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An Introduction to the IRS Offer in Compromise Program


Posted on December 31, 2018 |

Individual and business taxpayers that owe the Internal Revenue Service back taxes might be able to pay less than they owe and still extinguish their IRS debt.

Under the IRS tax code, a taxpayer can make an Offer in Compromise (OIC) and settle an existing IRS debt by paying less than what is actually due, provided the taxpayer meets the OIC criteria and the agency agrees to the terms proposed.

The IRS OIC program is designed to work to the benefit of both the government and the taxpayer. Taxpayers can rid themselves of a significant financial burden, freeing themselves up to move on with their lives and their business pursuits. The OIC allows the government to collect at least a portion of what the taxpayer owes and, because OICs come with a promise to stay current on taxes going forward, the IRS has assurances it will be able to collect the appropriate amount of taxes in the future.

Of course not every taxpayer’s offer is accepted. There are several eligibility requirements that a taxpayer must meet to participate in the program. While a New Jersey business tax lawyer can explain in detail whether an OIC is appropriate for your particular circumstance, an overview of the major requirements of an IRS OIC are covered below.

IRS OIC Eligibility Requirements

In order to be able to participate in the IRS OIC program, the taxpayer must meet several eligibility requirements, beginning with what the tax code calls Reasonable Collection Potential or RCP.

The RCP is a formula set out in the tax code that is intended to determine whether the amount offered at least meets what the government believes could be reasonably collected for the debt without the offer.

Once a favorable RCP determination is made, the IRS will determine if the taxpayer can show that there is at least one of three criteria: doubt as to liability, doubt as to collectability, or effective tax administration.

In order to show doubt as to liability, the taxpayer must demonstrate that the issue of the existence of tax liability itself, or the issue of how much is owed, forms the basis of a legitimate legal dispute.

To show doubt as to collectability, the taxpayer must show that the debt might be uncollectable absent an accepted OIC.

To demonstrate effective tax administration, the taxpayer, while agreeing that the tax is indeed owed, must show that exceptional harm would occur if the entire debt were collected.

A New Jersey Business Tax Lawyer Can Help

Presenting an offer in compromise to the IRS can be a daunting endeavor. It is important to understand all of the rules and requirements of making a viable IRS OIC, as well as how to gauge the likelihood of success.

Thorn Law Group New Jersey business attorney Kevin E. Thorn can work with you to assess your particular situation, explain your options, and help you determine which option is best for you and your business.

If you need to settle back taxes and are considering an IRS OIC, contact us online or call our offices at 201-355-8202.

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