by Arnie Wuhrman
Clients with tax problems often ask me, “can’t we just pay off that $20,000 in taxes and get the penalties and interest waived?” Others see those late night TV commercials, telling how people paid the IRS off at 10-20¢ on the dollar, and they want to know why they can’t just do that. Taxing agencies CAN compromise and settle with you on your old tax debts, but the guidelines are very strict.
Federal Law allows the IRS to compromise any tax case for one of three reasons – doubt as to liability, doubt as to collectibility, or the promotion of tax administration. Usually, there is no doubt as to whether or not someone owes the taxes, so a taxpayer will seek to establish doubt as to collectibility. In order to show doubtful collectibility, a taxpayer must provide the IRS with a detailed statement of his assets, liabilities, income and expenses, as well as backup records such as bank statements and cancelled checks.
The IRS will review the information to determine the answers to two questions: (1) if the taxpayer liquidated her available property TODAY, how much could she realize from the sale of those assets (the “Net Asset Sale Value”), and (2) how much is left over from the taxpayer’s regular monthly income after deducting his reasonable living expenses (based upon family size and certain average amounts spent by families nationwide)? The amount left over after meeting these expenses is known as “Net Disposable Income.” The IRS will multiply Net Disposable Income times 12 and add that number to Net Asset Sale Value. An Offer in Compromise to the IRS will be accepted only if the amount of the offer exceeds the Net Asset Sale Value plus 12 times Net Disposable Income.
An ‘Offer in Compromise’ may be countered by the IRS with a higher proposed number the first time around. Experienced tax counsel will know how to negotiate to get the number down to something the taxpayer can afford. IRS personnel are not being “cold and heartless” if they refuse your ‘Offer to Compromise’. Under the law, they can only accept ‘Offers in Compromise’ which meet the guidelines established by Congress. So, it’s the law and plain old MATH you have to fight with, not the guy or gal at the IRS.
1©2012 by Arnold H. Wuhrman, All Rights Reserved
Arnold Wuhrman d/b/a Serenity Legal Services can be reached at (866) 822-1961.