The IRS has posted a series of videos explaining how to make an offer in compromise (“OIC”). You may want to make an OIC if you have an unpaid federal tax debt that’s beyond your reasonable ability to pay. If the IRS accepts your offer, your debt will be reduced to an amount you can handle so you can get on with your life.
The OIC process has some strict eligibility rules, including a requirement that you’re up to date in filing all your tax returns. For those who are eligible, the process is anything but quick and easy. Take this on without professional assistance only if you’re reasonably well organized and have the patience to work through instructions, gather all necessary information and enter it into the appropriate forms. You’ll also need to be prepared for long delays from the IRS in processing your offer.
More than half these offers are rejected, especially those prepared without professional help. Many filers hope to avoid paying the full amount they’re able to pay, and make an offer too low for the IRS to accept. Many others fail to meet all the requirements. For those who qualify, and make an acceptable offer, the process can provide the proverbial new lease on life.
If you think you need professional help preparing your OIC, take care to use a reputable professional. This is an area where scammers seek to lure customers with a promise they’ll reduce a tax debt to mere pennies on the dollar, but fail to deliver. A capable pro can make the difference in whether your OIC succeeds, though.
For those who want to tackle this on their own, IRS covers the entire application in videos with total length a little over an hour (more if you also have a business entity that needs relief). Congress keeps the IRS strapped for cash, and perhaps for that reason the videos are distinctly lacking in production values. They do the job, though, and if you don’t like viewing them, you can simply read the script, which appears when you scroll down from the video.
Offer In Compromise (irsvideos.gov)
Recently there’s been some back-and-forth between Mayor Francis Suarez of Miami and mayor-elect Eric Adams of New York. Each wants his city to be a hub for cryptocurrency activity. So, when Suarez tweeted that he would take his next paycheck in bitcoin, Adams responded he would take his first three paychecks in bitcoin. I guess you’d call that an act of twoupmanship.
It turns out the Big Apple doesn’t have the mechanism in place for such payments, so an Adams spokesperson says hizzoner will instead receive cash and use it to buy bitcoin. Before we learned this, some were speculating about how Adams would be taxed on the receipt of bitcoin as salary, and on disposition of the bitcoin. What would be his basis for bitcoin received as salary? Would he end up being taxed double when he sold the crypto?
Actually, these questions are easy to answer. Back in 2014, the IRS said they would treat bitcoin and similar cryptocurrencies as property. When you receive property as compensation for services, you report compensation income equal to the value of the property when you received it, and the property takes a basis equal to the amount of income you reported. In essence, you have the same tax treatment as if you were compensated in cash and immediately used that cash to buy whatever property you received. You won’t be taxes double. A later sale produces taxable gain only to the extent the value increased while you were the owner.
Normally we don’t see people compensated in property other than stock of the employer, but with certain exceptions these rules can apply to anything that’s treated as property for tax purposes.
Most of the federal tax figures get adjusted each year for inflation. That’s something to be happy about. It means the amount of money you can earn before you hit the next tax bracket is larger. The standard deduction increases, as do various other tax benefits.
A year ago, with inflation nearly nonexistent, figures adjusted by a mere 1%. New figures for 2022 reflect recent price increases, upping tax figures by about 3% on average.
As always, rounding rules can make these changes somewhat uneven. This year’s adjustment wasn’t enough to change the IRA contribution limit, which remains at $6,000 ($7,000 for those age 50 or older) for 2022. Yet the elective deferral limit — this is the limit for 401k and similar plans — gets a $1,000 boost. Savers can stash up to $20,500 ($27,000 if age 50 or older) in these retirement accounts in 2022.
One other adjustment you may wish to note is a $1,000 hike in the annual gift tax exclusion. For 2022, you can give me up to $16,000 without having to file a gift tax return. Gifts at this maximum amount will be gratefully acknowledged.
Tax brackets for 2022, and various other adjusted figures, are available in our Reference Room.
Despite being a huge, consequential piece of legislation, the Infrastructure Investment and Jobs Act barely touches the Internal Revenue Code. It contains a couple of provisions that will be of interest to some:
- The employee retention credit will end three months earlier than its previously set expiration date.
- Beginning with transactions taking place in 2023, cryptocurrency exchanges will have to provide tax reports to their customers and to the IRS, similar to reports already provided by stockbrokers when their customers sell stock.
What happened to proposals to “tax the rich” or make other changes in the tax law? Those ideas were never meant for this law. Stay tuned to learn what changes Congress makes in our tax laws in the “reconciliation” package now being debated.
For 2020 only, we have a special charitable contribution deduction, allowing up to $300 for those who don’t itemize. This allowance doesn’t follow the usual rules, though. Here are three things you’ll want to know about this charitable deduction.
Continue reading “Three Things About That Special Charitable Contribution Deduction”