OFFER IN
COMPROMISE NET INCOME
This
article is the second in a series of four that
provides specific instructions, guidelines and
information to complete the offer in compromise tax
forms. This
particular article will provide guidance to determine net income and will address
issues related to IRS financial
standard allowance guidelines.
IRS
ADJUSTED NET
INCOME
IRS
adjusted net Income
is generally defined as your monthly income less
allowable expense for taxes, child care, health care,
current IRS and State tax payroll withholdings,
current income tax obligations, court ordered payments,
secured debt and any other expense items classified as
necessity or required for the continued production of income.
FINANCIAL
STANDARD GUIDELINES
Expenses for food,
clothing, housing, utilities and transportation are
generally limited to the lesser of your actual expenses or the
amount imposed by the IRS offer in compromise collection financial standards.
Any
deviations from the IRS imposed offer in compromise financial
standards will require verification, negotiation and
IRS supervisory approval. The financial standards and
allowable expense deductions
to determine IRS adjusted net income are guidelines
that are not statutory
in nature and therefore, subject to reasonable
cause debate.
TRANSPORTATION
ALLOWANCES
Vehicles
Ownership Costs: Generally,
the expense for vehicle ownership is allowed only if
you have a currently financed vehicle.
Vehicle
Exception: If
a financed vehicle is over six years old and/or has an odometer
reading more than 75,000 miles or more the collection financial
standard for ownership, is limited to two hundred
dollars.
Vehicle
Operating Costs: If you have a vehicle you are
allowed the lesser of your actual expenses or the
collection financial standard.
Note:
There is an allowance for those that use public
transportation.
COMPROMISE
OFFERS AND NON-LIABLE PARTIES
Spousal
Issues: If you are
married and submitting an offer to compromise a separate liability
divide the income of the liable spouse by the total
income of the household to determine the liable
spouses percentage contribution to household
expenses. The liable spouses contribution
percentage is then applied to limit both the actual expenses
and financial standard allowances.
SHARED
HOUSEHOLD EXPENSES
Shared
Expenses: If you
share housing expenses with others
verification of the total expenses are required to
establish your proportionate contribution percentage
by dividing your financial contribution by the total actual
household expenses. This contribution percentage also your offer in compromise financial standard
allowance.
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LIBRARY-
(suggested
order)