Being successful in an offer in compromise can depend on how much you know about IRS settlement guidelines. An offer in compromise is a negotiation – you may have points to make with the IRS that only you can raise.
Here are five pointers to lower the value of your offer in compromise:
(1) Make sure you claim property the IRS cannot take from you as “exempt” on your IRS financial statement (Form 433A). Exempt assets that the IRS cannot take includes everyday belongings in your house (Internal Revenue Code 6334(a)(1)). It also includes certain tools from your business. The value of these assets should not be included in the value of what you offer the IRS.
(2) Use the possibility of bankruptcy as leaverage. Internal Revenue Manual 184.108.40.206(5) allows the IRS to consider the impact of a possible bankruptcy on the value of a compromise. If your taxes are eligible to be discharged in bankruptcy, the IRS could get nothing if you chose that route over an offer in compromise. Make sure you know how to use that leaverage to get an offer in compromise and avoid bankruptcy.
(3) Know how to properly utilize IRS living expense guidelines. For example, if you car is over six years old or has over 75,000 miles, the IRS can allow a $200 monthly replacement cost. See Internal Revenue Manual 220.127.116.11.3. Make sure you know the IRS guidelines in an offer in compromise and how to maximize the amount the IRS will allow you.
(4) Understand how to properly reduce the value of your property to quick sale value. Start with what it would sell for at resale – that is fair market value. IRS guidelines permit you to reduce fair market value by 20% to arrive a quick sale value. If your house is worth $100,000, this can save you $20,000 ($100,000 x 20% reduction). Make sure you take the “quick sale value” reduction on your property, including houses and cars.
(5) You may have income that the IRS cannot take. If you do, request that it be excluded from offer calculations. The IRS cannot seize workers compensation, unemployment benefits, supplemental social security for the disabled, blind or aged and service-connected disability benefits (Veterans). If they cannot levy it, then it should not be considered as an income source.
There are many factors that play a part in a offer in compromise negotiation. The more knowledge you have about the IRS settlement process, the better.