Offer in Compromise: Do You Qualify, and How Much Will the IRS Accept?
Short answer
An offer in compromise lets you settle a tax debt for less than you owe if the IRS agrees you can’t pay in full. The IRS generally accepts an offer that equals your “reasonable collection potential”: the equity in your assets (usually valued at 80% of market value, minus loans) plus your monthly disposable income multiplied by 12 (lump-sum offer) or 24 (periodic-payment offer). You must be current on all filing and estimated payments, pay a $205 fee and an initial payment unless you qualify as low-income, and stay compliant for five years after acceptance.
“Settle your IRS debt for pennies on the dollar” is one of the most common tax ads, and one of the most misleading. An offer in compromise is real, and it can wipe out a large debt, but the IRS accepts only a fraction of the offers it receives. In fiscal year 2025, the IRS accepted 5,464 offers out of 38,797 received, about 14%. The difference between an accepted offer and a rejected one is usually the math. Here’s how the IRS does it.
Three kinds of offers
| Type | When it applies |
|---|---|
| Doubt as to collectibility | You agree you owe the tax but can’t pay it in full. This is the most common kind. |
| Doubt as to liability | You genuinely dispute that you owe the tax, or how much. You must explain why and provide evidence. |
| Effective tax administration | You could technically pay, but doing so would create an economic hardship or would be unfair because of exceptional circumstances. |
Before you can apply
- All required tax returns must be filed. See haven’t filed in years?
- Estimated tax payments for the current year must be made
- Business owners with employees must be current on federal tax deposits
- You can’t be in an open bankruptcy
- An open audit or pending innocent spouse claim generally should be resolved first
How the IRS calculates what you can pay
The IRS calls this your reasonable collection potential (RCP). It has two parts.
Part 1: Equity in your assets
The IRS generally values assets at quick sale value, usually 80% of fair market value, then subtracts loans secured by them. Bank accounts, vehicles, real estate, retirement accounts, and investments all count.
Part 2: Future disposable income
The IRS compares your household’s monthly income to allowable living expenses. These are based on national standards for food, clothing, and health care and local standards for housing, utilities, and transportation, generally the lesser of what you actually spend or the standard. What’s left is your monthly disposable income. That amount is multiplied by:
| Offer type | How you pay | Multiplier | Payment with application |
|---|---|---|---|
| Lump sum | 5 or fewer payments within 5 months of acceptance | 12 months | 20% of the offer amount (nonrefundable) |
| Periodic payment | 6 to 24 monthly payments | 24 months | First monthly payment, and keep paying monthly while the IRS reviews |
Both types also require a $205 application fee, unless you qualify for the low-income waiver, which is based on household income compared with federal poverty guidelines.
Example: A self-employed contractor who owes $60,000
- Truck worth $10,000. At 80% quick sale value that’s $8,000, minus a $5,000 loan: $3,000 equity
- Bank accounts: $2,000
- Household income $5,200 a month; allowable expenses $4,950: $250 a month disposable
Lump-sum offer: $5,000 assets + ($250 × 12) = $8,000. He sends $1,600 (20%) plus the $205 fee with the application and pays the rest within 5 months of acceptance.
Periodic offer: $5,000 + ($250 × 24) = $11,000, paid over up to 24 months.
Either way, a $60,000 debt could be resolved for a fraction of the balance, if the numbers hold up under IRS review.
Where offers go wrong
- Understated assets. The IRS checks property records, bank records, and vehicle registrations.
- Expenses above the standards without documentation of why they’re necessary.
- Leaving out household income. The IRS looks at the whole household, including a spouse who doesn’t owe the tax.
- Missing estimated payments while the offer is pending, which can get the offer returned.
- Offering less than the RCP. The IRS will calculate its own figure and give you a chance to raise your offer. If you don’t, it rejects the offer.
What happens while the IRS reviews
- The review can take up to 24 months.
- If you’re on an installment agreement, you don’t have to keep paying it while the offer is pending.
- The IRS may file a lien notice while it reviews your offer.
- Interest and penalties keep accruing on the full balance. If the offer is accepted and you meet its terms, you owe only the offer amount.
If your offer is accepted
- You pay the agreed amount on the agreed terms.
- The IRS keeps any refunds for tax periods through the acceptance date.
- Any filed lien is released once the offer is paid.
- You must file and pay on time for five years. If you don’t, the offer can default and the original debt comes back.
If it’s rejected
You have 30 days to appeal. Or you can move to another option, such as a partial-payment plan or Currently Not Collectible status.
Is an offer right for you?
The IRS has a pre-qualifier tool online, but it’s only a guide. A CPA can run the full calculation with your actual records, show you the likely offer amount before you pay any fees, and tell you honestly whether another option is better. Read our offer in compromise overview for the basics.
Wondering if the IRS would settle with you?
We’ll run your numbers confidentially and tell you whether an offer is realistic before you spend a dollar on fees.
Frequently asked questions
How much will the IRS settle for?
Generally the amount of your reasonable collection potential: the net equity in your assets plus your future disposable income (monthly amount × 12 for a lump-sum offer, × 24 for a periodic-payment offer). If that figure is more than you owe, the IRS expects full payment instead.
Do I get my money back if my offer is rejected?
No. The $205 application fee and payments sent with the offer generally aren’t refunded; payments are applied to your tax debt. You have 30 days from the rejection letter to appeal.
How long does an offer in compromise take?
The IRS says a full investigation can take up to 24 months, depending on its inventory and how complex your case is.
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