Calculating your CPR can be complicated, but here's a basic way to get an idea of your CPR. Start with total monthly income from all sources and subtract all of your necessary living expenses. This means rent, utilities, food, gas, car payment, etc. It doesn't include your budget to go out to dinner every week or the cost of your subscriptions.
The resulting amount is your monthly disposable income. Take that number and multiply it by 12 (which is equivalent to one year of disposable income). This is the least you can offer the IRS. They will almost never accept less than this amount.
The reason is that you can afford to pay this amount every month for the next year, so why should they let them release you for something less now?. If you qualify, you are not required to make any payment of the application fee at the time of submission or during consideration of your offer. Local standards are the amounts allowed for housing, utilities and transportation. Local standards are limited to the amounts you actually spend per month or to the standard amounts, whichever is less.
National and local standards are guidelines. If the IRS determines that the rules would not cover basic living expenses in a particular case, deviations are allowed. The IRS will calculate the correct amount of the offer. If it's more than you offered and you don't have special circumstances, the IRS will give you an opportunity to increase the amount of your offer.
If you do not, the offer will be rejected. If the IRS determines that you can pay the full liability, you can request an installment payment agreement. If you have an installment agreement, you don't have to make payments while your offer is being processed. If your offer is not accepted and you haven't incurred any additional tax debt, your installment payment agreement with the IRS will be reinstated at no additional charge.
During the offering process, the IRS may file a Federal Tax Lien Notice (NFTL). This is a public notice to creditors that you have a tax debt. However, an NFTL will usually not be filed until a final decision has been made on your offer. There is no requirement to release a fee that was charged prior to the submission of the offer.
Your circumstances will be taken into account when deciding to release or maintain the tax while the offer is pending. We may be able to eliminate the tax if it was deposited in your account after the IRS received the date of the pledged offer. The investigation of your offer may not be completed while there is a pending claim or open audit for any fiscal year in which you owe an obligation. If you file a claim seeking an exemption under provisions for innocent spouses, have been notified that a tax year will be audited, or you currently have a fiscal year under audit, we recommend that you wait for the matter to be resolved before making an offer.
If we are unable to complete the investigation of your offer due to a pending examination or complaint, the offer may be returned and any payments or application fees submitted will not be refunded. A form can be used if your business is a sole proprietorship linked to your social security number. If your business is not a sole proprietorship linked to your social security number, a separate offer is needed, with the application fee and offer payment. If you do not qualify for low income certification or have not checked the low income certification box, your offer will be returned to you.
If you qualify for low income certification and you have checked the box, the money will be held as a deposit until a decision is made on your offer. Checks that combine the application fees of several offers will not be accepted and offers will be returned. Each Form 656 must have separate checks attached to it. Offer payments that must be submitted with the offer are non-refundable.
If you send MORE than the required amount AND designate the payment as a deposit on Form 656, Commitment Offer, payment that exceeds the required amount is refundable. The IRS will try to contact you to provide you with an opportunity to pay the missing amount. If you do not make the payment, the offer will be withdrawn and returned to you without the right to appeal. All payments already received will apply to your tax obligations.
The IRS will also keep the application fee. If a triggering event occurs and you correctly enter into a transfer agreement under section 965 (i) () (), your net tax liability under section 965 (i) associated with the transfer agreement will not be evaluated. If you do not enter into a transfer agreement under section 965 (i) (), you will have to timely pay the net tax liability of section 965 (i) activated in full or in accordance with the installment schedule if you correctly choose section 965 (h) with respect to the net tax liability triggered by section 965 (i) or the offer will be in default. You must comply with the filing and payment of all tax returns for a five-year period from the date the pledged offer is accepted, including extensions.
If you do not pay the offer under terms of commitment on time and comply with it during the five-year period following the acceptance of the offer under terms of commitment, including extensions, your offer will be suspended. The terms of the offer cannot be extended or changed once the offer is accepted. The refund that is withheld as part of the offer agreement applies to the total tax debt and is not considered a payment of the amount of the accepted offer. You must continue to declare and pay all your taxes on time for the period indicated in the offer contract, including any collateral agreement signed as part of the accepted offer.
Interest will be added to the amount of tax you owe until the offer is accepted. From the date the offer is accepted, no additional interest will be added to your tax debt or to the amount of the accepted offer. This money is not refundable, even if the IRS rejects your offer (the IRS will only apply it to your tax bill). As part of the accepted offer agreement, the IRS will keep any refund, including interest, of taxes due until the date the IRS accepts the offer.
The IRS offers other programs to help those who are behind in paying their tax debts, including installment payment agreements, payment extensions, and so on. Tax professionals with experience in resolving tax debts are still their best option to make an informed decision on how to calculate their reasonable collection potential and create an offer that the IRS is likely to accept the first time, since they can estimate what your offer should be based on satisfactory estimates they have provided in the past. If you plan to file a compromise offer on the basis that you cannot pay the tax due (without having doubts about liability or effective tax administration), then the amount of the offer must exceed your “reasonable collection potential” (RCP). The IRS can file or maintain current tax liens until it accepts your offer and you have fulfilled your part of the bargain.
When an offer is not met, the IRS can request or file a lawsuit to collect the full balance of the offer or an amount equal to the original tax debt minus any payments received under the terms of the offer. A pledge offer (with questions as to collectability) to the IRS must be equal to or greater than what the IRS calculates as the taxpayer's reasonable revenue potential. With a compromise offer, you can pay off your tax debt with less than you currently owe (sometimes also much less). Not only does this cost you a significant amount of time, but it can also cost you quite a bit of money, as your debt continues to increase while the IRS deliberates on your offer and the IRS requires that your offer be accompanied by a down payment.
If a compromise offer isn't for you or the IRS rejects it, you may still have other options through the IRS to get a tax break, such as opting for an installment payment plan or applying for the “currently uncollectible” status. Announcements about how to settle a tax debt in cents on the dollar usually refer to the process of applying for an IRS pledge offer (OIC), which is an IRS program designed to help people pay at least part of their tax debt. A compromise offer is a great way to resolve your tax debt when there are reasonable doubts about your ability to fully pay off the debt before it expires. When evaluating an offer, the IRS will consider several factors, including your future income, debts, assets, and your general ability to pay tax debt.