Understanding the IRS’s authority to revoke an Offer in Compromise (OIC) can be daunting. An OIC is a critical lifeline for taxpayers struggling with significant tax debt, allowing them to settle their liabilities for less than the full amount owed. However, the IRS retains the power to revoke this agreement under certain circumstances.
If you are facing challenges with your Offer in Compromise or need legal advice, don’t hesitate to contact Ronald Arthur Stearns, Attorney at Law. With extensive experience in tax law, Ronald Arthur Stearns, Attorney at Law can guide you through IRS regulations and safeguard your financial future. Call us today at 1-512-257-0570 (Texas) or 949-676-7193 (California) for a consultation.
An Offer in Compromise: Circumstances for Revocation
An Offer in Compromise is more than just a legal agreement; it’s a lifeline for taxpayers in distress, a path to financial recovery. However, like any contract, an OIC carries obligations and parameters that must be respected. Failure to do so could lead to the revocation of the OIC, which means you might face financial consequences. To avoid this, it’s essential to follow the rules of the compromise program.
Misrepresentation or False Information
Imagine entering into an agreement based on trust, only to discover that the other party has been less than honest. This is precisely the scenario the IRS faces when a taxpayer provides false information or conceals assets when applying for an OIC. Misrepresentation can range from understating income to overestimating expenses, effectively painting a distorted financial picture. Similarly, the concealment of assets can greatly impact the IRS’s assessment of a taxpayer’s ability to pay their tax liabilities, leading to an unjust OIC agreement.
The IRS is vigilant in scrutinizing OIC applications for any signs of misinformation or concealment. If detected, the IRS can:
- Reopen and rescind an accepted offer
- Impose penalties and interest
- Initiate collection actions
- Prosecute for fraud
Facing the consequences of unpaid taxes, such as a federal tax lien, can be unpleasant for the taxpayer.
Breach of Agreement Terms
An OIC is not a one-sided affair. While the IRS agrees to accept a lesser amount to settle a taxpayer’s debt, the taxpayer must also uphold their end of the bargain, often through a collateral agreement. Unfortunately, not all taxpayers adhere to the terms of the agreement, thereby putting their OIC at risk.
This could encompass a variety of scenarios, from failing to make the agreed-upon payments to not meeting tax obligations. The repercussions of such breaches are severe, potentially leading to the revocation of the OIC and reinstatement of the full tax liability.
The IRS does not take such steps lightly. A preliminary notice of federal tax is sent to the taxpayer explaining the reasons for the potential revocation, providing the taxpayer with a 15-day response period to rectify the situation.
Mutual Mistake of Material Fact
Sometimes, an OIC may be based on a misconception or a mistake of fact that both the IRS and the taxpayer share. This could be anything from an erroneous assessment of a taxpayer’s income to a misunderstanding regarding a taxpayer’s expenses.
In such cases, the OIC may be revoked, as the agreement was based on a shared but incorrect understanding of the facts. This underscores the importance of ensuring that all information provided throughout the OIC process is accurate and truthful, to prevent such an unfortunate scenario from occurring.
Legal Framework Governing Offer in Compromise Agreements
An Offer in Compromise (OIC) is a program offered by the Internal Revenue Service (IRS) that allows taxpayers to settle their tax debt for less than the full amount owed. This program is designed to provide relief to individuals who are unable to pay their tax liabilities in full due to financial hardship or other extenuating circumstances.
Someone might need an OIC if they are facing significant tax debt and are unable to meet their tax obligations due to factors such as insufficient income, high living expenses, or unexpected financial setbacks. The OIC program offers a lifeline to these taxpayers, allowing them to negotiate a more manageable payment amount and avoid severe collection actions like wage garnishments, bank levies, or property seizures. By settling their tax debt through an OIC, taxpayers can achieve financial stability and move forward without the burden of overwhelming tax liabilities.
Refer to IRM Guidelines
At the heart of the OIC process lies the Internal Revenue Manual (IRM), a tool for the Internal Revenue Service. The IRM provides the guidelines and procedures for IRS employees to follow when dealing with taxpayer issues, including Offers in Compromise.
The IRM contains specific sections detailing:
- The process of accepting and rejecting OICs
- The special procedures for offers secured in Appeals offices
- The steps to take when processing liens
- Transferring payments held as a deposit
The IRM serves as a guide for IRS employees, making sure they follow the right steps and respect taxpayer rights during the OIC process.
