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How Much to Offer

How Much Will The IRS Accept?

 

In determining an acceptable amount for an Offer in Compromise based on doubt as to collectibility, the IRS will analyze the taxpayer’s net worth on a quick sale basis and combine it with the taxpayer’s future ability to pay.

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Generally the IRS will add the equity in your assets and your net monthly income to determine if you qualify for a settlement.

Unless you have a special hardship case warranting a lower Offer in Compromise amount, or can prove that you do not actually owe the tax bill, the IRS will generally apply the following principles in evaluating Offers in Compromise:

The IRS looks at the Reasonable Collection Potential to arrive at a minimum Offer in Compromise. In determining the Reasonable Collection Potential, the IRS looks at the following two factors:

Realizable Value Of Your Asset

The Realizable Value of your assets equals the net equity you have in all of your assets. The starting point for consideration of any Offer in Compromise will be based on the value of the taxpayer’s assets, less any loans against the asset that have priority over the Federal Tax Lien. Quick sale value of the assets will be used in determining the amount of an acceptable Offer in Compromise.

Future Income

IRS also takes into consideration the amount that can be collected from the taxpayer’s future income.

In evaluating the future income prospects, the taxpayer’s education, profession or trade, age, health, and past and present income will be considered by the Offer in Compromise specialist.

IRS generally determines the amount it could collect from your future income by subtracting necessary monthly living expenses from your monthly income over a set number of months. Generally the IRS will multiply your disposable monthly income by either 12 or 24 months to determine your future income. The IRS Fresh Start Initiative created the 12 and 24-month multipliers in May of 2012. Prior to the IRS Fresh Start Program, the multipliers ranged from 48 to 60 months, making settlements much more expensive and less likely to be accepted. Taxpayers, who were previously shut out of the settlement process, may now have another chance to reduce their IRS debts

The IRS will also consider whether the combination of the equity in your assets and your net income would pay off the tax debt in the amount of time the IRS can legally collect the tax (the statute of limitation is a maximum 10 years from the date of assessment).  This is known as “full pay” and will cause your offer to be rejected.

Quick Guide To The Payment Options

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 Related Topic: Paying Your Offer