Offer in Compromise and Asset Values
In an Offer in Compromise, you want to get your asset values down as low as possible. Asset values are a big part of an OIC, so you really need to take the time to value your assets properly. Don’t lie, just know what an acceptable value is. It is important to know how to determine and support the value of your assets. What you might think an item is worth and what the IRS will accept as a real value can be much different. Let me illustrate this with a couple of examples.
Example 1. Thomas and Jennifer had a stamp collection Thomas inherited from his father. When we asked him the value of the collection, he told us he estimated the value at $6,000. I asked them to take the collection to three collectors and find out what each would offer for the collection on the spot, for cash. To their surprise the value was only $800 on average. So, something the taxpayer would value at $6,000, we would list on an OIC as $640.
When the IRS is valuing assets, they value them as if they are sold at auction, to the highest bidder, for quick sale. They then discount this amount by 20%.
Example 2: Kenneth had a 1965 Chevy truck he has had since high school. It didn’t have a lot of miles on it, only 63,250 and was nicely maintained. Kenneth said he looked on Craigslist and found one for $3,500 that was in similar condition. We asked them to take the truck to three dealers and get an on the spot cash offer from each dealer. To their surprise, the average offer amount was $750, so $600 was what we listed on the OIC as a value for the truck.
Example 3: Here is an example of not letting your ego cause you to list too high a value on your OIC. Rick had a 1966 Corvette he had been restoring for years and it was not yet complete nor was it a 1966 split window, which would be a valuable classic. Rick’s ego wanted to value the Corvette at $65,000. I said Rick, this is not the popular classic that the 1966 is and it is not yet fully restored. I asked him if could call a couple collectors and he reluctantly agreed. We got some pictures from Rick in the cars present condition and we contacted three different local collectors, asking each to provide a cash offer given the Corvettes present condition. Two of the offers were close at $5,500 in its present condition and one was a lowball offer which we assume was someone trying to get a steal. So, I asked Rick, would you rather pay $52,000 or $4,400 as a result of the Corvette being listed on your offer. Rick let his ego go and we listed the Corvette at $4,400.
Should you get help?
I have seen many people try to prepare their own OIC and fail because they do not fully understand the art of dealing with the IRS. Yes, you can submit an Offer in Compromise yourself but if you are trying to considerably reduce your debt, I recommend you rethink your position.
An “accepted” OIC is not the same as a “successful” OIC.
There is more to it. Sure, the average taxpayer can fill out the forms and after spending hours reading and rereading the instructions provide the substantiation needed for an application to be accepted. How do you measure success? To me, success is measured with an approval on the LOWEST DOLLAR AMOUNT the IRS will accept.
If you feel that you may be in over your head, or just want to get a second opinion, let’s set up a short call. To avoid the back and forth emails and phone tag, I have included a link to my Calendar https://calendly.com/taxman/tax-problem-resolution-initial-consultation. Let’s set up a 30 min. phone conference to get to know each other. The phone number to call is 855-829-5877 and my extension is 203.