What is the Offer in Compromise Success Rate?

IRS Offer in Compromise Success Rate – Acceptance Percentage By Year

What Percentage of Offer in Compromise Submissions are Accepted by the IRS?

Offer in Compromise Success Rate

A commonly used tactic for the relief of IRS tax debt is to make an Offer in Compromise. If you are not familiar with what an Offer in Compromise is, please read our post, “What is an Offer in Compromise?“. Whether you have already submitted an Offer in Compromise and have been waiting to hear back from the IRS (feeling like forever yet?) or you are simply weighing your options of how to proceed with meeting your tax liabilities, you may find yourself asking, “What is the Offer in Compromise acceptance rate?”.

Luckily, the IRS publishes a yearly Data Book jammed full of exciting IRS statistics! “Woooohoooo!” scream the fun-loving children of America. Yes, that is sarcasm, the Data Book is a very boring read, and would be highly effective as a bedtime story. However, it does allow us to answer the question at hand. Please note, these stats are nationwide, the numbers run from Oct.1 to Sept. 30, and the IRS rounds their Offer in Compromise statistics to the nearest thousand.

  • In 2010, there were 57,000 offers of which 14,000 were accepted, a success rate of 24.6%;
  • In 2011, there were 59,000 offers of which 20,000 were accepted, a success rate of 33.9%;
  • In 2012, there were 64,000 offers of which 24,000 were accepted, a success rate of 37.5%;
  • In 2013,  there were 74,000 offers of which 31,000 were accepted, a success rate of 41.9%; and
  • In 2014, the last year for which statistics are currently available, there were 68,000 offers of which 27,000 were accepted, a success rate of 39.7%.

There are a few patterns we can see emerge when we analyze these statistics. The first is that the number of offers submitted goes up year to year until 2014. The second is that the rate of acceptance seems the increase year to year until you get to 2014. however, perhaps the most important pattern, is that the acceptance rate is ALWAYS far less than half. In 2014, 3 of every 5 Offers in Compromise made to the IRS were rejected. Those are people who waited months for an answer just to be disappointed.

Why Would the IRS Reject an Offer in Compromise?

This is no simple answer and there could be more than one reason why any specific Offer in Compromise is rejected. It could be something as simple as making errors on Form 656. It could be because the IRS feels they can easily collect the full amount of the tax liability from the taxpayer. It could be because the taxpayer has not met the requirement of “coming into complete compliance”, which could be due to many factors, such as not filing any of the returns for the past 10 years. Perhaps the IRS Agent in charge of your file feels like they need to make an example of you….

Each tax liability and taxpayer is different, so ever Offer in Compromise has it’s own factors. Many of the offers fail because they had 0% chance of success from the beginning and should never have been made.

How Does a Taxpayer Increase Their Chance of Success with an Offer in Compromise?

Do not believe anyone who tells you that you are guaranteed to succeed on your Offer in Compromise: it is not up to them, it is up to the IRS.

The best way to increase the chance of success for your offer in compromise is to make sure it is part of a complete tax plan which you made with the assistance of a tax professional or tax attorney. here at G&G Law, LLC, our law firm has a much higher offer acceptance rate than the national average. We won;t share that percentage here because as the Connecticut Bar likes to remind us, “past results are not an indicator of future performance”, and of course, this is an accurate statement.

How Does G&G Law, LLC Increase the Chance of Offer in Compromise Success?

  • We consult with our clients to make a tax plan and determine if an Offer in Compromise is right for them (there are other options);
  • We make sure our clients actually qualify for an Offer in Compromise;
  • We make sure the tax debt is rightful!!!;
  • We make sure our clients have come into compliance with the IRS;
  • We know what the IRS is looking for and present the Offer in a light most favorable to our client;
  • We provide all details the IRS needs to make a determination, and nothing more, to avoid making unnecessary or additional disclosures;
  • We can appeal unreasonable rejections.

Dealing with the IRS is not something you have to do alone! We are here to offer our knowledge, experience and professional guidance.

 

Offer in Compromise with IRS

What is an Offer in Compromise with the IRS?

Tax Debt Resolution Options

What is an Offer in Compromise?

