How Much Should I Offer in Compromise? (Find Your Number)

An Offer in Compromise (OIC) is not a negotiation based on persuasion or argument. It is a formula-driven process based on what the IRS believes it can realistically collect.

This article explains how the IRS calculates that number, how to estimate your own offer amount using the same framework, and what payment rules apply once you submit it.

If you want us to sanity-check your number before you mail anything, you can book a free consultation.

What Is Reasonable Collection Potential (RCP)?

Reasonable Collection Potential (RCP) is the IRS’s estimate of how much it could collect from you if it used its normal collection tools:

• What you can pay over time from income, plus
• What you can access from assets

If your offer is below your RCP, the IRS will usually reject it unless you qualify under special circumstances (such as effective tax administration or doubt as to collectibility with special circumstances). In practice, the IRS expects an offer to reflect a good-faith application of its own formula, not a low estimate designed to test limits or apply pressure.

Before You Calculate, Pre-Check Your Situation

Before you spend time on numbers, make sure the basics line up. You generally need:

• All required tax returns filed
• No active bankruptcy
• A financial picture that supports doubt as to collectability or a hardship-based exception

If you have meaningful, accessible assets or strong surplus income, the IRS may expect full payment instead of a settlement. For a deeper breakdown of eligibility rules, see our guide: How to Qualify for IRS Offer in Compromise.

The IRS Forms You’re Really Dealing With (What Is the IRS Offer in Compromise Form?)

Most taxpayers miss this point. The offer amount isn’t about what feels fair; it’s driven by what the IRS can verify from your financials and supporting documentation.

The core Offer in Compromise package comes from the IRS booklet and includes:

• Form 656, which states the offer itself
• Form 433-A (OIC) for individuals and self-employed taxpayers
• Form 433-B (OIC) for businesses

These forms are where your numbers live and are verified. The IRS uses them to calculate RCP.

Do not confuse Form 656 with Form 656-L. Form 656-L is used only for doubt as to liability, which is a different situation and a different standard.

How to Calculate a Realistic Offer in Compromise Amount

This is the part that determines whether your offer has a chance. Take it one step at a time.

Step 1: Calculate Your Monthly Disposable Income Using IRS Allowable Expenses

Start with income. The IRS looks at:

• wages and salary
• self-employment income
• other regular income sources
• household contributions, when applicable

From that total, the IRS subtracts only expenses it considers necessary to maintain basic living and earning ability. This is how monthly disposable income is determined.

Expenses are not evaluated based on personal preference. They are evaluated against IRS standards and necessity. Housing, food, transportation, healthcare, and required work expenses are usually considered. Discretionary spending is not.

One critical nuance from the IRS booklet is household analysis. If you live with others, the IRS may review total household income and expenses to determine your share. This does not mean you are liable for someone else’s tax debt. However, household income can affect which expenses are allowed.

Common expense mistakes that inflate your offer and lead to rejection include:

• private school or college tuition
• charitable contributions
• payments on unsecured debts like credit cards
• expenses that exceed IRS standards or aren’t necessary

If your allowed expenses are overstated, your disposable income looks higher than it should. That pushes your RCP up.

Step 2: Add “Available Equity” in Assets

Available equity is the IRS’s net realizable equity, generally quick sale value minus loan balances and applicable exemptions.

Asset categories the IRS reviews include:

• cash and bank accounts
• vehicles
• real estate
• retirement accounts and investments

Not every asset is treated the same, but the IRS generally counts net realizable equity in your RCP. It does mean you must disclose them honestly and support the values with documentation.

You are not automatically doomed because you have assets. If you conceal or can’t substantiate assets, you’re very likely to be rejected, and misrepresentation can have serious consequences.

Step 3: Apply the IRS Multiplier (Lump Sum vs. Periodic)

Once monthly disposable income is calculated, the IRS applies a multiplier based on how you plan to pay.

