Saturday, January 31, 2009

Offer In Comporomise and the IRS

An offer in compromise is an agreement a taxpaye and the Internal Revenue Service that settles the taxpayer's tax liabilitiee for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or throuhg a payment agreement.

In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayers ability to pay and includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and toher property and any dissipated assets. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

OIC- Doubt as to Liability
A legitimate doubt exists that the assessed tax liability is correct. Possible reaons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law (2) the examiner failed to consider the taxpayersevidence (3) the taxpayer has new evidence.

OIC- Doubt as to Collectibility
Doubt exists that the taxpayer could ever pay the full amount of the tax liability owed within the remainder of the statutory period for collection.

OIC- Effective Tax Administraton
There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstances exists that would allow thr IRS to consider an OIC. To be eligible for compromise on this basism, a taxpayer must denmonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

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