If you’re going to be successful settling with the IRS for less than what you owe, you must take advantage of every allowable expense. Deep within the Internal Revenue Manual are allowable expenses. Unfortunately, too many taxpayers fail to take advantage of these expenses. Maximizing allowable expenses can make or break a successful offer and save you years of headache.
Keep in mind that with an offer in compromise, the government is making a determination whether they should take less now, or whether they could get more in the future. The IRS is trying to predict your future cash flow and your ability to pay them back. The more expenses you will have in the future means the less ability you will have to pay the IRS back. If you can show the government you will incur substantial future expenses that eat into your disposable income, then your offer to pay the IRS for less than what you owe is more attractive to the IRS than trying to chase you down for years to come.
The IRS allows a $200 older vehicle ownership cost even if you do not have a car payment on it. Yes, the IRS will give you an expense in this situation even if you do not actually have it. Therefore, the $200 vehicle ownership cost allowance is the IRS recognizing that you are going to need to pay for a car in the future even if you do not have one now.
Here is an example which is allowed pursuant to the Internal Revenue Manual 184.108.40.206.3
You own a 2008 Chevrolet Tahoe with 80,000 miles. The vehicle was bought used, and the loan will be fully paid in 12 months, at $300 per month. In this situation, you will be allowed the ownership of $300 plus the IRS allowable operating expense of $231 per month, for a total transportation allowance of $531 per month. After car loan paid off in 12 months, you will be allowed a $200 per month operating expense and the standard monthly operating expense of $231, for a total allowable monthly expense of $431 per month.
Now, if the car in this example had no car payment when the offer was submitted, the IRS would immediately allow the $200 ownership cost and $231 per month.
Make use of every IRS expense in an offer in compromise. You will ideally position yourself to put an end to your tax problems once and for all.
By the way, take a look at our Library in this site for more information on settling with the IRS.
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