An Offer in Compromise is the IRS program that lets qualifying taxpayers settle their tax debt for less than the full amount owed. It is based on Reasonable Collection Potential (RCP) — your income, allowable expenses, and asset equity. Not everyone qualifies, but for those who do, it can be life-changing.
The RCP formula
RCP = (Monthly disposable income × 12 or 24) + Net realizable equity in assets. Lump-sum offers use a 12-month multiplier; periodic-payment offers use 24. If the RCP is less than the total tax owed, an OIC may be the right tool.
Allowable expenses are the lever
The IRS uses Collection Financial Standards — national and local caps on housing, food, transportation, and out-of-pocket health care. Every dollar of allowable expense lowers disposable income, which lowers the offer amount.
Compliance is non-negotiable
All required returns must be filed, current-year withholding must be correct, and estimated payments must be current. We get clients into compliance before submitting Form 656.
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