The OIC: A Strategic Framework for Tax Liability Resolution 💸

The Offer in Compromise (OIC) program is authorized under Internal Revenue Code (IRC) § 7122, permitting the IRS to settle outstanding tax liabilities for less than the full amount owed.

This negotiation instrument is reserved for taxpayers who have fulfilled all filing requirements and are not currently involved in open bankruptcy proceedings.

The IRS formally evaluates OIC submissions based on three distinct statutory grounds for acceptance, reflecting a risk-based approach to debt resolution.

The most common basis, “Doubt as to Collectibility,” is a purely financial assessment that the taxpayer’s current net worth and future income potential do not equate to the full liability amount.

This collectibility calculation establishes a “Reasonable Collection Potential” (RCP) floor, which is the minimum offer the IRS will consider for approval.

The calculation of RCP is a detailed function of the taxpayer’s realizable equity in assets plus their future disposable income over a defined period, typically 12 or 24 months.

The second basis, “Doubt as to Liability,” applies when an academic question exists regarding the accuracy of the underlying tax assessment itself, necessitating a written statement and supporting documentation to substantiate the claim.

The third criterion, “Promotion of Effective Tax Administration” (PETA), allows for acceptance when collection in full would create a documented economic hardship or be deemed inequitable.

The OIC submission requires a comprehensive financial disclosure via Form 433-A (OIC) or 433-B (OIC), which mandates a high degree of transparency regarding assets, liabilities, income, and expenses.

The procedural timeline for OIC evaluation can be protracted, frequently requiring an extensive investigation and analysis period of up to 24 months from the initial filing date.

During the OIC review period, the statutory period for collection remains suspended, preventing the IRS from initiating new levy or seizure actions.

A rejected OIC is subject to an appeal process with the IRS Office of Appeals, providing a mechanism for an independent administrative review of the decision.

I’d love to know your thoughts. Have you tried this strategy or considering it?

Thanks for reading,

Sid

Comment below or feel free to head over to the LAW & TAX HOTLINE™ where we offer free pro bono legal research and resources for your case.

No legal advice contained in the meeting but we’ll point you to the resources, websites, IRS publications, and even a qualified attorney in your state who can review your plans if you want a second look to ensure there are no gaps and traps lurking in the dark.

---

Thanks for reading,

Sid Peddinti, Esq.
Researcher. Attorney. AI Innovator.

---

#TaxLaw #EstatePlanning #WealthPreservation #FiduciaryDuties #TrustFunding #SuccessionPlanning #ProbateAvoidance #TaxStrategy #OfferInCompromise #OIC #TaxResolutionStrategies