Eric L. Green Eric is a partner with Green & Sklarz, LLC in - - PDF document

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National Conference

Resolving Tax Debts: Offers-in-Compromise, Installment Agreements and Uncollectable Status Eric L. Green, Esq.

ELEVATE National Conference 2018 Anaheim

Eric L. Green

Eric is a partner with Green & Sklarz, LLC in Connecticut and New York The focus is civil and criminal taxpayer representation Has served as adjunct faculty at the University of Connecticut School of Law Author of the Accountant’s Guide to IRS Collection (www.TGPublish.com/shop) Founder of Tax Rep LLC – www.taxrepllc.com Columnist for the Journal of Tax Practice & Procedure & Forbes Weekly Tax Rep Podcast in ITunes: https://itunes.apple.com/us/podcast/podcasts-tax-rep- llc/id1276903945?mt=2 Past Chair of the Executive Committee of the Tax Section of the Connecticut Bar Association Fellow of the American College of Tax Counsel

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Discussion Topics

• The collection process
• Collection alternatives
• Financial guidelines
• Installment agreements
• Uncollectable Status
• Offers-in-Compromise

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The Collection Process

• Assessment of the tax
• Billing notice
• Silent lien arises
• Threat to levy
• Final Notice of Intent to Levy

(Right to a Hearing)

• Levies served
• Notice of Federal Tax Lien filed

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The Statute of Limitations

• IRS has 10 years to collect
• From date of assessment
• Stopping collection tolls the statute
• OIC
• CDP
• Bankruptcy (+6)
• Outside US for >6 months
• Pending Installment Agreements

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Keys to Remember

• Resolving the matter requires knowledge of the process
• Compliance!
• Pull transcripts
• Communicate with the IRS
• Move aggressively to provide information
• Propose a plan

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Currently NT collectible

Collection Alternatives

Installment Agreements Currently NOT Collectible Offers in Compromise Bankruptcy

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The Closely Guarded Secret?

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It’s All about the Numbers!

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Reasonable Collection Potential

• Gross monthly income
• Allowable expenses
• Determine future income
• Net equity in assets (QSV)
• FI + NE = RCP

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Financial Guidelines

• Gross monthly income
• Allowable v. actual expenses

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National Standard: Food, Clothing

Expense One Person Two People Three People Four People Food 334 646 742 888 Housekeeping Supplies 35 64 63 75 Apparel & services 89 142 185 264 Personal Care 38 69 71 75 Misc 151 281 323 392 Total $647 $1,202 $1,384 $1,694

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National Standard: Out of Pocket

Out of Pocket Costs UNDER AGE 65 $52 65 AND OLDER $114

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National Standard: Auto/Public

Public Transportation National $178

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National Standard: Auto/Public

Ownership Costs One Car Two Cars National $497 $994

Local Standards

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Practitioner Secret!

1‐year rule & 6‐year rules: IRM 5.14.1.4.1

(not if a partial pay)

Financial Guidelines

Expense Actual or Allowable Food, Clothing and Misc National Standard Housing and Utilities Lesser of Actual or Local Standard Automobile ‐ Ownership Lesser of Actual or National Standard Automobile ‐ Operating Local Standard Public Transportation National Standard Health Insurance Actual Out of Pocket Health Care Costs Higher of Actual or National Standard Court Ordered Payments Actual Child/Dependent care expenses Actual (must be necessary) Life Insurance Actual (must be reasonable) Current Year Taxes FIT, FICA or SE, SIT, Local Secured Debts Actual Delinquent State Taxes Percentage of State v. Federal Debt

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Installment Agreements

• Streamlined
• Individuals: 50K over 72 months*
• Business: 25K over 24 months
• Regular: Within statute
• Partial pay: They’ll be back!

