May 31, 2019
New Flexible Offer in Compromise Terms
Experienced Tax Attorneys in Dallas-Fort Worth
In May, 2012, the IRS announced taxpayer-friendly changes benefiting those seeking to pay tax debts using offers in compromise (OICs). At the Dallas-Fort Worth law firm of Brown, PC, we are prepared to help taxpayers understand the new OIC terms and determine their eligibility for the program.
Our experienced Texas-based tax attorneys, certified public accountants and IRS enrolled agents form one of the strongest and most successful tax law practices in the U.S. We are deeply familiar with the IRS’ revised OIC terms and are ready to help you create an offer that both complies with IRS regulations and accomplishes your goal of getting out from under the heavy burden of tax debt.
Why Would the IRS Accept Less Than The Full Amount Owed?
Offers in compromise are offers made by taxpayers to the IRS to settle delinquent tax debts for less than the full amount owed. The IRS assesses whether there is a reasonable potential for collecting the full amount due. If the answer is no, an OIC becomes a realistic alternative.
Defining Reasonable Collection Potential (RCP)
The biggest change resulting from the new flexible OIC program is in the way the IRS decides RCP. Future remaining income is the key to RCP. Future remaining income is the amount of money a person has after paying allowable expenses. Here is a brief example of how the new calculation is different than the old one:
- Old OIC terms – taxpayer offers to pay debt in six or more months: Taxpayer has $400 after allowable expenses. 400 is multiplied by 60, resulting in a future remaining income of $24,000.
- New OIC terms – taxpayer offers to pay debt in six months or more: Taxpayer has $400 after monthly expenses. 400 is multiplied by 24, resulting in a future remaining income of $9,600.
The difference is $14,400. That means, under the new OIC terms, the taxpayer can offer $14,400 less to settle the debt than he or she could have offered under the old system.
What Are Allowable Expenses?
When crafting an OIC, taxpayers have always been able to deduct expenses such as housing, transportation and food from their income. Under the new OIC terms, credit card payments, bank fees, student loan payments and even a percentage of delinquent state and local taxes can be deducted as well.
How State and Local Tax Delinquencies Affect Future Remaining Income
The amount of state and local taxes that is considered an allowable expense will vary from person to person. The exact figure depends on how much is owed to the state and how much is owed to the IRS. For example, imagine a taxpayer owes $100,000. He owes $90,000 to the IRS and $10,000 to the state. That means 10 percent of his taxes are state taxes. If he has $400 at the end of each month, he can pay 10 percent of that to the state and reduce his remaining income to $360.
As you can see, there are many variables and complexities involved in deciding whether a person’s income will qualify him or her for an OIC. When you reach out to Brown, PC’s Dallas-Fort Worth tax lawyers, you can be confident that everything will be calculated accurately and the OIC we present to the IRS on your behalf will have a great likelihood of acceptance.
Contact a Texas Lawyer for Help Dealing With IRS Tax Problems
For a free, confidential consultation to discuss your tax liabilities with an experienced lawyer, please call 817.870.0025 or toll free 888-870-0025 or contact our law firm online. We represent businesses and individuals in high dollar tax controversies across the country.