Call us
Dear Reader,
Everyone is well aware of the U.S. credit crunch, plummeting home values, and the generally tough economic situation. At the same time, the U.S. government is running at a staggering deficit and looking to the Internal Revenue Service (IRS) to bring in more cash by stepping up audits and collections.
Unfortunately, many do not have the money to pay their personal or business taxes and are left to negotiate a payment plan or a settlement, called an Offer in Compromise (OIC), with the IRS. This article will review the basics of the very misunderstood and abused OIC program.
Put simply, an OIC is an offer to settle your IRS tax debt for less than the total obligation because you cannot pay the debt in full over the collection period. Before you can request an OIC, all of your tax returns must be filed and you must post a deposit of 20% of your offer amount (see the examples below to determine your offer amount).
NOTE: The IRS has 10 years to collect from you, beginning when you file your tax returns. The collection period is the time remaining on that 10 year statute.
A settlement can be made in one lump sum, or over a number of months. However, it is almost impossible to get OICs approved that will pay over time, so a lump sum payment is the only practical option for most taxpayers.
During the OIC process, your objective is to convince the Service that you are paying them something that they would not otherwise get. To prove this claim, you are required to complete a detailed financial statement, listing all of your income, bank accounts, and assets. If your assets exceed your debt, your offer will not be accepted.
If you do not have sufficient assets to satisfy the debt, your income is compared to your allowed expenses to calculate your offer amount. For example, a family of 4 living in San Diego, California is allowed to spend $2,526 per month on housing and utilities. The same family of 4, living in Armstrong County, Texas, would be allowed only $989 per month, and $5,364 in New York County, New York.
If your income exceeds your allowed expenses, the difference, times 48 months, is added to your assets to determine your total offer amount.
For example, if you owe $100,000 to the IRS, the equity in your home is $20,000, and your net income after allowed expenses is $1,000 per month, your total offer amount is $68,000 ($1,000 x 48 = $48,000 + $20,000), or 68% of the debt.
So, why do you see so many claims on the internet and television promising to settle your tax debt for pennies on the dollar? Because there are settlements like that, which are then used by a few unscrupulous promoters to mislead people in to spending thousands of dollars to only have their OICs rejected.
Take the same example above, but assume the tax debt is $1 million. It will still settle for $68,000, or about 15%.
If that same family owes $1 million, has lost their home, their income does not exceed their expenses (they are basically living at the poverty line), and the breadwinner is permanently disabled and unable to work, then total offer amount might be $1,000. This is a dream scenario for any national OIC firm…the perfect client who can be used in their multi-million dollar advertising campaign!
Before hiring anyone, especially a national firm, you should check them out on the web. Here are a few links:
Best regards,
Chris Rusch
Attorney at Law
406 Ninth Ave., Suite 304
San Diego, CA 92101
(619) 557-0587 Phone
(619) 557-0597 Fax
Chris@ruschlaw.com
www.ruschlaw.com
ABOUT THE AUTHOR:
Chris Rusch is a California licensed attorney who has represented clients before the IRS in many States. His practice is focused on international taxation, foreign corporate formations, and resolving complex tax controversies. Please visit his website at http://www.ruschlaw.com/ for more information.
Everyone is well aware of the U.S. credit crunch, plummeting home values, and the generally tough economic situation. At the same time, the U.S. government is running at a staggering deficit and looking to the Internal Revenue Service (IRS) to bring in more cash by stepping up audits and collections.
Unfortunately, many do not have the money to pay their personal or business taxes and are left to negotiate a payment plan or a settlement, called an Offer in Compromise (OIC), with the IRS. This article will review the basics of the very misunderstood and abused OIC program.
Put simply, an OIC is an offer to settle your IRS tax debt for less than the total obligation because you cannot pay the debt in full over the collection period. Before you can request an OIC, all of your tax returns must be filed and you must post a deposit of 20% of your offer amount (see the examples below to determine your offer amount).
NOTE: The IRS has 10 years to collect from you, beginning when you file your tax returns. The collection period is the time remaining on that 10 year statute.
A settlement can be made in one lump sum, or over a number of months. However, it is almost impossible to get OICs approved that will pay over time, so a lump sum payment is the only practical option for most taxpayers.
During the OIC process, your objective is to convince the Service that you are paying them something that they would not otherwise get. To prove this claim, you are required to complete a detailed financial statement, listing all of your income, bank accounts, and assets. If your assets exceed your debt, your offer will not be accepted.
If you do not have sufficient assets to satisfy the debt, your income is compared to your allowed expenses to calculate your offer amount. For example, a family of 4 living in San Diego, California is allowed to spend $2,526 per month on housing and utilities. The same family of 4, living in Armstrong County, Texas, would be allowed only $989 per month, and $5,364 in New York County, New York.
If your income exceeds your allowed expenses, the difference, times 48 months, is added to your assets to determine your total offer amount.
For example, if you owe $100,000 to the IRS, the equity in your home is $20,000, and your net income after allowed expenses is $1,000 per month, your total offer amount is $68,000 ($1,000 x 48 = $48,000 + $20,000), or 68% of the debt.
So, why do you see so many claims on the internet and television promising to settle your tax debt for pennies on the dollar? Because there are settlements like that, which are then used by a few unscrupulous promoters to mislead people in to spending thousands of dollars to only have their OICs rejected.
Take the same example above, but assume the tax debt is $1 million. It will still settle for $68,000, or about 15%.
If that same family owes $1 million, has lost their home, their income does not exceed their expenses (they are basically living at the poverty line), and the breadwinner is permanently disabled and unable to work, then total offer amount might be $1,000. This is a dream scenario for any national OIC firm…the perfect client who can be used in their multi-million dollar advertising campaign!
Before hiring anyone, especially a national firm, you should check them out on the web. Here are a few links:
- Click here for a review of American Tax Relief.
- Click here for JK Harris.
- Click here for Roni Lynn Deutch.
Best regards,
Chris Rusch
Attorney at Law
406 Ninth Ave., Suite 304
San Diego, CA 92101
(619) 557-0587 Phone
(619) 557-0597 Fax
Chris@ruschlaw.com
www.ruschlaw.com
ABOUT THE AUTHOR:
Chris Rusch is a California licensed attorney who has represented clients before the IRS in many States. His practice is focused on international taxation, foreign corporate formations, and resolving complex tax controversies. Please visit his website at http://www.ruschlaw.com/ for more information.