Who Qualifies for an Offer in Compromise?
| Qualifying Factor | Detail |
|---|---|
| Filed all required tax returns | Cannot have unfiled returns (must file before applying) |
| Made all required estimated tax payments | Current year compliance required |
| Not in an open bankruptcy proceeding | Must resolve bankruptcy first |
| Reasonable Collection Potential (RCP) | Offer must equal or exceed what IRS can collect from you |
| Doubt as to Collectibility | Primary basis for most OICs — cannot pay full amount given assets and income |
| Doubt as to Liability | Dispute the actual tax owed — requires evidence |
| Effective Tax Administration | Can pay but it would cause economic hardship — rare |
How the IRS Calculates Your Offer Amount
Your minimum offer must equal or exceed your RCP: Future Income Potential + Net Realizable Value of Assets. Future Income: monthly income minus IRS-allowed expenses, multiplied by 12 (cash offer) or 24 (deferred payment). Asset value: equity in real property + bank accounts + retirement accounts (usually 80%) + other assets. The IRS will not accept an offer below RCP.
The IRS uses National and Local Standards for living expenses — these are set amounts for food, clothing, transportation, housing, and healthcare. If your actual expenses are higher, the IRS only allows the standard amount (unless you can document special circumstances). Understanding what the IRS allows vs. your actual expenses is where professional help provides the most value.
Lump Sum: offer paid within 5 months of acceptance — IRS more likely to accept lower amounts. Short-Term Periodic Payment: 6–24 months — multiplied by 24 months of income in RCP calculation. Both require a non-refundable 20% payment of your offer with the application (Lump Sum) or first proposed payment (Periodic).
Frequently Asked Questions
12–24 months from submission to decision is typical. The IRS reviews 50,000–60,000 OIC applications annually. Your collection statute is suspended during review. If the IRS rejects your offer, you have 30 days to appeal.
Not legally — OIC forms (656 and 433-A) are public documents and you can submit yourself. However, calculating your RCP accurately, documenting expenses correctly, and knowing how to present your case maximizes acceptance chances. Professional assistance statistically improves acceptance rates and offer amounts, particularly for complex financial situations.