Offer of Compromise Calculator
This free IRS Offer and Compromise Calculator helps you estimate how much the IRS might accept to settle your back taxes. By entering your income, expenses, and assets, you’ll get an estimate of a possible settlement amount.
Estimate Your Settlement Amount
Your Estimated Offer:
⚠️ This tool is for informational purposes only and does not constitute legal or financial advice.
How the IRS Offer and Compromise Calculator Works
Our IRS Offer and Compromise Calculator is designed to give you a preliminary idea of what your settlement amount might look like under the IRS Fresh Start Program. The calculation is based on the IRS's own concept of "Reasonable Collection Potential" (RCP), which determines the minimum amount they are likely to accept to settle your tax debt.
The Core Formula
The formula for an Offer in Compromise is:
OIC Settlement Amount = Net Equity in Assets + Future Income Potential
- Net Equity in Assets: This is the value of your assets (like your home, vehicles, and savings) minus any loans against them.
- Future Income Potential: This is calculated based on your monthly disposable income (your income minus allowable living expenses) multiplied by a specific factor.
- For a Lump Sum offer (paid within 5 months), the multiplier is 12.
- For a Short-Term Installment offer (paid within 24 months), the multiplier is 24.
How to Calculate My Offer in Compromise Amount with the IRS
If you want to understand how to calculate my offer in compromise amount and IRS guidelines, our tool simulates the official process. Here's a step-by-step example:
- Calculate Monthly Disposable Income:
- Monthly Income: $3,500
- Allowable Monthly Expenses: $2,800
- Disposable Income: $3,500 - $2,800 = $700
- Calculate Future Income Potential: Assuming a Lump Sum offer:
- $700 (Disposable Income) × 12 (Multiplier) = $8,400
- Add Net Equity in Assets:
- Equity in Assets: $5,000
- Determine Total Offer Amount:
- $8,400 (Future Income) + $5,000 (Assets) = **$13,400**
In this scenario, a reasonable offer to the IRS would be $13,400, even if the original tax debt was much higher. This is the process you would follow when filling out Form 656, the official application for an OIC.
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FAQs – Offer in Compromise Calculator
Q1. What is the IRS Fresh Start Program?
A: The IRS Fresh Start Program is an initiative designed to make it easier for taxpayers to resolve their tax debts. It expanded and streamlined the Offer in Compromise program, allowing more people to qualify for relief from tax debt by making the financial analysis more flexible.
Q2. How does the IRS calculate Offer in Compromise amounts?
A: The IRS calculates the minimum acceptable offer based on your "Reasonable Collection Potential" (RCP). This is determined by your net equity in assets plus your future income potential (your disposable income multiplied by 12 or 24). Our IRS Offer and Compromise Calculator simulates this calculation for you.
Q3. Can I reduce taxes owed to the IRS with an OIC?
A: Yes. An approved Offer in Compromise is a formal agreement with the IRS that allows you to settle your tax liability for less than the full amount you owe. It is a powerful way how to reduce taxes owed to IRS if you are experiencing financial hardship.
Q4. What form do I need to apply for an OIC?
A: To apply for an Offer in Compromise, you must complete and submit Form 656, Offer in Compromise, along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, which provide detailed financial information.