The general structure used in OIC calculations is:

• lump sum offer: remaining monthly income multiplied by 12
• periodic payment offer: remaining monthly income multiplied by 24

Your estimated offer amount is the future income component plus available equity in assets

For example: If allowed disposable income is $250 per month and available asset equity is $4,000:

• lump sum income portion: $250 × 12 = $3,000
• estimated offer: $3,000 + $4,000 = $7,000

This is not a guarantee. It is a realistic starting point grounded in IRS math.

One important variable not captured in the basic formula is the Collection Statute Expiration Date (CSED). If the IRS has limited time left to collect, it may evaluate an offer differently. This is a factor worth flagging before you finalize your number.

How Much Do You Pay with an Offer in Compromise (Upfront + During Review)?

This is one of the biggest stress points, so let us be clear.

Under current IRS rules:

• there is a $205 application fee, unless you qualify for the low-income waiver
• lump sum offers require 20 percent of the total offer sent with the application
• periodic payment offers require the first payment with the application, and monthly payments must continue while the IRS reviews the offer
• taxpayers who qualify under low-income certification may not need to send the fee or initial payment, and periodic payments may be waived during consideration

Warning: payments sent with an offer are generally applied to your tax debt even if the offer is rejected. Do not assume that money will be refunded. A reject

What Happens While the IRS Is Considering Your Offer 

While your offer is under review, several things happen at the same time.

The IRS:

• applies your payments and fees to your balance
• may file a federal tax lien
• generally pauses other collection activity
• extends the collection statute during the review period

This phase is slow and document-driven. It is not an instant judgment on your worth or intent. Most delays come from paperwork review and follow-up requests.

“How Successful Is an Offer in Compromise?” (The Honest Answer + What Increases Approval Odds)

Most rejections are not about effort or intent. They happen because the offer does not align with how the IRS interprets the financial story told by the forms. While the IRS does publish an overall acceptance rate, it is not a reliable predictor for any one person’s outcome. Success depends on whether your offer matches what the IRS can prove on paper.

Approval odds increase when:

• Your offer matches your documented RCP (income + allowable expenses + asset equity)
• Your forms and documents are complete and consistent
• You respond on time when the IRS requests additional information

Common rejection triggers include:

• Leaving the offer amount blank or entering $0 (and not fixing it when asked)
• Missing signatures or required forms
• Unsubstantiated expenses or asset values (numbers you can’t document)
• Failing to make required periodic payments while the IRS is reviewing the offer

Can You Settle with the IRS by Yourself? Yes. Should You? Sometimes.

You can submit an Offer in Compromise without professional help. For some people, that makes sense.

DIY is more realistic when:

• income is primarily W-2
• household finances are simple
• assets are limited and easy to value
• documentation is clean and complete

Getting help is usually smarter if:

• you are self-employed
• income comes from multiple sources
• asset values are disputed or unclear
• you have business and personal tax debt
• there are existing liens or levies
• you are already in an installment agreement and unsure how an OIC affects it

If your balance is over $10,000 and you are weighing options, this page may help: Will the IRS Negotiate on Tax Debt Over $10,000?

A Quick Note on the “$600 Rule” (What is the $600 Rule in the IRS?)

The “$600 rule” is a nickname people use for Form 1099-K, but the current federal reporting threshold for payment apps and online marketplaces (TPSOs) is generally over $20,000 and more than 200 transactions (and platforms may still issue a 1099-K below that). Payment card processors may also issue a Form 1099-K.

This is an income-reporting rule, not a settlement rule. It does not change how your Offer in Compromise amount is calculated. 

Your Best Next Step (choose one)

You have two practical options.

Option A is to do it yourself using a clear checklist and worksheet to calculate RCP and assemble documents.

Option B is to have someone verify your math and flag risks before you submit. A short review can prevent a long rejection cycle.

If you want a calm second set of eyes on your numbers, you can schedule a free consultation. No pressure. Just clarity.