Why a cash offer is best: Contrary to all those late night TV ads promising you a miracle of sorts by reducing your taxes for a fraction of the amount, most offers are rejected by the IRS and are not for everyone. There is no "secret" when submitting an offer and you need not rush to submit one, as this is not a one time deal with a deadline that will soon be closed on you. There are three types of offers to submit: 1) Cash out to be paid within 90 days 2) Short Term Deferred Payment (to be paid more than 90 days up to 24 months) and 3) Deferred Payment (payment plan over the remaining statutory period for collecting the tax. For "cash out" you are required to submit an offer containing the realizable value of your assets, plus the total amount the IRS could collect over 48 months of payments or the remainder of their 10 year statutory period for collection, whichever is less. For short term deferred payment, the offer must include the realizable value of your assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the 10 year statutory period for collection,whichever is less. The IRS will give you up to 2 years from acceptance to pay in the amount of your offer. Under the deferred payment offer the IRS allows you to pay the offer amount over the remaining statutory period for collecting the tax. For this however the offer must include the realizable value of your assets plus the amount the IRS could collect through monthly payments during the remaining life of the collection statute. With short term and deferred payment offers the IRS may file a Federal Tax Lien. If you submit a cash offer the IRS releases the tax lien upon payment of the cash offer. Also with a cash offer the IRS only looks to the next 48 months of payments in determining your abililty to pay (or collection statute expiration date whichever is less), thus there are advantages in submitting a cash offer since it may allow you to pay the least amount of all three methods.Essentially then an offer to the IRS is based upon your "disposable income" and your net worth and what kind of offer you want to submit. If your net realizable value plus the total amount of your disposable income over 48 months or the statutory period for collection whichever is less exceeds your tax balance, you would not be a viable cash offer candidate as the IRS. If your net realizable value plus total amount of disposable income over 60 months or the statutory period for collection whichever is less exceeds the tax balance, you would not be a viable short term deferred payment candidate. If your net realizable value plus total amount of disposable income over the statutory period for collection remaining exceed the tax balance, you would not be a viable deferred payment offer candidate. IRS only allows certain living expenses in determining "disposable income", thus any such adjustment by the IRS leads to having more disposable income in theory and the IRS looks at this as an ability on your part to pay more towards your taxes. The IRS classifies your living expenses the way they see fit and unless Congress says otherwise we are bound by it. They are broken down as national expenses, local expenses, other expenses and what I refer to as "conditional expenses" (the IRS calls it that for installment plan purposes but not for offer purposes). Each expense category is treated differently as follows:
STOP IRS LEVY WITH A PAYMENT PLAN: If you owe back taxes and fail to address or resolve your issues with the IRS, they will assign your account over to the collection division where they will begin enforcement action. Prior to a levy the IRS will send via certified mail a "final notice of intent to levy". If you have moved since you filed your last tax return and if you mail forwarding expired you probably will not receive this letter since the IRS does not know your new address and will send this letter to your last known address on file with them. If you receive such a letter and do not know what to do or how to resolve your problem you should contact a tax attorney right away if you wish to prevent the IRS from levying your assets. As a "super creditor" the IRS can levy most assets. There are a few statutory exemptions that describe what assets they cannot take, but that list is quite limited, for that list see, Title 26, section 6334 of the Internal Revenue Code. The IRS generally goes after your bank accounts and wages before they begin to go after other assets that you own. Unfortunately some of you will know this when your employer or your bank informs you that they were served with a levy from the IRS and are now holding your funds. If you rely upon those funds to live on, this can be very devastating. If your name just so happened to be on your parents bank account as a joint account holder, the bank will hold those funds as well, so in other words your tax levy may cause some grief for not only yourself but for others as well. If you own real estate with other family members, the filing and recording of a federal tax lien against you will encumber that property and now once again you have involved other family members with your tax problems. By statute Social security benefits are exempt from garnishment by most creditors, but not the IRS. There are procedures in place that will also allow the IRS to sell your car and your home. They can also go after certain retirement accounts such as an IRA and 401k, as well as the cash value of life insurance policies. The IRS requires that you have filed all non-filed tax returns before they will enter into an installment plan and stop a levy so if you anticipate a levy you should have your delinquent tax returns prepared asap. If negotiations with the IRS are successful and an installment plan is agreed upon the levy will be released. There are various issues involved in negotiating for a payment plan that you can afford and I suggest that you not do it by yourself. Negotiating for an installment agreement depends on how much you owe and how much you can pay towards it. Sometimes excessive living expenses and conditional expenses are allowed, other times they are not. If you do it yourself you may not be able to successfully handle these issues and you may end up paying more to the IRS than what you really can afford. Depending upon the facts of your case and the necessity for the expense an experienced tax attorney may get you a temporary reprieve up to a year for excessive and conditional expenses. For some of you there may have to be some belt tightening on your part before the IRS will agree to an installment agreement. For those who qualify the IRS will agree to place certain people in an "noncollectable status". This means you don't have to pay the IRS anything so long as your financial situation does not change, If you are noncollectable you are probably a great candidate for an Offer in Compromise. If however you owe taxes to the IRS, the state of Hawaii and have major consumer debt then bankruptcy may be a better option as it will address all of those issues, something that an offer does not.