IRS Offer-in-Compromise / Massachusetts DOR Offer-in-Settlement
An Offer-in-Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an Offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through an installment agreement.
In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
Taxpayers should beware of promoters’ claims that tax debts can be settled through the Offer-in-Compromise program for “pennies on the dollar.”
The Massachusetts Department of Revenue has a similar program which can allow taxpayers to settle their debt for less than the amount owed.