An offer in compromise is a settlement with the IRS for less than you owe under section 7122 of the Internal Revenue Code, and most of the people who apply do not get one. You owe more than you can pay, you have heard that the IRS settles, and you want to know whether you qualify and how much to offer. Both questions have the same answer, a number called Reasonable Collection Potential, and an offer in compromise attorney’s real job is computing that number honestly before you send the IRS a fee, a deposit and a year of your life. The rest of the collections picture is on our parent page for IRS collections.
The three grounds for an offer in compromise
The IRS compromises a tax debt on three grounds: doubt as to collectibility, doubt as to liability, and effective tax administration. Doubt as to collectibility is nearly every offer: your assets and future income, valued the IRS’s way, add up to less than the balance. Doubt as to liability is an audit dispute in a different wrapper, filed on Form 656-L with no fee and no deposit, for a balance you believe is wrong. Effective tax administration covers the person who could technically pay in full but would be left in economic hardship doing it; it is granted rarely. You also have to be current on filing and estimated payments, or the IRS returns the offer unread.
Reasonable Collection Potential, and how the IRS computes it
Reasonable Collection Potential is the quick-sale value of your assets plus your monthly disposable income times 12 or 24, and an offer at or above that number is accepted while an offer below it is rejected. The worksheet is Form 433-A (OIC) for individuals and Form 433-B (OIC) for businesses. Assets go in at 80 percent of market value minus the loans against them, with two allowances for individuals: $1,000 against bank balances and $3,450 against the value of a vehicle. Income is the household’s monthly income minus the expenses the IRS allows under its Collection Financial Standards, which cap housing, transportation, food and clothing at published figures. That remainder is multiplied by 12 for a lump sum offer paid within five months of acceptance, or by 24 for a periodic payment offer paid over six to 24 months.
One example, on a $120,000 balance. A car worth $18,000 with a $12,000 loan: $18,000 times 0.8 is $14,400, less the loan is $2,400, less the $3,450 allowance is zero. A checking account of $2,800 less $1,000 is $1,800. Monthly income of $6,500 against allowed expenses of $5,900 leaves $600, times 12 is $7,200. RCP is $9,000, and an offer of $9,000 on a $120,000 balance qualifies. Give the same person $150,000 of equity in a house and RCP exceeds the balance, so no offer is accepted at any amount. Two things trip people up: asset values come in higher than expected, and the Standards count less of your spending than you actually spend, so a family that feels broke can show real disposable income. The full worksheet is in our guide to the offer in compromise.
How engagements work
Many matters like this one run as a monthly flat-fee engagement: one number, agreed up front, that covers the work — agency contact, deadlines, document responses, strategy — until the matter resolves. Shorter, well-defined projects are often a one-time flat fee instead, and some matters genuinely fit hourly billing better. We will tell you which you are looking at on the first call, before you commit to anything. If you want the details first, see how we price our work.
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What an offer in compromise costs
An IRS offer costs a $205 application fee plus a 20 percent deposit on a lump sum offer, both non-refundable, and the deposit is the reason a bad offer is expensive. A periodic payment offer sends its first monthly payment with Form 656 and keeps paying during review. If your household income is at or below 250 percent of the federal poverty guidelines you qualify for the low-income certification on Form 656, which waives the fee, the deposit and the payments during review. Our fee is separate, quoted in advance and usually flat; the structure is on our tax attorney cost page. We tell you before you pay us whether the numbers support an offer at all. The 2012 Fresh Start changes to the math are on our IRS Fresh Start program page.
What happens while the offer is pending, and if it is rejected
While an offer is pending the IRS cannot levy, the ten-year collection statute stops running, and an offer the IRS has not decided within 24 months is deemed accepted under section 7122(f). Section 6331(k) bars levies from the day a processable offer is received through 30 days after a rejection and through any appeal, and section 6331(i)(5) suspends the statute for the same period. The IRS keeps any refund on a return assessed before acceptance.
