The IRS Offer in Compromise is the name of a tax settlement. These sound like a gimmick when you hear them on the radio/tv, but they actually work. You have to qualify, and know what you are doing when you file the offer. With experience in having many of these offers accepted by the IRS for our clients at EA Tax Resolutions in Orange County, CA we know how to file the Offer in Compromise.
In this blog I am going to explain how to determine your “offer” or “reasonable collection potential” (RCP).
The IRS reasonable collection potential (RCP) or offer is based off your net equity assets and future income. The IRS will accept an offer so long that it meets or exceeds their financial guidelines to calculate the net equity assets and future income. Getting this calculation is the reason why so many offers get rejected and why our firm is so successful at having our offers accepted. Below is how to figure your Net Equity Assets and your Future Income.
Net Equity Assets:
- Automobile: Current market value – loan - $3,450 exemption
- Cash, Checking or Savings Accounts: Total minus $1,000 exemption
- Investment Accounts: 80% of current value of all accounts
- Retirement Accounts: 80% of current value of all retirement accounts
- Cash Value of Life Insurance Policy: Cash value – Loan Balance
- Real Property: 80% Current value
- Personal Assets (Artwork, Jewelry, Collections, Business interest not publicly traded, etc.)
- Virtual Currency: 80% Current value
Future Income Calculation:
Gross Monthly Income from all sources minus allowable living expenses.
- Net Business Income
- Net Rental Income
- Social Security
- Pensions Distributions
- Child Support Payments
- Any other sources of cash
- Food, Clothing, and Misc: National Standard from IRS.
- Housing and Utilities: Lesser of Actual or Local Standard set by IRS
- Automobile – Ownership: Lesser of Actual or National Standard
- Automobile – Operating: Local Standard
- Public Transportation: National Standard
- Health Insurance: Actual
- Out of Pocket Health Care Costs: High of Actual or National Standard
- Court Ordered Payments: Actual
- Child/Dependent Care Expenses: Actual (must be necessary)
- Life Insurance: Actual (must Be necessary)
- Current Taxes: Federal, State, FICA or SE, and Local
- Secured Debts (Student Loans): Actual
- Delinquent State Taxes: Percentage of State to Federal Debt
Once you figure your Net Equity Assets and your Future Income, your offer will be based one of two options you have, either the lump sum or the Short-term deferred offer. I will go into detail on both of these offers in a future blog.
If you are in need of some help with some back taxes and think you may qualify for an IRS offer in compromise, please contact us at EA Tax Resolutions in Orange County, CA to get some help. We have had many of these offers get accepted and can evaluate your situation to see if you are a good candidate for an offer. We do not take clients unless we believe you qualify.
4630 Campus Dr #203
Newport Beach, CA 92660