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IRM pt. 5.8 provides guidelines for offers in compromise.
In evaluating an OIC, the IRS estimates the taxpayer’s reasonable
collection potential (RCP). The RCP is calculated by
determining, then adding together: (1) The taxpayer’s “net
realizable equity”; i.e., quick sale value less amounts owed to
secured lien holders with priority over Federal tax liens; and
(2) the taxpayer’s “future income”; i.e., the amount collectible
from his expected future gross income after allowing for
necessary living expenses. IRM secs. 5.8.5.3.1, 5.8.5.5 (2005).
“Generally, the amount to be collected from future income is
calculated by taking the projected gross monthly income less
allowable expenses and multiplying the difference times the
number of months remaining on the statutory period for
collection.” IRM pt. 5.8.5.5.5.1 (2005).
In a compromise, the Government will not collect the full
amount of the tax. As a result, the conditional expenses rules
for an OIC differ from the rules for installment agreements. IRM
pt. 5.8.5.5.3.1 (2005). With respect to conditional expenses,
such as credit card payments, “although the payment may be
allowed in an installment agreement where the tax will be paid in
full, it [the conditional expense] will not be allowed for
computation of an acceptable offer amount because the Federal
7(...continued)
($1,661). See Table 3, supra p. 6.
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Last modified: March 27, 2008