How much do you need to offer to the IRS to have an OIC accepted? What are the criteria for determining whether an Offer in Compromise is acceptable to the Internal Revenue Service?
The IRS wants basically two things in order to accept an Offer based on Doubt as to Collectability.
First, they want as much as they could get if all of the taxpayer’s non-exempt assets were liquidated.
Second, they want as much as they believe they could get from the taxpayer’s earnings for the next 4 to 5 years, depending on how the offer is structured.
In part one of the test, the asset value of the taxpayer must be determined. If the taxpayer has a home, the quick sale value must be determined. This is usually 80% of the actual value. Then the liens against the property are deducted. If there is equity, then the amount of the equity is the starting point in determining how much it will take to fund the Offer in Compromise.
Each asset is then valued and a determination of how much equity there is in each asset is made. The value of the equity is added on to the amount of the Offer.
There are certain exemptions from this rule. First, household furnishings, furniture and personal belongings are exempt up to a particular amount. The same for tools of trade, the items that are needed to generate income.
Once a determination is made as to how much equity value there is in assets, then a determination is made as to how much excess income there is from earnings. This will be covered in part 3 of this series.
A caution: This information is provided solely for a general understanding of the principles concerning Offers in Compromise. It is not intended for any specific situations. Please consult a Tax Attorney and do not rely on these articles. You really need a competent Tax Attorney if you are going to do an Offer in Compromise.
We have simplified how an OIC works for purposes of this article. Offers in Compromise are very, very complicated and if not done very carefully, will almost certainly result in a rejection. A tax attorney is highly recommended to handle an OIC. For more information about Offers, visit our website: www.martellelaw.org/offer-in-compromise