If you’re exploring options for resolving your tax debt, you may have come across the IRS Offer in Compromise (OIC) program. It’s an appealing possibility—settling your debt for less than you owe. But what happens if you still have some money in the bank or equity in your home or car? Does that disqualify you? Not necessarily, but the IRS will take a closer look at your application.
How the IRS Evaluates Your Assets
The IRS uses reasonable collection potential (RCP) to determine how much they think you can realistically pay. This number includes both your monthly disposable income and the equity in your assets. They’ll apply this formula to each of your assets, such as your cars, real estate, cash, and retirement accounts, and give you a total RCP calculation.
Keep in mind that the IRS isn’t just looking at what you own. They’re asking what could be reasonably tapped to settle your debt without creating further hardship. It could include:
- Equity from selling property quickly
- Cash or savings that aren’t already protected by a living expense allowance
- Assets with no liens or encumbrances
What Happens If You’re Just Over the Threshold
It’s common to have just enough in assets to technically disqualify you, even if it doesn’t feel like you can truly afford to pay the full amount. You still have options, though, and may be able to use another strategy:
- Applying under Effective Tax Administration (ETA) guidelines
- Adjusting valuations for a more realistic estimate
- Increasing exemptions
- Applying for a partial payment installment agreement (PPIA) instead
Settling with the IRS: Next Steps
Having some assets doesn’t mean you’re stuck with your full tax debt. The IRS guidelines leave room for negotiation, especially when a professional can help present your situation clearly and accurately.
At Highland Tax Group, we’ve worked with clients who initially thought they wouldn’t qualify, only to find a workable solution. If you’re feeling unsure about your eligibility, reach out to our tax professionals so we can discuss your assets and help calculate your equity.