The IRS Offer-in-Compromise Process

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I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS and Florida Department of Revenue. The IRS Offer-in-Compromise is an agreement to clear a tax debt for less than its face value. This is the idea behind “pennies on the dollar” payoff that you see on TV ads by national firms offering to clear tax debts.


There are a lot of myths regarding the Offer-in-Compromise programs. Many tax debtors believe that all it takes is some gib negotiator to wow the IRS personnel on why they should take a deal for less than what is owed. Many CPA’s believe that filing an Offer is a waste of time because the IRS never accepts them or that you have to offer X% of the total to get it done. None of these is true.


To make an Offer (or any other agreement) with the IRS, the taxpayer must be currently in compliance with all tax returns filed and all current year taxes paid. The next step is for the taxpayer to make an Offer using Form 656 and include a check for 20% of the offer amount. Additionally, the taxpayer must provide the IRS with lots of information about the assets that they own and their income flows and expenses using Form 433. Typically, the IRS will want to see at least three months’ worth of bank statements, credit card and loan account statements, and other documentation to prove the validity of the numbers.


Why does the IRS want to see this stuff? Because the amount of an Offer that they can accept is based on a formula and not some standard percentage or silver-tonged negotiation. Once the formula, called the “Reasonable Collection Potential” or RCP, spits out a number, the IRS can move to the next step which is do a search for “Dissipated Assets”.


Dissipated assets are things like real estate or stocks that were owned by the taxpayer previously and sold without paying the IRS tax debts that existed at that time. Typically, the Revenue Officer will look back for at least three prior tax years for these kinds of sales. Any sales proceeds that they find that should have gone to the IRS will be added to the RCP amount.


At this point in the time, the taxpayer could get their Offer-in-Compromise Agreement, which comes with a few strings attached. The big one is that the taxpayers agrees to filing all tax returns timely and making all payments due on time for the next 5 tax years. Miss an estimated tax payment date by one day and the deal is void.


Finally, one last, but very important step. The taxpayer must cough up the balance due on the agreement within 5 months of the acceptance date. Once payment is received and posted, the taxpayer is IRS debt free unless they mess up and fail to live by the covenants such as late filing in the next 5 years.


If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email


Jim Payne, CPA


Gainesville, FL

Cell (352) 317-5692

Office (352) 376-9401

Fax (352) 376-9440


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Jim Payne, CPA

CPA firm practicing in the area of IRS Collections
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