How Much Will the IRS Settle For?

The IRS uses a specific formula called Reasonable Collection Potential (RCP) to determine the minimum amount they'll accept in an Offer in Compromise. Understanding this math is essential before submitting an offer.

**The RCP Formula:** RCP = Net Realizable Equity in Assets + Future Income

**Net Realizable Equity in Assets:** Quick Sale Value (80% of fair market value) minus any secured debt. For example: - Home worth $300,000 × 80% = $240,000 - Mortgage balance: $220,000 - Net equity: $20,000

**Future Income Calculation:** Monthly disposable income (gross income minus allowable expenses) multiplied by: - 12 months if paying lump sum (within 5 months) - 24 months if paying periodically (6-24 months)

**Real Example:** $50,000 tax debt. Assets: $8,000 net equity. Income: $5,000/month. Allowable expenses: $4,500/month. Disposable: $500/month.

RCP = $8,000 + ($500 × 12) = $8,000 + $6,000 = **$14,000 minimum offer**

That's a potential settlement of 28 cents on the dollar.

**What affects your RCP:** - Lower income = lower future income component - Higher allowable expenses = lower disposable income - Minimal assets = lower equity component - Health issues can increase allowable expenses - Age affects future income multiplier

**OIC Acceptance Rates:** Approximately 14.1% of submitted OICs are accepted nationally (5,464 of 38,797 in FY2025, per the IRS Data Book 2025, Table 4-1). The key is accurate RCP calculation and thorough documentation.