The Internal Revenue Service is hoping to receive tax payments it is owed, but with the recent creation of its Fresh Start program, it may begin seeing more of those tax debts paid. The Fresh Start program allows people that owe the government back taxes an offer in compromise, but everyone does not qualify for Fresh Start.
Many in Texas will likely qualify. Some may be thinking that the ability to compromise means that they can simply offer a number to the IRS and see if it is accepted-this is not the case. There is an equation that is used to determine what a person is able to pay and it may be perceived as complex to some.
The IRS examines a multitude of factors. Any assets that have value are considered. These may include homes, cars and any major items of wealth. Those assets that are secured by loans are respected as such and may only be valued by the IRS as the difference between the value of the item and the amount of debt owed on it. Allowable expenses are subtracted from disposable income which is then added to the value of assets.
That number is multiplied by 12 or 24, depending on how the accepted compromise will be paid. If it is paid off immediately, it will be multiplied by 12; if in installments, it is multiplied by 24.
When examining an applicant’s finances, the IRS will see to the sale of any assets that are deemed unnecessary. These will include any collectibles or art collections and will likely include living arrangements that are more expensive than the national standard.
Be sure to determine if you qualify before going ahead and hiring someone to apply for you. Some supposed tax professionals are taking advantage of hopeful individuals seeking to clear their names and financial histories of federal tax debt.
Source: Fox Business, “Strike a Deal: Compromising with the IRS,” Bonnie Lee, Aug. 9, 2012