Making an Offer in Compromise is one of the most well known methods to settling tax debt with the IRS. In case you have never heard of one or don’t know exactly what it is here is the basic scenario:

The IRS contacts you claiming you owe X number of dollars in say, undeclared income tax. You don’t have X dollars, and are currently unemployed, so there is very little chance that you will have X dollars in the foreseeable future. So, you want to offer the IRS Y number of dollars, with Y being some amount less than X. The IRS then has the option of accepting Y number of dollars in complete satisfaction of your tax debt. By filing an Offer in Compromise, you have just saved yourself Z number of dollars (the difference between X and Y).

However, as is often the case with the IRS, things are not that simple.

Why Would the IRS Accept an Offer in Compromise?

While the taxpayer saves money, the government loses money in an Offer in Compromise. So why would the IRS accept such an offer? There are a few reasons why the IRS makes available the Offer in Compromise process.

  • Congress decided that taxpayers deserve a clean start even if they have made mistakes in the past. With one of the requirements of being completely up to date with all your tax returns, Congress figured you deserve a chance to catch up after making sure you are in compliance.
  • Some taxpayers are “judgment proof”. If the IRS leans on you when you are already suffering financially, the only thing they may succeed at is crushing your finances completely. If you don’t have any money at that point, what can they get from you? As the saying goes, you cannot get blood from a stone.
  • There is a cost to enforcement. Taking taxpayers to Court and running audits costs money. It also costs time. In order to save themselves from having to incur the costs of enforcement and wasting the time of their already limited number of agents and attorneys, the IRS is willing to accept tax debt settlements for less.
  • The IRS is buying itself more time. While the Offer in Compromise is under consideration, the statute of limitations (amount of time the IRS has to collect) is tolled (does not expire).
  • Disclosure, disclosure, disclosure! While making the offer or convincing the IRS to accept it, the taxpayer might disclose some other facts the IRS can use against them.

How Does a Taxpayer Make an Offer in Compromise?

The short answer is you fill out IRS Form 656. However, an Offer in Compromise should not be submitted until you have a proper tax plan in place. You NEED to consult a tax professional before filing any documents with the IRS for a number of reasons. The majority of Offers in Compromise are rejected. Working with a tax professional can greatly increase your chance of success, or at least make sure the form is filled out properly.

If you are thinking of making an Offer in Compromise to the IRS or have tax issues that need to be addressed, please contact us to discuss your matter. We have helped multiple clients find tax relief through successful Offers in Compromise, and ar here to help you as well.

State Governments Across America: Hungrier than Finland

Threatening criminal prosecution in order to collect taxes is used throughout the United States too….

If you think that Police asking the public to report cheap pizza is going too far, here's some food for thought.

If you think that Police in Finland, asking the public to report cheap pizza have gone too far, here’s some food for thought.

 

You might have seen this story floating around facebook recently. And Everyone has an opinion on it. Legitimate businesses can’t sell pizza in Finland for less than Six Euro for an extended period of time, otherwise those businesses are cheating on their taxes. Finnish police are looking to citizens for tips. (Because – of course – the citizens want to pay more for pizza?)

People seem to think this has something to do with Finland being a “socialist” country. It doesn’t.

tl;dr If you want to do business in Connecticut, make sure you don’t get audited by the Department of Revenue Services. If you get audited, make sure you are ready for it. If you aren’t ready for it, then hire someone to fight for you before the sales tax is assessed. Because after the tax is assessed, it’s game over. And you thought “socialist Finland was bad

And if you are wondering why the Finnish Police are involved, and you think that would never happen here in the states, you are wrong. Here in the states, though, our governments focus on big data instead of crowdsourcing.

For some examples of how this works. I’ll focus on New York, because it’s where I grew up, and Connecticut because it’s where I live and work.:

New York decided it was easier to count pizza boxes than to find rats willing to bite the hands that feed them.

New York’s data mining got some press back in 2010, when Bill Comiskey (who flipped sides that same year, for a good reason, and now defends taxpayers) took some time to speak with the Post-Standard about how he was leading the charge to use third-party data against small business owners and catch them red-handed.  How do state tax departments use third-party data?? Here’s one apt example:

Is a pizza franchise selling more pies than it is reporting to the state? The chain’s parent company might have to show how many pizza boxes it sent to the local shop.

