and dependent care expenses. So, you see all of that on the screen. But, again, I want to come back to the point I made previously. Expenses for food, clothing and miscellaneous as any, as well as any out-of-pocket medical cost, none of these have to be input into the Pre-Qualifier Tool. They are calculated automatically using the allowable living expense national standards which, which are updated, uh as the name indicates, uh each year. So, with that information on the expense screen, at this point, Anna, I'm going to turn the microphone back to you to show the results of all of this to the audience. FALKENSTEIN: OK. Thank you. So, based on that information that Rich just provided, this taxpayer does not qualify for an Offer in Compromise. Um. So, if you, if you are the taxpayer or your client, if you are the power of attorney, does not qualify for uh the offer, the "Not qualified" results screen will be displayed. Uh. The taxpayer in this situation has sufficient leftover income, about 3869, after living expenses to, to pay in full through an installment agreement. So, it will be suggested that that's what they do. At this point, you would be directed to the alternative information to help you determine which way is best to resolve that liability. So, we have one, third scenario.

    And that is the taxpayer in bankruptcy scenario. Um. In, in this case, a single person with a dependent child living in Suffolk County, New York, again, the zip code 11738. Uh. Their tax liability was 12,500 and the most recent tax year owed is 2011. Um. The copy out here, the taxpayer is currently in bankruptcy. So, it's an open bankruptcy. So, when that happens, they are going to get a screen that basically stops the process. Um. They are not eligible to fall, file the offer in compromise because of the bankruptcy. The tool will not allow any further information to be input. No reason to go through all those screens when this actually we, will be a "not processible" offer. So, with that, I think we are ready for another polling question. Karen, I think RUSSELL: Another. FALKENSTEIN: you've got two, don't you? RUSSELL: We have two polling questions. Hopefully, the audience has been paying attention. That was a lot of information that was covered. So, let's get to our first polling question, and it's about the, it's about the Offer in Compromise Pre-Qualifier Tool. And, so, the question is, The Offer in Compromise Pre-Qualifier Tool, A, Works on individual and corporate taxpayers; B, Tracks information for the taxpayer to electronically submit their offer; C, Provides the individual taxpayer an idea of an acceptable offer amount; or, D, Allows non-compliant taxpayers to calculate the offer amount.

    So, based on what was just shared, what does the Offer in Compromise Pre-Qualifier Tool do? And make sure that you click the radio button next to the response that you believe is correct. OK.

    And, again, what does the Offer in Compromise Pre-Qualifier Tool do? Does it work on individuals and corporate taxpayers, which is A? B, does it track individual information for the taxpayer to electronically submit their offer? C, does it provide the individual taxpayer an idea of an acceptable offer amount? Or, D, does it allow non-compliant taxpayers to calculate the offer amount? And, again, if you don't get the polling feature, the popup box, use the Ask Question feature to submit your answer. OK. Take a few more seconds. What does the Offer in Compromise Pre-Qualifier Tool do, one of its functions? OK. Let's stop the polling, and we will share the correct answer on the next slide. And, hopefully, we have 100-percent accuracy. The correct answer is C. It provides the individual taxpayer an idea of what an acceptable offer amount is.

    And the accuracy rate is 82 percent. Um. Anna, Rich, are you guys good with that? Do you want to re-emphasize any information or do you want me to go on to the next polling question? FURLONG: This is Rich. And the only point I would make here is that the, the questions uh specifically addresses only the Pre-Qualifier Tool uh and it's only for individuals, uh not for uh business or corporate clients, uh although one can submit an offer in compromise for business taxes. And it, it is not an electronic tool to actually submit the offer, Karen. Uh. It's only to pre-qualify before you prepare the, the paper submission for your offer request. RUSSELL: Right.

    So, basically, you know, it saves time. If the taxpayers aren't compliant, there is no reason to use the Pre-Qualifier Tool. It doesn't track the information. So, if, if everything works out as the Pre-Qualifier Tool is used, then it gives an idea of an acceptable offer amount. OK, well, you know, you know what, let's go ahead and go to our next polling question. OK This is uh the Offer in Compromise Pre-Qualifier Tool again. And it requires which of the following information?

    OK. So, what do you have to put in that first screen when you get to it? You have to put in, A, the zip code and county; B, the number of members in the household; C, the tax debt amount; D, the most recent year taxes are owed; or, E, all of the above. You saw that screen I think two times during the examples. So, what information does the Offer in Compromise Pre-Qualifier Tool require? A, zip code and county; B, the number of members in the household; C, the tax debt amount; D, the most recent year that taxes are owed, with taxes owed; or, E, all of the above.

