How do you qualify for an IRS Offer in Compromise?

The Allowable Living Expense standards are published by the IRS and they are tight. National food and clothing standards, local housing and utility standards, and operating-cost standards for vehicles are applied — not the taxpayer's actual expenses. Any expense above the standard requires documentation that it's necessary.

Qualifying assets include real estate equity (with a 20% liquidation discount), vehicle equity above standard reserves, retirement accounts (with a tax-and-penalty discount), and investment accounts. The IRS does not require liquidation, but it values everything at potentially-realizable value when calculating RCP.

Three OIC types: Doubt as to Collectibility (most common, the RCP analysis), Doubt as to Liability (the tax shouldn't have been assessed), and Effective Tax Administration (collection would create economic hardship or be inequitable). Each has different documentation requirements and success rates.

• IRC § 7122