The Denver tax attorneys at Buckingham & McGuire have prepared, submitted and negotiated many successful offer in compromises with the IRS. Call our office to discuss an offer with one of our tax attorneys.

Offer in Compromise Process Outlined by Denver Tax Attorney

In previous articles a tax attorney at The McGuire Law Firm has explained what an offer in compromise is and how an offer in compromise is calculated.  Denver Tax AttorneyWhile we hope these articles have been helpful, we also thought it may help to outline the general procedure of preparing and submitting an offer in compromise to the IRS.

The first form to complete in moving forward with an offer in compromise would likely be Form 433A OIC if you are looking to settle an individual income tax debt.  However, if you own any interest in a business, you will also need to complete Form 433B or 433B OIC.  If the tax liabilities you are attempting to settle are business taxes such as 1120, 941 or 940 tax liabilities, you will need to complete Form 433B OIC.  Further, it is important to note that if you have 941 (employment taxes) tax liabilities, the Internal Revenue Manual requires that a revenue officer make a determination on the personal assessment of the trust fund recovery penalty, prior to the IRS Offer in Compromise Unit being able to process an offer in compromise.  The trust fund recovery penalty is the penalty assessed to the willful and responsible parties- those who have failed to pay the 941 taxes to the IRS.  Thus, if the business has 941 debts, but a revenue officer has not personally assessed the trust fund or made a determination regarding the assessment of the trust fund, your offer in compromise would likely not be processed, and the offer would be returned, with no appeal rights.  After you have prepared the financial statements, it is vital that you compile all of the necessary attachments to accompany the statement.  These attachments are stated on the form, and you need to determine which attachments apply to you based upon your circumstances.

After you have completed Form 433A OIC and/or Forms 433B/433B OIC you should be able to tell what your offer amount is.  Thus, it is now time to prepare Form 656.  Form 656 is the form used to more or less propose the offer in compromise to the IRS.  Form 656 states the taxpayer attempting to settle their tax debt, the periods of tax debt that the taxpayer is attempting to settle, the taxpayer’s reason for the offer in compromise, the amount of the offer proposed, the payment terms of the offer and you can make the request to have the $150 offer in compromise application fee waived if you fall under certain income amounts.   When completing Form 656 you will want to state all periods of debt that you currently owe taxes on.  Generally, there are two options to propose in regards to how you will pay your offer.  Option one would be a cash offer whereby you would pay 20% of the offer amount when you submit the offer in compromise, and then propose a schedule to pay the remaining amount in five or fewer payments if the offer is accepted.  Option two is to make payments over 24 months.  Thus, you divide the total offer amount by 24 and you make the first payment when you submit the offer in compromise and continue to make a monthly payment based off of the proposed offer as the offer is being reviewed by the IRS.

Now that you have the proper financial statement(s) completed with all necessary attachments, Form 656 and the necessary checks (you will need a check for $150 for the application fee if it cannot be waived and either the 20% down payment or initial 1 of 24 payments) it is time to mail your offer in compromise to the offer unit.  When mailing the offer, there are two IRS Offer in Compromise Units, one in Memphis, TN and one in Holtsville, NY.  The unit you will mail your offer depends upon where you live, and you can check the Instructions to Form 656 to see which unit you need to forward you paperwork too.

A Denver tax attorney at The McGuire Law Firm can assist you with preparing and submitting an offer, and the offer negotiations if you feel you need help.  As a tax attorney, John McGuire has prepared and submitted many offer in compromises and his acceptance rate is above 90% over the prior 2 years.

Contact The McGuire Law Firm to schedule a free consultation with a Denver tax attorney and see if you can settle your IRS tax debt through an offer in compromise. 

Offer in Compromise Calculation Explained by Denver Tax Attorney

How much will the IRS accept to settle my tax debt through an offer in compromise?  How much will my offer in compromise be?  Denver Tax LawyerThese are common questions a Denver Tax Attorney at The McGuire Law Firm may be asked.  In some respects, we answer each question the same initially, but our final and true answer is different for every client, because every case is different and the amount of an offer in compromise is determined by each taxpayer’s specific circumstances as opposed to a set percentage of the tax debt that the IRS is willing to accept to settle the tax debt.  The article below has been drafted by a tax attorney to help explain how an offer in compromise is calculated.

An offer in compromise is calculated by looking at a taxpayer’s disposable income and equity in assets.  Equity in assets is added to disposable income once disposable income is multiplied by either 12 or 24.  Prior to May of 2012, disposable income was multiplied by 48 or 60.  Thus, the most current changes to the offer in compromise calculation are very taxpayer friendly in terms of lowering a taxpayer’s offer in compromise amount.

