How to Decide How Much to Offer the IRS in an Offer in Compromise

Most people don’t “pick a number” for an IRS Offer in Compromise (OIC); the IRS uses a specific formula called “reasonable collection potential” (RCP) to decide how much they expect you to offer. You’ll usually need to offer roughly what the IRS thinks it could realistically collect from you over time, based on your assets and future income after basic living expenses.

Quick summary: How the IRS figures your minimum offer

• The Offer in Compromise program is run by the Internal Revenue Service (IRS).
• Your offer amount is based on your reasonable collection potential (RCP), not on what feels fair.
• RCP = net realizable value of your assets + a multiple of your monthly disposable income.
• You usually calculate this on Form 433-A (OIC) or Form 433-B (OIC) and submit an offer on Form 656.
• A realistic starting offer for many people is close to the RCP number you calculate, not far below it.
• Lowball offers are commonly rejected or returned, costing you time and nonrefundable fees.

How the IRS actually decides your minimum offer

The IRS Offer in Compromise unit looks at whether your offer is at least what they could expect to collect from you before the collection statute expires. They don’t base approval on hardship alone; they base it on numbers you provide on official financial forms.

Key terms to know:

• Offer in Compromise (OIC) — A formal IRS program that may settle your tax debt for less than the full amount.
• Reasonable Collection Potential (RCP) — The IRS’s estimate of how much they can collect from you through assets and future income.
• Disposable income — What’s left of your monthly income after subtracting “allowable” living expenses the IRS accepts.
• Net realizable value — The amount your asset is realistically worth if sold, after applying quick-sale discounts and subtracting debts on it.

In practice, your RCP usually equals:

1. The net equity in your assets (home, car, bank accounts, investments, etc.), plus
2. A multiple of your monthly disposable income (how much you have left after IRS standard expenses).

For a lump-sum offer (paid in 5 or fewer installments within 5 months after acceptance), the IRS often uses 12 months of disposable income.
For a periodic payment offer (paid over 6–24 months), the IRS often uses 24 months of disposable income.

So your rough minimum offer often looks like:

You don’t have to match that number exactly, but if you go a lot lower, the IRS is more likely to reject or return your offer.

Where to go officially to calculate and submit your offer

The official system that handles this is the Internal Revenue Service (IRS), specifically:

• The IRS Offer in Compromise (OIC) program, processed by IRS Centralized OIC units.
• The Taxpayer Assistance Center (TAC) network for in-person help (by appointment).
• The IRS website’s Offer in Compromise Pre-Qualifier tool, which can help you screen your situation (not a guarantee).

A concrete action you can take today is to call the IRS and request an OIC information packet or download the OIC booklet and forms from the official IRS portal. A simple phone script:
“I owe back taxes and I’m interested in an Offer in Compromise. Can you tell me how to get the current Offer in Compromise booklet and forms, including Form 433-A (OIC) and Form 656?”

After you contact the IRS or access their portal, you typically receive or download:

• The Offer in Compromise booklet explaining rules and examples.
• Form 656, Offer in Compromise.
• Form 433-A (OIC) for individuals, and possibly Form 433-B (OIC) for businesses.

Remember: rules, forms, and standards can change and may be applied differently depending on your specific situation, so always work from the most current IRS materials.

What you need to prepare before deciding your offer amount

You’ll need to build the same picture of your finances that the IRS will build, using their own standards and categories. That means gathering detailed proof of what you own, what you earn, and what you spend.

Documents you’ll typically need:

• Recent pay stubs or profit-and-loss statements (usually last 3 months) to show income.
• Bank statements for all accounts (commonly last 3 months) to show balances and cash flow.
• Mortgage statements, car loan statements, and property tax or vehicle registration records to prove asset values and debts.

Other items often required include:

• Recent tax returns (usually the last filed year or more).
• Lease agreement and utility bills for housing and living expenses.
• Statements for retirement accounts, investments, or cash value life insurance if you have them.

Once you have these, you use Form 433-A (OIC) (and 433-B for businesses) to list:

• All income sources (wages, self-employment, pensions, Social Security, etc.).
• All monthly living expenses (rent, food, transportation, health insurance, etc.).
• All assets with current value and loan balances.

