One of the most asked questions I receive is how does the IRS determine what to accept for an Offer-in-Compromise.  The answer is fairly straight forward: it depends

I know – not very helpful.  So, let’s discuss what the factors are that the IRS considers when determining if it will accept an Offer-in-Compromise to settle a tax debt, and for how much.  These factors include:

1. The taxpayer’s tax compliance when the Offer is filed
2. The Taxpayer’s Reasonable Collection Potential, or “RCP”
3. The time remaining until the Collection Statute Expiration Date, or “CSED”
4. Public Policy Considerations

We will review each of these factors so that you have a better idea of what to expect, and whether an Offer-in-Compromise makes sense.  Also, always make sure to work with a tax rep pro who focuses their practice on tax resolution.  You can find many of these experts right on Tax Rep Directory (https://TaxRepDirectory.com) and find someone in your area who has the expertise needed.

1. Tax Compliance

In order to even qualify for an Offer-in-Compromise a taxpayer must be in tax compliance.  Tax compliance means that the taxpayer has filed their tax returns (the last 6 years must be on file) and are making their current tax payments.  Once a taxpayer is in compliance, they are at least eligible for a collection alternative like an Offer-in-Compromise or installment agreement.

2. Reasonable Collection Potential (“RCP”)

RCP is the calculation that determines how much the IRS can expect to collect from the taxpayer.  It is a combination of the net equity in assets and the taxpayer’s future income.  It is critical that this calculation be done accurately by a tax rep pro because it will determine if the taxpayer is even eligible for an Offer, and if so what amount the IRS will accept.  The reason this is critical is that if the taxpayer shows an ability to repay the debt from net equity in assets and the future income, the IRS will not accept an Offer but instead will require that taxpayer to get into a payment plan and repay the debt.  So RCP is critical, as is the calculation for how much times remains on the collection statute – see #3 below.

3. Collection Statute Expiration Date (CSED)

The IRS has 10-years to collect a tax debt.  That is right: 10-years from the date the tax liability is assessed.  The date the tax year’s liability expires is referred to as the Collection Statute Expiration date, or CSED in tax parlance.  The CSED calculation is critical to determine whether the taxpayer shows an ability to full pay and therefore cannot do an Offer-in-Compromise, or that the statute has little time left and maybe there is an easier solution than an Offer.  IRS Account Transcripts will e necessary to determine the exact assessment date, whether any tolling events have occurred to extend the statute, and how much times remains by tax period.

4. Public Policy Considerations

Most taxpayers will be able to have their Offer accepted if they meet the RCP guidelines above.  There are, however, exceptions for those taxpayers who, if their Offer was accepted and it became public knowledge, would actually hurt compliance.  These taxpayers can include the famous, convicted criminals, public officials, etc.  The IRS does consider the impact on the public trust in the system when evaluating a taxpayer’s Offer-in-Compromise.

An Offer-in-Compromise is not rocket science, but it does require a professional that understands how the program works, how Offers are evaluated, and how best to position the taxpayer’s Offer to give it the best chance of acceptance.  If you or someone you know owes money to the IRS and needs to have the possibility of a compromise evaluated, locate a tax rep specialist in your area here on Tax Rep Directory and sort out your options.

Author: Eric Green

Eric is a managing partner in Green & Sklarz LLC, a boutique tax firm with offices in Connecticut and New York. The focus of Attorney Eric L. Green’s practice is civil and criminal taxpayer representation before the Department of Justice Tax Division, Internal Revenue Service and state Departments of Revenue Services. He is a frequent lecturer on tax topics for many national organizations, including Insightful Accountant, CCH, the NAEA, the NATP, the ABA Tax Section and the Connecticut Society of CPAs. Attorney Green has served as adjunct faculty at the University of Connecticut School of Law. He was the author and lecturer of the CCH IRS Representation Certificate Program, and has served as a columnist for CCH’s Journal of Practice & Procedure. He is the founder of Tax Rep LLC which coaches accountants and attorneys on building their own IRS Representation practices, and is the host of the weekly Tax Rep Network Podcast. Mr. Green is the author of The Accountant’s Guide to IRS Collection, The Accountant’s Guide to Resolving Tax Debts and The Accountant’s Guide to Resolving Payroll Tax Debts. He is a contributing author for Advocating for Low Income Taxpayers: A Clinical Studies Casebook, 3rd Edition, and has...

