[Excerpts from the best-selling legal consumer book written by Attorney Charles Jerome Ware, former Special Counsel to the Chairman of the United States Federal Trade Commission, titled: "LEGAL CONSUMER TIPS AND SECRETS: Avoiding Debtors Prison in the United States," 209 pages]
What is an ‘Offer in Compromise?”
An “offer in compromise” (OIC) is an agreement between the taxpayer and the Internal Revenue Service (IRS) that settles the taxpayer’s liabilities for less than the full amount allegedly owed [IRS.gov; www.irs.gov].
Like most creditors, the IRS knows that not all taxes owed will be paid. Therefore, rather than allowing a legitimate tax debt to become uncollectible, the IRS will negotiate and accept less tax money than is owed in certain circumstances [www.bankrate.com/finance/taxes]. However, absent these certain or special circumstances, an officer in compromise will not be accepted or negotiated if the IRS believes or concludes that the tax liability can be paid in full by the taxpayer either as a lump sum or through a payment agreement.
The fact is that the IRS will not accept an offer in compromise (OIC) unless the amount offered by the taxpayer is either equal to or greater than the “reasonable collection potential” (RCP) for the tax debt and the taxpayer. This is true regardless of which so-called “tax debt settlement” company the taxpayer hires.
The “reasonable collection potential” (RCP) is the procedure or process the IRS uses to measure the taxpayer’s ability to pay the tax debt, and includes the value that can be realized from the taxpayer’s assets, such as real estate (realty), automobiles, bank accounts, and other personal property (personalty). The RCP also includes anticipated future income minus certain accepted amounts allowed for basic living expenses. Promises by so-called “tax debt settlement” firms of settling IRS claims for “pennies on the dollar” are simply unrealistic under most circumstances.
The IRS may negotiate and accept an offer in compromise (OIC) based on three (3) grounds:
(i) Doubt as to Collectability. Sufficient doubt exists that the taxpayer could ever pay the full amount of the tax liability owed within the remainder of the statutory period of limitations for collection.
(ii) Doubt as to Liability. A sufficient doubt exists that the assessed tax liability is accurate; and
(iii) Effective Tax Administration. There is no doubt that the tax liability is correct or valid and there is potential to collect the full amount of the tax owed, but at least one exceptional circumstance exists that allows IRS to consider an OIC.
(iii) Effective Tax Administration. There is no doubt that the tax liability is correct or valid and there is potential to collect the full amount of the tax owed, but at least one exceptional circumstance exists that allows IRS to consider an OIC.
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