Are past-due taxes stressing you out? If so, we’ve got some good news: The IRS’ Offer in Compromise (OIC) program helps taxpayers struggling with back taxes. In 2015, nearly 70,000 taxpayers applied for offers in compromise, and the Internal Revenue Service (IRS) accepted about 27,000.
The IRS Offer in Compromise Formula
The IRS formula for calculating an offer in compromise is two-fold.
IRS Tax Settlement Calculation: Cash Flow
First, the IRS evaluates a candidate’s current income and expenses to determine available cash flow. Typically, agents use pay stubs or profit and loss statements to calculate cash flow.
Then, agents calculate living expenses. These include things like housing, utilities, vehicle payments, clothing, and food costs, which the IRS can curtail to “reasonable” levels.
After the IRS tallies a candidate’s income and allowable expenses, it subtracts living expenses. If taxpayers can fully pay, in five or fewer installments, over a period of five months, the IRS multiplies their available monthly cash flow by 12 months. If someone cannot pay the settlement in 5 or fewer months, the IRS multiples the cash flow amount by 24, and then the taxpayer has up to 24 months to complete payment.
IRS Tax Settlement Calculation: Assets
After determining the settlement value of a taxpayer’s cash flow, the IRS examines available assets and adds that amount to the cash flow figure. To establish a number, analysts consider real estate, vehicles, retirement plans, jewelry, and other valuables — minus any mortgages or loans. Then they apply a 20 percent asset value reduction; the remaining result is the taxpayer’s IRS asset valuation.
For an OIC to be accepted, the total amount owed under current tax law cannot be collectible.
Connect With An IRS Tax Settlement Lawyer
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