CTRS CTRS Offer in Compromise 1 — Questions and Answers
Question 1: What are the three grounds upon which an Offer in Compromise (OIC) may be submitted?
- Doubt as to Liability, Doubt as to Collectibility, and Effective Tax Administration (Correct answer)
- Financial Hardship, Penalty Waiver, and Statute Expiration
- Audit Reconsideration, Appeals, and Tax Court
- Innocent Spouse, Injured Spouse, and Separation of Liability
Correct answer: Doubt as to Liability, Doubt as to Collectibility, and Effective Tax Administration
An OIC may be submitted on three grounds: Doubt as to Liability (DATL), Doubt as to Collectibility (DATC), or Effective Tax Administration (ETA).
Question 2: What is Reasonable Collection Potential (RCP) and why is it central to the OIC process?
- RCP is the IRS's estimate of the maximum amount it could collect from the taxpayer, and an OIC must generally equal or exceed this amount (Correct answer)
- RCP is the minimum penalty amount the IRS will assess on delinquent accounts
- RCP is the taxpayer's net income over the remaining CSED period
- RCP is the fair market value of the taxpayer's real property only
Correct answer: RCP is the IRS's estimate of the maximum amount it could collect from the taxpayer, and an OIC must generally equal or exceed this amount
RCP represents what the IRS believes it can collect through all available means, and a successful DATC offer must generally meet or exceed the taxpayer's RCP.
Question 3: What is the standard formula for calculating the offer amount under the Lump Sum Cash payment option?
- Net equity in assets + (monthly disposable income × 12) (Correct answer)
- Net equity in assets + (monthly disposable income × 24)
- Gross assets + total annual income
- Total tax liability × 20%
Correct answer: Net equity in assets + (monthly disposable income × 12)
For a lump sum cash offer (paid within 5 months), the offer amount equals net equity in assets plus monthly disposable income multiplied by 12.
Question 4: What is the non-refundable application fee for submitting an Offer in Compromise as of recent IRS guidance?
- $205 (Correct answer)
- $150
- $300
- $500
Correct answer: $205
The IRS charges a $205 non-refundable application fee for submitting an OIC, though this fee may be waived for low-income taxpayers.
Question 5: What is the Low Income Certification and how does it affect OIC submission requirements?
- It exempts qualifying low-income taxpayers from both the application fee and the required initial payment (Correct answer)
- It reduces the offer amount by 50% automatically
- It requires the IRS to accept any offer from a low-income taxpayer
- It waives all accrued interest on the tax liability
Correct answer: It exempts qualifying low-income taxpayers from both the application fee and the required initial payment
Low Income Certification allows taxpayers at or below 250% of the federal poverty level to submit an OIC without paying the $205 application fee or the required initial payment.
Question 6: How long does the IRS generally have to accept or reject an OIC before it is deemed accepted by default?
- 24 months from the date the IRS received the offer (Correct answer)
- 12 months from submission
- 6 months from the date of the first IRS acknowledgment letter
- 36 months from assessment
Correct answer: 24 months from the date the IRS received the offer
Under IRC §7122(f), if the IRS does not make a determination on an OIC within 24 months of receipt, the offer is deemed accepted.
CTRS CTRS Offer in Compromise 1
What are the three grounds upon which an Offer in Compromise (OIC) may be submitted?