It may surprise you to learn that there is a tax resolution program on the books that permits the IRS to write off a tax liability or settle a tax debt for less than what is owed even though the taxpayer has the ability to pay it in full.
- Doubt as to Liability Offer: Genuine doubt exists that the IRS has correctly determined the amount owed.
- Doubt as to Collectibility Offer: Taxpayer cannot fully pay the tax due; therefore, the IRS accepts an amount equal to what it reasonably can expect to collect — “Reasonable Collection Potential” (RCP) — as payment in full.
- Doubt as to Collectibility (Special Circumstances): Taxpayer cannot fully pay the tax due but has proven special circumstances that warrant acceptance for less than RCP.
- Effective Tax Administration Offer: RCP is greater than the liability (i.e., on paper the taxpayer has the ability to pay in full) but there are economic or public policy/equity circumstances that would justify accepting the offer for an amount less than full payment.
Some additional requirements for ETA Offers:
- Taxpayer does not qualify for consideration under the other OIC programs
- The taxes can be paid in full either by lump sum payment or via installment agreement
- compromise of the liability does not undermine voluntary compliance with the tax laws