E. Martin Davidoff & Associates Solves IRS Problems

E. Martin Davidoff & Associates is a Law and Accounting firm that specializes in intricate tax and accounting matters. For over three decades E. Martin Davidoff & Associates has navigated the complex structure of federal and state tax laws, as well as IRS policies and procedures, to become the nationally recognized leader in successful tax controversy resolutions.

New Information about Offers in Compromise

On May 21st, the IRS announced major changes to the Offer in Compromise program.  Those changes are detailed in a Legal Guide I have published on Avvo.  For your convenience, I am providing you this link: http://www.avvo.com/legal-guides/ugc/irs-makes-significant-changes-to-offer-in-compromise-program.  If you would prefer to have a copy in Word, please let me know.

 One of the most significant changes is the multiple to be used by the IRS in computing the Future Net Income component of Reasonable Collection Potential (“RCP”).   The following examples illustrate that policy change with respect to offers paid within five months of acceptance, wherein the multiple is reduced from 48 to 12. 

 Example #1:

  • Taxpayer owes $125,000 to the IRS
  • Taxpayer earns $80,000 per year.
  • We agree with IRS that the Taxpayer can afford to pay $750 per month to the IRS.
  • We agree with the IRS that the Taxpayer has $40,000 in realizable value of his/her assets.

 Under the old rules the acceptable offer (RCP) would have been $76,000, computed by multiplying the $750 by 48 ($36,000) and adding the $40,000.

 Under the new rules the acceptable offer (RCP) will now be $49,000, computed by multiplying the $750 by 12 ($9,000) and adding the $40,000.

 Example #2:

  • Taxpayer owes $400,000 to the IRS
  • Taxpayer earns $250,000 per year.
  • We agree with IRS that the Taxpayer can afford to pay $4,000 per month to the IRS.
  • We agree with the IRS that the Taxpayer has $5,000 in realizable value of his/her assets.

 Under the old rules the acceptable offer (RCP) would have been $197,000, computed by multiplying the $4,000 by 48 ($192,000) and adding the $5,000.

 Under the new rules the acceptable offer (RCP) will now be $53,000, computed by multiplying the $4,000 by 12 ($48,000) and adding the $5,000.

 The result in this example #2 appears too good to be true.  And, although on the face of the matter, the computations work, the IRS is likely to use its general rule that the acceptance of the offer would “not be in the best interests of the government” as a reason for rejecting such an offer or negotiating an increase to the offer.

 In addition, if the full payment of the tax can be made within the statute of limitations to collect the tax (usually 10 years from the filing of the return), then the offer will be rejected.  So, in example #2, if the remaining time on the statute to collect the tax is 100 months or more, the offer will be rejected as the Taxpayer could pay the entire tax over the 100 months ($4,000 times 100 months equals $400,000, which is the tax due).

Each case will be considered based upon its own individual facts and circumstances.

If you have any questions regarding the changes described in the article and the impact of such changes upon what offers will and will not be accepted, please do not hesitate to contact me.

 My very best regards to you.

 E. Martin Davidoff, CPA, Esq.
Tel #: 732-274-1600
Fax #: 732-274-1666

EMD@taxattorneycpa.com

Company Website:    www.taxattorneycpa.com

Mailing Address:        P.O. Box 835, Dayton, NJ  08810

Fed Ex Address:        353 Georges Road, Suite K, Dayton, NJ  08810