What is an Offer in Compromise?
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer’s tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than a full payment under certain circumstances. The IRS may legally compromise for one of the following reasons: • Doubt as to Liability: Doubt exists that the assessed tax is correct. • Doubt as to Collectibility: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income, minus reasonable living expenses. Note: Unless the taxpayer files an OIC special circumstances, the offered amount must equal or exceed the RCP. Realizable value is the asset’s quick sale value (amount which could be rea
An offer in compromise is a contract between a taxpayer and the Internal Revenue Service that resolves all of the taxpayer’s unpaid tax liabilities. The IRS has the statutory authority to settle or compromise any federal tax liabilities by accepting less than the full amount owed under certain circumstances. The IRS may legally compromise the liability for one of the following three reasons: Doubt as to liability: Doubt exists as to whether the assessed tax is correct or properly owed. Doubt as to collectibility: Doubt exists about whether the taxpayer could ever pay the full amount owed. The minimum offer amount must generally be equal to or greater than the “reasonable collection potential” (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus the amount that could be paid from future income. Unless the taxpayer files an offer claiming special circumstances (see below), the offered amount must equal or exceed the RCP. Realizable v
A. An Offer in Compromise is an agreement between the taxpayer and the Internal Revenue Service that resolves the taxpayer’s liability for less than full payment. The most frequent basis for acceptance of an Offer is that doubt exists that the taxpayer could ever pay the full amount owed. This determination is based on a Collection Information Statement (Form 433-A), showing the taxpayer’s current financial situation, including the value of assets and current income and expenses for purposes of projecting future income over a specified period, which depends on the statute of limitations. Before filing an Offer (Form 656), the taxpayer must have filed all required returns. Returns also must be filed timely, on a fully paid basis, while the Internal Revenue Service considers the Offer and for five (5) years after the Offer is accepted. If a bankruptcy proceeding is pending, the Offer cannot be considered by the Internal Revenue Service until the bankruptcy is terminated. To find out if y
