- Instructor: Attorney Bob Schaller
- Lectures: 9
- Quizzes: 1
Income Component of RCP Formulas.
This course focuses on the “gross monthly income” component of the “Future Income” calculation for the RCP formulas. This focus includes identifying and valuing all sources of income. Gross monthly income is defined as all income from whatever source derived, including (but not limited to) the following items: (1) compensation for services, including fees, commissions, fringe benefits, and similar items; (2) gross income derived from business; (3) gain derived from dealings in property; (4) interest; (5) rents; (6) royalties; (7) dividends; (8) annuities; (9) income from life insurance and endowment contracts; (10) pensions; (11) income from discharge of indebtedness; (12) distributive share of partnership gross income; (13) income in respect of a decedent; and (14) income from an interest in an estate or trust. 26 U.S.C. § 61(a).
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].
