The Offer in Compromise is one of the most technically demanding IRS representation tasks available to enrolled agents and CPAs, not because the forms are difficult but because acceptance hinges entirely on the accuracy of one number: the taxpayer's Reasonable Collection Potential. RCP is the amount the IRS believes it can collect from the taxpayer before the Collection Statute Expiration Date under IRC 6502 (generally 10 years from assessment, subject to tolling exceptions; verify tolling rules under IRM 5.1.19 at IRS.gov). An offer must equal or exceed RCP to be accepted. Understate RCP and the IRS rejects the offer. Overstate it and you leave money on the table, or worse, you price your client out of a resolution they could afford.
The IRS pre-qualifier tool at IRS.gov provides a preliminary RCP estimate and can screen out clients who are clearly ineligible. However, the pre-qualifier is not binding and does not require full asset disclosure. The formal calculation lives on Form 433-A (OIC) for individuals and sole proprietorships and Form 433-B (OIC) for entities, and it is the practitioner's responsibility to get that calculation right. This guide walks through the four components of RCP, the multiplier selection decision, common calculation errors, and when an OIC is and is not the right resolution tool. All procedures, dollar thresholds, Collection Financial Standards amounts, and regulatory guidance referenced below must be verified at IRS.gov and under the current version of IRM 5.8 before being relied on in any client matter.
This guide is for informational purposes only and does not constitute legal or tax advice. OIC acceptance is fact-specific, discretionary, and not guaranteed for any submission.
The Four Components of Reasonable Collection Potential
RCP has four components: Net Realizable Equity in assets, Monthly Disposable Income multiplied by the applicable payment-structure multiplier, and any dissipated assets the IRS adds back to the calculation. Work through each one before building the offer amount.
Component 1: Net Realizable Equity (NRE) in Assets
Net Realizable Equity is the amount the IRS could collect by liquidating the taxpayer's assets after accounting for senior liens and the applicable valuation discount. Under IRM 5.8 guidance, the IRS applies an 80% quick-sale value discount to most asset categories on the theory that a forced liquidation produces less than a voluntary arm's-length sale. This discount can be negotiated for unique or illiquid asset classes; verify current IRM 5.8 treatment at IRS.gov before accepting the 80% figure as fixed for any specific asset. The categories and their standard treatment are as follows.
REGULATORY HEDGE: 80% QUICK-SALE VALUE
The 80% quick-sale value rule is IRM guidance, not a fixed statutory formula. The applicable discount for a specific asset class can be negotiated with the IRS examiner in appropriate cases. Verify the current asset valuation rules under IRM 5.8 at IRS.gov before building any RCP calculation, as guidance has evolved and may continue to evolve.
- Cash and bank accounts: Valued at 100% of the available balance. No quick-sale discount applies. Include all checking, savings, money market, and brokerage cash positions.
- Vehicles: The IRS uses the lesser of quick-sale value (typically derived from a recognized valuation guide such as NADA or a comparable market analysis) minus any secured debt on the vehicle, or zero. If the secured debt exceeds the vehicle's quick-sale value, the NRE for that vehicle is zero.
- Real property: 80% of fair market value (supported by an independent appraisal or a comparable sales analysis) minus outstanding mortgage balances, senior property tax liens, and any other encumbrances with priority over the IRS. If a client holds real property with a federal tax lien, see the tax lien discharge, subordination, and withdrawal guide for how lien treatment interacts with the OIC process.
- Business assets: 80% of the current liquidation value of business equipment, inventory, accounts receivable, and other business property, minus any secured liens with priority over the IRS. Obtain an equipment appraisal for material business assets; do not use the depreciated book value from the tax return as a substitute for liquidation value.
- Retirement accounts (IRAs, 401(k)s, and similar): The IRS does not automatically exclude retirement accounts from RCP. The present value of the account is included, reduced by the applicable early withdrawal penalty and the estimated income taxes that would be owed on the distribution. The combined penalty and tax overlay is built into the NRE figure. If a client assumes their retirement account is off-limits, that assumption is incorrect as of current IRM 5.8 guidance; verify the current treatment at IRS.gov.
- Digital assets and cryptocurrency: As of 2026, digital assets receive no special exclusion from RCP. The IRS treats them as any other asset: NRE equals 80% of the current fair market value as reported on the exchange or wallet, minus any secured obligations. Verify the current IRS treatment of digital asset valuation in RCP calculations at IRS.gov, as guidance in this area has evolved and practitioners should not rely on prior-year IRM positions for digital asset treatment. For a broader discussion of digital asset disclosure, see the digital asset reporting guide for tax preparers.
- Exempt assets: The IRS generally excludes assets that are exempt under state law and unavailable to pay a tax debt. However, exempt status is not self-executing on a 433-A (OIC); the practitioner must identify the specific state exemption and confirm that the asset is genuinely beyond the IRS's reach under applicable law. The primary personal vehicle is commonly raised in this context: the vehicle value is included in the NRE calculation up to the applicable amount; it is not separately excludable by virtue of being a personal vehicle. Verify exempt asset treatment under current IRM 5.8 at IRS.gov before advising a client that any specific asset falls outside RCP.
Component 2: Monthly Disposable Income (MDI)
Monthly Disposable Income is gross monthly income minus allowed monthly expenses. The critical discipline here is that "allowed" does not mean "actual." The IRS allows expenses at the lesser of actual or the applicable Collection Financial Standard (CFS). Using actual expenses when the CFS is lower is one of the most common and consequential errors in OIC preparation.
REGULATORY HEDGE: COLLECTION FINANCIAL STANDARDS
Collection Financial Standards are updated periodically by the IRS, typically on an annual basis. This guide does not quote specific CFS dollar amounts because those amounts change and any figure printed here may be superseded. Use the standards in effect on the date of the OIC submission; verify current CFS amounts for all categories at IRS.gov before building any MDI calculation. Using a prior year's CFS when current standards have issued is an error that the IRS examiner will catch and correct, and the correction will raise the RCP figure.
The CFS structure has four tiers. First, National Standards cover food, clothing, personal care, housekeeping supplies, and out-of-pocket health care. These are fixed allowances that apply nationwide regardless of where the taxpayer lives; look up the current amounts at IRS.gov. Second, Local Standards cover housing and utilities (set by county) and transportation (vehicle operating costs and public transit, set by region). These vary by geography; confirm the county and region applicable to your client before pulling the allowances. Third, other necessary expenses include minimum required credit card payments, court-ordered payments such as child support and alimony, certain secured debt payments, actual health insurance premiums, and term life insurance premiums. Fourth, non-allowable expenses are excluded entirely: voluntary contributions to retirement accounts, private school tuition, student loan payments beyond a nominal minimum, and whole life insurance premiums do not reduce MDI under the CFS framework.
On the income side, the starting point is gross monthly income from all sources: wages, self-employment, rental income, 1099 income, business distributions, and any other regular or irregular receipts. Do not use net pay. Omitting irregular income sources is a frequent error that the IRS will identify when it compares the 433-A (OIC) to the client's tax transcripts.
Component 3: Multiplier Selection (Lump-Sum vs. Periodic Payment)
The income component of RCP is MDI multiplied by a factor that depends on which payment structure the taxpayer selects. There are two options.
Cash offer (lump-sum): MDI x 12
A cash offer, sometimes called a lump-sum offer, requires the taxpayer to pay the full offer amount within five months of acceptance. The income multiplier is 12 (one year of monthly disposable income). Because the multiplier is lower, the total RCP is lower, making a cash offer financially advantageous for most clients. If the taxpayer or a third party can fund the offer amount within the five-month window, the cash offer structure should be the default unless the math produces a lower RCP under the periodic structure (which is uncommon). The 20% non-refundable deposit required at submission applies to cash offers.
Short-term deferred (periodic payment): MDI x 24
A periodic payment offer allows the taxpayer to pay the offer amount in monthly installments over a period of up to 24 months following acceptance. The income multiplier doubles to 24 (two years of monthly disposable income), which substantially increases the income component of RCP. For a client with meaningful MDI, the difference between a 12x and a 24x multiplier can represent a significant increase in the offer floor. The periodic payment option is appropriate when the taxpayer cannot fund a lump-sum payment but has the ability to make installments; it is not the financially superior choice simply because it spreads payments over time.
The total RCP formula is: NRE in Assets + (MDI x multiplier). The offer amount must equal or exceed this total. Run the calculation under both multipliers and present the client with the cost differential so they can make an informed decision about funding.
