For years, I have seen big companies advertise on TV that, “Now is the best time to settle your debt.” With all due respect, I used to chuckle at that because I knew it was just a marketing slogan. The Offer in Compromise system has not really changed for years. UNTIL NOW. It is no longer a marketing slogan. The IRS has made the most dramatic change I have ever seen in settling tax debt. This change is in black and white. They have reduced the amount they are willing to take by approximately 75%
Here’s how it works:
Offers submitted after June 1, 2012, will no longer be subjected to the multiplier of 48. The multiplier will now be reduced to just 12.
If you want to settle your tax debt for less than what you owe, you have to submit an Offer in Compromise. It is a program the IRS set up years ago. You then negotiate with an offer “specialist.” In order to qualify and determine your minimum offer, the IRS has always used a formula which is heavily weighted on your remaining monthly income after expenses. In a nutshell, any remaining monthly income is multiplied by 48. So if you had $500 left over every month after paying your expenses, your offer had to be at least $24,000 ($500 x 48= $24,000). It did not matter what the monthly amount was, it was always multiplied by 48. They have now reduced that multiplier from 48 to 12. So the above taxpayer who has $500 a month left over in remaining income and would have had to file an offer of $24,000 now qualifies for an offer of $6,000 ($500 x 12).
The new rules do not affect the evaluation of the taxpayer’s assets and there are other rules that apply, such as how much time is left in the Statue of Limitations. This is truly a game changer. Many people in the past did not qualify for offers because of the multiplier of 48. Many other people did qualify, but their offers had to be so large that it did not do them any good. For tens of thousands of people this is now going to change. The IRS has literally reduced the amount you must offer by 75%.
Many taxpayers have asked me how long this new rule will stay in effect. The truth is, we do not know; but if you were ever going to settle your debt for less than what you owe, there literally has never been a better time. Obviously, the IRS is encouraging settlements by reducing potential settlements by 75%.
This is the most dramatic change I have ever seen in the field of IRS negotiations.