The IRS recently announced some historic modifications to the Offer in Compromise (OIC) program which could result in drastic increases in accepted offers. I say it “could” have this result because the IRS is notorious for not training its personnel to understand their own rules. Changes such as these take quite a while to trickle down to the rank-and-file IRS employees who handle most collections case. And sometimes parts are lost or misinterpreted during the trickling process.
By far the most significant change that was announced has to do with the way the IRS calculates a taxpayer’s reasonable collection potential. Previously this would have included the combined equity in all assets and the future earning capacity projected over 4-5 years following the offer’s acceptance. It will still include all the equity in assets but now the future income calculation should be multiplied across only 1-2 years.
Some taxpayers have no available income (after paying allowable expenses), and this change will have no impact at all on them. However, for everyone else, this change may mean the difference between an accepted or a rejected OIC. If the IRS is serious about implementing these changes, then I think more people will obtain tax relief because more people will meet the criteria for the Offer in Compromise program. And if other practitioners think like I do, then we should see a big increase in OIC filings, which will mean a backlog of OIC cases and longer delays. So we’ll have to take the good with the bad on this one.