One of the most asked questions I receive is how does the IRS determine what to accept for an Offer-in-Compromise.  The answer is fairly straight forward: it depends

I know – not very helpful.  So, let’s discuss what the factors are that the IRS considers when determining if it will accept an Offer-in-Compromise to settle a tax debt, and for how much.  These factors include:

1. The taxpayer’s tax compliance when the Offer is filed
2. The Taxpayer’s Reasonable Collection Potential, or “RCP”
3. The time remaining until the Collection Statute Expiration Date, or “CSED”
4. Public Policy Considerations

We will review each of these factors so that you have a better idea of what to expect, and whether an Offer-in-Compromise makes sense.  Also, always make sure to work with a tax rep pro who focuses their practice on tax resolution.  You can find many of these experts right on Tax Rep Directory (https://TaxRepDirectory.com) and find someone in your area who has the expertise needed.

1. Tax Compliance

In order to even qualify for an Offer-in-Compromise a taxpayer must be in tax compliance.  Tax compliance means that the taxpayer has filed their tax returns (the last 6 years must be on file) and are making their current tax payments.  Once a taxpayer is in compliance, they are at least eligible for a collection alternative like an Offer-in-Compromise or installment agreement.

2. Reasonable Collection Potential (“RCP”)

RCP is the calculation that determines how much the IRS can expect to collect from the taxpayer.  It is a combination of the net equity in assets and the taxpayer’s future income.  It is critical that this calculation be done accurately by a tax rep pro because it will determine if the taxpayer is even eligible for an Offer, and if so what amount the IRS will accept.  The reason this is critical is that if the taxpayer shows an ability to repay the debt from net equity in assets and the future income, the IRS will not accept an Offer but instead will require that taxpayer to get into a payment plan and repay the debt.  So RCP is critical, as is the calculation for how much times remains on the collection statute – see #3 below.

3. Collection Statute Expiration Date (CSED)

The IRS has 10-years to collect a tax debt.  That is right: 10-years from the date the tax liability is assessed.  The date the tax year’s liability expires is referred to as the Collection Statute Expiration date, or CSED in tax parlance.  The CSED calculation is critical to determine whether the taxpayer shows an ability to full pay and therefore cannot do an Offer-in-Compromise, or that the statute has little time left and maybe there is an easier solution than an Offer.  IRS Account Transcripts will e necessary to determine the exact assessment date, whether any tolling events have occurred to extend the statute, and how much times remains by tax period.

4. Public Policy Considerations

Most taxpayers will be able to have their Offer accepted if they meet the RCP guidelines above.  There are, however, exceptions for those taxpayers who, if their Offer was accepted and it became public knowledge, would actually hurt compliance.  These taxpayers can include the famous, convicted criminals, public officials, etc.  The IRS does consider the impact on the public trust in the system when evaluating a taxpayer’s Offer-in-Compromise.

An Offer-in-Compromise is not rocket science, but it does require a professional that understands how the program works, how Offers are evaluated, and how best to position the taxpayer’s Offer to give it the best chance of acceptance.  If you or someone you know owes money to the IRS and needs to have the possibility of a compromise evaluated, locate a tax rep specialist in your area here on Tax Rep Directory and sort out your options.

Author: Eric Green

Eric is a managing partner in Green & Sklarz LLC, a boutique tax firm with offices in Connecticut and New York. The focus of Attorney Eric L. Green’s practice is civil and criminal taxpayer representation before the Department of Justice Tax Division, Internal Revenue Service and state Departments of Revenue Services. He is a frequent lecturer on tax topics for many national organizations, including Insightful Accountant, CCH, the NAEA, the NATP, the ABA Tax Section and the Connecticut Society of CPAs. Attorney Green has served as adjunct faculty at the University of Connecticut School of Law. He was the author and lecturer of the CCH IRS Representation Certificate Program, and has served as a columnist for CCH’s Journal of Practice & Procedure. He is the founder of Tax Rep LLC which coaches accountants and attorneys on building their own IRS Representation practices, and is the host of the weekly Tax Rep Network Podcast. Mr. Green is the author of The Accountant’s Guide to IRS Collection, The Accountant’s Guide to Resolving Tax Debts and The Accountant’s Guide to Resolving Payroll Tax Debts. He is a contributing author for Advocating for Low Income Taxpayers: A Clinical Studies Casebook, 3rd Edition, and has...