How Much Will the IRS Accept for an Offer in Compromise?

“Compromise” usually implies give and take. But for a taxpayer, an IRS offer in compromise is all give and no take. IRS bureaucrats decide if a taxpayer qualifies for OIC relief. IRS bureaucrats also decide whether an offer in compromise is reasonable. So, the IRS could easily insist that OIC applicants pay the entire amount due. However, the IRS cannot simply spin the wheel of misfortune and randomly make these decisions. The IRS must follow its own rules.

If you owe back taxes, you need to take prompt action. That action may or may not be an OIC, but it has to be something. The IRS is the world’s largest and most powerful collections agency. It has tools at its disposal, such as wage garnishment and bank account levy, that are normally unavailable without court orders. Tax collection is a legal process, which means OIC and other relief applicants need a Chicago bankruptcy lawyer to support them at every turn.

Qualifying for OIC

Claimed inability to pay isn’t a qualifying OIC condition. A preference not to pay certainly isn’t a qualifying condition. Instead, the taxpayer must fall into one of three categories.

The first qualifying factor, doubt as to liability, almost never applies. Strict liability laws apply to income taxes. Every taxpayer who signs a return is fully liable for the entire amount. The IRS decides who must pay the bill and how they must pay it.

The second qualifying condition, doubt as to collectability, usually never applies either. To establish this doubt, the tax liability must exceed the taxpayer’s assets and income.

So, in most cases, a Chicago bankruptcy lawyer uses the third qualifying condition, which is effective tax administration. These matters require lawyers to become salespeople. An attorney must convince the IRS that taking something now, in the form of voluntary payment, is better than working for the next several months or years to collect the entire amount.

This sales pitch is much more effective today than it was twenty years ago. Repeated budget cuts have left the IRS with basically a skeleton crew. However, that’s not enough. A lawyer must also prove that requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

Setting the Value

Generally, an OIC offer must exceed your reasonable collection potential (RCP).  This figure takes into account your monthly income, monthly living expenses, assets, and other liabilities.  Bureaucrats will almost certainly reject anything lower than the RCP.

An RCP begins with total disposable income (income minus necessary living expenses. The IRS always narrowly defines necessary living expenses. That narrow definition may or may not be fair. Usually, RCP is twelve times monthly disposable income.

But we’re not finished yet. The IRS also requires taxpayers to liquidate assets to pay their taxes. Disputes are common here as well. Usually, Mike’s $10,000 vintage motorcycle is worth a lot less than $10k. First, Mike must make all necessary repairs. Next, Mike must pay auction fees and other sales fees. Finally, someone must buy the bike.

Exemptions also apply. However, once again, it’s complicated. For example, Mike’s house is usually exempt. But the IRS might require him to liquidate his equity.

So, that’s the bare minimum you can offer.  It’s no guarantee that your offer will be accepted, but at least you’re in the right ballpark.

 Contact a Dedicated Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

irs.gov/newsroom/taxpayers-could-settle-federal-tax-debt-with-an-offer-in-compromise