Where do you list the amount of tax debt you owe on the OIC form?
An Offer in Compromise is about what the IRS could collect, not about what you owe.
So, the short answer, you do not list your debt, only the years included in the offer. An Offer in Compromise (OIC) is not about what you owe, it’s about the Reasonable Collection Potential and whether you qualify for the program. The Reasonable Collection Potential is the amount of the debt the IRS could collect given your monthly disposable income, equity in assets and the remaining Statutes of Limitation that the IRS has to collect the debt. If the IRS can collect the debt given these three factors, disposable income, equity in assets and Statute of Limitations, your offer will be denied. The IRS considers a taxpayer to be a “full pay” and will send you a nice letter of denial. Think of it this way, if the IRS can collect the debt given their vast powers of collections, why would they settle. This is the first hurdle of consideration for an Offer in Compromise, could the IRS collect the debt in full.
Two Kinds of Offers- Cash and Deferred
So, let’s assume you passed the first hurdle, there is no way the IRS could collect the debt in full in the remaining statute of limitation.
Cash Offer for $85,175 debt
In a cash offer the IRS uses a disposable income factor of 12 months plus the equity in assets.
Disposable income is $650 per month x 12= $7,800
Net equity in assets per IRS standards is $5,500
Offer amount= $13,300
Taxpayer would have 5 months to pay the debt. In this case, the payment is due upon acceptance of the Offer. Payments do not need to be made while the Offer is in review.
Deferred Offer for $85,175 debt
In a deferred offer the IRS uses a disposable income factor of 24 months plus the equity in assets.
Disposable income is $650 per month x 24= $15,600
Net equity in assets per IRS standards is $5,500
Offer amount= $21,100
Taxpayer would have 24 months to pay the debt. In this case, the taxpayer must make payments while the Offer is in review. Failure to do so will cause an immediate rejection of the Offer. Therefore, the taxpayer would need to make a payment of $650 each month.
However, let’s say your Statute of Limitations allows another six years on the debt. The IRS would look at your disposable income ($650 per month) and times that number by the amount of months remaining on the debt.
Disposable income is $650 per month
Time remaining on statute is 60 months
Reasonable Collection Potential is $650 x 60 = $39,000
In this scenario, the IRS could agree to accept your Offer if you agree to increase the Offer amount from $13,300 to $39,000. However, remember, if you applied for a cash Offer you will need to find a way to pay $39,000 within the five months.