There are three types of Offers in Compromise:
- Doubt as to Collectability – Does the taxpayer actually have the income and assets to pay back all the taxes owed?
- Doubt as to Liability – Does the taxpayer really owe all that the IRS is looking to collect? Is there a dispute here?
- Effective Tax Administration – While the IRS has every right to collect the tax debt in full, it may create an undue hardship to the taxpayer given special circumstances such as age or health.
My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.
By definition, an Offer in Compromise is appropriate when the IRS is willing to settle a taxpayer’s debts for less than the full amount owed.
Doubt as to collectability arises when the taxpayer does not dispute the amount of tax owed but cannot pay the tax in full during the ten year statutory period the IRS has to collect the debt, usually ten (10) years after the tax return is filed.
The taxpayer must submit a personal financial statement called a Collection Information Statement, Form 433-A, listing monthly income, living expenses, assets and other debts along with three (3) months of documents like bank statements and utility bills to substantiate the expenses.
The IRS has a formula called RCP or reasonable collection potential which uses the taxpayer’s financial information to determine how much they can pay and what the IRS will accept to settle.
For a more detailed explanation of RCP, read this blog, https://activerain.com/blogsview/5329707/norwalk–ct–the-secret-sauce-of-tax-resolution—-rcp- or watch this YouTube video, https://www.youtube.com/watch?v=9tdctyR7hYM
If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.