How to fill the IRS Offer In Compromise with an underwater asset?

Question

I owe about $6k in back taxes, and simply don't have the money--it's hard for me to find even minimum wage jobs in the current economy, and I am burdened with consumer debt. After speaking with the IRS in person, it was suggested that I submit an Offer in Compromise. So I've been going through the paperwork and trying to fill in the blanks.

They ask on the form what your "assets" are, and I only have one. It's my car...but it's not really an asset because I owe the bank $5000 for the car loan and my car's blue book value is only about $3000. Selling it is a trick because I'd have to borrow money just to get the title, and after that I'd be down another $2000. :-(

How do I fill out the form for "assets"? Do I put a negative number? Here's what I filled in based on what I know:

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They ask specifically about your car and its value, but my car has a negative value. The online qualifying questionnaire does not accept negative numbers. Is a car that is underwater like this still considered "your vehicle" and an "asset"? For me it is a liability!

Thanks for any guidance...

Answer 1

You're supposed to be filling form 433-A. Vehicles are on line 18. You will fill there the current fair value of the car and the current balance on the loans. The last column is "equity", which in your case will indeed be a negative number.

The "value" is what the car is worth.

The "equity" is what the car is worth to you.

IRS uses the "equity" value to calculate your solvency.

Any time you fill a form to the IRS - read the instructions carefully, for each line and line. If in doubt - talk to a professional licensed in your state. I'm not a professional, and this is not a tax advice.

Answer 2

If you have both consumer debt and IRS debt, you can file Chapter 7 bankruptcy to get rid of all of it. The trick is your taxes have to be at least 3 years old from the due date in order to be considered for bankruptcy. So newer taxes, like 2010 and on, can't be discharged yet (and earlier ones may not be yet, there are rules which toll the time) You'll definitely want to talk to a bankruptcy attorney in your area who focusing on discharge in tax debts. You may be able to kill two birds with one stone.

My other concern is are you current? Typically people routinely run up a new debt when trying to settle up on 9old debt. So the OIC route may be a waste of your time.

Also, $6000 isn't a lot of money, so there's not a lot of room to negotiate down. It's all how you fill out the 656-OIC. I've seen way to many people not fill it out incorrectly.

The IRS has a limited amount of time to collect on a debt, so if there are old taxes, you may be better off getting into CNC status, which it seems like you would qualify for and let the debt expire on your own. That may be another viable solution.

Unfortunately, this is really complicated to get the best result. And good tax debt attorneys fees start at the amount of taxes you owe! So that's not really cost effective to hire one.