TRN Podcast|

Tax Rep Network - Eric Green | IRS Offers-in-Compromise

 

In this week’s podcast, Eric Green reviews the basics of an IRS Offer-in-Compromise, discusses the upcoming Offer-in-Compromise workshop on June 11th, and explains why 2024 is the perfect year to master this critical skill. Learn how understanding this powerful tax resolution tool can help you build your practice and add that extra $100,000 of income you’ve been aiming for — all while transforming clients’ lives by solving their toughest tax problems.

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Listen to the podcast here

 

Mastering IRS Offers-in-Compromise By Tax Rep Network

On June 11th, we’re going to be doing one of our four-hour workshops on mastering IRS offers. We always get questions about what it is going to cover. I’ll mention what’s in the workshop, but an IRS offer in compromise is a formula. It’s called reasonable collection potential. To be able to master offers isn’t complicated. It’s understanding the process and understanding what’s called this RCP or reasonable collection potential formula. One of the other questions I get a lot of is, “Which offer do you use? Do you use a lump sum offer? Do you use a periodic or deferred offer? What is this effective tax administration?”

An IRS Offer-in-Compromise is all about understanding the process and applying the reasonable collection potential formula to negotiate the best outcome. Share on X

Here’s what I tell you. The formula is going to tell you what to do. I’ll give you an example. For those of you who are not familiar with offers, you should be. This is the cornerstone of representation. Even though it’s not, understanding compliance is more important. This is what brings clients in through the door, “Can we settle the debt for less? Can you help us save money? Can we avoid the penalties?” It’s all that stuff.

The thing about offers, there are three types. There’s doubt as to collectability, there’s doubt as to liability, and something called an effective tax administration offer. We can dispense with the doubt as to liability pretty quickly. It’s audit reconsideration. That’s what it is. It’s where you make an offer, but it’s not about the ability to pay. It’s, “IRS, I can prove I don’t owe this money.” We have programs where we cover that. What we’re going to focus on June 11th is doubt as to collectability, which is where the taxpayer can show they can’t fully pay. They’re unable, between equity in assets and future income, to fully pay the liability before the collection statute expires.

Three types of IRS Offers-in-Compromise exist: doubt as to collectibility, doubt as to liability, and effective tax administration. Each requires a different strategy. Share on X

There are two types within that. There is a lump sum offer or a deferred offer. The third type is something called effective tax administration. What an effective tax administration offers is that the taxpayer, on paper, can fully pay, but for public policy reasons, we shouldn’t make them. I want to tell you, that is a very hard sell to a government bureaucrat on why they could collect the liability, which is not in question, but we shouldn’t.

As you can guess, these are very rarely given. The statistics I heard is there were 52,000 offers filed. Roughly 40% were accepted. Why? It is because 60% were filed by people who don’t know what they’re doing. Forty percent, that’s about a little under 21,000, were accepted. Of those that were effective tax administration offers, three. This is something that is very rarely given. You’ve got to have good facts.

I’ve done successful effective tax administration offers twice. In both cases, I had somebody who was either disabled or elderly. They owed money, they had just enough, they could have fully paid. If they made them fully paid, they would not even be able to cover their allowable expenses. You would be putting them on welfare. That is not the goal of the government. It’s not to put people on welfare. I know it doesn’t feel that way, but that’s not their goal.

That’s where we could go and say, “You could fully collect the whole 450, but you’ve got to leave at least 180,” and we would explain why. These are the number of years left in their life expectancy. Here’s what they need to make up the shortfall from their Social Security, whatever. We could show the government the number. Those are the types of ETA offers or effective tax administration that get accepted. You have strong facts. You can explain it to the government. By the way, the offer unit can’t accept it. It has to go to the Office of Chief Counsel to be reviewed. That’s the other type of offer.

What we’re going to be covering during the workshop, what I want to talk about briefly now, is understanding and mastering the doubt as to collectability offer. Again, there are two types, lump sum or deferred. The way that they’re calculated is different. You have the future income piece, which is the monthly income minus the allowable expenses. You have net equity in assets, which you have fair market value, 80% quick sale value, minus any loan or encumbrance that’s ahead of the government. That gets you to your net equity.

