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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 is then applied to limit your offer in compromise financial standard allowance. 

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