An Offer In Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that resolves the taxpayer’s tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. The IRS may legally compromise for one of the following reasons:
- Doubt as to Liability: Doubt exists that the assessed tax is correct.
- Doubt as to Collectibility: Doubt exists that the taxpayer could ever pay the full amount of tax owed. The minimum offer amount must generally be equal to (or greater than) the taxpayer’s reasonable collection potential (RCP). The RCP is defined as the total of the taxpayer’s realizable value in real and personal assets, plus his/her future income.
- Effective Tax Administration: If there is no doubt that the tax is correct and that the amount owed could be collected in full, but exceptional circumstances exist such that collection of the full amount would create economic hardship or where compelling public policy or equity considerations provide sufficient basis for compromise. The taxpayer bears the burden of proof to show their OIC qualifies for public policy or equity considerations. They must show that their circumstances are compelling enough to justify acceptance of their OIC compared to other taxpayers in similar circumstances.
Our attorneys have an in-depth knowledge of the IRS Offer In Compromise program and can help you through the process.