How do you typically account for your OIC fees? Also IRA value question


#1

Preparing an OIC for a self employed client who ignored notices and get hammered losing 4 years of Schedule C Expenses and didn’t let us know until after the appeals deadlines. This is also my first OIC in about 5 years so I’m rustier than the Tinman in a hurricane.

His assets are $40k IRA and $8k in brokerage for his wife’s continuing education. His cash in bank is only about $1500, and his house is nearly maxed on two mortgages.

Question 1 after putting in both of their incomes and monthly expenses I have a small negative per month. That is without accounting for my fee to prepare this matter and he hasn’t paid for his 2016 return (and they owe on that too). Should I deduct the fees from the value his assets and include that in the notes or should I account for that elsewhere?

Question 2 since all he has to work with is the IRA and brokerage, would I be allowed to reduce the value beyond the 80% on the form to adjust for the IRA tax and penalties?

Any help would be greatly appreciated. Thank you


#2

Hey Tom,
Sorry for the delay in answering your questions (but there is a reason!!).

You are absolutely correct about deducting your fees from the TP’s assets. Unfortunately, the 433-A(OIC) does not provide a space for “other” expenses like the standard 433-A. When you include the action in your notes, make sure to reference IRM 5.15.1.10.3(table) that confirms accounting and legal fees as necessary expenses.

Here is the reason for the delay….We have just uploaded the very thing you requested to the Canopy app (about 5 minutes ago). When completing the 433-A(OIC) the Q&A will allow you to populate questions such as loan balance against a 401-K, liquidation expenses, cost basis, tax rate, and early withdrawal penalties. It will print out an addendum to the actual form reflecting the calculations.

Thanks for the question and good luck on the OIC!


#3

Jeff, when reporting the OIC fees can you provide some extra detail. Specifically, where would you suggest adding these fees in the software? (I was leaning towards miscellaneous under housing and then forcing those numbers rather than standard expenses) Second, would you include to entire amount of the fee or break it down into a monthly fee when deducting it? Just wanting some clarification because the IRM 5.15.1.10.3 doesn’t reference monthly/total fees.
Thanks so much for all your help,
Tim


#4

Tim,
Ideally, a practitioner should get fully paid (or as much as possible) up front. This would obviously reduced the funds in the bank account, hopefully pushing the individuals down to the $1,000 exemption. If that is not an option, we have started to recommend placing the fee’s right were you suggested (under miscellaneous-housing). I wish the 433-A(OIC) provided more wiggle room (but that is for another day :slight_smile:!)
Sounds like your clients are going to make payments to you. I would indicate the monthly payments, based upon the total amount charged divided by the number of payments. However, advise your client that with fewer payments, that number could help with the OIC.
In the Canopy app, on form 433-A(OIC), you can add an explanation for how you came up with the fee’s entered:

Sorry for the delayed response. Hope this helps.
Jeff