As mentioned in the Tax Relief section, an Offer In-Compromise is “an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, generally won’t qualify for an OIC in most cases.” (IRS Database)
Do I Qualify for an OIC?
According to the IRS, “to qualify for an OIC, the taxpayer must have filed all tax returns, have received a bill for at least one tax debt included on the offer, made all required estimated tax payments for the current year, and if the taxpayer is a business owner with employees, the taxpayer must have made all required federal tax deposits for the current quarter and the two preceding quarters.
In most cases, the IRS won’t accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income less certain amounts allowed for basic living expenses.
Reasons the IRS will Approve an OIC
The IRS may approve an Offer in Compromise (OIC) for various reasons:
- Initially, an OIC may be accepted if there is uncertainty regarding liability. This occurs when a genuine dispute exists concerning the correct tax debt’s existence or amount under the law.
- Additionally, the IRS can consider an OIC if there is doubt about the full collectability of the amount owed. On the IRS’ side, doubt arises when a taxpayer’s assets and income are insufficient to cover the entirety of the tax liability.
- Furthermore, an OIC may be approved based on effective tax administration. In such cases, the offer is accepted when there is no doubt about the legal obligation for the tax or the ability to collect the full amount owed. However, demanding full payment would either result in economic hardship.
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