Offer in Compromise “OIC” Basics You Should Know

Before we get start with this topic keep in mind there are 3 types of OIC’s. With that said an Offer in Compromise, OIC is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the total amount owed. Minus particular circumstances that the IRS accepts, an offer will not be accepted if the IRS feels the tax liability can be paid in full as a lump sum or through an IA, installment agreement.
Typically the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential. The uses the RCP to measure the taxpayer’s ability to pay the back taxes. This will calculate specific values that may be realized from the taxpayer’s assets which include cars, real property, bank accounts (accounts the tax payer is linked to can be considered as well), equity in businesses as well as other property that have assessed values. Of course basic living expenses are factored in but anticipated future income is also considered.
OICs – 3 Different Types Based on Specific Circumstances
1. Doubt as to Collectibility
2. Doubt as to Liability
3. Effective Tax Administration