Sunday, January 5, 2020

Having Assets And Filing An Offer In Compromise

I glanced at the case because it involved an offer in compromise, a collections hearing, a lien and currently noncollectible (CNC) status.

That is a lot going on for approximately $23 grand in tax debt.

First thing I noticed was that the taxpayer represented himself before the Tax Court. This is referred to as “pro se.” It happens quite a bit, and it usually does not work out well for the taxpayer.

I double-shudder when I think about “pro se” and going hard procedural with the IRS, such as with liens and offers in compromise.

Let’s walk through it:

(1) On November 16, 2016 the taxpayer filed an Offer in Compromise. The tax was approximately $23 grand. He offered approximately $12 grand.
COMMENT: There are several “flavors” of Offers in Compromise. This one was the traditional vanilla: inability to pay or to pay in full. Those late-night commercials are hawking this type.
(2) On May 30, 2017 the IRS sent a Notice of Federal Tax Lien Filing.

The taxpayer filed for a hearing, called a Collection Due Process (CDP) hearing. I probably would have done the same.

(3) On July 11, 2017 the IRS indicated it would not accept the Offer in Compromise, at least as submitted. 

Taxpayer appealed. Again, I probably would have done the same.

(4) On September 27, 2017 the IRS settlement officer sent taxpayer a letter that the CDP hearing was being delayed until the Offer in Compromise was resolved.
COMMENT: Left hand: right hand. Happens all the time.
(5) Wouldn’t you know that the appeal of the Offer in Compromise was assigned to the same IRS settlement officer handling the Collections hearing?

(6) The IRS scheduled a telephone hearing for December 14, 2017. The settlement officer also offered to place the taxpayer’s case in currently noncollectible (CNC) status.
COMMENT: I have used CNC status over the years, especially during and after the Great Recession of 2008. The IRS realizes that there is no money to collect, so it places the case on hold, generally for a year or so. Their normal collections machinery is paused.
Mind you, the IRS is not writing-off the debt. They are allowing a break in collection activity, hoping your situation improves.
(7) Not waiting until the hearing, taxpayer on December 1 sent the settlement officer a letter addressing the rejection of his offer in compromise.
COMMENT. He should include additional or expanded financial information, as his offer was based on inability to pay. The common-sense response to rejection of an offer based on inability to pay is to expand on why one is unable to pay.
Having taken the stage, taxpayer also alleged that the IRS engaged in criminal activity.
COMMENT: Stop that. You are not winning with that behavior.
The settlement officer rescheduled the hearing for January 9th.

(8)  On December 12 taxpayer sent the settlement officer another letter lamenting the rejection of his offer in compromise.
COMMENT: Once again: no additional or expanded financial information. This action was fruitless and ill-advised.
(9) We finally get to the hearing. The settlement officer reviewed the offer in compromise. She sees debt of approximately $23 grand and assets of approximately $110 grand. Receiving no additional or expanded financial information from the taxpayer, the officer decided that rejection of the offer was appropriate.

(10) After the hearing taxpayer sent a letter to the settlement officer, complaining about the IRS Fresh Start Program and including correspondence the taxpayer previously exchanged with the Taxpayer Advocate Service.

Taxpayer was focused on the lien and highlighted a TAS letter including the statement “the IRS has determined that the lien should be withdrawn.”

He wanted the lien withdrawn.

The settlement officer, to her credit, looked into this. It did not change the outcome, but she did try.

The immediate takeaway is the someone with $100-plus grand in assets is probably not going to be able to offer-down $23 grand in tax debt, irrespective of having low income. While true as a generalization, there are several specific considerations.

(1)  Given his focus on removing an IRS lien, I presume that taxpayer’s house comprised most if not all of taxpayer’s assets. I can see not wanting to refinance when one has limited income. In truth, one probably could not refinance, as no traditional mortgage provider would originate the loan.
a.     And there is how I would respond to the request for additional financial information: by providing rejection letters from a couple of mortgage companies.

(2)  Let’s say that the house is not the lion’s share of the assets. Perhaps it is something else, like a retirement account.
a.     If a retirement account, I would argue economic hardship.
                                                                         i.      That is, taxpayer needs that asset and the income therefrom in order to meet reasonable basic living expenses. The loss of said asset would be an economic hardship.
                                                                      ii.      It is already stipulated that the taxpayer is low income. How hard of an argument is this?

(3)  In general, I am unmoved by the IRS filing a lien.
a.     I may be moved if disclosure of said lien would adversely affect one’s career or public status (a mayor or judge, for example), but those instances are few and far between.
b.     Distinguish a lien from a levy.
                                                                         i.      A lien just secures the government’s interest. A lien on my house cannot be collected until I sell the house.
                                                                      ii.      A levy is a different matter. The IRS going into your bank account is an example of a levy.

(4)  Let’s circle back to the presumption that taxpayer’s residence represented the majority of his assets, hence his focus on removing the lien. The IRS just bounced his offer. What happens next?
a.     Folks, the IRS cannot (barring exceptional circumstances) take one’s primary residence.
b.     Yep, he will get periodic and annoying IRS correspondence, but …
c.     … so what? There is little bite left in that dog.
d.     And after 10 years (without the IRS taking the matter to Court to obtain judgement), the statute of limitations will kick-in.

You can see the downside to a pro se, especially when dealing with IRS procedure. There is a lot going on here, and I suspect that – with professional advice – taxpayer could have gotten the offer. I doubt he would have gotten the lien released, though. He saved a few grand in professional fees in order to completely strike out with the IRS.

The case for the home gamers is Banks, TC Memo 2019-166.

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