6 Mistakes to Avoid when Applying for an Offer In Compromise

Minor mistakes can have big consequences for Offer in Compromise (OIC) cases. Sometimes they can simply cause confusion and delays, but some can be lead to outright rejection. Either way, making mistakes in an Offer In Compromise application will bring time-consuming and costly complications.

As a former Revenue Officer at the US Department of Treasury, I have reviewed hundreds of OIC submissions, and have been able to identify the six most common mistakes made by practitioners.

Making calculation errors on Form 433

The Form 433 requires a significant amount of complex calculations that may be challenging even for an accountant. However, it is imperative to get them right. If the math is incorrect in one part, the entire OIC process will stop until the miscalculation is corrected.

Leaving blank spaces on any of the forms

Blank spaces in forms 433 and 656 is something I saw quite a bit of when I was with the IRS, but there was no way to know what it meant. Even though filers can think that blank spaces automatically denote that the response is irrelevant for their client, it is highly recommended to write either “N/A” or zero in these spaces if it is not applicable.

Writing negative equity

Another frequent mistake that pops up in OIC submissions is when the applicant declares negative equity. When a taxpayer’s property is worth less than they owed on it, some practitioners subtract that negative equity from the taxpayer’s net realizable equity (NRE). While this may seem like the right move, you cannot do it. Any asset with a negative equity must be reported as zero.

Forgetting to justify with documentation

In order to avoid going through a rejection or appeal, it is absolutely necessary to justify your client’s position by referencing the corresponding documentation. Then, you will need to tie it together with the IRM, IRC, and court decisions correctly. I can’t emphasize enough the importance of using the IRM to support your claims. Root your arguments in IRM and IRC, and you can expect to have positive outcomes.

Allowing contradictory facts

This seems straightforward but also very important to mention. If your client is asking the IRS to accept that they pay less than they owe in tax debt, it is imperative that their lifestyle match their financial difficulty. If your client has tax debt but is driving around in a new sport car and living in a recently purchased multi-million dollar home, this may become a major obstacle for approval. If your client is in this situation, there are alternate options like installment agreements or a payment extension.

Relying too much on the emotional argument

IRS employees are people too and naturally the emotional aspects of a case may have an impact on the final decision. However, relying too much on the emotional argument will not help. It should be an added remark as opposed to the core argument.

Keeping these six elements in mind when working on an OIC case will be very helpful in reaching a positive outcome. However, you should keep in mind that in 2018, 59% of the offers were rejected, so if that is the case for your client, there are several other options including appeals, negotiation and also simply alternatives outside of OIC.

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Jeff McNeal is a Product Manager for Canopy.