Employment and Criminal Lawyer

The IRS Fresh Start program includes the Offer in Compromise program. This program is designed to assist taxpayers who have significant tax liabilities and cannot pay their full debts. OIC can be a useful program for those with significant tax liabilities and who want to get back in compliance.

Most cases will result in an OIC by the IRS or the State of Maryland. This is to ensure that the figure they can recover for the taxpayer over some time is not less than their actual liability.

There are specific eligibility requirements, but generally, people who are not in bankruptcy proceedings and have current tax filings may be eligible for the program. You may not be eligible if you are enrolled in an installment or payment program. The program is also available to businesses, provided that their tax filings are current, and they have paid estimated payments. They must also submit required federal tax deposits.

Continue reading to find out how the IRS calculates OIC repayment figures and how you can save the most.

How much will the IRS settle tax debt for?

Every offer in compromise has two components: 1) The amount that the IRS believes you can pay in monthly installments and 2) Your net realizable equity (NRE).

The IRS uses the "asset equity formula" to calculate your NRE. This formula allows the IRS to take into account the fair market value for each asset and subtract the following:

Quick sale value: To determine the price you would receive if you could quickly sell your assets without having to look at many offers and negotiate the best deal, the IRS reduces their assets' value by usually 20%.

Bank Loans and Mortgages: If you have any liens on your assets or mortgages, the IRS will deduct the value from the quick sale price.

Property Exclusions the IRS may exclude an asset's value for public policy reasons. The IRS won't punish people with income-producing assets (such as a snowplow or video production material) or force them to move into a smaller apartment to pay their tax debt.

Calculating the equity in your assets

Each taxpayer is affected by the asset-equity formula in a variety of ways depending on their circumstances. Here are some examples.

Related: How to get the IRS to accept your offer in compromise

Home Equity Offer in Compromise: The IRS will reduce your fair market value by 20% (multiplying by.8) to $160,000 to determine the fast sale value.

Let's suppose you owe $120,000 in the mortgage. That would make your OIC $40,000 (or 160,000 to $120,000). The IRS cannot accept any settlement offer if there is no equity in your home. This element may also be satisfied if you can show the IRS two rejection letters of different banks from which you tried to withdraw funds to pay your tax debt.

Vehicle Equity to Offer in Compromise: The same formula applies for any vehicle you own, but the IRS requires an additional $3,450 exclusion for all cars and planes.

If you have a $20,000 car but owe $10,000, your net equity is $2,550 ($20,000 x 0.8 - $10,000 + $3,450 = $2,000. You cannot offer anything to the IRS if the vehicle has no equity.

Personal Possession Equity to Offer in Compromise: To determine the quick selling value of each item, subtract 20% from the total value of your possessions. The IRS allows an additional $6,250 per individual exclusion from the quick sale value of these possessions.

If your possessions total $40,000, they will automatically be reduced to a quick sale price of $32,000 ($40,000 x 8.8). Let's suppose that two people live in the house and jointly own the property. This would leave $12,500 ($6,250x2) in total exclusions. The net equity towards an offer in compromise would be $19,500 ($40,000x8 - $12,500 = $19,000.

Offer in Compromise - Cash Equity: The IRS will take into account all cash that you have on your body and in your bank accounts as assets when determining an offer to compromise. The IRS will examine your bank statements for the last three months to determine the average daily balance. For self-employed persons, it may take six months. To determine the total value of your cash assets, they will add any cash that you may have in the house or cash on hand.

To account for living expenses, the IRS allows an exclusion of $1,000. Additional exclusions may be permitted if living expenses are higher than this amount. This is based on IRS guidelines for living expenses.

How to Apply for the IRS Tax Fresh Start Program?

Individuals who owe large amounts of unpaid taxes but are unable to pay can turn to an offer of compromise.

OIC is an agreement between IRS and taxpayers to settle taxpayers’ tax liabilities for less than the amount owed. Before approving an OIC, the IRS examines the taxpayer's income and assets and records every detail of their financial situation. Many IRS applications are rejected because of negligence by the taxpayer. Many taxpayers don't know how to obtain an offer in compromise which can increase the likelihood of rejection. These are the four guidelines that will help you improve your chances of getting approved for your OIC application.