Taxpayer’s Rights and Protections
While the IRS has an obligation to collect taxes and ensure compliance, it must also respect taxpayers’ rights. This balance is reflected in the Offer in Compromise process, where taxpayer rights and protections are given priority, taking into account the reasonable collection potential of each individual case.
Taxpayers are entitled to assistance from the Taxpayer Advocate Service and can expect the IRS to consider their unique circumstances affecting their liabilities, ability to pay, or ability to provide timely information in order to correct tax debt.
Low-income taxpayers and offers solely based on doubt as to liability (DATL) are exempted from certain payments and fees, as part of an effective tax administration, which aims to address and resolve tax debt issues following tax laws.
In the event of an OIC rejection, taxpayers have the right to appeal the decision and may also choose to be represented during the process. These protections ensure that taxpayers have a fair shot at resolving their tax issues through the OIC process.
Texas Law Considerations
While federal guidelines largely govern the OIC process, state-specific considerations also play a role. In Texas, federal guidelines such as the IRS’s authority to revoke an Offer in Compromise, are applied within Texas in accordance with state law provisions.
Understanding how these federal regulations interact with Texas law is crucial for Texas taxpayers. It allows them to grasp the impact of tax enforcement actions, such as OIC revocation, and to navigate their tax obligations effectively within the Texas legal context.
Signs Your Offer in Compromise May Be at Risk
The IRS can revoke an Offer in Compromise even after it has been accepted. This can happen if the taxpayer fails to comply with the terms of the agreement, such as missing payments or not filing required tax returns. Additionally, if the IRS discovers that the taxpayer provided false information or concealed assets during the application process, the offer can be rescinded.
Recognizing the warning signs that your OIC may be at risk can save you from the unpleasant surprise of revocation. These red flags can serve as a wake-up call, alerting you to potential issues that need immediate attention to protect your OIC.
Compliance Issues Post-Acceptance
Once an OIC is accepted, maintain compliance with the agreed terms of your OIC to safeguard it from revocation.
For self-employed taxpayers, this includes compliance with required estimated tax payments and required federal tax deposits, which should be determined based on last year’s tax or the current year’s projected tax, factoring in income and allowable expenses, as well as considering the taxpayer’s net realizable equity.
There’s an expectation for taxpayers to adhere to the proposed installment payments during the investigation of their Offer in Compromise, which may include an application fee. Failure to do so could be a clear sign that your OIC is at risk.
Economic Hardship and Ability to Pay
Financial hardships can be a significant factor affecting your ability to fulfill your OIC terms. A sudden change in financial circumstances, such as losing a job or incurring unexpected medical expenses, could impact your ability to make required payments.
In such circumstances, the IRS can adjust the payment terms or formally modify the agreement, providing some relief for the taxpayer. However, repeated failures to make payments could lead the IRS to return the offer or close it as an involuntary withdrawal, a clear sign that your OIC may be at risk.
Communicate any changes in your financial situation to the IRS promptly. This allows the agency to re-evaluate your ability to meet the terms of the OIC and consider different recommendations for the offer rejection.
Preventive Measures to Safeguard Your Offer in Compromise
Prevention is always better than cure. This adage holds true when dealing with Offers in Compromise. Here are some preventive measures you can take to safeguard your OIC from potential revocation.
Ensuring Accurate and Complete Information
Accuracy and completeness of information are the cornerstones of a successful OIC. Ensuring that you provide all the necessary information accurately can safeguard your OIC from potential revocation.
This means being truthful about your income, expenses, and assets, and ensuring that all your tax returns are filed up to date. Remember, any discrepancies can lead to the revocation of your OIC.
Experienced attorneys at Ronald Arthur Stearns, Attorney at Law can play a vital role in this process, ensuring that all legal requirements are met and your OIC maintains its validity.
Meeting All Required Payments
Another preventive measure is to ensure that all required payments are made on time. This includes not just the payments agreed upon in the OIC, but also any other tax payments that are due.
Failure to make these payments can lead to the revocation of your OIC. Plan for these payments and ensure that they are made promptly and in full.
Regularly Reviewing Financial Status
Lastly, regular financial reviews can help you maintain compliance with your OIC terms and prevent potential breaches. By keeping a close eye on your financial situation, you can ensure that you are able to meet your tax obligations and that any changes in your situation are promptly reported to the IRS.
Regular financial reviews can also help you identify potential issues that could lead to the revocation of your OIC. This allows you to proactively address these issues and maintain the validity of your OIC.
Steps to Take if Your Offer in Compromise Is Revoked
The revocation of an Offer in Compromise can feel like a financial blow. However, it’s not the end of the road. There are steps you can take to address the situation and potentially reinstate your OIC or explore alternative solutions.