Disposable income is calculated by looking at a taxpayer’s total household income for an individual taxpayer.  This includes all sources of income.  Thereafter, expenses are deducted from income and the remainder is disposable income.  The caveat is, the IRS establishes allowable amounts for expenses for items such as housing, utilities, food, clothing and transportation costs.  The allowable amount is determined based upon the number of dependents in the taxpayer’s household, county where the taxpayer lives and number of vehicles.  The issue created by the allowable standard is that if a taxpayer is paying more than the standard allowed by the IRS, what the taxpayer feels is their disposable income will be different than what the IRS feels the disposable income to be.

Equity in assets includes any equity in an asset from a home or car to retirement accounts and business interests.  The IRS does allow discounts for certain assets.  For example, a taxpayer can generally reduce the fair market value of their home by 20%.  Further, a taxpayer can generally reduce the fair market value of a retirement account by 30% to account for the taxes that would be paid on distributions from that retirement account.

In terms of putting the equation together, we will use an example.  Assume a taxpayer has equity in assets of $10,000 after allowable discounts, and disposable monthly income of $500/month.  The taxpayer’s offer in compromise amount would be $16,000 or $22,000.  These figures were calculated: $10,000 + $500 x 12= $16,000 or $10,000 x $500 x 24.

Our Denver tax attorneys have prepared and submitted many successful offer in compromises on behalf of our clients.  Our acceptance rate on the offer in compromises submitted within the prior 24 months is extremely high, much higher than the national average.  This success is due to our tax attorney’s experience in dealing with the IRS and honest & realistic review of our client’s situation.  If you have a tax debt and want to discuss your ability to settle this debt with the IRS, call our tax attorneys for a free consultation.

Contact The McGuire Law Firm to speak with a Denver tax attorney.  A tax attorney can assist you in resolving IRS debts, problems and issues.  You may be able to resolve your tax debt through an offer in compromise.  Free consultation with a tax attorney!

 

 

How is an Offer in Compromise Calculated?

How is an Offer in Compromise Calculated? Denver Tax Lawyer

An offer in compromise should be considered a tax settlement with the Internal Revenue Service.  When a taxpayer owes money to the IRS, under certain circumstances the taxpayer can submit a proposal to pay less than the amount of tax due.  While many people know what an offer in compromise is, many taxpayers ask a tax attorney how much their offer in compromise will be- what will we offer the IRS?  How much will the offer be?  The answer a tax attorney must or should provide is, “it depends.”  While many people may expect this answer from a tax attorney, it is true.  An offer in compromise is calculated by the taxpayer’s reasonable collection potential, which is viewed as the taxpayer’s ability to pay.  Thus, because each taxpayer’s situation is different, there is no equation to use when estimating what a taxpayer will pay.  There is no general percentage to apply to the amount of tax owed by the taxpayer to estimate what the IRS will accept when submitting the offer in compromise.

When calculating an Offer in Compromise amount, a tax attorney should look at the following issues and figures.

 

–          Total Household Income; and,

–          National Standards for allowable living expenses

–          Other allowable expenses

–          Equity in assets including all property such as home, car, investment accounts, business interests and any other assets.

–          Available reductions in equity dependent upon the asset and use of the asset.

Based upon the above figures, a taxpayer’s disposable income can be calculated.  The taxpayer’s disposable income is then multiplied by 12 or 24 depending upon the repayment terms of the offer in compromise proposed by the taxpayer.  This figure is then added to the taxpayer’s equity in assets after applicable discounts are applied.  The total figure through this equation is considered the taxpayer’s ability to pay.  If the amount is less than the total amount due than our tax attorneys would consider the taxpayer to be a possible candidate for the offer in compromise program and discuss the options with the client.  If the amount calculated through the offer equation is greater than the total tax liability, then the taxpayer may not be a candidate for an offer in compromise.  However, if circumstances change, our tax attorney’s position may change regarding the possibility of submitting an offer in compromise.  Moreover, a taxpayer may be able to qualify for an effective tax administrative offer in compromise, whereby the taxpayer show the ability to satisfy their tax debt, but due to extraordinary circumstances, full payment would create an economic hardship on the taxpayer.

A tax attorney at The McGuire Law Firm can discuss the option of an offer in compromise to settle your tax debt.  Contact The McGuire Law Firm to schedule a free consultation with a tax attorney in Denver!