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The IRS Wants Your Passport

Owe the IRS more than $50,000.00? You might want to hold off on making those travel plans.

If you were to assume that a transportation bill would not have a direct impact on tax policy in the United States, you would be making a reasonable assumption, but you would be wrong. Tucked away into a transportation bill that sailed through the house and senate last week, and was signed into law on Friday, is a provision regarding the revocation of passports and the denial of a passport applications for any taxpayer with a “seriously delinquent tax debt.”

What is a “seriously delinquent tax debt”?

Any taxpayer who owes the IRS more than $50,000.00 is at risk of losing his privilege to travel outside of the United States if either: 1) a lien has been filed on the underlying tax liability and the taxpayer no longer has the right to file for a Collection Due Process hearing (because 35 days have passed) and no Collection Due Process hearing is pending for the liability, OR 2) the IRS has actually issued a levy on the underlying tax liability.

Timing Issues and Other Exceptions

Certification to the State Department that a “seriously delinquent tax debt” exists will not occur until after a taxpayer’s due process rights have been exhausted for either the lien or proposed levy action. In general, taxpayers have a short period of time to challenge the IRS’s attempt to collect on an assessed tax debt. Once the IRS issues a Notice of Federal Tax Lien or a Notice of Intent to Levy, a taxpayer has 35 days (for a lien) or 30 days (for a notice of intent to levy) to challenge the agency action. During that time period – and while any hearing is pending- the IRS will not be sending notice to the State Department that a seriously delinquent tax liability exists – and your passport should not be revoked. What this means is that there is more at stake than ever in making sure that taxpayers with liabilities over $50,000 challenge proposed (levy) or actual (lien) collection action by the IRS.

Taxpayers who are being held jointly and severally liable for a tax debts that really belongs to their ex or current spouses can also protect themselves from the loss of their passports by filing for innocent spouse relief when warranted. A pending Innocent Spouse claim can both prevent the notice from being sent to the State Department in the first place, or – if a notice has already been sent – the IRS will send a second notice after an Innocent Spouse claim is filed allowing the state department to issue or reinstate a passport.

Just another collection tool for the IRS

The IRS will not request the revocation of a passport for taxpayers who are currently enrolled in an installment agreement with the IRS, as long as that Installment Agreement is in good standing. So, if that is the case in your situation – you do not need to worry about losing your passport. In addition, once an Installment Agreement has been established, the IRS will notify the State department within 30 days that your passport can now be issued or renewed. BUT, If you are looking to submit an offer-in-compromise, you will need to wait until the offer has been accepted to get your passport back. Requesting/Electing Innocent Spouse relief will result in a taxpayer being able to get her passport back in (hopefully) about 30 days while the request is pending.

The bottom line is that this new collection tactic clearly disadvantages taxpayers who submit an Offer outside of a Collection Due Process hearing. It creates an incentive for taxpayers who are deciding between submitting an offer-in-compromise or establishing an Installment Agreement to opt for the latter in certain circumstances – namely when they need their passports back.

 

See the full text of the new provisions below.

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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.