An offer in compromise is an agreement between a taxpayer and the IRS. The agreement settles the taxpayer’s liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the debt can be paid in full or in instalments. The IRS will look at your income and assets and decide your “reasonable collection potential.” To come up with this figure the IRS takes your assets and also ability to pay in the future. The combined figure creates what they call “Reasonable Collection Potential”(RCP).
There have been a lot of changes in the last few years. Now under the new Fresh Start Program when the IRS calculates RCP, they must follow new guidelines.
Take a look at the changes:
- New calculation for the future income.
- Addition of student loans to budget.
- Adding state and local obligations to the budget.
- Increase to Allowable Living Expense.
- Excluding a portion of the taxpayer’s bank accounts.
- Excluding a portion of the taxpayer’s equity in motor vehicles.
- Excluding from the value of assets property used to produce income.
- Addition to miscellaneous allowance to include fees and credit cards
Attention Taxpayers! Please be cautious of those nationally advertised resolution firms that make big promises. In the past a great many tax resolution companies have been forced out of business by enforcement of consumer protection laws. S.H. Block Tax Services has seen many companies who made false promises go out of business. Now there is a new crop of tax resolution companies who are again making lofty promises. Don’t be fooled by something that seems too good to be true. Not everyone qualifies for an OIC.
My suggestion is before you hire any firm, check their better business bureau for complaints. Also your first try at an offer had better be a good one. If you attempt to complete one on your own don’t be upset if you get turned down. Offers are very complex and most taxpayers should hire an experienced tax attorney before submitting an OIC to the IRS or State.