Reasonable Collection Potential (RCP) is the amount the IRS determines it can collect from a taxpayer to settle tax debt. The RCP is an essential factor in the IRS’s decision to accept or reject an Offer in Compromise (OIC), which allows taxpayers to settle their tax debt for less than the full amount owed.
RCP is calculated based on:
- Liquid assets, such as bank accounts, investments, and real estate.
- The taxpayer’s future income over a specified period.
- Living expenses, including housing, utilities, and transportation.
The IRS uses Form 433-A (for individuals) or Form 433-B (for businesses) to gather information about a taxpayer’s assets, liabilities, and income. The RCP helps determine whether a taxpayer qualifies for an OIC by evaluating their ability to pay the full debt over time.
A lower RCP increases the likelihood that the IRS will accept a reduced payment offer. Therefore, accurate and detailed financial information is crucial when applying for an OIC.