More About OIC

Many tax firms advertise that they can make a deal with the IRS where you will only pay "pennies on the dollar."  Before you agree to retain one of these firms, you need to know the following facts about the IRS Offer-in-Compromise ("OIC") program.

In order for a taxpayer to qualify for an OIC, the taxpayer must allege one of two reasons.  The IRS will grant an OIC based on either "doubt as to liability" or "doubt as to collectability."

In order to qualify for relief under the "doubt as to collectability" category, the taxpayer must offer the IRS an amount that is at least equal to the value of your assets plus all amounts that the IRS thinks they can collect from any future income you may have.  A taxpayer must have filed all returns due and the taxpayer cannot currently have a bankruptcy proceeding pending.  The IRS calls the value of your assets plus the amount that they can collect from any future income the "reasonable collection potential" or "RCP."

The IRS calculates the value of a taxpayer's assets by estimating the value of those assets in they event that those assets were seized, all debts were paid (for example, a mortgage) on the assets and sold it all.  As a rule of thumb, this value can be calculated by subtracting 20% from the fair market value of the asset.

The IRS then calculates your future income by subtracting necessary living expenses from a taxpayer's present or estimated monthly income to arrive at a sum that is referred to as "disposable income."

The IRS then multiplies the "disposable income" amount by: 1) 48 if the taxpayer is going to pay cash within 90 days; 2) 60 if the taxpayer is going to make payments over a two year period; or 3) some other multiplier if the taxpayer is offering to make payments over the period left that the IRS is allowed to collection from the taxpayer.  (the statute of limitations on collection is usually 10 years).

You may have a better chance at getting the IRS to accept an offer in compromise if you can prove that paying the debt would create an economic hardship or would be unfair and inequitable. This may be the case if:

• You’re elderly and will find it difficult to find gainful employment

• You have disabilities that make it difficult to work

• You have a large number of medical bills due to your illness or the illness of a family member

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