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!