Monthly Cash Flow

As confusing as it may seem to read about IRS Wage Levies, IRS Bank Levies, IRS Installment Agreements, IRS Currently Non Collectible Status, IRS Offers in Compromise, and other IRS problems, a single calculation is used when a taxpayer is confronted by these IRS collection problems or considers one or more of these IRS benefits:

The IRS Monthly Cash Flow Calculation

But first, let's get some initial information out of the way.

Ability to Pay

In virtually any kind of IRS Collection case, IRS must know a taxpayer's "ability to pay." IRS representatives need answers to the following questions:

1. Right now, can you pay the entire amount that is due?

2. Can you pay it within 90 days?

3. Can you borrow from a bank to pay it?

4. Can you pay it with credit cards?

5. Can you borrow from family or friends to pay it?

For most taxpayers, the answer to each of these questions is a resounding "No!"

Once these questions are out of the way, the next two questions will be:

1. How much can you pay today?, followed by,

2. How much can you pay in the next 90 days?

For most taxpayers, the answers to each of these questions is, "Little or nothing," with a heavy emphasis on "nothing."

IRS statistics indicate that well over 95% of taxpayers have an inability to make immediate payments.

In anticipation of the overwhelming majority of delinquent taxpayers being unable to pay anything up front, IRS has made it somewhat easy to determine the ability of taxpayers to make future payments on their old taxes.

But what kind of future payments are we talking about? And how are those future payments determined or calculated?

In order to treat everyone the same no matter how much they owe, IRS has determined, developed, and defined the precise calculation that computes what they refer to as Monthly Cash Flow.

IRS representatives use this calculation method to find out what a taxpayer's particular situation is going to be and then use it to calculate his(her) precise cash flow on a monthly basis.

Now for the important stuff.

The Simple Calculation of Monthly Cash Flow

No matter what the exact details of the situation are, chances are that most of this website's visitors owe IRS an amount of money which they cannot pay.

In order to be fair to everyone in this situation, IRS has a formula to find out what a taxpayer can pay.

To put it simply, the following calculation will be made for all taxpayers:

 Monthly Income from All Sources   -   Allowable Monthly Expenses   =   Monthly Net Cash Flow

Notice the very important term "allowable". Not all expenses are allowable. To be defined as allowable, an expense must be "ordinary and necessary." IRS is very specific about what expenses are considered "ordinary and necessary," and those expenses that do not meet this test are not allowed or considered in determining a taxpayer's Monthly Net Cash Flow.

This calculation will result in either:

• Negative Monthly Cash Flow, or

• Positive Monthly Cash Flow

Negative Monthly Cash Flow

Most taxpayers who have Negative Monthly Cash Flow will not be required to make payments to IRS. If IRS were to require these people to make payments, they would then be unable to pay their "ordinary and necessary" monthly expenses (as defined by IRS). Requiring monthly payments from these taxpayers would then force them into what IRS defines as an "undue economic hardship," which Congress says that IRS is not allowed to do.

Positive Monthly Cash Flow

Those taxpayers who have Positive Monthly Cash Flow will be required to make monthly payments to IRS that will be credited toward their unpaid balances. These monthly payments are referred to as Installment Agreements. The amount of these monthly payments will be equal to the taxpayer's Monthly Positive Cash Flow.

The IRS theory is that:

1. Since they are allowing you to pay all of your "ordinary and necessary monthly living expenses" and

2. Since their calculation shows that you still have money left over after all of those expenses are paid, then

3. The calculation shows that you have money left over that you don't need since everything left over is not ordinary or necessary.

4. So the conclusion is that they should get everything that's left over......................

The Same Calculation is Used for Most Situations

So no matter which of the following situations you find yourself in, it is imperative that you understand your Monthly Net Cash Flow:

1. IRS Wage Levy

2. IRS Bank Levy

3. IRS Currently Non Collectible Status

4. IRS Installment Agreement

5. IRS Offer in Compromise

Features and Benefits

This Monthly Cash Flow information is highly critical and important since it: