9th Jan 2016
The Offer in Compromise is the A+ resolution for any back tax problem (other than winning the lottery to pay it off, maybe). The Revenue Officer venue can be the F of Enforcement venues. (Nothing against Revenue Officers except the broad inconsistency in their behaviors.) So why not use an A+ solution to solve an F of a problem?
It’s a question of strategy.
The Revenue Officer can’t grant an OIC. All they can do is comment on it and pass it on to the OIC unit (IRM 18.104.22.168.1). It’s that “comment” part that raises an issue. Specifically, the Revenue Officer is to send to the OIC unit “Any information gathered during the field investigation that verifies or refutes amounts claimed on the CIS submitted with the offer”.
Now, there’s nothing inherently wrong with having a Revenue Officer provide that information, since they’re in a superior position to evaluate hard assets (real estate or vehicles) or to evaluate a business operation, relative to a regular OIC Examiner.
BUT, there’s no opportunity for the taxpayer or their representative to refute the RO’s impressions before the whole thing goes off to the OIC unit. Then, if OIC unit says to you “well, your RO said that car looked beautiful” or “your RO said your business was thriving”, then the OIC is certainly going to defer to the RO’s on-the-ground impressions.
So, the conclusion is: don’t submit an OIC to an RO unless you feel they are encouraging you to do so. Right?
Nope, there’s still a big risk that your RO is leading you down a road to a failed OIC.
So you think, “why would my RO tell me to consider an OIC if it didn’t have a chance?”. One reason might be that the RO doesn’t really understand OICs. Depending on their background and training, they might believe your OIC has merit and they’re just wrong. They might know your business has no value. But the OIC unit is going to use a 2.5x gross revenues evaluation and blow your OIC out of the water.
The other, troubling reason that some ROs might be motivated to encourage OICs is that they get to close the file.
I recently had a first contact with an RO for a client with a $300k 1040 debt over three years. Client and spouse make over $300k annually. They have retirement and stocks worth over $100k. They spend thousands each month to send their child to private school. Without opening up excel, we all know that case is never going to be a successful Offer, they’ll have to save money another way.
But in the first call with my Revenue Officer on the case, in her first 30 days with the file, and before she’s gotten any financial from us, she’s talking about two things: short deadlines (7 days) with threats of enforcement and ” have you considered doing an OIC?”.
So the REAL takeaway is generally never to submit an OIC to the RO. If you’re going to qualify for an OIC, you’re also likely to qualify for a CNC, so just get the CNC from the RO and do your OIC on the backside. The only exception might be if your RO is encouraging the OIC and they’re doing it having considered the financial and you think they know what they’re talking about and you don’t feel there are any “information that refutes” that will show up in their report that you’d rather deal with first-hand with the OIC examiner.