The Fresh Start Initiative introduced by the Internal Revenue Service just weeks ago may have provided numerous taxpayers with false hope. Designed to assist individual and small business taxpayers with large tax liabilities, it includes changes in collection policy for lien filing threshold, lien withdrawal, installment agreements, and offers in compromise.
Although the IRS has attempted to lighten up its requirements for the initiative, the process isn’t as simple as most negotiations processes. Most people hope they can get away by paying less than half of what they owe back to the IRS and are willing to drop major dollars on any representative claiming to help them do this. However, only a knowledgeable tax attorney can promise you reasonable results by following specific IRS guidelines.
This is the formula used by the IRS to determine what you owe: the value of your assets plus your disposable income after allowable expenses multiplied by 12 or 24, if you need to make installment payments. In further detail: if you don’t own very much, maybe an older car with not much in your bank, your asset list will be very low. It will be higher of course for those who have much more in their property, which adds up quickly. Your disposable income is your monthly income minus necessary monthly expenses such as your house bill, food, utilities, medical bees, and other required fees for living. The remainder after this number is then what is multiplied by 12 or 24 to determine what you owe.
There are many guidelines that are often overlooked, often being the reason so many people believe they are entitled to more breaks than the IRS believes they deserve. Some are listed below:
– Savings for retirement. If you have any funds in a retirement plan, the IRS will expect you to be able to fork them over. Therefore, if you owe $30,000 and have $30,000 saved, the IRS will not settle for anything else than what you have.
– Although the IRS will not inventory inexpensive items in your household, such as clothing, they will take note of the much more valuable items. Collectibles, art, etc. will be included in your inventory and the IRS will expect you to sell these to cover your debts.
– The IRS wants you to keep your car! Of course, because they want you to be able to work to keep generating the revenues owed back to them. If you have a loan on your car, the value is relative to the loan balance, and, therefore, the IRS will acknowledge the lender’s position. If there is no lender, the price of the car will be greatly discounted when determining values for the final offer.
– The IRS is not willing to recognize and wait for you to pay off your credit card debt. If you owe amounts to credit card companies, this will not be recognized as part of your disposable income.
– The IRS website has a list of vehicle operating costs, housing and utilities, as well as household expenses. If the national standard for housing and utilities is less than what you actually pay, the IRS will expect you to move to a location that costs less. When calculating your offer, it will match the national standard, not yours.
– Other factors that the IRS will take into account are your age, marital status, health of dependents, and other factors that will affect your tax liability and ability to pay in the future.
For those who do not qualify for an offer, you may still have the chance to be considered uncollectible, which will give a year off to bring your finances to order. For the best advice and assistance on how to apply for the initiative or file your own offer in compromise following the listed guidelines, contact an experienced IRS tax attorney today.
Segal, Cohen & Landis 9100 Wilshire Blvd. Ste. 601E Beverly Hills, CA 90212 (310) 285-3999