24 Month payment plan for an Offer In Compromise:
· The IRS takes into consideration a number of factors in determining the acceptance or denial of the offer.
1. If the offer is based on remaining income after deducting all expenses to determine a monthly amount that can be used to pay the IRS. Example; after deducting all of the normal monthly expenses there is $100.00 left this become the income amount that we multiply by the 24 months. The concept is pretty simple and straight forward however; the IRS takes into consideration the following facts:
a. Based on the example above if this monthly amount was multiplied by 60 months would this pay off all or most of the debt. Or if you took the same monthly amount and multiplied by the remaining months under the statue (The IRS does file liens which have a statue of 10 years) can the balance due be paid in full. If the answer is yes to both or either one of these than most likely the offer will not be accepted and the IRS will request that the installment agreement program is the proper program.
b. Future Income: the IRS also looks at your current and if you had lost your job within the past year and have secured a new job but at a reduction from the previous job the IRS looks at future income potential. This simply means that; should you have the ability to find new employment that would bring your income back up to a level equal to or close to the lost job this is your future income potential. Most future income potential issues can be resolved but it requires a waiting period on part of the individual before filling an Offer In Compromise.
2. Equity in assets; the IRS wants know about your house, vehicles, including any and all recreational vehicles, cash value in life insurance policies. 401K accounts, etc. Once the IRS takes the value and subtracts any loans or mortgages against the asset the equity is determined and we take the total amount and divide by the 24 months. This monthly amount is added to the income monthly amount to determine the total amount of the offer. In determining equity the IRS will allow a person to reduce the value of an asset by 20% with one exception; any 401K account can be reduced by 30%. The issue becomes what tool is used to determine value on assets. For example on real estate value can be determined by the SEV value as shown on a property tax statement or by an appraisal. As a rule if real property was just re-financed most times an appraisal was done so the IRS could require a copy of that appraisal to determine value. Vehicle value as a rule is determined by the Kelly Blue Book value however there are vehicle appraiser’s and the IRS could require the appraiser’s value as the true value. Depending how long one has owned their house the equity could be fairly large.
3. Dollar amount of the IRS debt: this is a variable that is debated on a case by case basis. For example a debt of $40,000 or less can be harder to resolve than the larger debt because; a debt of this size most likely could be paid over a longer period of time just because of the amount. If the individual realty does not have much in equity in assets or very low income without the possibility of improving the income level than an offer should be accepted. The IRS even at the appeals level will try to find a way that would require the taxpayer to pay on an installment agreement so the debt can be spread over a longer period.
The Internal Revenue Service completely changed the procedures in the Offer In Compromise program; however they have created the installment pay agreement which is the alternative program. In this writers opinion the IRS has been instructed to use this program over the Offer In Compromise program which makes sense as they can receive a larger portion of the debt.
12 Month or Cash Offer In Compromise Program:
This program basically is for an individual or business that does not have much in income after normal expenses just equity in assets. Generally an asset can be sold or the individual can borrow money from family to settle the debt at a greatly reduced amount. One cannot submit an Offer In Compromise as a 12 month or cash offer if the basis of the offer is based on income and not equity as the IRS will automatically convert it to a 24 month program. This program has more limitations than the 24 month program therefore depending on the taxpayer and there income an installment agreement might be more beneficial.
Completing the application to submit an Offer In Compromise without the help of some professional that does these Offers can be almost impossible to get an acceptance by the IRS. The simple reason is without truly understanding the procedures this process can be too difficult for an individual or business owner.
Offer In Compromise the fee is increasing from $150.00 to $186.00 effective Jan. 1, 2014
The fee for entering into an installment agreement is increasing from $105.00 to $120.00 effective Jan.
1, 2014
The fee for reinstating or restricting an agreement is increasing from $45.00 to $50.00 effective Jan. 1,
2014
The fee for direct debit agreement and for low income taxpayers remains unchanged at $52.00 and
$43.00 respectively.
