Offer in Compromise Guidelines

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Today we’re going to talk about the offering compromise program, sometimes known as the oic offer in compromise. Pretty cool ha!  Click here to read or watch more IRS Help resources.

Essentially there’s three types of offering compromise. There’s the offering compromise program. Let me go ahead and explain what it is. It is a procedure, a program set up by congress to allow taxpayers to settle for less. Now the IRS lately has been pretty aggravated by people advertising pennies on the dollar settlements. So I’m not going to say that you can settle for pennies on the dollar.

Sometimes it’s a lot of pennies on the dollar and offers are certainly not appropriate for every case. There are a lot of big firms in this country who advertise on television, cable tv, satellite, that kind of thing, who point their fingers at the camera and stuff and say that they can settle for less, guaranteed. That’s not accurate, that’s not true.

Anyone who tells you that they can settle for less, guaranteed, that they can get your offer through, guaranteed, is not being honest with you. If you look at that guarantee, basically what it says is, we’ll fill out the paperwork right. Well I can guarantee you that in my firm, we’ll fill out the paperwork right. If we don’t, and sometimes there are mistakes, omissions, things like that, we’ll fix it. Not a problem.

So the offering compromise program is essentially setup to allow you to settle for less. It’s a mathematical calculation. It’s based upon your monthly income, your monthly allowable expenses and your assets. It’s essentially a mathematical equation. So it depends upon how much monthly disposable income and your assets that you have left over, will determine how much your offer amount is for.

There’s three types of offers, there’s what’s known as a cash offer, a short term deferred offer and a long term deferred offer and I’ll go ahead and explain what all those are. The cash offer is an offer which is payable out over a five month period. It’s basically use to be a ninety day period. The IRS has graciously extended it to five months lately. It doesn’t have to be in a lump sum any more. It can be paid out over five monthly installments.

Essentially the equation to determine how much your offer will be for a cash offer is this, monthly disposable income multiplied by 48, plus your assets. The quick sale value of your assets which I don’t have time to go into, but plus your assets equal the amount of your offer. Let me give you a hypothetical. If you had monthly disposable income in the amount of $50 and you multiply that by 48 and you had zero assets, that’s $2400.

You can settle your case for $2400, hypothetically, it doesn’t matter how much money you owe the IRS. If it’s $24, 000 or $240, 000, you can settle it for $2400. I’ve done it. It doesn’t matter how much you owe, it’s based on your ability to pay, not how much you owe. The second type of offer is what’s known as a short term deferred offer.

Essentially you can make your the payment has to be made up to 24 monthly installments. It’s essentially a little bit of a different calculation. It’s monthly exposable income, times 60, plus your assets, equals your total amount that you paid in a short term deferred offer divided by 24 payments. So let me give you a hypothetical, $50 monthly exposable income multiplied by 60, zero assets, that’s $3000 divided by 24 months is $125. I don’t understand how if all you have left over is $50 monthly, you can pay $125.

It’s never made a lot of sense to me, but I guess what it is, is you can get that money from friends or family, but you just can’t get a lump sum from them. As you can tell, you pay a premium for that short term deferred offer, because the multiplier is 60 instead of 48. Lastly there is what is known as a long term deferred offer. Your payments will be spread out over the number of months left on the collection statute of limitations.

That’s why I posted these posts in this order, because we told you what the collection statute was last time. Basically to recap that there’s 10 years in a collection statute of limitations. It’s 10 years from the date of assessment on the tax that the IRS has to collect it for. So if you had 10 years left on your collection statute and you made an offer on compromise. Let me give you this example, $50 times 120 months or 10 years left on the collection statute equals $6000.

Now the cool thing about a long term deferred offer is, it’s still $50 a month times 10 years worth of months. So 120 months and you will pay off your offer. It’s a really long time to pay make your payments on time, but there are people that can do it. So that is another option. If that 120 months get down to less than 48 months, then long term deferred offer becomes the default cash offer.

So if you only had 32 months left for example, then your multiplier would go monthly disposable income times 32 months. I don’t want to get too technical here. I wanted you to kind of know there’s three types of offers of compromise that are available to you. Some of them involve lump sums and some of them involve monthly payments for extended periods. That’s it for now, thanks for tuning in.

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