USTaxPenaltySaverOffer in Compromise
The IRS may accept less than you owe in certain circumstances. Eligibility depends on your financial situation. IRS acceptance is not guaranteed.
Calculate your Reasonable Collection Potential (RCP) and see if an OIC makes sense for your situation.
How the IRS Calculates Your Minimum Offer
Reasonable Collection Potential (RCP) Formula
Asset Equity
Quick Sale Value (80% of FMV)
− Loan Balances
− State Exemptions
= Net Equity
Includes: Bank accounts, investments, real estate, vehicles, retirement accounts
Future Income
Gross Monthly Income
− Allowable Expenses (IRS Standards)
= Monthly Disposable Income
× 12 (lump sum) or 24 (periodic)
Expenses capped at IRS National Standards for housing, food, transportation
Example OIC Calculation
Asset Equity
- Bank Accounts:$5,000
- Vehicle (QSV $8,000 - Loan $3,000):$5,000
- 401(k) (QSV $20,000 × 80%):$16,000
- Total Asset Equity:$26,000
Future Income (Lump Sum)
- Gross Monthly Income:$5,000
- Allowable Expenses:−$4,200
- Monthly Disposable:$800
- × 12 months:$9,600
- Future Income Component:$9,600
Types of Offer in Compromise
Doubt as to Collectibility
The most common OIC type. You cannot pay the full tax debt and have no prospect of being able to pay in the future. Based on RCP calculation.
Doubt as to Liability
You have a genuine dispute about whether you actually owe the tax. Must provide evidence that the assessment is incorrect.
Effective Tax Administration
Exceptional circumstances where paying would cause economic hardship or be unfair and inequitable. Even if you can pay, collection would be unjust.
OIC Eligibility Requirements
✓ Must Be True
- •Filed all required tax returns
- •Current on estimated tax payments (if applicable)
- •Not in open bankruptcy proceeding
- •Valid employer ID number (if applicable)
- •Made all required federal tax deposits (employers)
✗ OIC Not Likely If
- •RCP exceeds tax debt (can pay in full)
- •Prior OIC rejected in last 12 months
- •Lifestyle inconsistent with claimed income
- •Recent asset transfers to avoid collection
- •Open audit or litigation for tax years in offer
Pro Tip: Use our OIC Calculator to get a detailed RCP breakdown, minimum offer amount, and acceptance likelihood score. You can also check the IRS Pre-Qualifier Tool for basic eligibility.
OIC Fees & Payment Options
Lump Sum Offer
- Application Fee:$205
- Initial Payment:20% of offer
- Payment Term:≤5 payments in 5 months
- Future Income Multiplier:12 months
Periodic Payment Offer
- Application Fee:$205
- Initial Payment:1st monthly payment
- Payment Term:6-24 monthly payments
- Future Income Multiplier:24 months
Low-income applicants (≤250% of poverty guidelines) have the application fee waived and no initial payment required.
5-Year Compliance Requirement
Important: If your OIC is accepted, you must remain in compliance for 5 years or the agreement becomes void and the full original debt is reinstated.
You Must:
- • File all tax returns on time
- • Pay all taxes owed on time
- • Make all OIC payments as agreed
- • Stay current on estimated taxes
If You Fail:
- • OIC agreement is void
- • Original debt is reinstated
- • Payments made are applied to debt
- • Collection actions resume
Offer in Compromise FAQs
An Offer in Compromise (OIC) is an agreement with the IRS to settle your tax debt for less than the full amount owed. The IRS accepts OICs when they believe it is the most they can reasonably expect to collect. There are three types: Doubt as to Collectibility (cannot pay), Doubt as to Liability (dispute the tax), and Effective Tax Administration (hardship exception).
The IRS uses Reasonable Collection Potential (RCP) to determine the minimum acceptable offer. RCP = Asset Equity (Quick Sale Value minus loans minus exemptions) + Future Income (monthly disposable income x 12 for lump sum, or x 24 for periodic payment). Disposable income is gross income minus allowable living expenses per IRS National Standards.
OIC approval depends on many factors including: complete and accurate documentation, realistic offer amount based on your RCP, meeting all eligibility requirements, and current filing compliance. Working with a tax professional or using a thorough calculator to determine your RCP can help you submit a stronger application.
The OIC process typically takes 6-24 months from submission to final decision. During this time, collection activities are suspended. If your offer is rejected, you can appeal within 30 days. If accepted, you must remain compliant (file all returns, pay all taxes) for 5 years or the agreement becomes void.
The OIC application fee is $205 (waived for low-income applicants). Additionally, lump sum offers require 20% of the offered amount with the application. Periodic payment offers require the first proposed monthly payment with the application. Low-income is defined as income at or below 250% of federal poverty guidelines.
Lump Sum: Pay the offer in 5 or fewer payments within 5 months of acceptance. Requires 20% down payment with application. Uses 12 months of future income in RCP calculation. Periodic Payment: Pay the offer in 6-24 monthly payments. Requires first payment with application. Uses 24 months of future income in RCP calculation (higher minimum offer).
No. You must file all required tax returns before submitting an OIC. The IRS will reject any OIC where the applicant is not current on filing requirements. Additionally, you must be current on estimated tax payments (if applicable) and not be in an open bankruptcy proceeding.
If rejected, you have 30 days to appeal to the IRS Independent Office of Appeals. Common rejection reasons include: offer amount too low, incomplete application, non-compliance with filing/payment requirements, or the IRS believes they can collect more. You can submit a new OIC after addressing the issues, though frequent rejections may indicate OIC is not the right option.
Calculate Your OIC Potential
See if an Offer in Compromise makes sense for your situation. Our dedicated OIC calculator estimates your RCP, minimum offer amount, and acceptance likelihood.
Related Resources
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Pause IRS collections due to hardship.
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Relief from joint tax liability.
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Withdraw, subordinate, or discharge liens.
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Partial payment installment agreement.
Learn more →Failure-to-File Penalty
5% per month, max 25%. IRC 6651(a)(1).
Learn more →