Component 4: Dissipated Assets
The IRS adds to RCP the value of assets that the taxpayer transferred for less than fair market value within the three years preceding the OIC submission date. These are called dissipated assets, and their inclusion in the RCP calculation is not optional; the IRS will identify them through the financial investigation process whether or not the practitioner discloses them.
REGULATORY HEDGE: DISSIPATED ASSET POLICY
Dissipated asset rules are governed by IRM 5.8. The IRS updated its dissipated asset analysis in 2026 to specifically address digital asset transfers and pre-bankruptcy liquidations. Verify the current dissipated asset policy, including the treatment of digital asset dispositions, under the current version of IRM 5.8 at IRS.gov before submission. Relying on a prior-year version of this guidance is a risk in any 2026 OIC submission involving digital asset transfers.
Common dissipated asset examples include: real property gifted to a family member for no consideration or below market, vehicles sold below fair market value, loans forgiven by the taxpayer (the forgiven amount is an asset transferred for zero value), and assets moved to entities or trusts in the three years before submission. The IRS approach is not punitive on its face; a dissipated asset that had a legitimate, non-tax-evasion rationale (a documented arm's-length transaction, a bona fide estate plan executed before the tax liability arose) can sometimes be addressed with documentation. However, the burden is on the practitioner and the taxpayer to provide that documentation proactively.
Practitioners must disclose all dissipated asset transfers on the 433-A (OIC) or 433-B (OIC). Omitting known dissipated assets is a basis for rejection of the offer and can implicate accuracy-related concerns under Circular 230. Before submission, run the client through a structured three-year lookback interview covering all asset transfers, debt forgiveness, and entity transactions.
Form Selection: 433-A (OIC) vs. 433-B (OIC)
Selecting the correct collection information statement is not a technicality; using the wrong form is a processability defect that will result in the offer being returned without consideration. The selection rule is straightforward, with one common exception that catches practitioners working with pass-through entity clients.
Form 433-A (OIC): Individuals and sole proprietorships
Use Form 433-A (OIC) when the taxpayer is an individual, or when the business liability being compromised belongs to a sole proprietor operating under a single-member structure treated as a disregarded entity. This form covers the individual's personal assets, income, and expenses. See the Form 433-A and 433-B collection information statement guide for section-by-section completion instructions applicable to both the standard and OIC versions of these forms.
Form 433-B (OIC): Corporations, partnerships, and non-disregarded LLCs
Use Form 433-B (OIC) when the entity is a corporation, partnership, or LLC not treated as a disregarded entity for federal tax purposes. This form covers the entity's assets, income, and liabilities separately from the individual owner's personal financial picture.
Exception: S-corporations with a personal liability component
An S-corporation shareholder assessed a Trust Fund Recovery Penalty (TFRP) under IRC 6672 has a personal tax liability that is separate from the entity's corporate liability. If the client is pursuing an OIC on the TFRP, a separate Form 433-A (OIC) is required for that individual liability, even if the underlying employment taxes were assessed against the S-corporation and require Form 433-B (OIC). Practitioners representing clients with both corporate and individual OIC components must confirm with the IRS examiner whether a coordinated or separate submission is appropriate, and verify current processability guidance under IRM 5.8.
Common RCP Calculation Errors and Their Consequences
The OIC examiner will recompute RCP independently. Every error that inflates allowed expenses or understates asset values will be caught, and the corrected RCP will almost always be higher than the practitioner's figure. The following errors appear repeatedly in rejected offers.
- Overstating allowed expenses by using actual rather than CFS. The IRS allows the lesser of actual expenses or the applicable Collection Financial Standard. If the client's actual housing cost exceeds the local standard for their county, only the standard amount is allowed, not the actual amount. The same applies to vehicle operating costs, food, and other CFS categories. Practitioners who build MDI from the client's actual bank statements without applying the CFS cap will produce an understated RCP that the examiner will correct upward.
- Understating income by using net pay or omitting irregular sources. The MDI calculation starts with gross monthly income, not take-home pay. Taxes withheld from wages are not an allowed expense that reduces gross income on the 433-A (OIC); they appear in a different section. Rental income, 1099 contract income, business distributions, and seasonal income must all be captured and averaged appropriately. The IRS will compare the 433-A (OIC) income figures to tax transcripts, W-2s, and 1099 data; discrepancies are a basis for additional information requests or rejection.
