I am frequently asked this question in my initial interview with clients. “How much will I be able to offer the IRS with my offer in compromise when I owe (blank) dollars?” Unfortunately, this is not a question I can immediately answer for my clients, but, the good news, determining the amount you offer is not based on the amount you owe, but rather the amount you are “collectible” for.
Well, how do I determine how much you are collectible for? The IRS determines your reasonable collection potential by analyzing your income, allowable expenses, and any equity you have in your assets. In order for the IRS to be able to determine your reasonable collection potential you will have to furnish them with a 433-A Collection information statement, financial information such as three months of bank statements, proof of payments such as health care costs, monthly bills, life insurance, etc. You will also need to provide information about any life insurance policies you have, the current payoff amount for your real estate and automobiles, valuations of your property such as kelly blue book sheets for your cars, and more. The 433-A collection information statement details which attachments and additional information it requires. The 433-A is a financial form where you list all of your assets, income, expenses, etc.
A note to remember, just because you list an expense and provide documentation showing that you actually make that payment each month, that is not a guarantee that the IRS will allow that expense. Speak with a tax professional about which expenses are allowed by the IRS or stay tuned to this blog for more information about the allowable expenses and limits on some of the allowable expenses.