Dec 19, 2007

Your tax debt- Part 5 – The Offer in Compromise (“OIC”) – generally defined

The Offer in Compromise is the most desired of all tax resolutions, if the price is right. The price is the amount of the Offer that is accepted by the IRS. It is the best option if you can remain compliant for 5 years after the Offer is accepted and if you can pay the Offer amount. The problem is that most people do not qualify for an Offer (see my past blogs on this subject). Remember, there is no such thing as a free lunch. The Offer is not a subjective amount that you can suggest to the IRS and they will accept. It requires a detailed financial investigation of past, present and future ability to pay with income, assets, and other collectible items within the collection statute of limitations (generally 10 years from the date of assessment).

The collection Offer is referred to as an OIC- Doubt as to “Collectibility” (there are other Offers that deal with collection issues known as Effective Tax Administration (a future blog topic to come) and non-collection issues- Doubt as to Liability- i.e. you do not believe you even owe the tax liability)).

There are four factors to determine Reasonable Collection Potential (“RCP”)
1. Future Income: Monthly disposable income
2. Assets: Net equity in assets
3. Assets Collectible from 3rd parties: Transferee liability, assets held by others
4. Income/Assets out of reach of the Govt.: i.e. foreign assets and income

There are several other hidden factors that can determine whether the IRS will even entertain an Offer:
1. Age
2. Health
3. Business owner, value of business
4. Future earning ability
5. Asset appreciation
6. Under-employment
7. Education level

These are not all of the “other” factors that may disqualify an Offer or predispose an Offer to rejection but they are some of the most significant. I will blog an entire series on this option in the near future. This is a very extensive process that only a seasoned tax professional should handle. It is recommended that you consult a competent tax professional for all of your options and questions before filing an Offer.

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