Comiskey, a former prosecutor of mafiosos  also seemingly had a direct impact on NY’s increased criminal tax fraud investigations and prosecutions:

Criminal tax fraud investigations increased from 581 in the ’06-’07 fiscal year to 2,078 in the ’08-’09 fiscal year. Nearly 600 cases were referred to prosecutors that year, about three times as many as the last year of the previous administration.

So New York is both using data collection to catch tax cheats who own pizza places (but perhaps only if they make shameful pizza like Dominos), and pressuring taxpayers with criminal prosecutions when they get caught (and probably only after they don’t pay up.)

[Additional Reading: For some hilarious examples of “non-residents” of New York City achieving mixed results by using their own  data (like phone records, EZ Pass statements, credit card statements, flight logs, and cable bills) to try to levy taxes against non-residents, take a look at this New Yorker article from 2012. (As is true for most kinds of tax litigation, taxpayers have the burden of proving they were not in NYC for more than half of the year in order to avoid being deemed residents and end up stuck paying the city’s Personal Income Tax.)]

The Connecticut Department of Revenue Services is a fan of big data, and criminal prosecutions as well.

Connecticut got into the big data game around the same time as New York. Specifically, Connecticut focuses on retailers that purchase large amounts of cigarettes and liquor from distributors (I presume because this data is easy to process. Or maybe it is just that  liquor stores, bars, restaurants, and convenience stores are likely to be owner operated and likely to have lots of cash transactions.)

The DRS admitted to using third-party data and automated systems its Sales Tax Collection Initiatives Report to the CT General Assembly in 2014. (They like using big data so much they mention it on page 8, and again on page 12.)

Page 8: Advances in technology and the use of data analytics have allowed DRS to improve its ability to identify those taxpayers that are likely to be noncompliant and those most likely to be subject to successful collection.  DRS employs a sophisticated data warehouse that contains elements from internal as well as external sources.

Page 12: Tracking third-party data is helpful in flagging potential tax evasion.  DRS obtains alcohol, cigarette and auto sales data that is then compared to reported taxable sales to produce audit leads. The agency is also beginning a similar initiative using IRS 1099 federal credit card sales data to compare to state reported gross receipts.

But what we really find out from the report is that DRS really likes Puerto Rico’s POS initiative for data tracking. Apparently, Puerto Rico collects data directly from retailers with a one-two-punch by literally offering taxpayers/customers lotto tickets in exchange for their crowd-sourced pressure on business owners:

Page 21: The initiative is referred to as “IVU Loto.” “IVU” is the Spanish-language acronym for the sales and use tax. “Loto” refers to the customer lottery included as a means to induce merchant compliance.  Frequent, low prize value lottery drawings are intended to incent customers to demand that merchants use the system to provide receipts that include the “Loto” number. PRDT holds semi-weekly LOTO drawings awarding one $25,000 prize, one $1000 prize and eight $500 prizes in each drawing.

 

I have seen Connecticut prosecute taxpayers who owed more sales taxes than they could pay on more than one occasion. (I wrote about one of those cases here, but I have seen many more. I was actually genuinely surprised when I was reading the 2014 DRS report and I saw that the amount of arrests made by DRS were so low for 2011-2013: “DRS made 34 arrests in FY 2012-13 and 62 in FY 2011-12 for Sales Tax criminal violations. ” (Yes, the CT Department of Revenue has its own cops.)

I’m sure the numbers were much higher in the past two years. And it is only going to get worse. Why is that? because the DRS convinced the general assembly to pass a law giving DRS the right to revoke Sales Tax Permits. And DRS is pretty excited about it:

 

Page 12: Prior to 2013, DRS routinely renewed sales tax permits for 5 years and cigarette and tobacco products licenses annually – even if the taxpayer was delinquent.  Based on newly enacted legislation initiated by the agency, permits are no longer renewed when back taxes are owed and sellers are advised of the legal penalties for operating without a tax permit.  Permits will only be conditionally renewed if the taxpayer makes payment in full or maintains an approved payment plan.  In addition, after 30 days of further non-compliance, the delinquent taxpayer and the case is referred to SIS for may result in arrest and prosecution. 