    Again, click in the radio button for, you know, the answer, the response that you think is, is correct. And, then, for those of you that do not get the popup feature, use the Ask Question feature. OK? All right. We are going to do a few more seconds. All right. Let's stop the polling.

    Let's go to the next slide and share the correct answer. And the correct answer is E, all of the above. And our accuracy rate is awesome, 98 percent. That's terrific. OK, Rich, let me turn it back to you to discuss the calculation of an acceptable offer submission. FURLONG: Thanks, Karen.

    So, how is an offer calculated, calculated for a doubt as to collectability offer? That calculation is done through what is referred to as the reasonable collection potential. In IRS jargon, reasonable collection potential simply means an acceptable offer amount. Basically, reasonable collection potential or an acceptable offer amount equals the taxpayer's ability to make monthly payments over time plus their asset equity. So, the questions we are asking here are what can the taxpayer afford to pay, how long a period of time should we at the IRS consider for the offer, and what's their asset equity. Future income is the taxpayer's ability to make monthly payments. The amount that they can pay per month is gross income minus the necessary or allowable living expenses. And future income is calculated based on the remaining time on the collection statute. And that can be up to a maximum of 120 months for a collection statute or the equivalent of 10 years. Again, if full payment cannot be, can be achieved based on future income and asset equity within the remaining collection statute, then the taxpayer generally will not qualify for an offer in compromise. The number of months that we use to determine the future income component of an acceptable offer depends on the payment terms that taxpayer is proposing.

    Now, the taxpayer has two payment options. And these are addressed specifically in the Offer in Compromise uh booklet, Form 656-B. Uh. Option number one is the lump sum. Here, the taxpayer pays the offer amount in five or fewer installments within five months or less of acceptance of the offer. If this is what the taxpayer proposes, we use 12 months of future income or monthly payments in the calculation of an acceptable offer amount. The second option available to a taxpayer is the periodic payment option. Here, they offer to pay the offer amount within 6 to 24 months. And, and if this is what the taxpayer is proposing, we use 24 months of future income in the calculation of the periodic payment amount. Now, let's look at the other half of the offer equation. And that is asset equity. In order, to, to determine asset equity, we look at the asset's fair market value and, then, we reduce that value by up to 20 percent to come to what we refer to as the quick sale value of the asset. This is based on what the taxpayer would get if they had to sell that asset quickly, how much would they actually receive. Then we consider any incumbrances or loans against the asset. And interestingly, in our latest revision of the Form 656, we have now included a section of virtual currency, sometimes referred to as cryptocurrency because some taxpayers now have assets in virtual or cryptocurrency. So, this section has been added to the financial analyses forms, either 433-B (OIC) or 433-A (OIC), one of which always has to be submitted with an offer submission. Now, for personal bank accounts and vehicles, we're going to factor in two additional allowances for assets. We will allow up to one, $1,000. That's $1,000 from bank balances for individuals. However, that does not apply to any corporate offers.