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Streamlined Pilot Program

• IRS tested a pilot program in 2017 - $100,000 over 84 months
• So successful they extended it through September 2018
• https://www.irs.gov/businesses/small-businesses-self-

employed/streamlined-processing-of-installment-agreements

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Installment Agreements

• No documents for a streamlined
• Regular and Partial Pay ― CIS statements
• 433-D when plan is approved
• Direct debit
• User Fees: $120 for new agreements, $50 for

reinstated agreements and $52 for direct debit installment agreements

Offer in Compromise

Three types of Offers:

• Doubt as to liability
• Doubt as to collectability
• Effective Tax Administration

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Doubt as to Liability

Challenging the underlying liability Not about ability to pay but if the taxpayer can prove they do not

• we the money

Effective Tax Administration Offers

An ETA offer is an Offer where the taxpayer could full‐pay the liability but where, for public policy reasons, the IRS should agree to accept less than the full‐amount Very rarely given All ETA Offers are reviewed in Washington, DC

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Doubt as to Collectability

• Most common Offer
• Based upon the taxpayers inability to full pay the liability
• It’s a request or the government to accept less than the full

amount owed because of the taxpayer’s financial situation

Offer in Compromise

Lump Sum

• Paid in 5 or fewer payments

Deferred

• Paid in more than 5 but less than 24

monthly payments

• Payments must be made starting when

the OIC is filed

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Offer in Compromise

• $186 application fee
• 20% deposit with a lump sum offered
• Monthly payments with deferred
• ffers start when the offer is filed and

continue until accepted or rejected

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OIC Analysis

• No OIC if can be full paid via an

installment agreement

• Income averaging
• Dissipated assets

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Practitioner Secret!

Additional $200 a month for operating an

• lder vehicle

IRM 5.8.5.20.3.5

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OIC Analysis

• Future income collateral agreement
• Low-income?
• Qualified investments

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Low-Income Certification (656 Page 2)

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Way to Look at an OIC

• Government seizes all the assets
• Sells at 80% quick sale value
• Pays off any loan ahead of its lien
• Whatever is left is included in the offer

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Way to Look at an OIC

• Future income
• 12 months for lump sum offers, 24 months for deferred offers)
• If future income available will full pay within the CSED, no
• ffer!

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• Joe and Mary owe $187,000 in back income

taxes from 2009 – 2014

• Joe is 45, Mary is 43
• Joe used to be self‐employed but is now a

W‐2 employee

• Joe earns $90,000 a year, Mary earns

$48,000 a year

• Lives in Nyack, New York (Rockland County)

Case Study: Joe and Mary

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• They have two sons, ages 17 and 14
• They owe the State of New York $28,000 and pay $500/mo

Case Study: Joe and Mary

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• Home worth $280,000, mortgage of $197,000, $25,000 HE line used
• 2014 Cadillac Escalade, no loan, worth $12,000
• 2014 Honda Accord, no loan, worth $4,500
• Mary has a pension worth $78,000 (defined benefit)
• Checking account has $1,000, savings has $750

Joe and Mary: Assets

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• Mortgage ‐ $3,850
• Home Equity Line ‐ $175
• Utility Bills ‐ $675
• Auto Expense ‐ $1,000
• Health Insurance ‐ $695
• Union Dues
• Mary $50, Joe $80

Monthly Expenses

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• Disney Time share ‐ $375/mo
• Credit Cards ‐ $200/mo min pmt
• Summer day camp for kids ‐ $4,500 for both for the summer
• Donations to the church ‐ $2,000 year

Monthly Expenses

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• Joe’s blood pressure medicine costs $200/mo
• Current Taxes
• Joe $2,075/mo, Mary $800/mo
• Borrowing $4,500 from Mary’s mom to pay for us to do the Offer

Monthly Expenses

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Expense Actual Food, Clothing and Misc $ 1,513 Housing & utilities $ 4,525 Vehicle Ownership $ - Vehicle Operating Costs $ 1,000 Public Transportation $ - Health Insurance $ 695 Out of Pocket HealthCare $ 200 Court ordered pmts $ - Child/Dep Care $ 375 Life Insurance $ - Current Year Taxes $ 2,875 Secured Debts $ 175 Delinquent State Taxes $ 500 Other - Union Dues $ 130 Total Living Expenses $ 11,988

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• Monthly income of $11,500
• Expenses of $11,988
• Available Monthly Income
• ($488)
• So what does the IRS think?

