The IRS allows people to settle their back tax debt for less if they meet certain requirements. One key requirement is that a person offers an amount no less than their Reasonable Collection Potential (RCP).
Before determining an offer amount, we must calculate the Taxpayer's Reasonable Collection Potential.The RCP consist of two elements: net equity in assets and future income. These two elements added together will calculate the RCP. Examples of net assets include retirement and investment accounts, equity in a home or vehicle, and cash in the bank. Examples of expenses considered include food, clothing, housing, utilities, vehicle ownership and operating costs, life insurance, to name a few.
The Reasonable Collection Potential is then calculated by subtracting monthly expenses from monthly income and then multiplying the result by 12 or 24 (see below). This number is then added to the net assets referenced above. Note that the IRS has certain limits on amounts which can be claimed for certain expenses per their allowable standard guidelines.
By understanding the requirements and rules, we can evaluate your Offer-in-Compromise against the IRS or State RCP formulas and also ensure that the proper documentation is submitted and communicated.
Knowing the process and how the IRS will apply RCP can have tremendous results. Be sure to sit down with a tax professional who specializes in IRS Representation and in particular has experience in presenting Offers-in-Compromise to the IRS.
If you or anyone you know owe back taxes or have unfiled tax returns.Please feel free to contact me by phone or email.
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New Hope MN 55427
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