1. Don't accumulate more tax debt

The IRS usually takes 6-12 months to process an OIC request. The chances of getting approved automatically drop if a person continues to accumulate debt. It is not a good idea to put off tax payments while the collection process proceeds. Instead of waiting for their OIC determination, the applicant should pay quarterly estimated taxes.

2. Appeal an unfavorable ruling

Many applicants don’t know how to appeal an offer denial. An appeal can be financially more beneficial even if the IRS has made you a favorable offer. However, it is important to know how to do this. About a third of OICs are accepted by the IRS. The primary reason this happens is that the taxpayer doesn't know enough about the appeal process.

3. Do not withdraw your OIC application

The offer in compromise examiner reviews the information provided by the applicant and sets a date to meet in the office. Sometimes, the examiner may suggest that the applicant chooses an IRS collection alternative. an installment agreement. You can convince the examiner not to accept the alternative and, in the worst case, appeal.

4. Do not submit "junk" offers

To get OIC approval, the applicant must provide supporting documentation for each figure entered on the form. Avoid mentioning junk offers (e.g., a friend lending your money to pay taxes), as they lack documentation and support logic, which can increase your chances of rejection. The mandatory 20% deposit that you must pay with your request will be lost. You will be required to pay an additional 20 percent if you submit a legitimate offer.

Last words

The IRS makes only decisions that are best for the government. To win the game, you must be familiar with the rules. Expert legal advice is the best way to minimize or eliminate your chances of being rejected. Law Offices Of Nick Nemeth, PLLC has a team of dedicated professionals who will take care of all your IRS tax issues. Nick Nemeth is a professional with years of experience helping people and businesses solve major tax problems.

You can offer a lower amount to pay your final tax liability. OIC candidates are individuals or businesses that do not have the income, assets, or means to pay their tax liabilities now or in the future.

The Franchise Tax Board (FTB) generally approves an OIC when it is the maximum amount we can expect to collect in a reasonable time.

While each case is evaluated based on its unique facts and circumstances, the following factors are important to our evaluation:

• Capacity to pay.
• Equity in assets
• Future and present income
• Future and present expenses
• The age and health of the taxpayer.
• Potential for new circumstances
• What are the state's best interests?

Apply process

Complete the application form and submit the required documentation to apply for an OIC. To see a list of items required, visit ftb.ca.gov/forms. Search for 4905

• Use FTB 4905 PIT for Personal Income Tax. Offer in Compromise to Individuals.
• Use FTB 4905 BE, Booklet for Business Entities

Only OIC applications will be processed if they are:

• You have filed all required tax returns. Now you can agree on the amount that you owe. You can note any filing requirements that you don't have on your application.
• Completed the Offer in Compromise Application and submitted all supporting documentation.
• Authorized FTB to access your consumer credit report, investigate and verify the information that you have provided in your application.

All applicants must

To ensure that you cover all areas, complete the checklist included in the application.

• Completing all pages of the application is essential. You can also write "not applicable" in appropriate areas.
• Please complete the justification and the source of the funds. These sections cannot be left out.
• Check that the application has been signed and dated.
• Be sure to include all required copies of bank statements, payslips, and profit/loss worksheets.
• If you have completed or submitted an offer to the IRS, including the application and acceptance letters.
• All information and assets should be included. We will deny an offer if we find any assets that were not included in the evaluation.

Companies

• Before applying, ensure that all returns required are filed. All returns for the current year must be included by business entities. This could include a partial-year return and the marking of the "final return” box on the last return.
• You should also provide proof that all bank accounts were closed.
• Verify that all assets are liquidated.

Individual income tax

• For amounts claimed, including three months of billing statements
• Include a current rental agreement.
• Attach copies of bank statements and payslips. Provide profit and loss worksheets if you are self-employed.
• You must show documentation if you can justify the offer because of a medical condition.