Now that CT DRS has such an incredible arsenal of tools to pressure small business owners with, I think that a state-funded POS system is in order (but, let’s leave out the “lotto” part, OK?) And here’s why. Connecticut has some really bad case-law that allows its auditors to run wild with Sales and Use Tax Audits. Let me explain with a not-so-hypothetical illustration:

  1. Step One. Overzealous Audit. DRS runs reports it receives from third-party vendors through some computer program it uses to crunch numbers. Based on the amount of cigarettes, and booze reported as sold to a liquor store by its vendor, and the amount of gross receipts reported on that store’s Sales and Use Tax return, the computer flags the business for audit. So the auditor goes down to the liquor store and demands to see the books. Well, under Connecticut precedent, if those books do not include a detailed list of every single transaction, even if daily summary tapes are provided from the actual POS system, then the auditor can basically disregard any records kept by the business and make the numbers up based on the third party data. (It’s worth noting that even in the case, Alexandre v. Commissioner,  that established this precedent, the taxpayer was able to cut his liability by more than half by exercising his due process rights.)
  2. Step Two. Wait. Most taxpayers who are subject to a Sales and Use Tax Audit make the mistake of trying to work things out on their own with the auditor. Maybe they get somewhere, maybe they don’t. The audit  might drag on for several months. But eventually, once the auditor is satisfied with her numbers, she is going to close the audit and send a bill. And at that point, the clock starts running on the taxpayer’s appeal rights. If you don’t appeal in time, the assessment will be final – and you no longer have any right to fight the underlying liability.
  3. Refuse reasonable payment plans, demand payment in full, threaten criminal prosecution. Once the tax is assessed, it’s pretty much game over as far as the examiner is concerned. The case will eventually move from audit to collection, where tax warrants (wage levies and bank account garnishments) will eventually be issued if the taxpayer does not propose a solution that the DRS agrees with. But wait it’s actually better than that! The thing is that the DRS has such a powerful arsenal now to collect sales taxes, that it no longer needs to actually try to find the money. It used to be that in order to threaten criminal prosecution, DRS had to be creative and charge taxpayers with larceny or it at least had to prove that a taxpayer’s failure to pay or file was willful.. Not anymore. Now all the DRS needs to do is wait. Because once that permit comes up for renewal, DRS. Just. Won’t. Game over.
  4. Step Three. Refuse to renew sales tax permits. Actually criminally prosecute.

I could write more. But this post is already too long. So I’ll do the reddit thing down here and up top.

 

tl;dr If you want to do business in Connecticut, make sure you don’t get audited. If you get audited, make sure you are ready for it. If you aren’t ready for it, then hire someone to fight for you before the tax is assessed. Because after the tax is assessed, it’s game over. And you thought “socialist Finland was bad.”

 

For a laundry list of several state’s positive spins on how they are closing the tax gap with the aid of technology, see BNA’s article here.

 

 

 

 

Fog Machines Now Banned in CT Coliseums? – CT E-Cig Laws

Connecticut Passes Law Regulating Use of Electronic Cigarettes (E-Cigs)

Who can use electronic cigarettes? Where can electronic cigarettes be used?

Combine a fear of the unknown, concern for the future of Connecticut children, anti-smoking sentiment, and some poorly drafted legislation — What do you get? The ridiculous result that there is probably now a ban on fog machines (you read that right!) at concert venues and night clubs in Connecticut. Let’s break it down.

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After Obergefell: Tax Implications for Same-Sex Couples

By: Thomas S. Groth, Esq

[NOTE: I am a Connecticut Lawyer who is authorized to practice in front of the IRS and admitted to US Tax Court and US District Court in Connecticut, but I am not YOUR lawyer. This post contains general information only and should not be relied upon for your particular situation. You should speak to your own attorney, or call me with any questions. Opinions are my own, not necessarily the Firm’s.]

Photo Credit: My good friends, Kevin and Jack on their honeymoon.

Same-sex marriage is legal in all 50 states. Now what?

You’ve probably heard already about the Supreme Court ruling last week, in Obergefell v. Hodges, which held that same-sex couples have a constitutional right to marry. So what does this mean for same-sex couples? Keep reading to find out.

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