The IRS "Offer in Compromise" (OIC) program allows qualified taxpayers to settle their tax debts for less than the full amount owed.
New Guidelines
The IRS Restructuring and Reform Act of 1998 mandated a more liberal acceptance policy. The key factor is the taxpayer's "Reasonable Collection Potential" (RCP).
How It Works
The IRS calculates your RCP based on:
- Assets: The quick sale value of your home, car, and other property.
- Future Income: Your projected disposable income over the next 4-5 years (or less for cash offers).
If your offer equals or exceeds the RCP, it should be accepted. However, "lifestyle expenses" like private school tuition or exorbitant car payments are often disallowed in calculating disposable income.