If you owe tax debt that you are struggling with, take a look at the Offer in Compromise program. The IRS just released new guidelines that greatly reduce the amount that needs to be offered to settle your tax debt.
An Offer in Compromise lets you settle with the IRS for a lower amount than what you owe. It is based on your current assets and income.
Let’s go through an example to see if you might benefit. To start working with your own numbers, you can get a rough estimate using my Offer in Compromise Calculator.
First, you need to gather your current assets. This will include all cash and investments on hand and the quick-sale value of the things you own.
Next, we figure your disposable income. Add up your monthly income. Subtract your monthly living expenses.
The IRS sets allowable limits for certain expenses, some of which are based on where you live and the number and ages of family members. Under the new guidelines, we can include credit card payments, bank fees, and some student loans. Also a percentage of back state and local taxes may be allowed. Previously, none of these expenses could be included in the Offer in Compromise calculations. By increasing the allowable monthly expenses, we decrease disposable income, thus decreasing your offer amount.
Once we have your disposable income calculated according to the IRS regulations, we multiply it by 12 or 24 months depending on whether the offer amount will be paid within 5 months or within 6-24 months. This is a significant decrease. Previously, we had to multiply the income amount by 48 or 60 months.
Let’s do some math and see how this might benefit you – If your disposable income came to $300/month, under the previous rules, the income portion of your offer would be $14,400 or $18,000. If your tax debt is less than this amount plus your assets, you would not qualify for an Offer in Compromise. If your tax debt was more than these amounts, you might qualify but would have to pay at least $14,400 to settle your debt.
Under the new rules, in this same scenario, the income portion of your offer would be $3600 – $7200. That’s a big difference. This will make it much easier for struggling taxpayers to make an offer that they can afford and get out from under their tax debt.
Try my updated Offer in Compromise Calculator to see if you qualify and what your settlement amount might be. Call me for a free consultation to discuss your options.