When clients come into our Richardson Tax office with IRS debt issues, most of the potential clients want to learn more about the Offer In Compromise process, or OIC for short. There are three different types of Offers in Compromise.
- Doubt as to Collectability – This type of offer is the most common type of OIC made to the IRS. In this case, the Taxpayer agrees that they owe the IRS, but are simply not in a financial position, to fully pay off their debt. If the Taxpayer qualifies for an OIC based on their financial situation, they may be able to settle their debt for less than the full amount owed. The amount of their settlement offer is driven by a Financial Calculation called Reasonable Collection Potential or RCP.
- Doubt as to Liability – When a Doubt as to Liability OIC is filed, the Taxpayer may be able to fully pay the debt but in this case, they do not believe they owe the debt or fully owe the debt. Unlike Doubt as to Collectability, where the Taxpayer must prove they are unable to fully pay, in this case, the Taxpayer must submit proof that they really don’t owe the amount being assessed. Even if the Taxpayer belies that zero is owed, since this is an Offer In Compromise, an Offer must be made, even if for a nominal amount.
- Effective Tax Administration – This type of OIC is very rare. In this case, the amount is owed and the Taxpayer has sufficient ability to pay the debt, but it is not in the government’s best interest to require the Taxpayer to fully pay. An example may be a Taxpayer that has assets, has been disabled and is no longer able to earn a living. While the taxpayer can pay today, some of those assets may be required for them to live at the IRS allowable expense level over their expected life span.
Filing an Offer-In-Compromise can be a complicated process if you don't know the rules. However, it may be a great solution for your IRS if you qualify and are able to understand the rules and make an offer that the government will accept. This is my second blog on the Offer-In-Compromise program. Keep watching over the next weeks for more information on navigating the process successfully.
If You Need Help
If you want to learn more about the Offer In Compromise alternative with IRS debt including if you qualify, call us at (972) 821-1991 or email firstname.lastname@example.org.
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