Generally, there are three types of offers. They are doubt as to liability, doubt as to collectability, and Effective Tax Administration offers; and these are all described in the Treasury regulations under section 7122. The one we are going to discuss the most today is the Effective Tax Administration Offer in Compromise.
Offer in Compromise from a taxpayer who has been the victim of fraud
That is partly because in the Consolidated Appropriations Act of 2014, the law now requires the IRS to give special consideration to an Offer in Compromise from a taxpayer who has been the victim of fraud by a third-party payroll tax provider. Not only that, we will discuss that the law requires the IRS also to provide dual notices when there has been a change of address.
OIC and Fraud
So, if a taxpayer/employer who has been making payroll tax payments changes his address, the IRS is now required to send notice of that change of address to the old address and to the new address. The reason for this is it prevents a PSP from changing the employer’s address without the employer’s knowledge, then concealing that change of address, and then concealing notices from the IRS advising the employer of delinquent taxes.
Effective Tax Administration Offers in Compromise
Let’s talk a little bit more about these Effective Tax Administration Offers in Compromise. There are two types of these offers. One is an economic hardship Offer in Compromise, and the other one is noneconomic hardship Effective Tax Administration Offer in Compromise. So, to be eligible for one of these, you are going to have to show that collection of the tax would either create an economic hardship or it would be unfair or inequitable.
Economic Hardship and Offer In Compromise
Now, economic hardship means the inability to meet reasonable basic living expenses. It only applies to individuals, so that would include a sole proprietor. So, if our veterinarian was a sole proprietor, this might be available. The regulations under section 7122 give examples of situations in which compromise would be appropriate as an Effective Tax Administration Offer in Compromise with economic hardship, and I will tell you what the examples are.
What is IRS Economic Hardship?
The first one is the taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full-time care and assistance to a dependent child who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer’s overall compliance history does not weigh against compromise. So, that is an example of a hardship. I’ll give you one more example. The taxpayer is retired and his only income is from a pension. The taxpayer’s only asset is a retirement account, and the funds in the account are sufficient to satisfy the tax liability. Liquidation of the retirement account, though, would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer’s overall compliance does not weigh against compromise.
Other Examples of IRS Economic Hardship
Those are examples of economic hardship that would be available in an Effective Tax Administration Offer in Compromise. Business entities, though, can only apply for the non-economic hardship Effective Tax Administration Offer in Compromise
Effective Tax Administration (ETA) Offer in Compromise Terms
Effective Tax Administration (ETA) Offer in Compromise – This is a viable collection alternative for victims of PSP fraud when there is no doubt the tax is owed and there is no doubt that the full amount owed can be collected from the taxpayer. There are two types of ETA OIC: Economic Hardship ETA and Non-Economic Hardship ETA. Offer in Compromise (OIC) – An Offer in Compromise allows the taxpayer to settle the tax debt for less than the full amount you owe. It may be a legitimate option if the taxpayer cannot pay the full tax liability, or doing so creates a financial hardship.
Info About Effective Tax Administration Offers in Compromise
IRS considers the taxpayer’s unique set of facts and circumstances: ability to pay; income; expenses; and asset equity. Payroll Service Provider (PSP) – Many employers outsource some or all payroll duties to thirdparty payroll service providers (PSP). These providers help ensure compliance with the IRS filing and deposit requirements. In the event of default by a third party, the employer remains responsible for the deposit of the federal tax liabilities and timely filing of returns.