Offer in Compromise Pre-Qualifier
Offer in Compromise Analysis
• Make current year estimated payments
• Not in open bankruptcy proceeding
• Continue monthly payments (if periodic option)
• Comply with all OIC terms for 5 years after acceptance
2. Complete Form 433-A (OIC) – Collection Information Statement
3. Submit $205 fee and initial payment (unless low income)
4. Wait 9-12 months for IRS review
5. Consider hiring tax professional (95% acceptance with pro vs 21% DIY)
What Is an Offer in Compromise?
An Offer in Compromise is an IRS program that allows taxpayers to settle their tax debt for less than the full amount owed.
The IRS may accept a reduced payment when it believes that:
- The taxpayer cannot pay the full debt within a reasonable time
- Collecting the full balance would create financial hardship
- The settlement amount reflects the taxpayer’s true ability to pay
The IRS reviews each application carefully. They analyze your income, expenses, assets, and future earning ability before deciding whether to accept the offer.
Because the process can take months, many taxpayers use an OIC Pre-Qualifier tool to estimate their chances before submitting an official application.
What Is an Offer in Compromise Pre-Qualifier?
An Offer in Compromise Pre-Qualifier is a financial calculator that estimates whether your tax debt could qualify for settlement under IRS rules.
It analyzes several factors, including:
- Total tax debt
- Household income
- Allowable monthly expenses
- Asset values
- Future income potential
- Family size and location
- Low-income certification eligibility
Based on this information, the calculator estimates your Reasonable Collection Potential (RCP).
This number represents the amount the IRS believes it could realistically collect from you.
If your RCP is lower than your tax debt, you may qualify for an Offer in Compromise.
What Information the Calculator Uses
The OIC Pre-Qualifier gathers financial details similar to what the IRS requires in Form 656 and Form 433-A (OIC).
The main categories include:
1. Basic Personal Information
The calculator first collects details about your tax situation, such as:
- Tax year
- State of residence
- Filing status
- Family size
- Adjusted Gross Income (AGI)
These details help determine whether you qualify for Low Income Certification, which can waive application fees and initial payments.
2. Total Tax Debt
You enter the total amount of back taxes owed.
This number is used later to determine:
- Whether your offer might be accepted
- Potential savings from a settlement
- The settlement percentage
3. Asset Information
The IRS considers the equity in your assets when reviewing an Offer in Compromise.
The calculator evaluates assets such as:
- Bank accounts
- Investment accounts
- Real estate equity
- Vehicle value
- Retirement accounts
- Other personal property
For valuation purposes, the IRS usually uses quick sale value, which is approximately 80% of fair market value.
The remaining value after loans and exemptions becomes your Net Realizable Equity (NRE).
4. Monthly Income
The calculator asks for your gross monthly income, including:
- Wages or salary
- Self-employment income
- Rental income
- Other income sources
This represents the total money coming into your household each month.
5. Allowable Monthly Expenses
The IRS does not allow unlimited expenses when calculating payment ability.
Instead, it uses National and Local Standards that limit certain spending categories.
Typical allowable expenses include:
- Food and clothing
- Housing and utilities
- Vehicle ownership costs
- Transportation costs
- Health insurance
- Healthcare expenses
- Court-ordered payments
- Current tax payments
Additional expenses such as childcare or student loan payments may also be included.
How the Calculator Determines Eligibility
The Offer in Compromise Pre-Qualifier estimates your eligibility using a formula the IRS calls Reasonable Collection Potential (RCP).
The formula looks like this:
RCP = Net Realizable Equity + Future Income
Each part of this calculation comes from the financial information you enter.
Step 1: Calculate Net Realizable Equity (NRE)
Net realizable equity represents the liquid value of your assets.
The calculation considers:
- Quick sale value of property
- Outstanding loans
- IRS exemptions
For example:
- Real estate value × 80%
- Vehicle value × 80%
- Minus loans and exemptions
The result is the amount the IRS believes could be collected from your assets.