There are some wrinkles in there about cash and automobiles and other exemptions, which we’re going to cover during the workshop, which you should know, but that’s basically the formula. If you’re going to do a lump sum offer, it’s the net equity in assets and twelve months of future income. You put 20% down when you submit the offer and the other 80% when the offer is accepted. You have five months from the date of acceptance to make the payment.

With the deferred, you start making monthly payments and you have to continue that. It cannot be more than 24 months. It’s got to be more than six months but no more than 24 months. The calculation is net equity and assets, but 24 months of future income, not 12. Which one do you want to use? What’s driving your RCP formula? If you have somebody with very little future income but net equity and assets, I want the 24 months. It gives me more time to pay. I’ll probably have less money on the table in case it gets rejected.

We get 93% of our offers through. I tell you that for three reasons. One, we teach this stuff. I like to know what we’re doing. Two, it shows you the importance of understanding these rules. This is not very complicated. The third reason is note I told you 93%, not 100%. Our clients don’t exactly tell us everything either, or they don’t maintain compliance. My clients are the same as your clients. This is something you can master. It’s not that complicated. I’m telling you, give us four hours on June 11th, and you can master this. No problem.

How To Choose The Right IRS Offer Strategy

For those of you who are Tax Rep members, we have twenty hours of training on offers and collection in the members’ area. You got all of that at your fingertips. What is driving your RCP formula is which offer you’re going to pick. The numbers will tell you what to do. There’s no great mystery to this. We go through the analysis with the client. At the end of that, it’s pretty obvious. I’ll walk the client through both of their options. It’s up to them, but if they have some decent future income, you don’t want to do the deferred. You’re almost going to double the amount of the offer. It’s much better with the lump sum.

It comes down to understanding the process and understanding the formula. This is how we make money. We charge $2,500 just for the analysis. The way that this works, the client calls up. They don’t get to me, they get to Nicole. Nicole does the intake. It’s Joe Smith. They owe $250,000 from the following years. What we would tell them is we take $2,500 upfront. We do the analysis. We’ve got to pull transcripts, how much time remains on the collection statute, and get all the backup. We do the analysis. That takes us about $1,000 to $1,500 of billable time. We’ve got $2,500, so it’s profitable.

We then will walk the client through their options. If we’re going to make an offer, they know why they can take an offer and what their options are. If they can’t take an offer, they understand why they can’t take an offer. We may have some legitimate suggestions or strategies for them where they can potentially line themselves up to be an offer candidate. After which, if we are going to pursue an offer, we charge $6,000 for an offer, minus the $2,500 we’ve already taken. We would just need another $3,500.

Virtually, every client loves that. They’d be like, “I don’t have to put all the money upfront, and you’re going to do the work and walk me through this? Where do I sign up?” We close 99% of the people who call. I say 99% because I can’t think of one that didn’t. Much better than those national. I don’t consider the national companies as competition. People would much rather deal with someone local, even if it’s over Zoom. They know that’s there and they could meet. Doing it that way sells the client because they don’t have to put every dime upfront not knowing what’s going to happen.

From our perspective, our pitch is if you aren’t an offer candidate, we have better things to do with our time. You have better things to do with your money. If you’re going to get forced into a payment plan, then let’s get you into a payment plan. Why would I want to waste a lot of your valuable money throwing stuff at the wall that we should know is not going to fly? Clients love that. We sign up almost everybody.

If you think about it, once we’ve got through most of the work, now the $3,500, we pull the package together, we draft the letter, and send it to the client to review, but these are very profitable for us. They’re highly profitable for us. Do I feel bad about that? I get that a lot. “Do you feel bad?” No. We’ve done this for 25 years. We get over 90% of our offers accepted. That’s what you’re paying for. You’re paying for the experience.

When we draft that letter, for those of you who are in the workshop and get those sample letters, you’ll see how we go through and highlight things. We want to lead the offer unit where we want them to go. Their offer unit encloses the taxpayer’s offer. This is our opportunity to pitch, to explain, to make sure that we highlight certain things or explain things that are a little weird. We often get offers accepted. We’re not going back and forth. The cover letter, the art form of drafting that, and making sure you have the right backup and it’s organized in the right way.

