The recent changes to the Offer in Compromise program are welcome, albeit confusing, modifications. For example, we are now to able to exclude $1,000 of cash from the Reasonable Collection Potential amount of an Offer in Compromise. The first area of confusion, or poor crafting of the instructions is in the area of cash. Consider the following:
- The new version of the 433-A(OIC) has a checkboxes for “Cash”, “Cash in Checking”, and “Cash in Savings”, and
- The modifications to the IRM section on cash (Sec. 184.108.40.206) Is titled “Cash” and, yet
- The detailed explanations in the aforementioned section apply the revisions to bank account amounts without mention of actual currency.
Does this mean that IRS intends to count cash on hand disclosed on the 433-A(OIC) without benefit of the $1,000 excludable amount? I sincerely doubt it, but the released instructions to their personnel are mute on the subject. Depending on the interpretation of the OIC Unit personnel we might see a taxpayer who has cash be forced to deposit same in a bank account to get the benefit of the new rule.
The same section of the new IRM release discusses additional cash that might be excluded from the Reasonable Collection Potential amount. The examples provided discuss allowing the taxpayer to exclude additional cash if it is needed to cover living expenses. The provided examples discuss using one-months’ worth of allowable living expenses. What if the taxpayer’s total cash is $15,000, and his allowable expenses are $6,000, but income is $5,990? Will the OIC Unit allow him to keep the $1,000 plus $6,000 when his allowable expenses are fully covered by income except for $10 per month? Seems too generous for the IRS.
Alternatively, if the taxpayer has the same cash and allowable expenses, but has monthly income of $2,000 and no prospect for added income, wouldn’t it be apparent that he needs the full balance in the account to cover his living expenses? The account will be depleted in less than four months.
In the next posting I’ll cover handling the strange omissions from the new 433-A(OIC) that can cause a taxpayer to tender an Offer in Compromise for more than is necessary.