Step 2: Calculate Monthly Disposable Income
Next, the calculator determines your Monthly Disposable Income (MDI).
This is calculated by subtracting allowable expenses from total income.
Monthly Disposable Income = Income − Allowable Expenses
If expenses exceed income, the IRS may treat disposable income as zero.
Step 3: Estimate Future Income
The IRS assumes it can collect a portion of your future income.
The amount depends on the payment option you choose.
Lump Sum Offer
- Multiplier: 12 months
- Requires 20% down payment
- Balance paid within five months
Periodic Payment Offer
- Multiplier: 24 months
- Paid in monthly installments
Future income is calculated as:
Future Income = Monthly Disposable Income × Multiplier
Step 4: Determine Reasonable Collection Potential
The final step combines assets and future income.
RCP = Net Realizable Equity + Future Income
This number represents the IRS estimate of how much it could collect from you.
Interpreting the Results
Once the calculator runs the numbers, it shows several key results.
Eligibility Status
The tool compares your RCP with your total tax debt.
If:
RCP < Tax Debt
You may be potentially eligible for an Offer in Compromise.
If:
RCP ≥ Tax Debt
The IRS may expect full payment instead of a settlement.
Minimum Offer Amount
The calculator displays the minimum settlement amount that might be acceptable to the IRS.
This amount equals your estimated Reasonable Collection Potential.
Potential Savings
You’ll also see the estimated difference between:
- Total tax debt
- Proposed OIC settlement
This shows how much debt could potentially be reduced.
Settlement Percentage
The calculator also calculates the percentage of your tax debt represented by the settlement.
For example:
- $10,000 offer on $40,000 debt
- Settlement percentage: 25%
Low Income Certification
Some taxpayers qualify for Low Income Certification, which can reduce upfront costs.
If your Adjusted Gross Income falls below the IRS threshold for your family size and state, you may receive:
- Waived $205 application fee
- No initial payment requirement
This makes the Offer in Compromise process more accessible for lower-income households.
Application Fees and Payments
If you do not qualify for low-income certification, the IRS requires:
Application Fee
- $205 (non-refundable)
Initial Payment
Depends on the payment method:
Lump Sum Offer
- 20% of the offer amount submitted with the application
Periodic Payment Offer
- First monthly payment submitted with the application
All payments are non-refundable, even if the IRS rejects the offer.
Important Requirements Before Applying
To submit an Offer in Compromise, the IRS requires taxpayers to meet several conditions.
These include:
- Filing all required tax returns
- Making current tax payments
- Not being in active bankruptcy
- Providing complete financial documentation
- Staying compliant for five years after acceptance
Failing to follow these requirements can result in the offer being rejected or revoked.
How Accurate Is an OIC Pre-Qualifier?
A pre-qualifier provides an estimate, not an official determination.
The IRS may adjust calculations based on:
- Additional financial documentation
- Updated expense standards
- Asset valuations
- Changes in income
Still, a good calculator provides a strong approximation of your settlement range.
Why Use an Offer in Compromise Calculator?
Using a pre-qualification tool offers several advantages.
1. Avoid Unnecessary Applications
Since the IRS acceptance rate is relatively low, a calculator helps determine whether applying is worthwhile.
2. Estimate Your Settlement Amount
Instead of guessing, you can see an estimated settlement figure based on IRS methodology.
3. Understand IRS Financial Rules
The calculator shows how the IRS evaluates:
- Income
- Expenses
- Assets
- Future earning potential
This helps you prepare stronger documentation.
4. Plan Your Next Steps
After reviewing your results, you can decide whether to:
- Submit an Offer in Compromise
- Request an installment agreement
- Explore other tax relief options
When to Consider Professional Help
Although you can submit an Offer in Compromise yourself, many taxpayers seek help from:
- Tax attorneys
- Enrolled agents
- Certified public accountants (CPAs)
A tax professional can:
- Review your financial information
- Structure the strongest possible offer
- Communicate with the IRS
- Handle appeals if needed
This can significantly improve the quality of your application.