Unlocking the Secrets of an Offer in Compromise: A Comprehensive Guide - Chapter 1
This is the first in a series of
posts I’ll have on an IRS Offer in Compromise. Through this series I expect answer
all of your basic questions, and a few out of the box specific question. If you
have a specific question, you would like addressed, please drop me a line or
post a comment. With that introduction
lets get started learning about Offers in Compromise and increasing your chance
of qualifying for an OIC.
An Offer in Compromise (OIC) is a
tax resolution option offered by the IRS that allows taxpayers to settle their
tax debt for less than the full amount owed. The purpose of an OIC is to
provide a way for taxpayers who are struggling financially to resolve their tax
debt in a manner that is fair to both the taxpayer and the government. The IRS
will consider an OIC when it is unlikely that the tax debt can be paid in full
and the taxpayer's assets and income are not sufficient to fully pay the debt.
An OIC can also be considered when the taxpayer has a doubt as to the liability
for the tax debt or the collectability of the debt. The goal of the OIC program
is to provide a win-win solution for the taxpayer and the IRS, where the
taxpayer can resolve their tax debt without causing undue financial hardship,
and the IRS can collect as much of the debt as possible.
THE OFFER IN COMPROMISE PROCESS
An Offer in Compromise (OIC) is a
program offered by the Internal Revenue Service (IRS) that allows taxpayers to
settle their tax debt for less than the full amount owed. The process involves
submitting a proposal to the IRS that includes a detailed explanation of the
taxpayer's financial situation and a proposed payment plan. The IRS will then
review the proposal and determine if it is in the best interest of the
government to accept the offer. Factors considered include the taxpayer's
ability to pay, the likelihood of collecting the full amount owed, and the
taxpayer's compliance history. If the offer is accepted, the taxpayer must
comply with the terms of the agreement and make all payments on time in order
to avoid defaulting on the OIC.
The Pros and Cons of an OIC
Pros of an Offer in Compromise:
- It can significantly reduce the amount of tax debt owed to the IRS.
- It can provide relief from wage garnishments, liens, and levies.
- It can help taxpayers get out of default on their tax debt.
- It can prevent bankruptcy in some cases.
- Not all taxpayers qualify for an OIC.
- The IRS may reject the offer if they deem it not reasonable or acceptable.
- If the offer is accepted, the taxpayer must comply with the terms of the agreement, including paying a non-refundable application fee, and making all payments on time.
- Once the offer is accepted, the taxpayer cannot apply for another offer in compromise for several years.
- The acceptance of an OIC may have credit score implications.
The Collection Statute Expiration
Date - The Collection Statute Expiration Date (CSED) is a time limit set by the
IRS for collecting taxes owed. It is the date by which the IRS must take action
to collect the debt, such as filing a lien or levy. The CSED is typically 10
years from the date the tax was assessed, but it can be extended in certain
IRS Financial Analysis of your OIC
Section 5.15.1 of the Internal Revenue Manual (IRM) describes the IRS Financial Analysis process, which is used by the IRS to evaluate the financial information provided by taxpayers who are seeking an Offer in Compromise (OIC) to settle their tax debt.
The financial analysis process involves a review of the taxpayer's income, expenses, assets, and liabilities to determine their ability to pay the tax debt in full. The IRS uses this information to make a determination of the taxpayer's reasonable collection potential (RCP). The RCP is the amount of money the IRS believes they can collect from the taxpayer over the remaining collection statute period.
- Evaluation of assets: The IRS will evaluate the taxpayer's assets, such as property, bank accounts, and investments, to determine their equity value and potential for liquidation.
The Internal Revenue Service (IRS)
uses the concept of Net Realizable Equity (NRE) to determine the potential
value of a taxpayer's assets when evaluating an Offer in Compromise (OIC)
application. The NRE is used to calculate the taxpayer's reasonable collection
potential (RCP), which is the amount the IRS believes they can collect from the
taxpayer over the remaining collection statute period.
THE IRS ASSET/EQUITY TABLE
The Asset/Equity table is a tool
used by the Internal Revenue Service (IRS) in evaluating an Offer in Compromise
(OIC) application. The table lists the maximum amount of equity the IRS will
allow a taxpayer to retain in certain types of assets while still qualifying
for an OIC. The table is used to calculate the taxpayer's net realizable equity
(NRE), which is the value of an asset that can be used to pay the outstanding
It's worth noting that the Asset/Equity table is just one aspect of the IRS's financial analysis when evaluating an OIC, the IRS will also consider income, expenses, and other liabilities when determining the reasonable collection potential (RCP) and if the OIC will be accepted. It's best to consult with a tax professional or attorney to help navigate the OIC process and understand the implications of the Asset/Equity table on your OIC submission.
In my next post
we'll take a look at the objectives of an OIC, the requirements, and the
standards the IRS uses to evaluate your OIC.