OIC Denial due to Home Equity

Offer-in-Compromise (OIC) Denial due to Home Equity

• The IRS lien remains, even if you’re in “Currently-Not-Collectible” (CNC) status. At this point, the only way to remove the IRS lien is to pay off the entire amount of tax due. 
• Here are some options, if lien removal is your primary goal:
• sell your house, then pay this tax debt out of the proceeds and either buy a cheaper home or live in an apartment
• find a lender willing to approve a home equity loan for the amount of the tax debt, then pay off the IRS entirely and make monthly payments to the lender
• set up an installment agreement with the IRS to pay off the entire amount due; this works only if you can do it within six years
• If none of those options are appealing, and some may not be possible... the alternative is Currently-Not-Collectible (CNC) status. You can qualify for this if your sole source of income is Social Security Disability Insurance payments or if your monthly allowable expenses exceed your monthly income. If you are able to get this status, you don’t have to make any more payments to the IRS, ever, so long as your income doesn’t improve significantly. However, the tax debt remains, the lien remains, and interest continues to accumulate. That’s not a happy solution, either, I’m sure.
• The one "bright light at the end of the tunnel" is that the IRS has a time limit for collecting on this sort of tax liability. The limit is ten years from the date of assessment, plus whatever time is spent while contesting the debt in any way, such as via an Offer-in-Compromise or a petition to Tax Court. If you filed for bankruptcy, the ten-year clock would pause, too. (You can sometimes discharge IRS liabilities in bankruptcy, but you can’t remove an IRS lien that way.)
• For example, if your 2012 tax liability was assessed on December 25, 2013 -- this means the IRS can no longer collect on your 2012 tax liability – and the lien will expire a natural death on December 25, 2023, plus however many days the Offer-in-Compromise (OIC) was in process?

Good News for OIC and CNC as posted by Keith Fogg in Procedurally Taxing
On Procedurally Taxing, Keith Fogg discussed in his blog posted February 15, 2017
• Tax Court Opinion, *Brown v. Commissioner*, Docket No. 20006-13L. [importance of this decision for low-income folks with equity in their home who owe the IRS]
• This Tax Court Case can now be cited as authority for using assets to “plug the gap” when expenses exceed income. If the asset is needed to help the taxpayer meet reasonable basic living expenses then the asset arguably can be excluded for calculating the reasonable collection potential. While *Brown v. Commissioner* addresses the financial analysis for CNC the same financial analysis can be applied for OIC. In the past our LITC has cited *Porro v. Commissioner,* TC Memo 2014-81 and *Crosswhite v. Commissioner,* TC Memo 2014-79 though they are only TC Memo cases. In all of these cases the financial analysis is similar as discussed in this recent *Brown* decision.
• In *Porros*, the settlement officer excluded net equity/assets in excess of $200,000 (extrapolating living expenses over ten years)from the taxpayer’s reasonable collection potential calculations. In *Crosswhite*, the Court sent back to the appeals office a case where the appeals officer rejected an OIC and only considered net equity, but failed to determine the taxpayer’s reasonable collection potential by considering future income and monthly deficits.
• Our LITC and other LITC’s in Ohio have been successful excluding pensions, equity in home (though we usually attach a rejection of a home equity loan) and equity in automobiles (though we also submitted handicapped tags). To complete the financial analysis, our LITC uses the Social Security Administration’s actuary tables to determine life expectancy. The next step is to multiply the taxpayer’s monthly deficit by the remaining months on the actuary table. If the total amount of money needed to "plug the gap" is greater than the actual value of the asset then the asset is excluded.
In other words, if the asset will be exhausted before the year of death, then the asset is excluded and is not considered when determining the reasonable collection potential. Our LITC and other LITC’s have been successful using this analysis as described in *Brown.*

Source: Barbara G. Heggie, Coordinator & Staff Attorney, NH Low-Income Taxpayer Project