IRS AUDITS AND COLLECTIONS
Examination of Returns--Audits
Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax, or you can disagree with the changes and appeal the decision.
If Your Return Is Examined
Some examinations are handled entirely by mail. Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your attorney or other representative. If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. However, the IRS makes the final determination of when, where, and how the examination will take place.
An examination usually begins when you are notified that your return has been selected. The IRS will tell you which records to bring. Any proposed changes to your return will be explained to you or authorized representative. If you agree with the proposed changes, you will sign an agreement with the IRS and pay any additional tax you may owe. If you do not agree with the proposed changes, you can appeal.
If you cannot pay your tax debt in full or you dispute what is owed, you may propose to resolve the matter with an Offer-in-Compromise. The purpose of an Offer in Compromise is to settle a taxpayer's liability for less than the full amount owed. The ultimate goal is a resolution that is in both the government's and the taxpayer's best interest.
An examiner will evaluate your offer and may request additional documentation from you or your authorized representative to verify financial or other information you provide. If the IRS decides a larger offer amount is necessary to justify acceptance, you will be given an opportunity to amend your offer.
If the IRS grants you a fresh start by accepting your offer, it is expected there will be no further delinquencies. If you do not abide by all the terms of our agreement, including filing all future returns and making all payments when required, your offer may be declared in default. The IRS will reinstate the entire liability including accrued penalty and interest. All payments made toward the offer will be applied to the original liability.
If the IRS rejects your offer, you will be notified by mail and provided with the reasons for the rejection.
OFFERS IN FINAL SETTLEMENT--MASSACHUSETTS DEPARTMENT OF REVENUE
When can DOR accept an Offer in Final Settlement?
The Commissioner of Revenue may accept an Offer in Final Settlement when:
- There is doubt about the collectibility of the tax. This generally means that the taxpayer cannot pay the full amount owed or that the liability cannot be collected, and
- The Commissioner believes that accepting an Offer will be in the best interest of the Commonwealth.
When can I make an Offer in Final Settlement?
An Offer in Final Settlement will be considered only after the taxes to be settled have been assessed or are deemed to be assessed and prior to collection of the amounts due. To make an Offer in Final Settlement for taxes due with returns not yet filed, a taxpayer must submit returns at or before the time the Offer is submitted.
How do I make an Offer in Final Settlement?
A taxpayer may submit an Offer in Final Settlement only by completing certain forms. The taxpayer may also be required to provide other documentation to support the taxpayer's claim that the liability cannot be paid in full. Incomplete or vague answers to questions may lead to delays in processing your offer or they may lead to its rejection.
How much should I Offer?
The minimum amount that the Department normally expects that you could pay and therefore the minimum amount it expects you to offer in settlement is:
(a) The total DOR could expect to realize from a forced sale of your assets (after paying off any senior secured creditors such as your mortgage holder, if applicable, and after paying any expenses of the sale). Plus
(b) the amount you could expect to pay from your future income over the course of the next four years (after allowing for normal living expenses, determined in reference to standards for family size and where the taxpayer lives).
What other factors affect the evaluation of an Offer?
The Department considers other factors in determining whether or not to accept an Offer in Final Settlement. Among these would be:
- Repeated non-compliance or attempts to avoid paying an obligation weigh against accepting an offer.
- Evidence that the taxpayer has the ability to pay the tax in full or to pay significantly more than the amount offered, either by liquidating assets, including pension funds, or by means of a payment agreement over a reasonable period of time may result in rejection of an offer.
- The potential for an increase in the taxpayer's earnings, the value of their assets or a decrease in expenses or the value of liabilities, particularly when collection activity has been pursued for only a limited period of time, may result in rejection of an offer.
- The omission of information about assets or income on present or previously submitted financial statements may be grounds for rejecting an Offer in Final Settlement. Failure to respond to requests to clarify or document information on the financial statement may also result in rejection of an Offer in Final Settlement.