Tax Offer in Compromise - Successful Negotiations

Probably the most important component of submitting a tax offer in compromise is section 9 of Form 433-A, otherwise referred to as the Monthly Income and Expense Analysis. It provides the basis by which the filer’s monthly income is weighed against their expenses, resulting in what the IRS calls the filer’s reasonable collection potential (RCP).

To ascertain the validity of the individual’s expenses, the IRS refers to a set of national standards for foodstuffs, clothing, and household upkeep, to which only Alaska and Hawaii serve as exceptions. By and large, filers need not verify most of these basic expenses.

Housing expenses are based upon a figure derived from regional averages of monthly expenses. In addition to these figures, the Offer in Compromise Guidelines grant two types of transport costs. The first implements a national average of the cost to own, compiling car payments of all types, including lease or monthly lien payments. The next accrues gas, insurance, and maintenance expenditures based on regional values. Alternatively, should the filer be reliant upon public transportation, the IRS uses another number.

Unfortunately, the previous values for living expenses, housing, and transportation serve a set of de facto standards that provide the IRS with distinct fundamental amounts not to be exceeded by claimed costs in the amount credited to any individual. This opposes stipulations in the Internal Revenue Code that dictate a certain amount of flexibility regarding the specific case of each citizen. But in reality, the IRS only deviates from these norms extremely rarely.