OFFER IN
COMPROMISE FORMS AND FORMULAS
There are
four primary formulas required to complete the offer
in compromise forms they include net realizable
equities, net income, future income and reasonable
collection potential.
This site
will therefore, present each of the four primary
formulas in order and provide detailed guidance,
instruction and information to help with the
individual calculations required to complete IRS offer
in compromise forms 656, 433A and 433B.
This
particular article will provide specific instructions
to determine your Net Realizable Equities otherwise known
as your net worth which is also a required component
of future calculations.
NET
REALIZABLE EQUITY DEFINED
Net
realizable equity (NRE) is the sum of the net quick
sale values less secured interests of your tangible
and intangible property.
Quick sale
values (QSV) are defined as eighty percent of the fair
market value and is generally accepted as the amount
you could sell the asset for in 90 or fewer days.
SPOUSAL
ISSUES
Generally,
a spouse is not liable for tax debts accumulated prior to marriage or for tax debts
accumulated after marriage if the liability results
from a married filing separate return.
JOINT
LIABILITY:
If you are
submitting an offer to settle a joint liability both
spouses will include the value of all tangible and
intangible property interests less any outstanding
secured and perfected claims against the
property.
Note:
An individual spouse may be granted relief from a
joint liability when unusual
circumstances exist for the IRS to compromise based
on injured or innocent spouse tax provisions.
SEPARATE
LIABILITY:
Community
Property States:
Generally,
the assets of a non-liable spouse are excluded from
the liable parties net realizable equities. The
total fair market value is is disclosed so that the
IRS can determine the liable spouses proportionate
share of the total assets, as prescribed by state
community property laws.
Note:
Some community property states hold
the marital estate responsible for liabilities that
either pre-date marriage.
Common Law
States:
The assets
of a non-liable spouse in a marital common law state
are excluded from the liable parties net realizable
equities and only property held as tenancies by the
entirety are record at fair market value and later
adjusted to reflect only the liable spouses 50% share.
NET
REALIZABLE EQUITIES
Eighty Percent (80%) of the Fair Market Value
of automobiles, real estate, personal and
business assets less secured outstanding liabilities
and the non-liable spouses proportionate share will
equal the quick sale value.
There are additional
exemptions for personal property and business assets ($7,720.00 and
$3,860.00) respectively. If the asset is adjusted to
reduce the value of the property due to the marital
deduction allowed for a non-liable spouse the
additional exemptions must also reflect the liable
spouse proportionate additional exemption allowed. The
sum of all assets previously adjusted represents the
liable spouses net realizable equities or net
worth.