    And, then, we'll, we will allow up to $3,450 per vehicle that's a maximum of two vehicles for a joint offer. So, that would be up to $7900 allowed for two vehicles on a joint offer. But I want to make one point about these two allowances I just mentioned. These additional allowances are not automatic. They are applied only once after it is determined by the IRS that there is no ability to full pay the entire liability within the amount of time allowed by law. And that, again, is what, is referred to as the remaining collection statute. Now, let's turn on, look at those allowable living expenses that we've mentioned previously. As I noted on the last slides, future income is the difference between gross income and necessary living expenses over a period of time. So, the taxpayer, or it could be your client if you have a power of attorney, the, the taxpayer submitting the Offer in Compromise will report and verify their gross income on the Offer in Compromise application using an applicable financial state, financial information statement. And, again, that's either the 433-A (OIC) or the 433-B (OIC). The taxpayer will also report the living expenses. And we saw that on the Pre-Qualifier Tool. And, again, in evaluating these expenses, then the IRS also starts with a set of standards called allowable living expenses. Uh. And the standard allowable living expenses, they can vary depending upon the taxpayer's age, where they live and the number of people in the household. And that's why in the Pre-Qualifier Tool you input your county, the number of folks in the household and whether anyone is uh, uh over age, age 65 or older. So, all that information can be found on the OIC forms. It's also important to keep in mind and you see this on the slide here that we take into account payments on student loans that are guaranteed by the federal government. We determine the minimum of payments that may be allowed if the loan was for, for the taxpayer's post high school education. And if the taxpayer can provide proof that those minimum, minimum payments are actually being made or that if there are no payments that those lack of payments is due to a financial hardship of the taxpayer. Next, is, as the slide shows in the final bullet, we, we, the taxpayer may owe delinquent federal, state and, possibly, local taxes and they may not have the, the ability to full pay those liabilities. Then, monthly payments to state taxing authorities may be allowed or partially allowed in certain circumstances. So, depending upon the circumstance, certain factors will be reviewed when determining if a state or local tax liability will be allowed. And those factors could include the amount owed to the Internet Revenue Service and the amount, amount owed to the state or local government and a percentage of the taxpayer's total tax liability for each of the federal, federal and/or the state and local whether the taxpayer is on an existing payment agreement with a state or local taxing agency. So, we could take that into account. And, finally, if that agreement with the state or local taxing agency was entered into and established before or after the IRS federal tax assessment. So, with all of that, Anna, let me turn the microphone over to you to talk about some of those special circumstances that could impact an Offer in Compromise. FALKENSTEIN: OK. Thank you, um. Earlier, we mentioned special circumstances and how they may affect an offer determination. So, now, we're going to talk about them. There are basically two types of special circumstances. One is economic hardship and the other is public policy in equity. The IRS does understand that there are sometimes unplanned events or special circumstances such as a very serious illness uh where paying the full amount or the minimum offer amount might impair the taxpayer's ability to provide for necessarily living expenses, your basic living expenses. Now, these offers are where you are incapable of earning a living because of a long-term illness, a medical condition or a disability, and it is reasonably foreseeable that that financial resource that you have will be exhausted providing for care and support for either you or your family during the course of this condition. So, perhaps you or your, your client ah, if you are the power of attorney, have some assets but you're not able to borrow against those, the equity in that asset. Uh. Liquidating, liquidating those assets to pay the outstanding tax liability would render you with an economic hardship. So, if that's the case, um you need to just simply provide documentation to provide, to prove the situation um, things such as um a doctor's letter, copies of medical expenses or proof that you qualified for supplemental security income. Now, public policy uh special circumstances would be if funds were embezzled by perhaps a payroll service provider or the taxpayer may have been incap, incapacitated and they're simply unable to comply with the law. Karen, I think we have time for one last question. We, go for it. RUSSELL: We sure do, Anna. And I wanted to let everyone know that we actually are going to probably go over about 15 minutes in order to have a Q&A session. So, if you want to stay on, uh, that would be great because we've got a lot of questions that came in. So, now, our polling question. I want everyone to listen carefully to the responses because they are very similar and, and it could, it could trip you up. OK? So, when you calculate the asset portion of the offer amount, do you, A, always deduct $1,000 for per, personal bank account and 3450 per vehicle; or, B, for individual taxpayers who cannot pay in full, deduct up to $1,000 from bank balance and 3,450 per vehicle, a maximum of two vehicles or $7900 for a joint offer; or, C, for individual taxpayers, deduct up to $1,000 from bank balances and 3450 per vehicle, a maximum of two vehicles or $7900 for a joint offer; or, D, for corporate taxpayers who cannot pay in full, deduct up to $1,000 from bank, bank balances, 3450 per vehicle, a maximum of two vehicles or $7900 for a joint offer. Those are all very similar answers. So, take your time. Read them carefully. So, when you are calculating the asset portion of the offer amount, A, deduct 1,000 per personal bank account and 3450 per vehicle always; B, for individual taxpayers who cannot pay in full, deduct up to 1,000 from balance and 3450 per vehicle, a maximum of two vehicles or $7900 for a joint offer; C, for individual taxpayers, deduct up to 1,000 from bank balances and 3450 per vehicle, a maximum of two vehicles or 7,900 for a joint offer; or, D, for corporate taxpayers who cannot pay in full, deduct up to $1,000 from bank balances and 3450 per vehicle, a maximum of two vehicles or $7900 for a joint offer? And, hopefully, everybody has responded to that. I'm going to give you just a few more seconds.

    Counting it down. OK. And we are going to go ahead and close out the polling. And let's go to the next slide for the correct answer. And the correct answer is B, the correct response, you know. For individual taxpayers who cannot pay in full, you can deduct up to $1,000. All right.

