I handled a recent offer in compromise for a taxpayer based on doubt as to collectability. The offer was submitted pre-virus pandemic and was pending before the IRS for many months. During that time, the pandemic had changed the taxpayers’ finances in multiple ways. One of the taxpayers changed employment, which brought a change to income and employment expenses. The IRS expense allowances also changed, which typically happens each year. Expenses changed due to travel restrictions. Here are some lessons for how the changes of expenses were dealt with.
- The IRS Offer in Compromise Unit required us to substantiate all the income and expense after the case had pending before the IRS for more than a year. I asked the IRS to provide me the legal authority to require us to reverify income and expenses based on the IRS delay. The IRS did not provide me a response.
- We were able to demonstrate an increase in the amount of medical expenses. The IRS accepted our updated, higher medical expenses.
- The IRS permitted us to use the increased allowed national and local IRS expenses for the current year.
- We were required to update income due to change in job.
- For an expense deduction based on current income and payroll taxes being paid, the IRS used the withholdings from the most recent paychecks, not the previous year’s tax return. The taxpayer needs to carefully review whether the withholdings should be increased or decreased to best support the offer in compromise.
- After the Officer in Compromise Unit denied the OIC (as is typical) and the case went to the IRS Independent Office of Appeals, we were permitted to keep the financial determinations made by the Offer in Compromise Unit that we agreed with and were permitted to challenge those findings that we did not agree with. If the finances changed in our favor, we were permitted to pursue the more favorable finances.
Practice Point. The IRS is taking a long time right now to process offers in compromise. Be prepared to update financial information and argue for the financial analysis that best finds the taxpayer position.
Taxpayers with offer in compromise issues may contact Jared Le Fevre to discuss the best way to get the offer in compromise approved.
About the Author. Jared M. Le Fevre is a tax attorney and received a Tax LLM degree from the University of Alabama College of Law and a Juris Doctorate from the University of Utah College of Law. Mr. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal, state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
Date of information: February 16, 2023.
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