Reasonable Collection Potential: How The IRS Determines Your Eligibility For Relief Programs

The Fresh Start Program is a powerful resource for Americans who owe back taxes, but how does the IRS determine your eligibility for these relief programs? The answer is relatively simple—calculating your reasonable collection potential.


Since 2011, the Fresh Start Program has been an effective tool for taxpayers to settle their tax debt. However, with the increase of IRS employees and rising inflation, more inquiries into the Fresh Start Program are being made than ever before.


What Is The IRS Fresh Start Program?

The Fresh Start Program is an umbrella term for tax relief options the IRS offers. It’s important to note that the Fresh Start Program is a collection of programs, not the actual tax relief program itself.

There are 3 main relief programs the Fresh Start program offers:


  • Offer In Compromise (OIC)

  • Installment Agreements (IAs)

  • Currently Non-Collectible (CNC)

Here’s a quick rundown of each program. Each has its own rules and qualifications, and requirements aren’t the same. 

Offer In Compromise (OIC)

The best tax relief resolution possible is an offer of compromise. In an OIC, the IRS settles for less than the taxpayer owes. 


This is fantastic news for the taxpayer! 


According to the IRS, to qualify for an OIC, you must:


  • Prove your inability to pay (prove income, expenses, and asset equity)

  • File all missing or incomplete tax returns

  • Made all required estimated tax payments for the current year

  • Your reasonable collection potential (RCP) must be less than the amount the taxpayer offered to settle for

The distinguishing factor in OICs is the reasonable collection potential (RCP). The IRS won’t settle for any number. Rather, the IRS will calculate how much they believe they can collect from you. This number is called the RCP. 

To apply for an OIC, you must offer to pay more than the minimum number of what the IRS believes you can pay. The qualifications are very strict. We’ll talk more about RCPs below.

Installment Agreements (IAs)

Installment agreements are synonymous with a payment plan to the IRS. For Americans who find themselves in tax debt, the amount is usually big enough for them to be unable to pay it off right away.


If the IRS deems your RCP large enough to pay off the debt, they’ll offer you an IA. Just as you’d expect, you’ll pay an amount monthly to the IRS.


There are short-term (6-month maximum) IAs and long-term IAs.

Currently Non-Collectible (CNC)

A currently non-collectible is a tax deferment option the IRS offers to those who they deem to be in a financially difficult situation.

For example, those who are unemployed and owe back taxes will most likely qualify for a CNC. 


How Does The Fresh Start Program Work?

The IRS Fresh Start Program is straightforward: A taxpayer owes money to the government and is unable to pay it back right away. 


The IRS recognizes this is an unfortunate situation and offers several ways (relief programs) to help resolve back taxes.


The IRS determines your RCP based on what you’re able to pay. Your income and assets are taken into account. The IRS determines your ability to pay back taxes from your liquidation estimate.


Not everyone is eligible for each program though. Your program eligibility depends a lot on your reasonable collection potential.

Fresh Start Program Eligibility Requirements (Tax Relief Qualifications)

Here are some general guidelines to be eligible for the Fresh Start Program:

  • Must file all missing or incomplete tax returns

  • Prove inability to pay back taxes 

  • Be current on estimated tax payments for the current tax year

  • Prove paying tax balance would cause significant financial hardship


Make sure to double-check you fulfill the eligibility requirements.

In some programs, the taxpayer must meet a specific requirement. For instance, in the OIC tax relief program, the amount offered to the government must be above the taxpayer’s RCP. In other words, the taxpayer must pay more than the least amount the government calculates they can pay.


How To Apply For The Fresh Start Program

To apply for the Fresh Start Program, you must send evidence of your inability to pay to the IRS.


From these documents, the IRS will calculate your RCP and let you know which Fresh Start Programs you’re eligible for.


The Takeaway

Your chances of achieving an offer in compromise (or another tax relief program) increase tremendously if you have a certified tax relief company on your side. Our tax experts have a skillful understanding of the IRS Fresh Start Program qualifications, and will not settle for a less-than-optimal resolution. 


Let us help you get the tax resolution you deserve. Check out our free tax consultation to learn more about what we can do for you!

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