    And let's see um what the response rate was, 57, 57 percent. We were a little worried about that, and we actually have some information for you. So, Rich? FURLONG: Yes, Karen. Let, let me jump in. This was, first, kudos to the 60, was it 67 percent, Karen, who got this right because this had a lot of, RUSSELL: Fifty-seven. FURLONG: Fifty-seven. So, kudos to you. But, for those who didn't, the reason that B is, is the only correct answer is that, first, we are looking at uh personal bank accounts and vehicles. And when you look at B, that clause that says for individual taxpayers who cannot pay in full so, when we are looking if you, if you, cannot pay in full based on the verification of the income and asset and expenses information you submitted with the offer, uh if you can't pay in full within the remaining collection statute, then we will allow up to $1,000 for a bank balance and up to $3,450 per vehicle uh double that for a joint offer.

    So, it's that "who cannot pay in full" is the key qualifier here for um allowing those two types of, of expenses, Karen. RUSSELL: OK. Thank you, Rich. And you know what, Anna, um that was our last polling question. So, let's go ahead and provide those helpful hints and resources so that we can get to the Q&A. FALKENSTEIN: So, before going on and doing an offer in compromise, make sure that you explore all your collection options first uh. If another option exists, you should pursue that first. Uh, use the pre-qualifier tool to determine uh if the offer is the best resolution and a potential figure um, that it will provide you. Make sure that you complete your financial statements and forms very carefully. Uh, do remember that a lot of offers are returned or rejected because of omissions or mistakes on those uh applications or financial statement. The financial Forms 433-A (OIC) and 433-B (OIC) have checklists at the end of each. Use those checklists to make sure that you have included everything necessary to process and evaluate the offer. The more you include in the package up front, the less time it will take to evaluate and, and investigate that offer and the less uh chance you'll have to have uh additional items requested later. Um, also, make sure that you are sending the most up to date revision of the form. Um, ensure that you have all your filing current and your payment requirements are, are current. If you have to make estimated tax payments, continue doing that. If you have to make federal tax deposits for a business, continue to do that. Uh, also, make sure any client or taxpayer is aware that if you get an accepted offer, part of this contract says that you will agree to stay current with filing and paying for the next five years. Very, very important to know that. Also, um unless the taxpayer qualifies for the low-income waiver, uh which includes uh all of the required fees and any payment that need to be made during the offer investigation, um you need to be making your monthly payments or, or whatever periodic payments you have agreed to do. You need to be making those during the course of the offer investigation. If you stop making them, then that offer can be closed out. It would be considered a mandatory withdrawal. It would um basically be a returned offer with no appeal rights. Remember, returned offers have no appeal rights. Rejected offers do have appeal rights. Uh, and, also, remember to respond timely if we ask for additional information. Make sure that you provide us a working voicemail number that we can call you, and make sure to respond during the employees' work hours so that you can get your uh offer investigation done as quickly as possible. Um, the next slide shows some, some key, the keyword search "Offer in Compromise" for resources. Um, one of the most important resources you can use is that 656-B, the Offer in Compromise booklet. Um, that has um the most current information. Make sure that when you are submitting an application, I said this before; I'll say it again, you need to use the most recent revision. If you are not using the most recent revision, it's not going to go through um because that revision is going to include any updates.

    It's also going to provide the low-income waiver threshold. And at this point, Karen, I believe we're back to you and, hopefully, start some questions. RUSSELL: OK. Thank you, Anna, very much.

    So, again, I'm Karen Russell and I will be moderating the Q&A. And I want to thank everyone for attending today. Anna and Rich are staying with us and will be answering your questions. But, we also have Nicole Highsmith with us today. And she is a Revenue Officer for Collection Policy in the Small Business/Self-Employed Division and she specializes in Offer in Compromise. Now, uh, everybody knows that you need to use the Ask Question feature. If you haven't submitted your question, please do so now. And, then, before we start, uh we may not have time to answer all the questions. But we will get to as many as we can. And if you are participating to earn a certificate and related continuing education credit, you will qualify for one credit by participating for at least 50 minutes from the official start time of the webinar. And, then, you guys, Nicole, Anna, Rich, let's, let's get going so we can get to some questions. So, the first question I am going to throw out to uh Nicole. And um there are some that they said that they have a client who has a large tax liability and moved to Lebanon full time. Can the CPA or tax professional use the national standards for some of the living expenses or do they actually have to use actual expenses? NICOLE HIGHSMITH: That's a great question. So, they would basically have to use actual expenses. The national standards are only for the United States and Puerto Rico.

    RUSSELL: OK. That was an easy one. Good. So, and, then, Anna, there is one that came in for you.