- Omitting assets, including retirement accounts, digital assets, and out-of-state property. The 433-A (OIC) requires disclosure of all assets, not just those in the client's primary state of residence. An investment property in another state, a retirement account at a former employer, a cryptocurrency wallet, or a minority ownership interest in a closely held business are all assets that must be reported and valued. Omissions are both a rejection basis and a Circular 230 concern.
- Ignoring the CSED in multiplier selection. The CSED is generally 10 years from the date of assessment under IRC 6502, subject to tolling events (bankruptcy filings, pending OIC, military service abroad, and others; verify the complete tolling list under IRM 5.1.19 at IRS.gov). When the CSED for the periods covered by the OIC expires within a short window, the IRS's effective collection time is reduced, which can reduce RCP materially. A client with a CSED expiring in two years and meaningful asset equity may have a substantially lower RCP than the formulaic 12x or 24x multiplier suggests. Compute the remaining collection period as a check against the standard multiplier.
- Failing to identify and address dissipated assets proactively. The IRS will add dissipated assets back to RCP. Practitioners who do not conduct the three-year lookback interview and disclose qualifying transfers will have the IRS discover them during the financial investigation, which typically results in a higher RCP figure, a delayed review process, and diminished credibility with the examiner. Identify dissipated assets before submission and address them in the written submission narrative with supporting documentation explaining the legitimate rationale for the transfer.
- Using outdated Collection Financial Standards. CFS amounts are typically updated annually. An MDI calculation built on the prior year's CFS figures, when the current year's figures have already been published, is technically incorrect. The IRS examiner will apply current CFS amounts; if current amounts are lower than prior-year amounts (as has occurred in some categories in some years), using prior-year standards may actually understate allowable expenses. Always pull current CFS tables from IRS.gov at the time of submission preparation.
When an OIC Is Not the Right Resolution Tool
An OIC is the right tool only when the taxpayer's RCP is genuinely less than the total liability owed. If RCP equals or exceeds the liability, the IRS has no reason to accept less than full payment, and the offer will be rejected. Recommending an OIC when another resolution track is more appropriate wastes the client's time and money and delays the resolution they actually need.
When RCP exceeds the tax liability: installment agreement or CNC
If the RCP calculation produces a figure equal to or greater than the amount owed, the client can full-pay the liability, which means they do not qualify for an OIC under the "doubt as to collectibility" standard. The practitioner should evaluate a streamlined or standard installment agreement (if the client can make regular payments) or Currently-Not-Collectible (CNC) status under IRC 6343 (if the client's income is at or below the CFS allowances, leaving no monthly disposable income). CNC status does not resolve the liability but suspends active collection while the CSED continues to run. Taxpayers whose RCP is near zero may also qualify for currently not collectible (CNC) status under IRM 5.16.1, which suspends collection without requiring a settlement payment; see the CNC practitioner guide for the CSED strategy and hardship analysis.
When the CSED expires soon: CNC may be the path of least resistance
If the CSED for the unpaid periods expires within a year or two, the IRS has limited time to collect regardless of what the RCP calculation shows. In that scenario, the practitioner should evaluate whether keeping the client in CNC status or a low-payment installment agreement through CSED expiration produces a better outcome than an OIC that requires a cash payment now. An OIC submission also tolls the CSED for the period the offer is under consideration plus an additional 30 days, which extends the IRS's collection window; that tolling effect must be factored into the decision.
When the offer is rejected: appeal rights and next steps
A rejected OIC can be appealed to the IRS Independent Office of Appeals within 30 days of the rejection letter date. OIC rejection does not preclude a separate Collection Due Process hearing if a CDP notice has been issued and the CDP deadline has not passed. Do not allow a CDP deadline to lapse while pursuing an OIC appeal; CDP rights are strictly time-limited and cannot be reinstated once the window closes. If a federal tax lien has been filed in connection with the liability, review the lien relief options covered in the tax lien discharge, subordination, and withdrawal guide as a coordinated post-rejection strategy.
Practitioners should also evaluate penalty abatement as a coordinated strategy alongside or before an OIC. Reducing the underlying liability through first-time abatement or reasonable cause abatement may bring the balance within a range where an installment agreement is the better resolution, or it may lower the RCP figure enough to make an OIC viable where it otherwise was not.
IRS Pre-Qualifier Tool and Preliminary Analysis
The IRS OIC Pre-Qualifier tool at IRS.gov is a useful initial screening device. It walks through a simplified version of the RCP calculation based on inputs the practitioner provides and returns an estimate of whether the client may qualify and at what offer amount. Use it to screen clients before investing time in a full 433-A (OIC) preparation.
