February 4, 2013 by Jay Freeborne

As we emphasized in the last part in our series about the IRS Offer in Compromise rule changes, the date that your back taxes expire is ESSENTIAL to whether you are getting an OIC. This date - otherwise known as the Collection Statute Expiration Date (CSED) is usually 10 years after the IRS receives your tax return. Nothing affects the 10- year expiration date (for the most part) unless you file Bankruptcy or try an Offer in Compromise (and fail). Those actions pretty much extend the statute for the length that it takes to process those procedures.

But the 10 year rule is key. The TWO essential questions to indebted tax payers is:  

Can you pay your taxes back before they expire?

Do you have enough assets and future disposable income to pay off the IRS?

EXAMPLE ONE:  12k owed for tax year 2012
Taxpayer only owes $12,000 on tax year 2012 -- that's it. This taxpayer has no significant assets. And makes $25,000 per year. Translating that income into $2050.00 monthly. His monthly expenses are $1900.00 per month - all of his expenses are allowed by the IRS.

Test one: He has $150 of disposable income multipled by 12 months (the 12 month rule is the NEW IRS RULE for calculating Offers)  is $1500.00.  CHECK.

Test two:  His tax debt expires in 120 months. $150 x 120 months = $18000.00.  FAIL. 

This taxpayer would NOT qualify for an Offer due to him being able to pay the debt BEFORE the debt expired. DOESN'T QUALIFY.

EXAMPLE TWO:  50k owed for tax years 2008 2009 2010.
Taxpayer owes for 2008 2009 2010. All tax returns were filed on time and the respective expiration dates for the three years are May 1, 2019, May 1, 2010 and May 1, 2011 for each of those years.  He owes $17,000 approximately for each of those years. The important date in this illustration is the LAST ONE:  May 1, 2011. That is eight years and 4 months away or 100 months.

Taxpayer's family makes $95,000 per year or $7917 a month. The family has IRS allowed personal expenses of $7750 per month. They also have a 401k worth $8000.00.

So $7917 minus $7750 is $167 of monthly disposable income.

Test one: $167 times 12 months is $2004.00 plus quick sale value of 401k 70% x $8000 is $5600.00.  $5600 plus $2004.00 = $7604.00. CHECK.

Test two:  $167 times 100 months is $1670.00. This is will clearly NOT pay the debt before the statute of limitations will expire! CHECK.

This client would qualify for an Offer of $7604.00 on their $50,000 debt! QUALIFIES. 

EXAMPLE THREE:  $1.5 million years owed to the IRS for tax years 2004, 2005, 2006.
The date of expiration that is signficant in this example is the oldest one 2006 - which was filed late in 2007.  The expiration date is November 1, 2017. So there is 4 years 10 months left or 58 months left.

Taxpayer has $200,000 valued land - that is free and clear.  Taxpayer makes $320,000 per year or $26,667.00 per month. Their family has IRS allowed expenses of $21,000.

Test one: $26667 minus $21,000 is $5667.00 of monthly disposable income. Multiplied by 12 months is $68004.00. CHECK.

Test two:  $5667 months of payments multiplied by 58 months left in the statute is $328,686.00. They clearly can't afford to pay the debt back. CHECK.

These people could qualify for an Offer of $68004.00 plus $200,000 land multiplied by 80% or $160,000. TOTAL OFFER $228,004.00. QUALIFIES.

You can read the other parts of our now Six part series on Offer in Compromise Rule Changes :

Part One: Biggest IRS Rule Changes for Offer in Compromises Ever
Part Two: In a Payment Plan? How about an Offer?
Part Three: Payment Plan Conversion to OIC
Part Four: Offer in Compromise - Case Example
Part Five:  Statute of Limitations Effect on Offers

Need to have us research when your taxes expire? Want to see if you qualify for an Offer in Compromise? Our experts are ready for your call.  1-888-282-4697, Washington Tax Services - providing international representation to whereever Americans reside.

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(888) 282-4697

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