There are four (4) different ways to resolve your tax debts. They are:
• Installment Payment Agreement
• Currently Not Collectible
• Offer In Compromise
I am not going to discuss bankruptcy today, but it could be used to discharge income tax liabilities that are more than three (3) years old if all tax returns have been filed and you satisfy a list of about nine (9) different requirements. My recommendation is to consult a bankruptcy attorney for this.
Over the next three (3) weeks, I am going to write more in depth explanations of how each of these other tax resolution options work, but for now I am just going to do an overview.
For a Currently Not Collectible filing, you go through the same process. If the answer is that the client has no assets to sell and no funds left after paying monthly allowable living expenses, then it would create a hardship for them to be required to pay back the tax debt. You should request that the IRS consider them to be Currently Not Collectible.
In determining if you qualify for an Offer in Compromise, there is no magic here, but rather a very basic formula used by the IRS to calculate what they call “reasonable collection potential”. Reasonable collection potential is the sum of two numbers, “Net Equity in Assets” plus “Future Income”.
Calculate the cash you would yield if you sold the assets that you could without creating a hardship (art, home, fourth or fifth cars) for 80% of their market value, known as the quick sale value. Then pay off the loans, like mortgages or car loans, associated with these assets. What you are left with is your “Net Equity in Assets”. Add to that figure an amount equal to either twelve (12) or twenty four (24) months of net positive cash flow from calculating monthly income versus allowable monthly living expenses. Combine those two figures (NEIA plus FI) and you have your offer.
If you are receiving collection letters from the IRS or have years of unfiled tax returns, please call me at 203-434-5626 or email me at firstname.lastname@example.org