What is Reasonable Collection Potential (RCP)?
Reasonable Collection Potential (RCP) is a term the IRS uses to specify the minimum amount of money a taxpayer must pay the agency in order to settle their debt through an offer in compromise (OIC). With this program, you may be able to settle for less than the amount you owe, but only if you qualify.
If you genuinely cannot pay your entire tax liability, you may still be able to resolve your lingering liabilities and enjoy a financial fresh start. Keep reading to learn more about RCP and how it is calculated, then reach out to our office for help addressing your tax resolution matters.
How Does the IRS Calculate RCP?
The RCP is the IRS’s estimate of how much you could realistically pay toward your tax debt, with a certain timeframe, based on your assets and future income. Any offer you make the agency must meet or exceed this number to be considered. So how does the agency calculate this amount?
The IRS calculates your RCP by using your net realizable equity in assets and your future monthly disposable income. In this case, equity is the quick sale value, or roughly 80 percent, of your assets, minus related debt. Assets could include bank accounts, investment accounts, retirement accounts, real estate, vehicles, and other personal property, such as an art collection. Disposable income refers to the amount of money you have left over every month after paying for “necessary” living expenses, as determined by the IRS. This figure is then multiplied by the number of monthly payments in your OIC’s repayment plan, which is typically either 12 or 24.
Other RCP Factors and IRS Considerations
The IRS may consider an offer below your determined RCP, but only when special circumstances apply, such as proof that an economic hardship exists. To qualify for an OIC, you must be current on your tax return filings, but this repayment program is not your only option to settle your outstanding tax debt. Other options may be a better fit in your situation, so reach out to our law office to discuss a tailored solution.
Learn How Reasonable Collection Potential May Be Used in Your Tax situation
Now that you have a fundamental idea about what RCP is and how the IRS typically calculates this figure, reach out to Dayes Law Firm to apply this formula to your debt settlement strategy. With 100 years of combined experience, we are your unparalleled partners in tax controversy law. No matter where you are in the country, our tax lawyers are ready to help.
