IRS Offer in Compromise (OIC) Calculator
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. The RCP is based on your ability to pay, considering your assets and future income potential.
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 effective tax administration.
What is Reasonable Collection Potential (RCP)?
The core of an OIC is the Reasonable Collection Potential (RCP). This is the amount the IRS determines you can realistically pay. The IRS calculates your RCP by adding the equity in your assets to your future income potential. Your offer must generally be equal to or greater than your RCP for the IRS to accept it.
Components of RCP:
- Equity in Assets: This includes the net realizable value of all your assets. For example, if your home is worth $300,000 and you owe $250,000 on the mortgage, your equity is $50,000. The IRS will also consider equity in vehicles, bank accounts, investments, and other property.
- Future Income Potential: This is calculated by taking your monthly disposable income and multiplying it by a specific number of months.
- Monthly Disposable Income: This is your gross monthly income minus your allowable living expenses. The IRS uses national and local standards for expenses, which may differ from your actual spending.
- Number of Months: For a "Lump Sum Offer" (paid in 5 or fewer installments), the IRS typically uses 12 months of future income. For a "Periodic Payment Offer" (paid in 6 to 24 months), the IRS typically uses 24 months of future income.
How the Calculator Works:
This calculator helps you estimate your RCP by taking into account:
- Total Tax Debt Owed: The full amount you currently owe the IRS.
- Monthly Disposable Income: Your income after subtracting IRS-allowable expenses.
- Number of Months for Future Income Calculation: Choose 12 or 24 months based on the type of OIC payment plan you might pursue.
- Total Equity in Assets: The combined net value of your assets.
The calculator then sums your future income potential (Monthly Disposable Income * Number of Months) and your Total Equity in Assets to arrive at your estimated Reasonable Collection Potential. This RCP represents the minimum offer the IRS is likely to accept.
Important Considerations:
- This calculator provides an estimate based on common IRS OIC guidelines. It is not a substitute for professional tax advice.
- The IRS has specific rules for allowable expenses (National and Local Standards) which can significantly impact your calculated disposable income.
- Other factors, such as your compliance history and the specific facts of your case, can also influence the IRS's decision.
- Always consult with a qualified tax professional or enrolled agent when considering an Offer in Compromise.
Example Scenario:
Let's say you owe the IRS $75,000. Your monthly disposable income (after IRS-allowable expenses) is $700. You plan to make a periodic payment offer, so you'll use 24 months for the future income calculation. You have $15,000 in total equity across your assets (e.g., a car and some savings).
- Total Tax Debt: $75,000
- Monthly Disposable Income: $700
- Months for Future Income: 24
- Total Equity in Assets: $15,000
Calculation:
- Future Income Potential = $700 * 24 = $16,800
- Reasonable Collection Potential (RCP) = $16,800 (Future Income) + $15,000 (Asset Equity) = $31,800
In this example, your estimated minimum recommended Offer in Compromise would be $31,800, which is significantly less than your $75,000 tax debt.
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function calculateOIC() {
var totalTaxDebt = parseFloat(document.getElementById("totalTaxDebt").value);
var monthlyDisposableIncome = parseFloat(document.getElementById("monthlyDisposableIncome").value);
var monthsForFutureIncome = parseFloat(document.getElementById("monthsForFutureIncome").value);
var totalEquityInAssets = parseFloat(document.getElementById("totalEquityInAssets").value);
var resultDiv = document.getElementById("oicResult");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(totalTaxDebt) || isNaN(monthlyDisposableIncome) || isNaN(monthsForFutureIncome) || isNaN(totalEquityInAssets) ||
totalTaxDebt < 0 || monthlyDisposableIncome < 0 || monthsForFutureIncome <= 0 || totalEquityInAssets < 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
var futureIncomePotential = monthlyDisposableIncome * monthsForFutureIncome;
var reasonableCollectionPotential = futureIncomePotential + totalEquityInAssets;
var formattedRCP = reasonableCollectionPotential.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
var formattedTotalDebt = totalTaxDebt.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
var resultHTML = "
Calculation Results:
";
resultHTML += "Your estimated Future Income Potential (Monthly Disposable Income × " + monthsForFutureIncome + " months):
" + futureIncomePotential.toLocaleString('en-US', { style: 'currency', currency: 'USD' }) + "";
resultHTML += "Your estimated Total Equity in Assets:
" + totalEquityInAssets.toLocaleString('en-US', { style: 'currency', currency: 'USD' }) + "";
resultHTML += "Your estimated Reasonable Collection Potential (RCP):
" + formattedRCP + "";
resultHTML += "Based on IRS guidelines, your minimum recommended Offer in Compromise is:
" + formattedRCP + "";
if (reasonableCollectionPotential < totalTaxDebt) {
resultHTML += "This amount is less than your total tax debt of
" + formattedTotalDebt + ", suggesting an Offer in Compromise might be a viable option for you.";
} else {
resultHTML += "This amount is equal to or greater than your total tax debt of
" + formattedTotalDebt + ". An Offer in Compromise may not be beneficial in your situation, as the IRS typically requires an offer at least equal to your RCP.";
}
resultHTML += "
Note: This is an estimate. Always consult with a tax professional for personalized advice.";
resultDiv.innerHTML = resultHTML;
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