The IRS compares your claimed expenses to IRS Collection Financial Standards; if your rent, food, or car costs are above their standard amounts without strong justification, they may reduce your “allowable expenses,” which increases your calculated disposable income and pushes your minimum offer higher.

Step-by-step: How to estimate a realistic offer amount

1. Complete a draft of Form 433-A (OIC)

Fill it out as if you were submitting it, using real numbers and your documents. Don’t guess; the IRS will verify random-looking or inflated figures with bank records, credit reports, and third-party data.

2. Calculate your asset equity

For each asset (home, car, bank account, retirement account, etc.):

• Estimate fair market value, then apply the IRS quick-sale discount if applicable.
• Subtract any loan or lien tied to that asset.
• The result is typically your net realizable value for that asset.

Add all those net values to get your total asset equity. This is part one of your reasonable collection potential.

3. Figure your monthly disposable income

Using your completed Form 433-A (OIC):

• Total your gross monthly income.
• Total your allowable monthly expenses based on IRS standards and your documentation.
• Subtract expenses from income to find monthly disposable income.

If this number is negative or very low, your income-based part of the offer may be small; if it’s positive, expect it to be multiplied.

4. Apply the IRS multipliers

Decide which payment type you’re likely to use:

• Lump-sum offer (pay within 5 months after approval): multiply disposable income by 12.
• Periodic payment offer (pay 6–24 months): multiply disposable income by 24.

This gives you the income portion of your reasonable collection potential.

5. Add asset equity + income portion

Add your total asset equity to the income portion to get a rough minimum offer the IRS might consider acceptable. For example:

• Net asset equity: $2,000
• Monthly disposable income: $150
• Lump-sum offer: $2,000 + ($150 × 12) = $2,000 + $1,800 = $3,800

If your tax debt is $25,000, your OIC might be something around $3,800 based on this simplified calculation. Offering far less, like $500, significantly increases the chance of rejection.

6. Decide your actual offer amount for Form 656

Using that calculation, choose an amount you can truly pay that is at or close to your calculated RCP. You include this figure on Form 656, along with:

• Application fee (unless you qualify as low-income).
• Initial payment depending on which payment option you choose.

What to expect next: Once you submit your offer package to the designated IRS OIC unit, the IRS will normally:

• Cash your payment(s) and note your pending offer in their system.
• Pause certain collection actions during review.
• Request extra documents or clarification if something doesn’t match or is incomplete.
• Eventually issue a decision letter: acceptance, rejection, or return (for incomplete or ineligible offers).

Real-world friction to watch for

Many offers are delayed or returned because people don’t include all required documents or use outdated forms and standards; checking that you’re using the most current IRS forms and sending every document listed in the OIC checklist greatly reduces this problem.

Legitimate help options (and how to avoid scams)

Because Offers in Compromise involve money and personal information, there is a lot of aggressive marketing around “tax debt relief.” Some of these services are legitimate; many are not.

Safe, official or regulated help options typically include:

• IRS Taxpayer Assistance Centers (TACs) — In-person appointments for general guidance, not legal advice; you can ask basic process questions and confirm which forms you need.
• Low-Income Taxpayer Clinics (LITCs) — Independent but often federally funded clinics that commonly help low-income taxpayers with Offers in Compromise and disputes.
• Enrolled agents, CPAs, or tax attorneys — Licensed professionals who regularly handle OICs and must follow professional standards.
• State or local legal aid organizations — Some provide tax controversy help, particularly if you have low income.

When looking online for help:

• Look for .gov domains when dealing directly with the IRS or government programs.
• Be suspicious of ads promising that “everyone qualifies” for “pennies on the dollar” settlements; approval is never guaranteed.
• Avoid giving bank information, Social Security numbers, or upfront large fees to unverified “tax relief” companies.
• Check whether a professional is licensed (EA, CPA, or attorney) and ask specifically, “How many Offers in Compromise have you handled in the last year?”

Your next practical step: Gather your income, bank, and asset documents and complete a draft Form 433-A (OIC) using the current IRS instructions, then use your own numbers to calculate a realistic offer amount before you contact the IRS or any professional. This puts you in a stronger position to understand whether the advice or services you’re offered match how the IRS process actually works.