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Effective Tax Administration

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What is an IRS Effective Tax Administration offer?

An IRS Effective Tax Administration, or ETA, offer represents an option that persons who have tax debt may use in the course of filing an Offer in Compromise, or OIC. An ETA offer argues that the person or persons who have tax debt ought not pay the full amount of their debt.

What is the basis of an ETA offer?

An Effective Tax Administration offer makes the case that, even though the taxpayer acknowledges the legality of tax owed, and that the taxpayer has the ability to pay it in full, the government should accept less than the full amount under specific circumstances.

What are the circumstances under which the IRS will consider an Effective Tax Administration offer?

An ETA offer must claim that paying the full amount of tax debt owed would either 1) cause an undue hardship to the taxpayer, 2) raise adverse and compelling public policy considerations, or 3) cause an unjust inequity.

What does the IRS consider an undue hardship?

The IRS considers economic hardship as a taxpayer's inability to pay reasonable basic living expenses. IRS officials determine what reasonable basic living expenses are on a case-by-case basis. In general, however, the IRS considers basic living expenses to be the expenses that provide for health and welfare of, and the production of income by, the taxpayer and his or her family. The IRS considers national as well as local standards in determining basic living expenses. Taxpayers can also claim that their particular circumstances justify expenses in excess of those standards.

Does the IRS consider anything other than basic living expenses in determining the validity of economic hardship?

The Internal Revenue Service considers four other factors as relevant to a taxpayer's financial condition. They are: 1) age and employment status of the taxpayer, 2) the number, age, and health of the taxpayer's dependents, 3) the cost of living where the taxpayers resides, and 4) other extraordinary circumstances such as a medical catastrophe, natural disaster, or special education expenses.

Why does the IRS consider ETA offers?

The IRS is open to considering Effective Tax Administration offers so that taxpayers will believe that the laws are fair and equitable, and to give the public confidence that the laws apply to everyone in the same manner.

When should I consider prior to making an ETA offer?

Before making an Effective Tax Administration offer, the taxpayer should explore whether the IRS might agree to a lower tax debt burden on the grounds of either 1) doubt as to the liability, or 2) doubt as to the tax's collectability. IRS officials will consider an ETA offer only after they have ruled out those other two possibilities.

How would I know whether the IRS might accept my ETA offer?

The IRS may accept an Effective Tax Administration offer when they have no doubt that they can collect full amount owed, but doing so would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

How do I calculate my reasonable collection potential?

The IRS calculates reasonable collection potential as the liquidation value of the taxpayer's assets plus the taxpayer's monthly disposable income over 48 to 60 months.

Can you give some examples of when the IRS would grant an Effective Tax Administration plan for public policy reasons?

The IRS is most likely to grant an ETA plan when exceptional circumstances surrounding your case would, if the IRS collected the tax in full, undermine public confidence that they were administering the tax laws in a fair and equitable manner. Keep in mind, however, that the IRS assumes that Congress passes only fair tax laws, so they rarely grant an Offer in Compromise on the grounds of Effective Tax Administration for public policy reasons.

How does the IRS define unjust equity as it applies to an Effective Tax Administration offer?

The IRS defines unjust equity more in terms of what it is not than of what it is. In general, however, getting the IRS to agree to an Offer in Compromise for Effective Tax Administration on equity grounds can involve a tax bill that you may have incurred in part due to the dishonest or unlawful actions of a third party, or extraordinary circumstances.

Do I Need an Attorney to Apply for an ETA offer?

While no law prevents a taxpayer from attempting to file their own IRS ETA, the procedures and accounting involved means that those with technical knowledge and experience with Effective Tax Administration stand a far better chance of success. You will be better served to hire a tax accountant or attorney specializing in IRS cases.

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