Blog

Back to Blog

Want to File an IRS Offer in Compromise? Second, Review Income & Expenses.

January 13, 2017

Can I settle my tax debt for less that what I owe? (Part II)

This post is the second of five posts on filing an IRS Offer in Compromise.

After reviewing available equity, you can move onto the evaluation of your monthly income and expenses. The IRS wants to know your monthly disposable income, which is the difference between your income and expenses.

IRS Form 433-A (OIC): Section 7 Monthly Household Income and Expense Information begins with income.

Monthly Household Income

Understand that the IRS has a particular method for calculating monthly household income, and IRS Internal Revenue Manual 5.15.1.11 (11-17-2014) is your starting point. Since the IRS is looking for monthly figures, pay particular attention to the multiples used in converting weekly and bi-weekly (every two weeks) pay periods to a monthly number. Also, you will want to use these same multiples when calculating expenses shown on your paystub.

If income from wages is inconsistent, be sure to review IRS Internal Revenue Manual 5.8.5.20(4) (09-30-2013) because it provides guidance on handling income issues such as seasonal income, short and long-term unemployment history, looming retirement as well as potential bankruptcy candidates.

Monthly Household Expenses

I cannot stress how important it will be to review IRS Internal Revenue Manual 5.8.5.22 (10-22-2010) and its companion sections 5.15.1.7 (10-02-2012) through 5.15.1.10 (11-17-2014) at least a few times because the IRS calculates expenses differently than what you actually spend each month. For example, the IRS will allow you to claim a food and household item (i.e., groceries) expense which is often more than your actual grocery spend. In another example, the IRS will apply standards for housing and utility costs. If you spend more than the standard, you will have an uphill climb in getting the IRS offer examiner to allow you to claim more than the standard.

Moreover, review the types of expenses that the IRS considers conditional (see section 5.15.1.10). These expenses include private school tuition. When evaluating expenses for purposes of the offer in compromise, these monthly expenses are generally not allowed.

Calculation of Future Income

Once monthly income and expenses are calculated, simply subtract the expenses from income. This difference is known as your monthly remaining income. Next, as IRS Internal Revenue Manual 5.8.5.25 (09-30-2013) states, “Generally, the amount to be collected…is calculated by…multiplying the difference by the number of months applicable to the terms of offer.”

If an offer will be paid within five months of acceptance, then multiply the monthly remaining income by 12. If an offer will be paid between 6-24 months, then multiply the monthly remaining income by 24.

Example 1. Taxpayer calculates his monthly remaining income to be $300 per month and believes he can pay his offer in compromise within five months of acceptance. Taxpayer’s future income is $3,600 ($300 x 12).

Example 2. Taxpayer calculates his monthly remaining income to be $300 per month but will need six months to pay. Taxpayer’s future income is $7,200 ($300 x 24).

Example 3. Taxpayer calculates his monthly remaining income to be $0 per month. Regardless of the taxpayer’s time frame for payment, his future income is $0.

Given the way the IRS calculates income and expenses, it is possible for taxpayers to show $0 for monthly remaining income. While your calculations are subject to verification from the offer examiner, do not be afraid to submit your offer with a negative number for remaining monthly income.


Quote mark image for testimonials

Alex was a pleasure to work with. He was very clear on what he needed from us and obviously worked closely with the federal government to resolve our issue. He has exceeded our expectations. Scott St. Louis, MO

Alex is an amazing attorney! I really had very little confidence in any attorney and in particular a tax attorney. From the first phone call Alex made me feel at ease and never made me feel embarrassed by letting my tax situation get out of control. He took all the stress away and I am thrilled to say also resolved all of my tax issues quickly. He has gone above and beyond. I would recommend Alex to everyone! Josephine St. Louis, MO

For no other reason than my own need to express my gratitude, I would like to sincerely say thank you to The Alexander Law Firm. Alex has gone above and beyond my expectations and has taken the weight of the world off of my shoulders. I will continue to recommend him to anyone that I know searching for a Tax Attorney even if that may be my Grandmother! Jeremy St. Louis, MO

I can’t begin to express how wonderful my experience with The Alexander Law Firm has been. I came to see Alex with my disabled sister who had a tangled mess of tax issues. A plan was proposed to remedy my sister’s complex tax issues and was put into place as planned. Alex was on top of all issues and was there to answer all my questions. I feel he went over and above the norm. His compassion was greatly appreciated while my sister and I navigated this difficult time. I will continue to retain Alex’s services in the future and would definately recommend him to friends and family. Many thanks. Peggy St. Louis, MO

I presented The Alexander Law Firm with an IRS problem which I felt to be unsolvable. They solved the problem beyond my expectations. I am quite happy with their work and highly recommend The Alexander Law Firm. Tom Columbia, MO

Alex exceeded my expectations in handling my IRS and state tax issues. He is courteous, efficient and gets results. I highly recommend The Alexander Law Firm. Martin St. Charles, MO

This was my first experience in being audited by the IRS. I was extremely nervous as I heard horror stories and didn’t know what to expect. Contacting Alex was the best decision I’ve made. He was precise, knowledgeable, always on top of things and most importantly, he was able to put me at ease. By following his directions and recommendations, I was able to gather all the information necessary for the IRS. Alex was able to lead the entire process smoothly and I ended up with a no charge result. I would highly recommend Alex to be on your side if you are dealing with the IRS. M.N. St. Louis, MO

All my expectations have been exceeded. [The] firm is very easy to work with and I am pleased how my case is going so far. I have no complaints, great service. Eric St. Louis, MO

I had called four tax law firms and left messages and the only law firm that called me back was The Alexander Law Firm. After speaking with Alex about my tax issues, he informed me of the fee and told me that he would be happy to help with my tax problem. Alex kept in contact with me throughout the entire experience. What took me four years, in trying to comply with the State of Missouri, Alex helped and wrapped up in a short amount of time. After all was said and done, he had gotten the state of Missouri to settle for a fraction of what they had said I owed them. I would definitely recommend The Alexander Law Firm to any of my family or friends. Stuart St. Louis, MO

Alex helped me sort out a complicated mix of problems with the IRS and the Sate of Missouri. He could not have been more knowledgeable. He built a clear plan, dealt effectively with all parties involved and helped me get things settled. His focus and calm demeanor made dealing with him a pleasure. I recommend him without reservation. Steve Ferguson, MO

Schedule a Consultation

Have any questions? Need help with your tax situation? We would love to hear from you!

Sign up for our free e-book

The IRS Does Not Just Go Away

Alexander Law Firm is a BBB Better Business Bureau Accredited Business Alexander Law Firm rated by Super Lawyers
Alexander Law Firm
St. Louis Office
St. Louis Map

5257 Shaw Ave, Suite 221
St. Louis, MO 63110
United States

P (314) 261-4111

© 2016 Alexander Law Firm. All Rights Reserved.