by Jay Freeborne , Enrolled Agent
January 16, 2014

Just got off the phone with client I last heard from in February 2011. Back then his case was placed into "currently not-collectible." Recently, the IRS had taken him out of this status and levied his bank account. This gentleman had tax debts for 1999 thru 2006 - really old debts. I thought it would be a good opportunity to look at the Offer in Compromise rule changes in 2012 and see if they were applicable to his case (as we discussed in last years new Offer series -- Offer Rule Changes Series)

First - his taxes due. He owes about $400,000 to the IRS. His tax debts should nearly have expired. But he had 1. a Failed Offer in Compromise on his case and 2. A bankruptcy filing (that was withdrawn) on his case. Both of these activities extended the statute of limitations for his taxes to expire. Normally - most of his tax debt would be expiring in 2014. But these actions extended his expiration of the debt to the end of 2015.

Second - expiration date of tax. So essentially , this old client's debt will expire in about 24 months from January 2014.

Third - financial analysis. Client has about $32,000 left in an IRA and has monthly disposable income after using IRS standards of $2500.00.

Before 2012 - this Offer would have been a likely no-go - $2500.00 x 48 months is $120,000 - throw in the IRA and you have a $152,000.00 Offer (more or less minus reductions in IRA for taxes, etc.).

Fourth - the 12 month rule for disposable income. With the new "12 month rule," client's disposable income times 12 months is $30,000 throw in the IRA and you have $62,000 Offer - much more doable.

Finally - the expiration dates are a key litmus test to Offer success. The disposable income of $2500 also needs to be measured against when the debt will expire. If you can pay the debt off within the statute -- the Offer is a no-go. However in this case , $2500 times 24 months left -- most certainly will NOT pay the debt of $400,000. So...this guy's Offer is a go!

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