An offer in compromise can be considered a tax settlement with the Internal Revenue Service. An experienced Denver tax attorney at The McGuire Law Firm has submitted many offer in compromises for all types of taxpayers, and our experience is evidenced in our high success rate of receiving acceptance by the IRS. Under the offer in compromise program, a taxpayer makes an offer to pay an amount less than the amount of tax that is due to the Internal Revenue Service. While an offer in compromise can be a very good option to resolve a tax debt it is not always as easy as some commercials and firms make it out to be. The amount that is necessary to offer and pay to the IRS to settle a tax debt is based upon an equation that appears black and white, but just like most issues in life, there is a lot of gray areas to consider. Additionally, the offer amount is dictated more by what the taxpayer can pay as opposed to what the taxpayer owes. Therefore, each situation is different and the amount of tax due to the IRS does not necessarily indicate the amount needed to settle the tax debt. Further, not every taxpayer will be a candidate for an offer in compromise depending upon their financial circumstances. A Denver tax attorney at The McGuire Law Firm can begin analyzing your situation immediately to see if you are an offer candidate to settle your IRS tax debt.
When calculating a taxpayer’s ability to pay, the IRS looks at the taxpayer’s equity in assets and the taxpayer’s disposable income. Equity in assets would be considered equity in a home, car, retirement account, household goods or any other asset the taxpayer owns. With certain assets you may be able to receive an exemption of a certain amount or a discount from the fair market value and thus include less of the equity in your offer in compromise amount than the true fair market value. Disposable income is calculated using a taxpayer’s total income less allowable expenses and the national standard for certain expenses such as food, clothing, housing, utilities, vehicle operating costs and vehicle ownership costs. The national standards are based upon where a taxpayer lives and the number of dependents in the household. The IRS establishes an amount that a taxpayer is allowed to claim as an expense when calculating disposable income. As an example, the national standard for housing & utilities for two individuals in Denver, CO may be $1,600. Therefore, there can be discrepancies between what the IRS states a taxpayer’s disposable income is and what the taxpayer’s true disposable income is if the taxpayer actually pays more for an expense than the national standard allowed by the IRS.
Form 656 is used to state the tax liabilities of which the taxpayer is attempting to settle and the amount & terms the taxpayer is proposing to resolve the tax liabilities. In addition to Form 656, the taxpayer must complete and submit a financial statement or statements depending upon their circumstance. The financial statements of which would need to be completed are Forms 433A and/or 433B. All necessary attachments to the financial statement(s) must be included to verify the items as stated on the financial statement. Thereafter, the taxpayer can submit their offer in compromise to the IRS Offer in Compromise Unit.