1. Lump Sum Cash Offer
The IRS uses a multiplier to
determine the future earning potential
of a taxpayer seeking an Offer in
Compromise. In short, the IRS calculates
a taxpayer's monthly net available
income by comparing gross monthly
income to his or her allowable monthly
expenses. This monthly net available
income is projected into the future
for a set period of time, determined
by the type of offer selected. For
a lump sum cash offer, the IRS projects
the net available income over the
next forty-eight (48) months.
As applied, it means that if
the IRS determines a taxpayer has
$100.00 in monthly net available
income, the IRS will ask for a Lump
Sum Cash Offer in Compromise for
at least $4,800.00. This $4,800.00
may increase if the IRS determines
there is additional value in equity,
retired debt, or dissipated assets.
This payment option is called
"Lump Sum" for a reason. Although
it is the cheapest, it is also one
that must be paid off the fastest.
The IRS only allows the taxpayer
150 days to pay the Offer in Compromise
in full after the date of acceptance.
The Lump Sum Cash Offer is the
most common type of Offer in Compromise.
Luckily, for most taxpayers, it
is also the cheapest. This is because
it uses a forty-eight (48) month
multiplier in calculating a taxpayer's
future earning potential as opposed
to larger multipliers employed by
the other offer types.
The only exception to the forty-eight
(48) month multiplier is if the
time remaining before the statute
of limitations expires on the taxpayer's
tax debt is less than forty-eight
(48) months. In that case, the IRS
will use the number of months remaining.
Finally, the taxpayer usually
has to make an initial deposit of
20% of the initial offer amount
when they file a lump sum cash offer.
This amount is not refundable even
if the offer is rejected. The one
exception is if the taxpayer qualifies
for a hardship waiver and submits
the accompanying form.
2. Short Term Periodic Payment
Offer:
The difference with a short
term periodic payment offer is that
the first regular payment must be
made with the initial short-term
periodic payment offer. Subsequent
payments continue while the offer
is under consideration and are credited
against the twenty-four (24) payment
schedule after the offer is accepted.
If the offer is rejected, the payments
made will be applied to the taxpayer's
oldest tax liability. Any payments
made are not refundable.
The primary difference, and benefit,
of the short term periodic offer
is that it does not require the
taxpayer to pay the determined offer
amount within 150 days. Instead,
the taxpayer has to make regular
payments for twenty-four (24) months
after the offer has been submitted.
The catch is that rather than
a forty-eight (48) month multiplier,
the IRS will use a sixty (60) month
multiplier. Thus, using the above
example, the taxpayer's Short Term
Period Payment Offer will total
$6,000.00, to be paid in monthly
installments of $250.00 each. Thus,
although the taxpayer will have
more time to make their offer payments,
the total offer amount will be larger.
However, if the taxpayer has no
net available income, the offer
amount will be the same as a lump
sum cash offer.
3. Deferred Periodic Payment
Offer:
Keep in mind that although each
offer may vary in when and how much
a taxpayer may offer to pay, the
process of calculating a taxpayer's
ability to pay is the same across
the board. And ultimately, the type
of offer selected by the taxpayer
will depend on his or her individual
financial situation.
This is the least desirable type
of offer and one that is not usually
recommended for IRS tax settlement.
The multiplier utilized in this
type of offer is the number of months
remaining on the taxpayer's statutory
period of collections on his or
her most recent tax liability. In
short, the taxpayer will be making
monthly payments based on their
net available income for as long
as the IRS can collect on the liability
or the liability has been paid in
full.
There is little benefit to the
taxpayer in this type of offer and
the taxpayer may be better served
seeking an installment agreement
rather than a deferred periodic
payment offer.
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