Reasonable Collection Potential And An Offer in Compromise

: Chris Lee Law Firm

  Filed under: Tax Debt

offer in compromiseThe RCP—Reasonable Collection Potential—is the golden number for your offer in compromise because it more or less says that you are an ideal Offer In Compromise candidate. The reasonable collection potential is roughly estimated as your solvent or liquid assets plus what income you can expect to generate in the next four to five years.

How do I calculate the RCP?

The RCP is calculated as the value of all your cash, assets and disposable monthly income over 48-60 months.

Cash is understood as your investments, savings, and accounts receivable, though not limited to these. Essentially, any money you have tied up in monetary vehicles or instruments goes directly to pay off the IRS.

Assets are things like your home and motor vehicles. You will be expected to downsize and put income generated from your assets towards your debt.

Disposable income is any income you don’t need to provide the essentials for you and your family (gas, water, heat, food, clothing, etc.). This must be paid to the IRS for a period of 48-60 months, depending on the size of your debt.

A competitive Offer In Compromise agreement will offer the IRS an amount of money equal to or greater than the reasonable collection potential. Failure to do so will result in a rejected offer in compromise.

Important to document your monthly income and make a case for your RCP

It is imperative you closely monitor your monthly income and accurately project your living essentials.  You will need to paint the IRS a consistent picture of your monthly household economy. Many OICs are rejected because the taxpayer does not sufficiently demonstrate how their proposed disposable income contribution is consistent within the parameters of the RCP.

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