One important consideration made more than a $90,000 difference.
Let me tell you about an offer-in-compromise case that I recently completed. My client was the pastor of a little church and he depended on the offerings for his income.
Before he came to see me, he had several years of tax problems. I think he had his own business prior to being a pastor. His tax debt was $100,663.23, but he was making less than $30,000 a year as a pastor.
He was overwhelmed and he wanted to get his life back together. So once I interviewed him, I found out that his income was low and had very little in terms of assets.
When you submit an offer in compromise, the IRS looks at three factors.
One is the 10-year collection statute. (The IRS only has 10 years to collect the tax debt!) How many years are left? He had several years left, so this was not a favorable factor.
Two, his net asset value. The IRS will usually require the settlement offer to be at least the taxpayer's net asset value. He didn't have much in terms of assets: a car and some personal belongings.
And three, his income was less than $30,000 in 2018 and $43,000 in 2019. Based on his 2018 income, after reasonable living expenses, we submitted an offer for $985 to settle his debt.
The IRS came back and wanted to know his 2019 income. The problem was that the 2019 income was $13,000 more than his 2018 income.
When we analyzed his income, we realized that two people in the small congregation had sold their homes and made large contributions. This caused a one-time bump in his income in 2019.
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What made the difference to reduce his tax debt by more than $90,000?
Since he gets paid a certain percentage of the church offerings, I was able to convince the IRS that this level of income was a one-time event. His future annual income will likely be closer to $30,000 than $43,000.
When all was said and done, we settled for $10,345. The client was happy. For the next five years my client has to timely file his tax returns and pay any taxes due. He has a good future now that his $100,663.23 in debt was settled for $10,345.
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