How does the IRS value my assets and property in an offer in compromise?

The reality is the IRS is not interested in stuff that cannot be easily liquidated, like clothing and furniture or even jewelry. As far as assets with liquidation value, there are clever, perfectly legal methods to minimize the value of property.

Your tax lawyer will calculate “net equity” in in your home, car, household goods, investments, bank accounts, and other property. Net equity is the fair market value of the asset reduced by 20% to arrive at what is known as quick sale value. Any mortgages or bank loans will reduce the quick sale value by the balance owed on the loan. And keep in mind that “fair market value” can be a broad standard and determining what is FMV may be successfully negotiated with the IRS.

Now, in order to keep RCP as low as possible, your tax professional must calculate all property exemptions allowed within the Internal Revenue Manual. The exemptions are allowed on public policy grounds to protect the value of basic necessities and assets necessary to make a living or operate a business. For example, even though tools and machinery may have liquidation value, these assets may be exempt from calculating RCP because it’s needed to allow the citizen to earn a living and operate a business.

You may gain a better understanding by calling us for a free tax settlement analysis or obtaining the Faith Firm free book The Truth about Tax Settlement and Alternative Tax Solutions.