How is the Offer in Compromise Amount Determined?

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Dealing with unpaid taxes can be daunting, especially when the clock is ticking on back taxes in Texas. At DiLucci CPA Firm, we understand that facing the IRS can feel like a David vs. Goliath scenario. Since our inception in 2005, our family-operated firm has stood beside Texans like you, offering not just tax return and planning services but a partnership in resolving tax concerns and fostering the growth of your business. 


Breaking Down the Offer in Compromise

The Offer in Compromise (OIC) program may sound like a silver bullet for taxpayers seeking relief, but it’s a little more complex than simply waving a white flag at the IRS. An OIC allows you to settle your tax debts for less than the total amount you owe. It’s an option for those who cannot pay their total tax liability or if doing so creates a financial hardship.  But how is the amount you’re expected to offer calculated? Well, it’s a mix of financial alchemy and a deep dive into your ability to pay. Here’s the lowdown: The IRS considers your income, expenses, asset equity, and future earning potential to determine your “Reasonable Collection Potential” (RCP). 


The Mechanics of Calculating an Offer

Your RCP is the cornerstone of the OIC. It is calculated by adding the value of your assets—such as real estate, automobiles, bank accounts, and other property—to your anticipated future income. The formula seems straightforward, but it’s as much about the nuances of your financial narrative as it is about the numbers.

If you’re scratching your head, you’re not alone. This is where having a team that values communicative relationships comes into play. We thrive on getting to know the unique aspects of your situation, ensuring we present an offer that aligns with your capabilities while satisfying the IRS’s requirements.


Understanding  Your Financial Reality

The OIC should reflect your financial situation, not a one-size-fits-all number. We’ll sit down with you, sift through your financial life, and put forth an offer rooted in reality, not wishful thinking. It’s not just about crunching numbers; it’s about crafting a narrative that the IRS can accept. Whether you’re an individual feeling the heat from the IRS or a business owner with the weight of back taxes on your shoulders, we’re here to shoulder the burden and light the way to a resolution.


Offer in Compromise

It’s important to understand that not everyone qualifies for an OIC. It’s not a get-out-of-tax-free card. To qualify for an Offer in Compromise (OIC) with the IRS, taxpayers must go through several steps and meet specific criteria. The steps can include:

  1. Assessment of Ability to Pay: Evaluate your financial situation to determine your ability to pay the tax debt.
  2. Filing of All Required Tax Returns: You must have filed all legally required tax returns.
  3. Payment of Required Estimated Tax Payments for the Current Year: If you are a business owner with employees, you must have made all required federal tax deposits for the current quarter.
  4. No Open Bankruptcy Proceedings: You cannot be in an open bankruptcy proceeding.
  5. Submit an OIC Application: Complete and submit the Forms.
  6. Offer a Reasonable Collection Potential (RCP): Your offer must reflect the most that the IRS can expect to collect from your assets and income, termed the reasonable Collection Potential.
  7. Payment of the Application Fee and Initial Payment: Depending on your income level and chosen payment option, you may need to submit an application fee and initial payment along with your OIC application.
  8. Compliance with All Requested Additional Information: If the IRS requests additional information to substantiate your ability to pay, you must provide it on time.

Each of these steps requires careful attention to detail and thorough documentation. This is why it’s crucial to have someone in your corner who understands the intricacies of the tax system and can assess whether an OIC is a viable route for you. With a rich history of guiding clients through the choppiest tax waters, we pride ourselves on being that steadfast ally.


Final Thoughts and a Warm Invitation

An OIC can be a lifeline for those drowning in tax debt, but it’s a journey you should embark on with guidance. At DiLucci CPA Firm, we don’t just crunch numbers; we forge relationships and create strategies tailored to your life to keep the IRS at bay.  If you’re feeling overwhelmed by back taxes and the thought of calculating an Offer in Compromise, let us lend a hand. Call us at DiLucci CPA Firm to speak with a lawyer in Texas, call (972) 444-9934, or contact us online to schedule a consultation to help guide you through your Tax, Accounting, or IRS matter. Let’s work together to turn your tax turbulence into smooth sailing.