- Instructor: Attorney Bob Schaller
- Lectures: 10
- Quizzes: 1
Asset Component of RCP Formulas – Part 1.
This Course focuses on Part 1 of the “asset” component of the RCP formulas or “[NRE of assets],” including identifying and valuing the taxpayer’s assets. The “asset” component of the RCP formulas represents the realizable net equity in the taxpayer’s assets. The realizable net equity in the taxpayer’s assets is the same for both formulas. The next course, Part 2, focuses on additional asset categories.
An “asset” is defined as something of value owned by a taxpayer that is either tangible (e.g. a vehicle) or intangible (e.g. a business trademark). A taxpayer’s asset can be in the taxpayer possession or under the control of others as transferees, nominees, or alter egos. IRM § 18.104.22.168 (03-23-2018). An asset can be categorized as a personal asset or a business asset. Both are explored below.
A taxpayer must identify all assets on a collection information statement – Form 433-A (OIC) and/or Form 433-B (OIC). Failure to list all assets could cause the offer to be returned or rejected. Failure to list all assets could also constitute a crime since the taxpayer is stating under penalty of perjury that the taxpayer has listed all assets. A taxpayer should remember that the IRS has both internal and external sources to verify the taxpayer’s disclosure of assets on the collection information statement – so be honest and forthright. IRM § 22.214.171.124.1.1 (03-23-2018).
The mathematical formulas that calculate the IRS’ reasonable collection potential (“RCP”) which dictate the amount a taxpayer must offer to compromise the liability based on “doubt as to collectibility” vary depending upon the taxpayer’s decision to submit a Lump-Sum Payment Offer or a Periodic Payment Offer. Both formulas are written below.
RCP amount for Lump-Sum Payment Offer = “NRE of assets” + “Future Income LSPO.” “NRE of assets” = quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien, if applicable, and applicable exemption amounts and other reductions. “Future Income LSPO” = [(gross monthly income – allowable monthly expenses) * 12].
RCP amount for Periodic Payment Offer = “NRE of assets” + “Future Income PPO.” “NRE of assets” = quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien, if applicable, and applicable exemption amounts. “Future Income PPO” = [(gross monthly income – allowable monthly expenses) * 24].
Overview of Asset Component of RCP Formulas
Documenting RCP Asset Calculation
Net Realizable Equity (NRE) of Assets
Cash and Cash Equivalents
Furniture, Fixtures, and Personal Items
Motor Vehicles, Airplanes, and Boats
Real Estate and Real Property
Life Insurance and Other Insurance Policies
Retirement and Profit-Sharing Plans