How Low Can Your Offer in Compromise Go? Estimating the IRS Minimum Before You Apply

Most people who ask about an offer in compromise start with the same question: how little will the IRS take? The honest answer is that the IRS does not negotiate from your number. It works from its own formula, called reasonable collection potential, and an offer below that figure is almost always rejected unless special circumstances apply.

The upside is that the formula is published. With the current IRS forms in hand, you can estimate the minimum acceptable offer before you spend months on paperwork or, for someone already in Tax Court, before deciding whether to settle or try the case. This post walks through that math using the April 2026 versions of Form 433-A (OIC) and Form 433-B (OIC) found in the Form 656 Booklet.

The Formula in One Sentence

Reasonable collection potential equals the net equity the IRS could realize from your assets, plus a multiple of the monthly income left after allowable living expenses. Each half has its own rules.

Half One: Net Realizable Equity in Assets

The forms value most assets at "quick sale value," which is generally 80% of current market value, minus any loan secured by the asset. Some specific rules from the 2026 forms:

• Cash. Bank balances are counted in full, but the form lets individuals subtract $1,000.
• Vehicles. Each vehicle is valued at 80% minus its loan, and the form allows a $3,450 reduction per vehicle (up to two on a joint offer).
• Retirement accounts. Valued at 80% of market value, less loans. The form notes the reduction can be larger to reflect taxes and early withdrawal penalties, which is worth documenting.
• Real estate. Valued at 80% of market value, minus mortgages. Home equity is often the largest single number in the calculation.
• Personal effects. Household goods and similar items are listed, and the form subtracts an allowance of $11,980 before any value counts.
• Digital assets. The April 2026 form explicitly asks about digital assets, including stablecoins.
• Business assets. Equipment, receivables, and inventory owned by a sole proprietor are also counted; an entity's assets go on Form 433-B (OIC).

Half Two: Future Remaining Income

Next, compare gross monthly income with allowable expenses. Many expense categories, such as food, clothing, housekeeping supplies, housing, and transportation, are capped by IRS Collection Financial Standards, so your actual spending may not all count. Health insurance, out-of-pocket medical costs, court-ordered payments, child care, and current tax payments are generally allowed if documented.

Whatever is left is "remaining monthly income." The forms then apply a multiplier that depends on how you will pay:

• Lump sum (five or fewer payments within five months): remaining monthly income times 12.
• Periodic payment (6 to 24 months): remaining monthly income times 24.

That multiplier is why paying quickly matters so much. The same household can have a minimum offer that differs by tens of thousands of dollars depending on the payment option chosen.

A Worked Example With New Numbers

Consider a hypothetical married couple who owe $142,000 from an audit adjustment. Their numbers:

• Checking and savings: $6,500, less the $1,000 allowance, for $5,500.
• Two cars worth $18,000 and $9,000, with a $12,000 loan on the first. Quick sale values are $14,400 and $7,200. After loans and the $3,450 allowance on each, equity is $0 for the first and $3,750 for the second.
• An IRA worth $40,000. At 80%, that is $32,000.
• Home worth $410,000 with a $355,000 mortgage. Quick sale value is $328,000, so equity is $0.
• Remaining monthly income after allowable expenses: $450.

Net realizable equity is $5,500 + $3,750 + $32,000 = $41,250. Future remaining income is $5,400 under the lump sum option ($450 times 12) or $10,800 under the periodic option ($450 times 24). The estimated minimum offer is about $46,650 as a lump sum or $52,050 paid over up to two years. Either figure is far below the $142,000 balance.

The lump sum option requires 20% of the offer with the application, plus the $205 application charge, unless the couple qualifies for low-income certification. If they can borrow the remaining amount from family or a home equity line, the savings are meaningful. Keep in mind that borrowing capacity itself can become an asset in the IRS's eyes, so plan the source of funds before submission.

The Low-Income Certification

Individuals whose household income is at or below 250% of the federal poverty guidelines can skip the $205 application charge and the initial payment. The 2026 booklet's table shows, for example, $39,900 for a single-person household and $82,500 for a family of four in the 48 contiguous states, with higher limits for Alaska and Hawaii. The certification does not apply to business entities.

Settle or Try the Case? A Practical Framework

For taxpayers with a docketed Tax Court case, the offer math becomes a decision tool. Ask three questions:

• What would you owe after a realistic outcome at trial? Include interest and penalties, not just the tax. Your counsel can help assign rough probabilities.
• What could the IRS actually collect? If the realistic result is $142,000 but your collection potential is about $47,000, the gap is the value of an offer.
• What does each path cost in time and stress? Trial preparation, expert reports, and months of waiting have real costs too.

If you have a strong case on the merits, liability is generally resolved in the litigation itself, and an offer may not be needed. If the merits are uncertain and collection potential is low, an offer can cap the downside regardless of the outcome. In a docketed case, the offer and the case move on parallel tracks, so coordinate the timing with whoever is handling the litigation and confirm the court schedule before you file. Our solutions page describes how we support clients through IRS resolution work.

Tips That Change the Number

• Document every allowable expense. Missing proof of health insurance or child care can raise remaining income and multiply the offer by 12 or 24.
• Use realistic values. Get a broker opinion or appraisal for real estate and print vehicle valuation guides for the cars. Overvaluing your own assets is a common mistake.
• Watch for dissipated assets. Money spent on non-necessities after the tax debt arose may be added back.
• Stay current. You must file all required returns and make estimated tax payments or federal tax deposits for the current year. Business owners with employees must stay current on deposits while the offer is pending.
• Reassess before you file. A raise, a new car loan, or a change in household size can move the result significantly.
• Run the IRS pre-qualifier. The Offer in Compromise Pre-Qualifier is a quick check of eligibility and a rough starting point.

Key Takeaways

• The IRS evaluates offers against reasonable collection potential: net realizable equity in assets plus a multiple of monthly remaining income.
• Most assets are counted at 80% of market value less secured loans, with specific allowances for cash, vehicles, and personal effects on the April 2026 forms.
• Remaining monthly income is multiplied by 12 for a lump sum offer and by 24 for a periodic payment offer.
• Lump sum offers require 20% with the application, plus the $205 charge, unless you meet the low-income certification.
• For a docketed case, compare likely trial results with collection potential to decide whether an offer is worth pursuing.

Before you submit an offer or decide how to handle a pending case, schedule a consultation with SMB CPA Group. We can run the numbers with you and identify the documentation that matters most. You can also contact us, learn about our process, or review our pricing.

Disclaimer: The information presented on this website or any SMB CPA Group, PC online platform is for general information and illustrative purposes only. It should not be considered tax, legal, financial, or other professional advice. The content is not intended to provide definitive answers or solutions to specific business situations and is not a substitute for careful research or the advice of a licensed professional that knows your unique circumstances.

Readers are advised not to rely solely on SMB CPA Group materials or use them as the basis for any business, legal, tax, or accounting decision without first seeking independent subject matter expertise and counsel. All case studies shown are hypothetical and intended for demonstration purposes only; results shown are not guarantees of performance or outcomes.

Please contact an SMB CPA Group professional directly to discuss your specific questions or business situation. Our team would be happy to speak with you about a tailored consultation to your needs. We also encourage all readers to seek counsel from licensed attorneys, financial advisors, CPAs, Enrolled Agents, or other qualified professionals prior to making decisions related to their finances or enterprises.