TAXPAYER'S FINANCIAL SITUATION:
Monthly income: $22983
$1029 National standard - automatically given to taxpayer depending on amt. of people in household.
$1990 Housing - fully allowed for their county in Texas - (listed Housing Standards for Texas)
$488 Transportation expenses for two cars in the South (no major city - Transportation Standards - IRS)
$1400 Out of pocket medical expenses plus health insurance
$7640 Estimated taxes for federal including social security as client is self-employed
$250 Life insurance - term life policy - therefore fully allowable.
Total expenses $12797.00
Disposable income: $10186.00
Client's Assets: $12,340 --
OLD OFFER IN COMPROMISE: $500,000 settlement
In the old offer formula you would multiply:
$10186 of disposable income by 48 months to come up with = $488,928.00 add in their $12,340 of assets that would give you an Offer $501,268. The best Offer he could do: $501,268 to settle their debt of $1.7 million. Bottomline - not really feasible. Our staff negotiated a $4300 monthly installment agreement for the taxpayer.
NEW OFFER IN COMPROMISE: $134,572.00 settlement
In the new Offer formula you would multiply:
$10186 of disposable income by 12 months to come up with = $122,232 add in their $12,340 of assets giving us an Offer of $134,572.00. That is a much more attractive Offer. When the rules changed I called the taxpayer and he is fully on board to do this Offer. In the meantime, if he defaults his payment plan by the time the IRS collection process starts again - the Offer will be filed which automatically stops the collection process.
20% of the client's settlement will be required to start along with a $150 filing fee. It will take about 5 months to process the Offer. When the Offer is approved the client can pay the remaining 80% of the Offer all at once or in five payments over six months (roughly).
UPDATE: THIS CLIENT'S OFFER WAS ACCEPTED IN AUGUST 2013 FOR $59,000 - LOWER THAN PROJECTED!! SEE HERE FOR NARRATIVE: IRS Offer Accepted to settle $1.7 million debt !
You've reached the end of our three part Series: OIC Rule Changes Revisited for 2015. Here are the other two parts:
Part I Offer in Compromise Rule Changes - Revisited for 2015
Part 2 "Can You Pay Off Tax Debt Before it Expires?"