Step 3: How To Determine the Amount of Your Offer In Compromise

If you need IRS tax help, and you're considering making an offer in compromise, there are a few steps you must follow.

This is step 3: How to determine the amount of your offer in compromise.

To determine the amount of your offer in compromise, you must...

1. Calculate your reasonable collection potential (RCP)

2. Offer an amount equal to or greater than your reasonable collection potential.

Note: If the IRS decides that you are able to pay your tax liabilities (either in full and immediately, or through an installment plan), your offer will be rejected.

Now, there are special circumstances that might cause you to offer less than the RCP (advanced age, serious illness with unlikely recovery). But you should be sure you qualify before submitting your offer and your money. Otherwise you may lose your $150 processing fee and any down payment you make.

If you have special circumstances, fill out Section VI, "Explanation of Circumstances", on form 656, explaining your situation. Also be sure to attach any supporting documents to form 656 that might help explain your case.

3. Complete Form 433-A or Form 433-B (as appropriate) , and attach it to Form 656.

4. Determine your payment terms:

- Lump Sum Cash Offer

- Short Term periodic Payment Offer

- Defferred Periodic Payment Offer

5. Move on to Step Four: Completing Form 656, Offer In Compromise.

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Offer in Compromise - Step 4.