How the RCP Formula Works – Part 3

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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. How many dollars is the IRS willing to compromise on depends upon a formula. This formula is called the “Reasonable Collection Potential” or RCP for short.


My previous two posts covered how the calculations are made to determine an amount that the IRS hopes they can collect from a taxpayer. Now the fun part (at least from my perspective). What can we do to make the formula produce the best deal possible number?


Generally, we want the formula to show the least amount of free cash available for payment to the IRS. Let’s also remember that the IRS is used to people misrepresenting their financial position and as a result they are going to demand documentation to back all of these numbers up. Here are a few ideas that can be considered when getting ready to submit this information to the IRS:

  1. Question the values that come out of Zillow and Kelly Blue Book. If they seem out of whack, try and find some other valuation method.
  2. If current income in-flows are temporary and scheduled to go away, document that fact.
  3. If you have an older car and no car payment, the cost of repairs could likely exceed the table amount allowed. Replace the old clunker with a new car. The new car payment will be an allowable deduction and your actual repair costs will likely be less than the table amount for operating expenses.
  4. If you are not covered by health insurance, go get some. The IRS is going to want to see that you have been paying this premium for at least 3 months.
  5. Reasonable life insurance premiums are allowable. If you don’t have life insurance, go get some.
  6. Court Ordered Payments reduce the amount of RCP, but only if you are actually paying them. The IRS wants to see at least three months of payments.
  7. Florida is not a community property state, so tax debts are separable if you filed married filing separate or did an injured spouse claim. The household income will still have to be reported in this case, but the IRS will allocate the joint costs between the two in order calculate the debtor’s sperate free cash flow.
  8. Florida does not have an income tax, but it’s still possible that you owe income tax to another state. It’s probably going to work out better if you make a payment plan with the state first and get their debt ahead of the IRS’s claim. 

Showing a reduced Reasonable Collection Potential means that the IRS might be willing to take less than full payment in an Offer-in-Compromise or maybe even put the taxpayer in Uncollectible Status.


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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Associate Broker Falmouth MA Cape Cod Heath Coker & - Falmouth, MA
Heath Coker Robert Paul Properties Falmouth MA

Interesting topic. There are radio ads all over MA telling people "I'm the best service company for this problem." It seems to be very a wide spread problem.

Aug 28, 2019 04:12 AM #1
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Jim Payne, CPA

CPA firm practicing in the area of IRS Collections
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