Tax Resolution - Offer in Compromise

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Continuing our series in tax resolution, we take a look the option of an Offer in Compromise. An offer in compromise (OIC) is an agreement between the IRS and you that settles your tax debt for less than the full amount of federal tax owed. The IRS generally will not accept an OIC unless the amount you offer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures your ability to pay. The IRS may accept an OIC based on three grounds. First, federal tax law allows settlement if there is doubt as to liability. Second, federal tax law allows settlement if there is doubt that the amount owed is collectible. Third, federal tax law allows settlement based on effective tax policy. You may choose to pay the OIC amount in a lump sum or in installment payments. A lump sum offer is an offer payable in five or fewer installments. A "periodic payment offer" OIC is payable in six or more installments. Federal law suspends the time that the IRS can make collection efforts during the period of OIC evaluation or later appeal. The IRS expects that you will have no further delinquencies and will fully comply with the tax laws if it accepts your offer. The IRS will notify you by mail if it rejects an OIC. This letter explains the reason that the IRS rejected the offer and will provide detailed instructions on how you may appeal. You must appeal within 30 days from the date of the letter if you choose to appeal.

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Published In: Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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