Contacting the IRS for Clarification
When confronted with OIC revocation, your first step should be to contact the IRS. This will help you understand the reasons for the revocation and potentially rectify the situation.
The IRS sends a preliminary letter detailing the reasons for an OIC rescission, providing the taxpayer with a 15-day response period to provide additional information or request a time extension. This is your opportunity to clarify any misunderstandings, provide missing documentation, such as form 656, or address any other issues cited in the letter.
This step begins the dialogue with the IRS and paves the way for potential reinstatement of your OIC or other alternative resolutions.
Seeking Legal Counsel
If the reasons for revocation are complex or the IRS remains insistent on the revocation, it may be time to seek legal help. Ronald Arthur Stearns, Attorney at Law can help you through IRS procedures and negotiate on your behalf.
Legal counsel from Ronald Arthur Stearns, Attorney at Law can provide valuable insights into your case, suggest potential resolutions, and represent you in any appeals or negotiations with the IRS. This can often lead to better outcomes, as they have in-depth knowledge of tax law and IRS procedures.
Exploring Alternative Solutions
Sometimes, the revocation of an OIC can serve as an opportunity to explore alternative solutions. These can range from proposing an installment agreement to formally appealing the IRS’s decision to revoke the OIC.
These alternatives can be particularly useful if your financial circumstances have changed since the original OIC was granted. With the help of a tax attorney from Ronald Arthur Stearns, Attorney at Law, you can evaluate these options and choose the one that best fits your current situation.
How Ronald Arthur Stearns, Attorney at Law Can Help You
When dealing with complex tax issues like an Offer in Compromise, having seasoned legal counsel by your side can make all the difference. That’s where the Law Office of Ronald Arthur Stearns, Attorney at Law comes in.
With extensive experience in tax law, including IRS income tax, payroll tax, and audit defense, Ronald Arthur Stearns, Attorney at Law provides knowledgeable and compassionate representation for individuals and businesses against the IRS. From assisting with unfiled tax returns to responding to threatening notices from the IRS, Ronald Arthur Stearns, Attorney at Law has your back.
Clients have praised Ronald Arthur Stearns, Attorney at Law for his:
- In-depth knowledge of tax law
- Straightforward, honest approach
- Attentiveness to their cases
- Detailed advice
- Commitment to protecting their interests
His qualities have made him a trusted ally in their fight against tax issues.
Whether you’re struggling to maintain your Offer in Compromise, facing the possibility of revocation, or exploring alternative solutions, Ronald Arthur Stearns, Attorney at Law can guide you through the process, ensuring that your rights are protected, and your financial future is secured.
Remember, you don’t have to face this journey alone. With the assistance of experienced legal counsel like Ronald Arthur Stearns, Attorney at Law, you can navigate the complexities of OICs, address potential issues, and secure your financial future. Take the first step today and call us today at 1-512-257-0570 (Texas) or 949-676-7193 (California) for a consultation.
Frequently Asked Questions
Can the IRS revoke an Offer in Compromise after it has been accepted?
Yes, the IRS can revoke an Offer in Compromise even after it has been accepted. This can happen if the taxpayer fails to comply with the terms of the agreement, such as missing payments or not filing required tax returns. Additionally, if the IRS discovers that the taxpayer provided false information or concealed assets during the application process, the offer can be rescinded.
What happens if my financial situation changes after my OIC is accepted?
If your financial situation changes significantly after your OIC is accepted, it’s crucial to inform the IRS as soon as possible. The IRS may adjust the terms of your agreement to reflect your new financial circumstances. However, failing to report these changes can lead to the revocation of your OIC and reinstatement of the full tax liability.
Are there any alternatives if my OIC is revoked?
Yes, there are alternatives if your OIC is revoked. You can consider setting up an installment agreement with the IRS to pay off your tax debt over time. Another option is to reapply for an OIC if your financial situation has changed significantly since your initial application.
How long does the IRS take to review an OIC application?
The review process for an OIC application can vary, but it typically takes between six months to a year. During this time, the IRS will thoroughly examine your financial situation, including your income, expenses, and assets. It’s essential to provide accurate and complete information to avoid delays or potential rejection.
Can I appeal the IRS’s decision to revoke my OIC?
Yes, you have the right to appeal the IRS’s decision to revoke your OIC. Upon receiving a preliminary letter of revocation, you have a 15-day window to respond and provide additional information or request a time extension. If your appeal is unsuccessful, you may seek the assistance of a tax attorney to explore further options.