Our job is to make the offer unit. We go to appeals, we have to probably 50% of the time. Our job is to make the reviewer’s job of agreeing with us easily. That goes for everything, whether it’s an innocent spouse, a penalty abatement, an appeal from an IRS audit, or an offer. It doesn’t matter. This is why we get paid what we get paid.

It’s to understand the process, understand the formula, be able to articulate that, provide real guidance to the taxpayers, and know that when you submit that package and it goes in, it is the very best package you can do. That’s what the client is paying for. I have to tell you, $6,000 is a bargain. The other thing I get a lot is, “Why don’t you take a percentage of what you save?” First of all, practically, they can’t pay the government, how are they going to pay us? More than that, it’s a violation of Circular 230. This isn’t an ethics program, but it is a violation of Circular 230 to take a collection matter on a contingent fee.

Under Circular 230, we are not supposed to take matters on a contingent fee unless you meet one of the three exceptions, which are credits, refund claims, or litigation, like whistleblower-type cases. You can’t do someone’s tax return and take a contingent fee based on how much you can save them. You could do an amended return to get a refund. A refund claim is something you can do on a contingent fee.

One of the things that is not an exception to the ban on contingent fees is collection cases. That would include offers in compromise. You cannot take it on a contingent fee ethically, but from a practical perspective, the client can’t pay. I’m going to have a receivable, how am I ever going to collect it? I don’t want to spend the next twenty years chasing this client. We do it as a flat fee. What allows us to do that, generally, is we get everything upfront and we can do the analysis. If we have a very odd situation where it’s highly complicated and there are issues where we’re not sure how this is going to go, we don’t have to do it on a flat fee.

I have done some offers, one of them is in one of our testimonials, where we resolved and knocked a $7 million or $8 million liability. We got it down for a couple of hundred thousand. We had a business valuation involved, whatever. In that case, we took a $15,000 retainer and we billed hourly. I think in total, the client spent close to $25,000. It was highly complicated and it was not a slam dunk. We’re not locked into this flat fee, but that’s 99% of what it is, and they’re generally straightforward.

The takeaway from this episode is if you don’t feel comfortable with offers, you can master this. It’s not that complicated, I promise you. You give us four hours, you’re 95% of the way there. If you’re a Tax Rep member, go roll up your sleeves and dive into the training. We’re here as your help desk for unlimited consultations. This is a way for you to make a lot of money, help a lot of people, and get your life back under control. You’re not killing yourself during tax season and all the other crap that you’re probably doing now. There are 25 million taxpayers in trouble. There’s no shortage of work.

I hope you got some decent information. I hope I have given you a little bit of a push. You can do this. I want to motivate you to up your game. 2024 should be the year you master this. You can now start putting out stuff, marketing this, bringing in clients, making a lot of money, and helping them. By the way, once you’ve solved their problem, you’ve got a client for life. They will not leave. You’re the person who resolved their issue.

The other thing you’re going to find, which has always interested me, is our Tax Rep members got their CTRC. They’re certified and they’ve started putting that out. They find they started getting new tax clients. When they start, “What brought you in?” Even if they don’t have a tax problem, they say, “I don’t have a tax problem but if I do, I know you’re a person who can handle it.”

Why IRS Representation Can Elevate Your Entire Practice

By elevating this aspect of your practice, you’re going to elevate your whole practice because the message out to the public is, “We can help you with taxes or accounting, whatever else you want, but if you have a problem, you’ve come to the right place. We can solve it. We have no problem dealing with the IRS. We can get this sorted out for you and put it behind you.” That is a powerful message to potential clients.

Elevating your tax representation skills will elevate your entire practice. Clients want someone who can handle tax issues, and that builds long-term trust. Share on X

Thanks for tuning in. I hope you got a lot out of this. Go check out the link below. Join us in that workshop. Frankly, join Tax Rep. If you’re a member, you get the workshop for free, but you get access to everything else as well. This is the year. Get your certification. Master this aspect of your practice, build it up, start making the money that you deserve, and start saving taxpayers. Have a great rest of your day.

 

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