    Hold on. Let me find it. There it is. And, and it says that you mentioned if an OIC is rejected, the appeal rights are no longer available. Is that the same result if an OIC is not processible?

    And if it's not processible, is it, by default, rejected? FALKENSTEIN: OK.um I think somebody may have misheard. If, if there is a rejected offer, they will receive appeal rights. Um, I mentioned earlier that returned uh tax uh excuse me, Offer in Compromises can be returned for a variety of reasons. If it is returned um maybe because they didn't file a return, maybe they weren't making estimated tax payments or maybe they weren't making those um uh periodic payments for the, the offer itself ah, if it is returned, there is no appeal rights. And if it is withdrawn, then there isn't appeal rights either. If it's not processible, there is no appeal rights either. RUSSELL: OK. Thank you for that, Anna. And Nicole, I'm going to toss two in a row to you. So, the first one is uh the practitioner wants to know are, are you penalized for not using the Pre-Qualifier Tool? HIGHSMITH: No. Not at all. Basically, we put that tool together just to make it easier um for taxpayers and practitioners to understand how we come up on an individual person with the reasonable collection potential, what are we looking at for an offer amount absent special circumstances. And so, basically, it's a taxpayer reduction in burden tool.

    And uh they can self-report on the Form 656 offer form that they've used it or not. And we've just seen um an increase in acceptable offers from people who do use this tool because they have an idea of the calculation and, and how the process works a little better than someone who would just not have that information. RUSSELL: OK. And, then, should a taxpayer enter into a payment plan while the OIC process is going on? HIGHSMITH: So, uh payment plan or an installment agreement um they are not required to make those while um an Offer in Compromise is going on. If they are doing a cash offer, of course, that's within the five months. They'll do their 20 percent down.

    If they're doing a periodic payment offer and they're paying it you know between the 6- and 24-month period, um those are the monthly payments they need to make. They do not need to make any installment agreement payments. Um, and if that offer, if they already have an installment agreement and, and their offer is not accepted and they have not incurred any additional debt, then we'll go ahead and reinstate that installment agreement with no additional fee. RUSSELL: OK. All right. And, then, we only have time for one more question, Nicole, and I'm going to toss it out to you. Does the Pre-Qualifier prepopulate the Form 656 so it can be filed electronically? HIGHSMITH: That would be fantastic, and that's something we are always looking at. But, currently, um I think it was, Anna had said that information is put in, once you clear it, um it doesn't go anywhere. We don't save that information. So, no, you cannot electronically at this point submit an offer. You have to complete the form and send the required payment in unless they qualify for the low-income certification and send it either to our Memphis or our Brookhaven campuses. RUSSELL: OK. Thank you so much, Nicole. And um you guys, before we close out the webinar, Anna and Rich, I, I want to know what your key points are that you want the attendees to remember. And, and I need you to do it pretty quickly, if you don't mind. (Laughing) FALKENSTEIN: No problem. So, speed talking. RUSSELL: Yes. (Laughing)

    FALKENSTEIN: OK. So, um basically, the premise is that an Offer in Compromise is a great business policy and good tax policy under appropriate circumstances. Um, the Offer in Compromise Pre-Qualifier Tool is a great resource to help taxpayers determine if an offer is a viable collection option for the taxpayers. Back to you. RUSSELL: Thank you, Anna. Yep. OK. Thanks, Anna. And Richard, Rich, what about you? What are your closing thoughts here? FURLONG: Thanks, Karen. Uh, two thoughts. When submitting an Offer in Compromise request, remember, it's critical that the applicant determine that reasonable collection potential which, again, is based on future income and equity and assets. And, then, it's very important that the OIC applicants review the application checklist, which is in the back of the Form 656 booklet, to ensure that their offer submission is complete for processing by IRS. And with that, Karen, I'll turn it back to you to take us home. RUSSELL: Thank you so much, Rich. OK. Everyone in the audience, we are planning additional webinars throughout the year. And to register for any of those, just visit IRS.gov, keyword "webinars," and select the one that is appropriate for you, Webinars for Tax Practitioners or Webinars for Small Business. We will be offering CE credit. Uh, you can also visit the IRS Video Portal for this, this webinar. Uh, just look for it in a couple of weeks.

    And you'll also find other interesting information on that, on the portal. And I want to thank Anna and Rich again. Great big thank you to them for sharing their expertise and knowledge and Nicole, especially, for sharing your expertise. We really appreciate it. And I want to also thank our attendees again today for, for uh joining us for this "Understanding an Offer in Compromise."