IRS Offer in Compromise (OIC) Estimator
Use this calculator to estimate your Reasonable Collection Potential (RCP), which is the minimum amount the IRS will generally accept for an Offer in Compromise. This tool helps you understand the IRS's perspective on your "ability to pay" based on your assets and future income.
1. Asset Equity Calculation
Enter the current value of your assets and any secured debt. The calculator applies a standard 20% quick sale discount to most assets, except for cash and bank accounts.
2. Future Income Component
Enter your monthly income and allowable expenses. The IRS uses National and Local Standards for certain expenses. You can find these standards on the IRS website (e.g., Publication 1854).
Estimated Offer in Compromise (OIC) Results
Total Net Realizable Equity from Assets: $0.00
Total Future Income Component: $0.00
Estimated Reasonable Collection Potential (RCP): $0.00
This estimated RCP represents the minimum amount the IRS will likely accept for an Offer in Compromise based on the information provided. It is an estimate and not a guarantee. The IRS considers many factors, and professional tax advice is highly recommended.
Understanding the IRS Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a taxpayer's tax liability for less than the full amount owed. The IRS may consider an OIC if there is doubt as to collectibility, doubt as to liability, or to promote effective tax administration.
Who Qualifies for an OIC?
The IRS generally approves an OIC when your "reasonable collection potential" (RCP) is less than the total amount of tax debt you owe. The RCP is the IRS's estimate of how much they could collect from you through various means, including your assets and future income. This calculator focuses on estimating your RCP.
To qualify, you must:
- Have filed all required tax returns.
- Have made all required estimated tax payments for the current year.
- Not be in an open bankruptcy proceeding.
The IRS will also consider your ability to pay, your income, expenses, and asset equity.
Components of an OIC Calculation (Reasonable Collection Potential – RCP)
The IRS determines your RCP by evaluating two main components:
1. Net Realizable Equity (NRE) in Assets
This is the value of your assets that the IRS could potentially seize and sell to satisfy your tax debt. It's calculated by taking the fair market value (FMV) of your assets, subtracting any secured debt (like a mortgage or car loan), and then applying a "quick sale discount." The quick sale discount (typically 20%) accounts for the fact that the IRS might have to sell assets quickly, potentially below their full market value.
Examples of Assets Considered:
- Cash and Bank Accounts: The full balance is generally considered.
- Investments: Stocks, bonds, mutual funds.
- Real Estate: Primary residence, rental properties, land.
- Vehicles: Cars, trucks, motorcycles.
- Other Personal Property: Collectibles, jewelry, business assets.
For instance, if your car has a Fair Market Value of $10,000 and you owe $4,000 on a loan, the equity is $6,000. After a 20% quick sale discount, the net realizable equity would be $4,800.
2. Future Income Component
This component represents the amount of disposable income the IRS believes you could pay towards your tax debt over a specific period. It's calculated by taking your monthly gross income and subtracting your allowable monthly living expenses. The remaining "disposable income" is then multiplied by either 12 or 24 months, depending on the payment option you choose for your OIC:
- Lump Sum Offer: Requires payment of the offer amount in 5 or fewer installments within 5 months of acceptance. The future income component is calculated using 12 months of disposable income.
- Periodic Payment Offer: Requires payment of the offer amount in 6 to 24 monthly installments. The future income component is calculated using 24 months of disposable income.
Allowable Living Expenses: The IRS uses specific National and Local Standards for certain expenses (e.g., food, clothing, housing, utilities, transportation). They also allow for "other necessary expenses" like health insurance premiums, child care, or court-ordered payments. It's crucial to use the correct IRS standards for your household size and location, which can be found in IRS Publication 1854 or on the IRS website.
For example, if your monthly disposable income (after all allowable expenses) is $200, and you choose a periodic payment option, your future income component would be $200 * 24 = $4,800.
How the Calculator Helps
This calculator combines your estimated net realizable equity from assets and your future income component to provide an estimate of your Reasonable Collection Potential (RCP). This RCP is a critical figure because the IRS will generally not accept an OIC for less than this amount.
Important Disclaimer
This calculator provides an estimate based on the information you input and simplified IRS guidelines. The actual OIC process is complex and involves a thorough review by the IRS of your financial situation, including verification of all income, expenses, and asset values. Factors like your compliance history, health issues, or other unique circumstances can also influence the IRS's decision.
It is highly recommended to consult with a qualified tax professional, such as a tax attorney or Enrolled Agent, before submitting an Offer in Compromise to the IRS. They can help you accurately assess your situation, gather the necessary documentation, and navigate the application process.