The IRS Fresh Start program includes the Offer in Compromise program. This program is designed to assist taxpayers who have significant tax liabilities and cannot pay their full debts. OIC can be a useful program for those with significant tax liabilities and who want to get back in compliance.

Most cases will result in an OIC by the IRS or the State of Maryland. This is to ensure that the figure they can recover for the taxpayer over some time is not less than their actual liability.

There are specific eligibility requirements, but generally, people who are not in bankruptcy proceedings and have current tax filings may be eligible for the program. You may not be eligible if you are enrolled in an installment or payment program. The program is also available to businesses, provided that their tax filings are current, and they have paid estimated payments. They must also submit required federal tax deposits.

Continue reading to find out how the IRS calculates OIC repayment figures and how you can save the most.

How much will the IRS settle tax debt for?

Every offer in compromise has two components: 1) The amount that the IRS believes you can pay in monthly installments and 2) Your net realizable equity (NRE).

The IRS uses the "asset equity formula" to calculate your NRE. This formula allows the IRS to take into account the fair market value for each asset and subtract the following:

Quick sale value: To determine the price you would receive if you could quickly sell your assets without having to look at many offers and negotiate the best deal, the IRS reduces their assets' value by usually 20%.

Bank Loans and Mortgages: If you have any liens on your assets or mortgages, the IRS will deduct the value from the quick sale price.

Property Exclusions the IRS may exclude an asset's value for public policy reasons. The IRS won't punish people with income-producing assets (such as a snowplow or video production material) or force them to move into a smaller apartment to pay their tax debt.

Calculating the equity in your assets

Each taxpayer is affected by the asset-equity formula in a variety of ways depending on their circumstances. Here are some examples.

Related: How to get the IRS to accept your offer in compromise

Home Equity Offer in Compromise: The IRS will reduce your fair market value by 20% (multiplying by.8) to $160,000 to determine the fast sale value.

Let's suppose you owe $120,000 in the mortgage. That would make your OIC $40,000 (or 160,000 to $120,000). The IRS cannot accept any settlement offer if there is no equity in your home. This element may also be satisfied if you can show the IRS two rejection letters of different banks from which you tried to withdraw funds to pay your tax debt.

Vehicle Equity to Offer in Compromise: The same formula applies for any vehicle you own, but the IRS requires an additional $3,450 exclusion for all cars and planes.

If you have a $20,000 car but owe $10,000, your net equity is $2,550 ($20,000 x 0.8 - $10,000 + $3,450 = $2,000. You cannot offer anything to the IRS if the vehicle has no equity.

Personal Possession Equity to Offer in Compromise: To determine the quick selling value of each item, subtract 20% from the total value of your possessions. The IRS allows an additional $6,250 per individual exclusion from the quick sale value of these possessions.

If your possessions total $40,000, they will automatically be reduced to a quick sale price of $32,000 ($40,000 x 8.8). Let's suppose that two people live in the house and jointly own the property. This would leave $12,500 ($6,250x2) in total exclusions. The net equity towards an offer in compromise would be $19,500 ($40,000x8 - $12,500 = $19,000.

Offer in Compromise - Cash Equity: The IRS will take into account all cash that you have on your body and in your bank accounts as assets when determining an offer to compromise. The IRS will examine your bank statements for the last three months to determine the average daily balance. For self-employed persons, it may take six months. To determine the total value of your cash assets, they will add any cash that you may have in the house or cash on hand.

To account for living expenses, the IRS allows an exclusion of $1,000. Additional exclusions may be permitted if living expenses are higher than this amount. This is based on IRS guidelines for living expenses.

How to Apply for the IRS Tax Fresh Start Program?

Individuals who owe large amounts of unpaid taxes but are unable to pay can turn to an offer of compromise.

OIC is an agreement between IRS and taxpayers to settle taxpayers’ tax liabilities for less than the amount owed. Before approving an OIC, the IRS examines the taxpayer's income and assets and records every detail of their financial situation. Many IRS applications are rejected because of negligence by the taxpayer. Many taxpayers don't know how to obtain an offer in compromise which can increase the likelihood of rejection. These are the four guidelines that will help you improve your chances of getting approved for your OIC application.

