Case Study 36: Calculation of Offer in Compromise

Index - https://steemit.com/tax/@alhofmeister/rqgmk-tax-blog-index

Introduction
In my next series of case studies, I will be focusing on the tax consequences of failing to file a tax return as well as the steps to return to good standing with the IRS. After filing the missing tax returns & calculating the necessary penalties and interest, an offer in compromise is drafted to settle the liability. This article will cover the offer in compromise.

Problem
Taxpayer A did not file their tax returns for 2013, 2014, 2015, or 2016. In 2018, Taxpayer A decided to settle with the IRS before they received a notice. Note that these calculations assume that the taxpayer files on February 28, 2018. The following fact pattern describes Taxpayer A's financial situation:

1. $1,000 cash in the bank;
2. A car worth $12,000 with an outstanding loan of $15,000 and monthly payments of $400;
3. Car insurance of $150 a month with gas expenses of $40 and repair expenses averaging $10 a month;
4. Miscellaneous personal items (furniture, etc.) worth $500;
5. A monthly salary of $3,583;
6. Rent of $1,100 per month with $400 of utilities;
7. Health insurance payments of $800 a month; and
8. Average monthly state taxes (sales, income, etc.) of $60.

Calculations

References
https://steemit.com/tax/@alhofmeister/case-study-35-calculation-of-penalties-and-interest
https://steemit.com/tax/@alhofmeister/case-study-31-failure-to-file-2013
https://steemit.com/tax/@alhofmeister/case-study-32-failure-to-file-2014
https://steemit.com/tax/@alhofmeister/case-study-33-failure-to-file-2015
https://steemit.com/tax/@alhofmeister/case-study-34-failure-to-file-2016

Disclaimer
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.