Tax Brake with Robert G. Nath, Esq.

The solution is to consider two alternatives to the “lump sum” offer. In the usual offer, you request to pay within a certain time (up to 90 days) from the date the offer is accepted. That lump sum payment is normally the best for your situation, because it ends everything: the tax is marked “paid,” the lien is released, credit agencies are notified (by IRS if you ask - it's a new statutory right).

But in the real world, MANY MANY offers fail because of one part of the calculations: the “future income potential” component. This is the amount the IRS calculates you can pay over time, given your income and the allowable expenses against that income (page 6 of Form 433-A). A high “net” available income means a high lump sum offer, since the premise is that the IRS is taking as a lump sum the present value of that stream of payments over time.

What to do? Stretch out those payments. The first choice is over two years (a “short term deferred payment” offer). That will cost you more, typically 12 times the monthly net available income, but maybe this works for you. After all, two years of payment can often be more tolerable than an unswallowable lump sum.

What if that does not work? Then there is something called the “deferred payment offer.” In this type of offer, you offer to pay the net (along with a lump sum representing your net equity in assets) over the remainder of the period of limitations on collection. That is normally worse for you, since the lien remains in place and there is a danger of default. But if a lump sum or a 2-year payout is simply not feasible, the deferred payment offer may be the way to go. Essentially it's an “all you can pay for a term of years,” but it may be better than forced collection or full payment.

So consider three alternative payment arrangements when you make your offer in compromise to the IRS.

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