If you cannot afford to pay your taxes, one solution may be an IRS Offer in Compromise (“OIC”). An OIC is an agreement between a taxpayer and the IRS to settle the taxpayer’s liability for less than the full amount owed. The chief benefit of an OIC is that your tax debt is reduced to an amount you can pay while the rest of the liability is essentially forgiven enabling you to get a fresh start without worrying about the IRS coming after you.

Unfortunately, it is not easy to qualify for an Offer in Compromise. There are only three grounds: (1) doubt as to liability, (2) doubt as to collectability and (3) effective tax administration. However, most taxpayers base their OIC on “doubt as to the collectability” of the tax debt. It requires proving that your assets and income are less than the full amount of your tax liability. Generally, the IRS will not accept an OIC unless the amount offered is equal to or greater than the reasonable collection potential (RCP) of the taxpayer. The RCP factors in amounts that can be realized from the liquidation of your assets, money that could be collected from third-parties, and your current and future income less specified amounts allowed for reasonable living expenses.

In determining your future ability to pay, the IRS must consider your overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training, work experience, and present and future employment status.
The OIC approval process can be time-consuming and complicated with the IRS usually conducting an intensive review of a taxpayer’s finances. We have extensive experience with Offers in Compromise and only submit one when a taxpayer’s financial information appears to support it. We do not waste a taxpayer’s time and money if we do not believe an offer will be accepted.

If you owe taxes and want to find out if an OIC is an option for you, contact us for a free consultation.