One of the places the tax lawyer can really help the taxpayer in making a good Offer In Compromise is in the valuation of assets in order to establish the proper offer amount. This is because the IRS rules require that the taxpayer offer to settle his or her debt by offering what is called the net realizable value of his or her assets. Sometimes this means simply yard sale value, as in the case of a living room furniture suite. On the other hand this grows much more complicated when talking about the valuation of something like a small business. The lower the net realizable value of a taxpayer’s assets, the lower the offer that will be required by the IRS to meet its acceptance standards.

But beware of undervaluing an asset in hopes you can “get it past” the IRS. This seldom if ever works. The IRS can and will perform its own valuations in many cases, especially where the issues are complex and there’s more than a little money at stake.

You should always use realistic valuations and your tax lawyer should encourage this. Where necessary, don’t hesitate to use valuation specialists. For example, when valuing a small business you would be well-advised to use the services of someone like a CPA who has experience in this kind of valuation.

Please remember that for most small businesses and practices such as law practices or medical practices the value of the business might be largely based on the owner’s sweat equity. However, goodwill–as important as it is to the business–has no value when valuing a small business for your IRS offer. Thus, the value of the business is most often the value of its tangible assets on the books. While we’re talking about it, beware of this trap: It is customary when valuing businesses to use a multiple such as 1 x annual sales in order to arrive at a realistic value, or perhaps 2.5 x sales. Whichever might be appropriate, this entire approach is inappropriate because it results in double-counting the value of the business. Why? Because the OIC offer takes into account the income of the owner in determining the monthly payments the owner will be making over the life of the OIC.

Assets such as real estate that produces income, intangibles such as leases or contracts with customers and small closely held businesses or professional practices are all candidates for robust lawyering by the tax lawyer representing the taxpayer in making an Offer In Compromise. The tax lawyer should make certain he or she has strongly supported valuation claims with solid data and corroborating documentation.

Did you know there’s no limit to the number of times you can submit an Offer In Compromise for consideration by the IRS? This fact can lead to some creative lawyering by your tax lawyer. Here’s how that might happen.

The Internal Revenue Manual at 5.8.2.4.1 provides examples of “hardship” and “equity” cases in almost laughingly obvious situations. But the IRS needs to provide more specific examples of hardship that more closely approximate what tax lawyers see over and over again among their clients: the unanticipated medical retirement, the disabling disease, the abandoned mother with four children, the destitute senior couple. These are all examples of people living in situations where a hardship discharge just might be accepted by the IRS. So go ahead and make such an offer, knowing that your right to make a subsequent offer more along common grounds (e.g. inability to pay) can still be used even if the hardship approach is denied. In fact, making the “inability to pay” offer can thereafter be enhanced by what you’ve learned in making the hardship offer. What I’m saying is that you’ve learned enough at this point of the offer process to indeed combine the two for a second tier of type of offers, part hardship and part inability to pay.

Thus the tax lawyer should–in every case that justifies such an approach–submit initial offer proposals containing smaller offer amounts based on equity or hardship, rather than the formula amounts found in “inability to pay,” clearly indicating the taxpayer’s position while making the taxpayer’s case.

Finally, don’t be afraid to file an appeal where necessary or even multiple appeals. That’s what the process is in place for, to be used by deserving taxpayers in trouble with their tax debt.