If the taxpayer is a wage-earner the IRS will calculate the monthly gross income by how often the taxpayer is paid per month.  For example, if a taxpayer is paid weekly, the gross income is calculated by the gross amount ($500) multiplied by the average number of weeks in a month (4.3), which is $2,150 per month.  If a taxpayer is paid bi-weekly, the gross income is multiplied by 2.17 to determine the monthly gross income.

If the taxpayer is self-employed, the IRS generally looks at the last filed tax return Schedule C Profit and Loss Statement to get the net income for the year, and divide it by 12 months.  If the current income is lower than the last filed return, the taxpayer must provide an updated profit and loss statement along with corresponding bank statements.  The IRS is looking to see if the total gross receipts indicated on the profit and loss statement matches the deposits from the bank account statements.

If the taxpayer receives “other income”, it will also be included in their Collection Information Statement. For example, income from social security benefits, pension, distributions, rental income, etc.  In addition, for collection purposes, income includes any money that the taxpayer receives to pay for their necessary living expenses, whether the source of the funds is taxable or nontaxable.  For example, child support and personal loans from family members will be included as a source of income for the purposes of the IRS determining whether a taxpayer has the ability to pay their back taxes.

October 14, 2015

How does the IRS calculate my income?

If the taxpayer is a wage-earner the IRS will calculate the monthly gross income by how often the taxpayer is paid per month.  For example, if […]
October 14, 2015

Do I need to provide financials if the IRS requests them?

It depends.  If a taxpayer has an assessed balance due below $50,000, the taxpayer does not have to disclose their financial information unless they do not […]
March 26, 2014

Filing Offer in Compromise affect collection actions?

Submitting an offer in compromise will generally cause the IRS to suspend attempts to collect the tax liability that is the subject of the offer. An […]
March 26, 2014

Offer in Compromise effect on statute of limitations

Generally the collection statute is 10 years from the date that your liability was assessed. (If you need assistance in calculating the remaining time on your […]
March 25, 2014

What legal effects does entering into an Offer in Compromise have on a taxpayer?

Form 656, Offer in Compromise, which is prescribed by the IRS for offers in compromise, states that entering the agreement has the following effects on the […]
March 25, 2014

Is an accepted Offer in Compromise public record?

Accepted offers in compromise are subject to public inspection for a period of one year after the date of execution. For one year after acceptance of […]