1. Don't accumulate more tax debt

The IRS usually takes 6-12 months to process an OIC request. The chances of getting approved automatically drop if a person continues to accumulate debt. It is not a good idea to put off tax payments while the collection process proceeds. Instead of waiting for their OIC determination, the applicant should pay quarterly estimated taxes.

2. Appeal an unfavorable ruling

Many applicants don’t know how to appeal an offer denial. An appeal can be financially more beneficial even if the IRS has made you a favorable offer. However, it is important to know how to do this. About a third of OICs are accepted by the IRS. The primary reason this happens is that the taxpayer doesn't know enough about the appeal process.

3. Do not withdraw your OIC application

The offer in compromise examiner reviews the information provided by the applicant and sets a date to meet in the office. Sometimes, the examiner may suggest that the applicant chooses an IRS collection alternative. an installment agreement. You can convince the examiner not to accept the alternative and, in the worst case, appeal.

4. Do not submit "junk" offers

To get OIC approval, the applicant must provide supporting documentation for each figure entered on the form. Avoid mentioning junk offers (e.g., a friend lending your money to pay taxes), as they lack documentation and support logic, which can increase your chances of rejection. The mandatory 20% deposit that you must pay with your request will be lost. You will be required to pay an additional 20 percent if you submit a legitimate offer.

Last words

The IRS makes only decisions that are best for the government. To win the game, you must be familiar with the rules. Expert legal advice is the best way to minimize or eliminate your chances of being rejected. Law Offices Of Nick Nemeth, PLLC has a team of dedicated professionals who will take care of all your IRS tax issues. Nick Nemeth is a professional with years of experience helping people and businesses solve major tax problems.

You can offer a lower amount to pay your final tax liability. OIC candidates are individuals or businesses that do not have the income, assets, or means to pay their tax liabilities now or in the future.

The Franchise Tax Board (FTB) generally approves an OIC when it is the maximum amount we can expect to collect in a reasonable time.

While each case is evaluated based on its unique facts and circumstances, the following factors are important to our evaluation:

• Capacity to pay.
• Equity in assets
• Future and present income
• Future and present expenses
• The age and health of the taxpayer.
• Potential for new circumstances
• What are the state's best interests?

Apply process

Complete the application form and submit the required documentation to apply for an OIC. To see a list of items required, visit ftb.ca.gov/forms. Search for 4905

• Use FTB 4905 PIT for Personal Income Tax. Offer in Compromise to Individuals.
• Use FTB 4905 BE, Booklet for Business Entities

Only OIC applications will be processed if they are:

• You have filed all required tax returns. Now you can agree on the amount that you owe. You can note any filing requirements that you don't have on your application.
• Completed the Offer in Compromise Application and submitted all supporting documentation.
• Authorized FTB to access your consumer credit report, investigate and verify the information that you have provided in your application.

All applicants must

To ensure that you cover all areas, complete the checklist included in the application.

• Completing all pages of the application is essential. You can also write "not applicable" in appropriate areas.
• Please complete the justification and the source of the funds. These sections cannot be left out.
• Check that the application has been signed and dated.
• Be sure to include all required copies of bank statements, payslips, and profit/loss worksheets.
• If you have completed or submitted an offer to the IRS, including the application and acceptance letters.
• All information and assets should be included. We will deny an offer if we find any assets that were not included in the evaluation.

Companies

• Before applying, ensure that all returns required are filed. All returns for the current year must be included by business entities. This could include a partial-year return and the marking of the "final return” box on the last return.
• You should also provide proof that all bank accounts were closed.
• Verify that all assets are liquidated.

Individual income tax

• For amounts claimed, including three months of billing statements
• Include a current rental agreement.
• Attach copies of bank statements and payslips. Provide profit and loss worksheets if you are self-employed.
• You must show documentation if you can justify the offer because of a medical condition.