Inconsistent chatter from a Sacramento-based 'Sconi attorney.

Wednesday, July 22, 2009

Bill Proposed to Eliminate 20% Partial Payment Requirement for Offers In Compromise

Rep. John Lewis (D- GA) is proposing to repeal a current, onerous requirement for filing an Offer in Compromise.

An Offer in Compromise (OIC) is type of tax debt resolution, offered by the IRS. It is a useful tool for individuals who owe the IRS money but cannot afford to pay it back in full. Instead of forcing the taxpayer to make payments, anyway, the IRS has this program to encourage individuals to, first, prove they cannot pay (done through a somewhat tricky and detailed financial review), and then put up the amount of money they could afford over the next 5-6 years. Usually, this results in a qualified taxpayer making a one-time payment that is considerably less than the amount due.

As of July 2006, part of the OIC process (for one type of OIC - Lump Sum Payment OICs), the taxpayer is required to make a downpayment on his or her OIC at the time of submitting it for consideration. This downpayment--20% of the total OIC amount--is nonrefundable if the OIC is not accepted.

Well, Rep. Lewis wants to do away with it, as seen here. And I say, good riddance. It discourages OICs from being filed. Many individuals cannot afford 20% of, say, a $10,000 OIC on a $100,000 tax debt. So, they do not file, become subject to IRS collections, and ultimately fall out of the system as a taxpayer. Also, many times OICs are amended and/or refiled. This results in additional "prepayments" being required, even though the change may be an insignificant amount.

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