Saturday, January 3, 2009

Doubt as to collectibility:

Doubt as to collectibility means that the taxpayer will never be able to fully pay the tax bill. The IRS will accept a settlement based on the following formula:

Settlement Amount = 60 months of disposable income + the equity in all the taxpayer's assets. (48 months disposable income in the case of offers paid within five months of acceptance.)

If a taxpayer believes he or she qualifies, the taxpayer completes a financial statement on a form provided by the Internal Revenue Service. Wage earners and self-employed individuals use Form 433-A. Form 433-B is for Offers involving all other business types. These financial statements identify all assets and liabilities as well as disposable income.

The total offer amount is required by law to be at least the value of equity in assets plus disposable income over either the 48 or 60 months. If your minimum Offer amount is more than your tax liability, then you are not a candidate for the Offer in Compromise program. Some tax representation firms today sell customers on the idea of doing an Offer in Compromise for which they do not actually qualify, so a taxpayer must exercise due diligence themselves when considering submitting an Offer in Compromise either themselves or through a representative.

If you cannot pay the amount of your Offer within 5 months, you may submit a Short Term Periodic Payment Offer. Under this payback plan, you must multiply your monthly disposable income by the lesser of 60 months or the remaining number of months in your statutory collection period, instead of 48. However, you can take up to 24 months to pay this Offer amount. During the Offer investigation, you must make the offered monthly payments towards the Offer, or the Offer will be automatically denied.

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