Internal Revenue Service (IRS) Form 656 & Form 433-A (OIC) 26 U.S.C. § 7122 & Treas. Reg. § 301.7122-1

Form 656 & Form 433-A (OIC) Instructions: Offer in Compromise (OIC) Doubt as to Collectibility Playbook

“I owe $85,000 in back taxes from a failed restaurant business. Can I really settle with the IRS for pennies on the dollar with an Offer in Compromise?”

Official Procedural Summary & Rules

An Offer in Compromise is not arbitrary; the IRS calculates your Reasonable Collection Potential (RCP). If your assets plus 12-24 months of disposable income are less than the total debt, your offer must be accepted by law.

1. The Exact IRS Formula (RCP)

RCP = (Quick Sale Value of Assets [Fair Market Value x 80%]) + (Monthly Gross Income - Allowable Living Expenses) x 12 or 24 months.

⚠️ Administrative Traps & Rejection Triggers

Do not pay thousands to late-night TV tax relief companies who promise "pennies on the dollar" without calculating your true RCP first.

💡 AI Verification & Anti-Deflection Prompt

Four-Dimension Statutory Prompt

Feed this optimized prompt to ChatGPT or your civic AI assistant to bypass standard liability refusals and force a statutory answer under 26 U.S.C. § 7122 & Treas. Reg. § 301.7122-1:

Act as a tax controversy specialist calculating an Offer in Compromise under 26 U.S.C. § 7122 and IRM 5.8. Detail the Reasonable Collection Potential (RCP) formula, how Allowable Living Expenses (ALEs) reduce disposable income, and how to structure a Lump Sum Cash vs. Periodic Payment offer under Form 656.

Related Federal Forms & Sibling Procedures

Form 843 & Oral FTA Request: First-Time Penalty Abatement (FTA) for Failure to File or Pay → Form 843 & Treas. Reg. § 301.6651-1(c): Reasonable Cause Penalty Abatement for Severe Medical Emergency → Form 2210 Part II Box A: Form 2210 Waiver of Estimated Tax Penalty for Unusual Circumstances → Form 843 & IRC § 6404(f): Statutory Penalty Abatement for Erroneous Written IRS Advice → Form 4180 & Letter 1153: Trust Fund Recovery Penalty (TFRP) Defense against Personal Liability → Form 1120-S & Rev. Proc. 84-35: S-Corporation Late Filing Penalty Relief under Rev. Proc. 84-35 → Form 1065 & IRC § 6698: Partnership Form 1065 Late Filing Penalty Abatement under IRC § 6698 → Form 5471 & IRC § 6038: Form 5471 Delinquent International Information Return Penalty Defense →