Tax Settlement Or An Offer In Compromise

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What is a tax settlement or an offer in compromise?

An IRS offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. If the tax liability can be fully paid through an installment agreement or other means, the taxpayer will not be eligible for an OIC or IRS tax settlement.

The IRS will not accept a tax settlement (an OIC) unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (the RCP).

The Reasonable Collection Potential (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.

THE IRS MAY ACCEPT AN OIC BASED ON THREE GROUNDS:

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Acceptance of an IRS tax settlement is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists that the IRS has correctly determined the amount owed.

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Acceptance of an IRS offer in compromise (OIC) is permitted if there is a doubt that the amount owed is collectible. This means that doubt exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
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Acceptance of an IRS tax settlement is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

To be eligible for compromise  (OIC, or tax settlement) on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

THE “NEW” FRESH START PROGRAM:

Since 2011, the “Fresh Start” initiative has been offering more flexible terms to its Offer in Compromise (OIC) program that enables financially distressed taxpayers to clear up their tax situation much faster.

Financial analysis is used to determine which taxpayers qualify for an Offer in Compromise. This enables some taxpayers to resolve their tax problems in as little as two years, compared to four or five years in the past.

TAX SETTLEMENT COMPANIES WHO PROVIDE TAX SETTLEMENT SERVICES OR OFFER IN COMPROMISE

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