However, the Pre-Qualifier is not binding, is not part of the formal submission, and does not require the complete asset and income disclosure that the 433-A (OIC) does. The formal 433-A (OIC) analysis frequently produces a different RCP figure, often higher, because it captures assets and income sources that the simplified Pre-Qualifier tool does not capture. Do not represent the Pre-Qualifier estimate to a client as the likely offer amount; the formal calculation, once completed, is the authoritative figure.
The IRS will reject or return an OIC submission if the client can full-pay the liability from available assets or through an installment agreement. The OIC program is not designed to allow taxpayers who can pay to settle for less. Clients who can pay the full liability through reasonable installment payments do not meet the "doubt as to collectibility" standard. Advise clients of this threshold before beginning the OIC preparation process.
Frequently Asked Questions
How does the IRS verify asset values on a Form 433-A (OIC)?
The IRS may conduct a financial investigation, issue document requests, or schedule a field visit to verify asset values reported on Form 433-A (OIC). Practitioners should attach supporting documentation proactively: bank statements, vehicle valuations from a recognized guide, independent real property appraisals, retirement account statements, and digital asset exchange records. A complete, well-documented submission reduces the likelihood of a field investigation and the resulting delay. Verify current IRS document request standards under IRM 5.8 at IRS.gov before submission.
Does a pending bankruptcy affect OIC eligibility?
An Offer in Compromise is not processable during an open bankruptcy case. The IRS will return the offer as non-processable if a bankruptcy petition is active at the time of submission. The OIC can be filed after the bankruptcy case has been discharged or dismissed. Practitioners representing clients in both a bankruptcy proceeding and an IRS collection matter must sequence the two resolutions carefully. Verify current OIC processability rules under IRM 5.8 at IRS.gov.
Can a client submit an OIC while under an installment agreement?
Yes. A client may submit an OIC while under an installment agreement, provided the installment agreement is current at the time of submission. The IRS suspends active collection during OIC consideration and for a 30-day window following a rejection. The installment agreement does not need to be terminated before submitting the OIC, but the practitioner should confirm that the agreement is in good standing. Verify current OIC processability rules under IRM 5.8 at IRS.gov.
How does the 2026 OIC filing fee work?
As of 2026, the OIC application fee is reported to be $205, but verify the current fee at IRS.gov before any submission, as fee amounts are subject to change. Low-income applicants whose household income falls below 250% of the federal poverty level may qualify for a fee waiver; verify the current income threshold and waiver eligibility criteria at IRS.gov before advising a client on waiver eligibility. All dollar thresholds in the OIC fee structure should be confirmed at IRS.gov at the time of preparation, not from prior-year references.
What is the IRS acceptance rate for Offers in Compromise?
The IRS has historically accepted approximately 40% of submitted OICs, though rates vary year to year; verify current IRS Data Book statistics at IRS.gov. Acceptance is fact-specific and is not guaranteed for any submission. An OIC is accepted only when the IRS determines the offer reflects the taxpayer's reasonable collection potential and that acceptance is in the government's best interest. Practitioners who conduct thorough, accurate RCP analysis and submit complete documentation generally experience better outcomes than those who submit with incomplete financial disclosures, but no acceptance can be promised in advance.
What happens if a client defaults on an accepted OIC?
If a client defaults on the terms of an accepted OIC, the offer is terminated, the original tax liability is reinstated (less payments made under the offer), and the IRS may immediately resume collection action for the full remaining balance plus accrued penalties and interest. The OIC agreement requires five years of compliance with all future filing and payment obligations following acceptance. A single missed return or payment during the five-year compliance period can trigger default. Brief clients on this obligation in writing before submission.
What happens when an OIC is rejected and what are the appeal rights?
A rejected OIC can be appealed to the IRS Independent Office of Appeals within 30 days of the rejection letter date using Form 13711, Request for Appeal of Offer in Compromise. OIC rejection does not preclude a separate CDP hearing if a CDP notice has been issued and the deadline has not passed. Verify current appeal rights, deadlines, and form requirements under IRM 5.8 at IRS.gov. Practitioners should evaluate whether an Appeals conference on the original calculation or a revised offer with corrected financial information is the stronger next step given the specific rejection grounds stated in the IRS letter.
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