The IRS Data Book for fiscal year 2025 reports 38,797 offers proposed and 5,464 accepted, roughly one in seven. Most rejections are offers the RCP math did not support. A rejection letter carries a 30-day right to appeal on Form 13711 to the IRS Independent Office of Appeals, which re-examines the asset values and expense allowances. After acceptance the offer lives for five years: every return filed and every payment made on time, or the IRS defaults the compromise and reinstates the original balance less what you paid.
FTB, CDTFA and EDD offers in compromise
Each California agency runs its own offer program, none of them stops collection automatically, and each has an eligibility rule the IRS does not. The FTB’s offer (FTB 4905PIT for individuals, FTB 4905BE for businesses) has to be a lump sum, cannot be a zero-dollar offer, and the FTB may keep collecting while it decides; on approval the state tax liens are released. The CDTFA’s offer on CDTFA-490 or CDTFA-490-C is for a final liability on a closed account where you no longer run that business or one like it, with a window through January 1, 2028 under Revenue and Taxation Code section 7093.6 for operating businesses that did not collect the tax from their customers. The EDD’s program under Unemployment Insurance Code section 1870, on Form DE 999A with a DE 999B financial statement, is for closed businesses and for owners assessed under section 1735 who no longer control the business. You have to show that your income cannot pay more than the accruing interest plus 6.7 percent of the balance a year and that the offer beats what the EDD could collect by force in four years.
The firm’s answer to how much you should offer
Offer your Reasonable Collection Potential, computed honestly, and not a figure based on a percentage of the debt. There is no rule of thumb, because the IRS does not accept offers for being generous; it accepts them for meeting the number. We run the 433-A (OIC) worksheet and compute the statute date, then compare the offer against a partial payment installment agreement and against waiting out the Collection Statute Expiration Date, which sometimes wins. Then we file, or we tell you not to. The wider set of options, for when an offer is the wrong tool, is on our tax debt attorney page.
How the engagement runs, and what to gather
Weeks one and two: Form 2848, account transcripts for every year, the statute calculation, and a compliance check so the offer is not returned. Weeks two through six: the financial statement, which means you gather three months of bank statements and pay stubs, the mortgage or lease, vehicle and retirement statements, insurance, medical costs, child support and, for a business, the last profit and loss and a receivables list. Then Form 656 goes in with the fee and the deposit, and the wait begins: an offer examiner is usually assigned in four to eight months and asks for updated statements, and a decision follows six to twelve months from filing. We answer the examiner within the deadlines, because a missed deadline returns the offer.
How much should I offer in compromise to the IRS?
Your Reasonable Collection Potential: the quick-sale value of your assets plus 12 or 24 months of disposable income under the Collection Financial Standards. An offer at that number is accepted, and an offer below it is rejected regardless of what percentage of the debt it represents. Compute it on Form 433-A (OIC) before you decide anything.
How long does an offer in compromise take?
Six to twelve months to a decision in most cases, and longer when the examiner requests updated financials or the offer goes to Appeals. Under section 7122(f) an offer not rejected within 24 months is deemed accepted. Collection is paused the whole time, and so is the ten-year statute, which is the hidden cost of a losing offer.
What happens if my offer in compromise is rejected?
You have 30 days from the rejection letter to appeal on Form 13711 to the IRS Independent Office of Appeals, and the levy bar under section 6331(k) continues through the appeal. The deposit stays with the IRS as a payment on the balance. A returned offer, as opposed to a rejected one, cannot be appealed and has to be refiled.
Talk to us
Brotman Law is in San Diego and was founded in 2013. We represent clients across California before the FTB, the CDTFA and the EDD, and clients anywhere in the country before the IRS, by phone and secure document exchange. If you want the RCP analysis before you file, bring a rough balance and your monthly numbers to a free 15-minute call with our intake team. Book a free 15-minute call.
Sam Brotman, JD, LLM, MBA. Last reviewed September 2026.
