Taxpayers that do not qualify for an OIC DATC or an OIC DATCSC because they are able to pay their tax liability in full may qualify for an Effective Tax Administration Offer in Compromise (ETA OIC). The ETA OIC program allows an offer for less than the Reasonable Collection Potential (RCP) which consists of:
A. Net Monthly Income
B. Net Assets
ETA OIC offers are like the Siamese Twin or the second half of a Yin and Yang symbol in relation to an Offer in Compromise Doubt as to Collectability with Special Circumstances (OIC DATCSC). Both of them are rarely approved, so the case made by an applicant has to be compelling. The same two special circumstances are required for both programs as I wrote about in a previous post here:
1. Economic Hardship
2. Public Policy or Equity
ETA OIC formula
RCP>Tax Liability>Offer
Example
Tax liability: $100,000
RCP: $125,000
Accepted Offer: $50,000
In this case the IRS expects to be able to collect the full amount of the tax liability from the taxpayer within the statute of limitations. However, if all the requirements are met, an ETA OIC may be accepted for less than the full tax liability.
OIC DATCSC formula
Tax Liability>RCP>Offer
Example
Tax Liability: $100,000
RCP: $70,000
Accepted Offer: $50,000
This is slightly different from the ETA OIC example in that the amount the IRS expects to be able to collect (RCP) within the statute of limitations is less than the full tax liability. Due to special circumstances they will accept less than the RCP.
OIC DATC formula
Tax Liability>RCP
Offer=>RCP
Example
Tax Liability: $100,000
RCP: $70,000
Minimum Accepted Offer: $70,000
Just as with the OIC DATCSC example, the amount the IRS expects to collect from the taxpayer within the statute of limitations is less than the full tax liability. In this case, they will accept an offer equal to or greater than the RCP. Due to the lack of special circumstances, the offer must be higher than for an OIC DATCSC.
Of these three OIC programs, the OIC DATC is the most likely candidate for most taxpayers. The OIC DATCSC and ETA OIC should be viewed as more exotic options for exceptional cases.
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