Actual

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Expense Actual Allowable Food, Clothing and Misc $ 1,513 $ 1,694 Housing & utilities $ 4,525 $ 3,819 Vehicle Ownership $ - $ - Vehicle Operating Costs $ 1,000 $ 608 Public Transportation $ - $ - Health Insurance $ 695 $ 695 Out of Pocket HealthCare $ 200 $ 356 Court ordered pmts $ - $ - Child/Dep Care $ 375 $ 375 Life Insurance $ - $ - Current Year Taxes $ 2,875 $ 2,875 Secured Debts $ 175 $ 175 Delinquent State Taxes $ 500 $ 65 Other - Union Dues $ 130 $ 130 Total Living Expenses $ 11,988 $ 10,792

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• Monthly income of $11,500
• Allowable expenses of $10,792 – why?
• Housing is above the local standard ($4,525 v. $3,819)
• Auto Operating is above the local standard ($1,000 v. $608)

IRS Analysis

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• Out of Pocket expense is higher than Joe claimed ($200 v. $356)
• State Tax payment is apportioned based upon liability ($500 v.

$65)

IRS Analysis

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• IRS does not allow the timeshare payment ‐ unnecessary
• IRS does not allow the credit card payment – unsecured debt

behind their claim

• IRS does not allow charitable giving unless its required for their

jobs (its not)

Also

So Initial Offer Amount

• Future income: $8,496 ($11,500 ‐ $10,792= $708 x 12)
• House: $2,000 equity ($280,000 x 80% ‐ $197,000 ‐ $25,000)
• Escalade equity: $6,150 ($12,000 x 80% ‐ $3,450 exemption)
• Honda equity: $150 ($4,500 x 80% ‐ $3,450 exemption)
• Cash: Zero ($1,000 exemption but if necessary for living

expenses)

• Total Offer: $16,796

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Offer Analysis

• Not a bad deal ‐ Get rid of $187,000 for $16,796 (9 cents/dollar)
• Can we do better?
• Strategy 1: What are Joe and Mary not spending?
• Strategy 2: If you are going to purchase a car purchase a new one!

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• Joe and Mary need life insurance
• In our fact pattern Joe and Mary only have $40,000 of life

insurance through Mary’s work

• Joe and Mary purchase a $500,000 term life policy, costing Mary

$40 a month and Joe $60 a month

Changes

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• Joe trades in his escalade and buys a new Ford Pickup Truck
• He now has a $400 a month truck payment
• Mary’s mom is loaning then $4,500 for our fees
• Joe and Mary should sign a note that it is a loan and will be

repaid over 24 mo, pmt is $188

Changes

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Expense Actual Allowable Food, Clothing and Misc $ 1,513 $ 1,694 Housing & utilities $ 4,525 $ 3,819 Vehicle Ownership $ 400 $ 400 Vehicle Operating Costs $ 1,000 $ 608 Public Transportation $ - $ - Health Insurance $ 695 $ 695 Out of Pocket HealthCare $ 200 $ 356 Court ordered pmts $ - $ - Child/Dep Care $ 375 $ 375 Life Insurance $ 100 $ 100 Current Year Taxes $ 2,875 $ 2,875 Secured Debts $ 175 $ 175 Delinquent State Taxes $ 500 $ 65 Other - Union Dues $ 318 $ 318 Total Living Expenses $ 12,676 $ 11,480

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New Offer

• Income: $11,500
• Allowable Expenses: $11,480
• Future Income: $240
• Assets: $2,150 (House and car)
• RCP: $2,390!
• We just saved them $14,406
• They need to dump the time share, and depending on their credit

card balances, may want to consider bankruptcy

New Expenses

• Need to show 3 months of payments
• What if the IRS is breathing down the client’s neck now?
• Send the 433‐A to Collection

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