An Offer in Compromise- Is it the Best Answer for Everyone?
My name is Darrin Mish and I am a Tax Attorney and my practice is based in Tampa, Florida but we represent clients around the United States and throughout the world. In the answer to that question is a little bit of one of those rhetorical questions, the answer is no it’s definitely not for everyone. Because the offer in compromise program is not a deal or a give away program, sometimes you might even hear me call it a deal to settle for less. But it’s not really, what it is, it's a program set up by Congress years ago to help tax payers who were just in over their head get a fresh start and to get back another tax system. You see, typically and statically what will happen is a tax payer will forget or fail to file their tax returns for some reason for a particular year and then nothing happens. And then the next year come along and it’s time file their tax return and they’re afraid or confused because they didn’t file the year before, and so type of behavior pyramid and cascade until I was suggested your average none filler has been out of the system for between six and twelve years.
So, an offer in compromise is a program designed to determine how much you can pay no more and no less. You see it’s a mathematical algebraic formula and we’ll go over that in a minute. You see the first step in order to determine whether or not you qualified for an offer and compromise is to take the monthly, your monthly income and subtract your monthly quote allowable expenses. And that determines what your monthly disposable income in the eyes of the IRS okay.
So, your second step is then to do this particular algebraic formula. Your offer equals the amount of your monthly disposable income times and multiplier plus your assets. It’s not magic, it’s just numbers it just math that says, stuffs that we’ve always shied away from since we are kids because it’s not all that exciting. But the analysis of an offer, an offer analysis will determine whether or not you’re qualify and how what kind of a minimal amount you can get by with for an offer in compromise.
So, if anyone guarantees you and offer after 15 conversation, you better keep looking because there is on way that these numbers can be arrived with any degree of particularity without doing a detailed financial analysis. I’ve seen offers tax payers come in after they’ve met with some of the big national companies and they’re promise and offer and compromise bias. Sales person within just a few moments will taking to that person on the telephone. The person on the other hand the sales person just wanted to capture a credit card number and get going with program and they guaranteed that the tax payers six figure liability could be compromise for as a little just a thousand dollars or so. And you see in a lot of these cases the tax payer had significant acuity in there home. Sometimes, six figures and these Charlington sales people were actually promising these tax payers that despite that significant equity in there home more than what they owed to the IRS that the tax payer would get an offer in compromise.
To see that just not possible and I will show you why here in the second. There is three types of offers though, there is a cash offer which is payable within five months of acceptance of the offer, there is a short term differed offer which is payable within 24 months and equal monthly installments and there is a long term differed offer which is payable out over the number of months left on the collections statute expiration. What that means is the IRS has 10 years from the date of an assessment of a tax to collect the tax. So, if you have 86 months say left on your longest collection statute then your multiplier in a long term differed offer or rather the number of months that you will be making payments on a long term differed offer would be the 86 months. You understand more in just a second as I go to the slide and talking about long term differed offers.
But back to cash offered again it's payable within five months of the offer acceptance and you can see that algebra for program here on the screen. It's your monthly disposable income times 48 plus your assets equals your offer amount. So, in the illustration that I place on the slide, if we had $50 in monthly disposable income and we multiply that by 48 that will equal $24, 000 and let’s assumes zero an assets for now that would mean your offer would be $24,000. It doesn’t matter if you owe $25,000 or $250,000 you offer in this scenario in this illustration would be $24,000.
The second type of offer is called the short-term differed offer and you remember that’s payable out over 24 month period in equal monthly installment. So take the algebra problem here in this particular type of offer is very similar to the cash over but its monthly disposal income times 60 plus your asset equals your offer amount. So, if we take that same $50 in monthly disposable income in a way multiply it now by 60 instead of 48 we come out with $3,000. Let’s again assumes zero on available assets that means that your $3,000 offer will be paid out over 24 months which is a $125 per month for 24 months.
Now I have a little bit pet pave here and that is, if you can only afford to pay $50 how in the world do you pay a $125 per month for the next two years? And I think the answer is simply that you’re going to have to borrow that extra $75 the difference between a 125 and 50 from friends or family or relatives or something like that. So, I think that’s the answer in terms to differed offers. It has been the answer in everyone that we’ve done.
Now, the last type of offer as I indicated is a long term differed offer and that’s payable all over that number of months left on the statue. See, I explain earlier what the collection statue expiration date was but your algebra problem turns into this. Monthly disposable income times the collection statute expiration date or the number of day a months left on the collection statue equals your offer amount. So, if we took that same illustration of $50 and you had 10 years exactly left on the collection statute then that would be an offer of $6,000 or $50 a month for 124 months.
When the collection or the number of months left on the statute is very long like in this example, I am not a real big fun of this particular type of offer and that’s because if you to fall that offer and compromise then all of the tax penalty and interest come rushing forward now you have actually a bigger problem on your hand.
The required documents in order to file an offer and compromise are the Form 433A which a collection information statement for individuals and you also need the 433B if your actually an incorporated business. You will need the form 656 which is the offer in compromise form from the IRS. You will need three months of documentation proving your expenses and your income has $150 filling fee and there's also a 20% down payment requirement for cash offers. Those checks for the filling fee and 20% down payment should be in separate checks and they should be made payable to the US Treasury.
It is important note that if you get an offer and compromise accepted and I hope you do, then there is actually a five year probationary period where you must file and pay your taxes on time. If you fail to do so, then your offer will be rejected and it will come back roaring with the tax penalties and interests as if you never actually had an offer and compromise accepted.
If you have questions about the offer program or if you would like someone to help you with an offer and compromise, please give us a call toll free at 1-888-438-6474 that’s 1-888-GET-MISH or visit as on our website getirshelp.com.
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