Case Study 46: Calculation of Offer in Compromise

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

Introduction
After concluding my last series on back taxes, I felt unsatisfied with the projected tax savings. As a result, I've decided to do a second series on back taxes with a more extreme example. 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:

$1,000 cash in the bank;
A car worth $12,000 with an outstanding loan of $15,000 and monthly payments of $400;
Car insurance of $150 a month with gas expenses of $40 and repair expenses averaging $10 a month;
Miscellaneous personal items (furniture, etc.) worth $1,000;
A monthly salary of $2,500;
Rent of $800 per month with $200 of utilities;
Food, clothing, misc expenses of $400 a month;
Daycare costs of $400 a month; and
Average monthly state taxes (sales, income, etc.) of $40.

Calculations

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.