Settle Your Tax Liabilities Lawfully Under the IRS Fresh Start Initiative
Living with substantial back tax debt—whether $20,000 or over $500,000—can feel like carrying an impossible weight. Penalties and compound interest accrue daily, making it impossible to pay down the principal balance. Many citizens feel trapped, fearing that every paycheck will be garnished or that they will never be able to own a home, save for retirement, or provide security for their children.
At Sterbick & Associates, our message is grounded in truth and empathy: There is a legitimate, lawful way out. Congress established the Offer in Compromise (OIC) program under 26 U.S. Code § 7122 because the government recognizes that when a taxpayer cannot realistically pay their balance, settling the debt is in the best interest of both the taxpayer and the Treasury.
Attorney John Sterbick has spent over 29 years practicing tax controversy in Washington. We do not use cookie-cutter formulas or make unrealistic promises. We forensically calculate your financial position, build an airtight legal petition, and aggressively negotiate with IRS Offer Examiners to secure the lowest possible lawful settlement.
The Three Statutory Grounds for an Offer in Compromise
Under Treasury Regulations, the IRS can accept an Offer in Compromise under one of three distinct legal bases:
| Legal Basis | Description & Application under IRC § 7122 |
|---|---|
| 1. Doubt as to Collectibility (DATC) | Most common basis. Demonstrates through forensic mathematical analysis that your assets and future disposable income are insufficient to pay the full balance before the Collection Statute Expiration Date (CSED). |
| 2. Doubt as to Liability (DATL) | Filed when there is genuine legal controversy regarding the validity or accuracy of the assessed tax, penalty, or underlying audit findings. |
| 3. Effective Tax Administration (ETA) | The tax is legally owed and assets exist, but full collection would create exceptional economic hardship or be profoundly unfair and inequitable. |
How the IRS Calculates Your Offer: The Reasonable Collection Potential (RCP)
The IRS evaluates Doubt as to Collectibility offers using a rigid mathematical formula known as Reasonable Collection Potential (RCP). The IRS will accept an offer if the proposed dollar amount equals or exceeds your calculated RCP:
Reasonable Collection Potential (RCP) = Net Quick Sale Equity in Assets + Future Remaining Income| Component | Forensic Calculation Standard |
|---|---|
| 1. Net Realizable Equity in Assets (Quick Sale Value) | Real estate, vehicles, and bank balances are discounted to 80% of Fair Market Value, minus outstanding mortgages, secured loans, and statutory exemption allowances. |
| 2. Future Remaining Income Calculation | Monthly Gross Income MINUS Allowable Living Expenses under IRS National & Local Standards (housing, transportation, food, healthcare, taxes). Multiplied by 12 months (for Lump Sum Offers) or 24 months (for Periodic Payments). |
Why Attorney Representation Makes the Difference
The IRS Automated Collection System will attempt to disallow legitimate expenses—such as private health insurance, vehicle payments, or business overhead—to artificially inflate your monthly disposable income.
Attorney John Sterbick applies deep knowledge of the Internal Revenue Manual (IRM 5.8) to substantiate your actual living costs, maximize allowable deductions, and protect vital family assets, driving the RCP to its true lowest lawful figure.
Payment Terms for Accepted Offers
Once we calculate your optimal settlement figure, federal guidelines provide two primary payment structures under Form 656:
- Lump Sum Cash Offer:
- You submit a 20% non-refundable deposit with your Form 656 petition.
- Upon written acceptance by the IRS, the remaining 80% balance is paid in five or fewer installments within five months.
- Periodic Payment Offer:
- You propose regular monthly installments while the IRS evaluates the offer.
- Upon acceptance, you pay the remaining balance in equal monthly installments over a period of 6 to 24 months.
The 24-Month Statutory Guarantee (IRC § 7122(f))
Under federal law (26 U.S. Code § 7122(f)), the IRS is subject to a strict statutory shot clock: If the IRS does not make a formal determination on your submitted Offer in Compromise within 24 months of receipt, the offer is deemed accepted by law.
Throughout the entire review period, all aggressive collection actions, paycheck garnishments, and bank levies are legally suspended.
Post-Settlement: Lien Releases and the 5-Year Compliance Rule
Upon timely payment of your accepted offer amount:
- The IRS issues an official Certificate of Release of Federal Tax Lien (Form 668(Z)), removing public liens from your county real property records and credit history.
- The remaining unpaid tax balance, accumulated interest, and penalties are permanently extinguished.
- The 5-Year Rule: You must remain fully compliant with all federal tax filing and estimated payment requirements for five consecutive years following acceptance.
Serving Washington Taxpayers Seeking Settlement
Explore our regional settlement guides and related tax controversy services:
- Tacoma Offer in Compromise Legal Services
- Olympia Offer in Compromise Settlements
- Puyallup Offer in Compromise Guidance
- Lacey Offer in Compromise Representation
- Tax Resolution & IRS Controversy Overview
- Do I Qualify for an Offer in Compromise in Washington?
- Federal Bankruptcy & Debt Relief Options
Frequently Asked Questions
Does submitting an Offer in Compromise stop the IRS from garnishing my wages?
Yes. Under Treasury regulations, submitting a processable Offer in Compromise automatically suspends all active collection enforcement, including wage garnishments and bank levies, while the offer is investigated by an Offer Examiner or Appeals Officer.
Can business payroll taxes (Form 941 / Trust Fund Recovery) be settled in an OIC?
Yes, but business offers require specialized handling. The IRS scrutinizes whether the business is currently viable and whether trust fund taxes were willfully diverted. We represent business owners to structure compliant business and personal settlement packages simultaneously.
What happens if the IRS Offer Examiner rejects my offer?
If an Offer Examiner proposes rejection, we immediately file a formal appeal to the IRS Independent Office of Appeals within the statutory 30-day window under Form 12153 or Form 13711. Appeals Officers have broader discretion to settle disputed valuations and economic hardship factors.