Atlanta CPA: Preparing a Cover Letter for Your Offer in Compromise
I have always found it advantageous in include the Offer in Compromise Offer itself that includes Forms 433A (if an individual Offer), 433B (if a business Offer) and Form 656 (the Offer itself) a cover letter detailing and establishing both a rapport with the client, assertions on a client's behalf, and a basis for dialogue. Including in this letter it is critical to gain the confidence of both the IRS and the client, confirm an understanding of the rules and procedures of the Offer and any substantive changes/tax issues etc. Below is a sample letter that you might consider as a guide. To help illustrate I have added explanations in brackets (i.e., [ ]).
I am writing you in a good faith attempt to come to terms over the above taxpayers [I would use the same general language whether a corporate or personal Offer, while detailing in the opening salutations the client(s) and either their Federal ID number or SS#] present predicament and to process an Offer in Compromise on their behalf. I am willing/eager to supply you with any information that you might need in order to process the Offer.
I believe their Offer amount is reasonable because:
-It is my understanding that the Offer process is intended to help people to get back into the system who otherwise are not able to pay their total tax obligations including taxes, penalties and interest. The taxpayer for the past tax year is current with their filings and their payments [If it is midway through the year or later it is wise to illustrate and show proof that the taxpayer is making filing and paying their current tax obligations. This can be done by including copies of estimated payment coupons and cleared checks or copies of year to date check stubs showing sufficient withholding given taxable income, itemizations and deductions].
-[Usually there are several items that need to be highlighted to alert the Offer reviewer as to how financial circumstances, trends or practices are now different. This gives the Offer reviewer an heightened awareness of what is now changed and why this Offer should be accepted as prepared].
[It is prudent in your correspondence to "paint a picture" so as to bring the Offer reviewer in the know as to how the situation occurred and the client's good faith efforts and results to positively address and resolve past tax issues]. How the taxpayer got to where they are today, was not illegal. Indeed the Offer in Compromise process is to help those taxpayers get back into the "tax system" who have either made prior poor financial choices or who have suffered through poor economic times or unforeseen circumstances.
[Many of my Offer clients indeed have to borrow money to fund their Offer as they have no monies available. Brining this to the forefront does much to help illustrate the advantage of the IRS processing the Offer as submitted. Furthermore if the taxpayer has no ability to borrow money and has exhausted all available avenues, highlighting this issue, in addition to providing evidential matter thereof, is a wise and prudent financial disclosure]. Since they have no substantive liquid assets, I have suggested that they borrow as much as possible from their friends and relatives. With great difficulty, they have arranged to borrow an amount that exceeds their personal net worth. They have arranged to borrow these funds after the acceptance of their Offer in Compromise. These monies would otherwise not be available to the IRS as evidenced by the prior correspondence.
The predicament the taxpayer now finds themselves in, as with all Offers, is based upon past economic choices for which they are now fully aware of their need to pay their taxes as they go in full as the monies are due and payable.
It is my goal to help in their efforts to return to compliance. Since I have assumed the role as their financial advisor (they had no advisor previously), I have consulted with them, and in good faith I would like to make and Offer in Compromise for the taxpayers to pay as much of the balance of the tax liability as they possibly can.
Please note that I have advised the taxpayers that after the acceptance of their Offer that they must stay in compliance by keeping all of their filings and payments current for five years. They have further been advised that in the event they do no maintain the above that the previously accepted offer would be voided and the previously abated monies would be reinstated and collection efforts resumed.
Please cease all collection efforts while this Offer is being resubmitted. Please accept this Offer in Compromise as submitted.
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