Offer in Compromise Calculator
Estimate your potential Offer in Compromise (OIC) payment based on your financial situation.
Your Estimated Offer Amount:
—Understanding the Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a tax liability for a lower amount than what is owed. It's a viable option for taxpayers who are experiencing significant financial difficulties and cannot pay their full tax debt. The IRS considers an OIC when it's unlikely the taxpayer will be able to pay the full amount owed within the collection period or when there's doubt about the amount or its collectibility.
Key Concepts for an OIC:
- Reasonable Doubt: This applies when there's a genuine question about whether the taxpayer legally owes the tax or the full amount of the tax. This could involve genuine errors in the IRS's assessment or complex legal disputes.
- Economic Instability: This is the most common reason for an OIC. It applies when the taxpayer's financial situation is such that they cannot pay their tax liability in full and are unlikely to be able to do so in the future. The IRS assesses this by looking at your income, expenses, equity in assets, and other financial factors.
- Collectibility Doubt: This reason is similar to economic instability but focuses on the taxpayer's present inability to pay the full debt. It means that even if you have assets or income, paying the full debt would cause significant financial hardship, leaving you unable to meet basic living expenses.
- Effective Tax Administration (ETA): While not directly calculated here, ETA allows for compromises when collecting the tax would be unfair and inequitable due to exceptional circumstances, or when collection would be detrimental to the taxpayer's ability to pay other essential obligations.
How the Calculator Works (Simplified Model)
This calculator provides a simplified estimate of a potential OIC amount. The IRS uses a complex formula (Form 656-B, Offer in Compromise Booklet) that involves detailed financial disclosures. Our calculator focuses on the core elements that influence the offer amount:
- Total Tax Debt Owed: The full amount you owe to the IRS, including penalties and interest.
- Doubt Amounts (Reasonable Doubt, Economic Instability, Collectibility Doubt): These represent the portion of the tax debt you are trying to compromise based on specific circumstances. The IRS wants to see an offer that reflects the portion of debt they are unlikely to collect.
- Total Assets (Liquidation Value): The IRS will look at your assets (like savings accounts, real estate equity, vehicles, etc.) and determine their liquidation value – what they could be sold for. They generally expect an offer that covers a significant portion of this liquidation value, especially for "Installment Agreements" type OICs.
The IRS's calculation generally aims for an offer amount that reflects the difference between your total tax debt and the amount they believe they cannot collect due to your financial circumstances and asset liquidation potential. A common simplified approach considers the maximum of:
- A percentage of your assets' liquidation value.
- The amount you could pay through an installment agreement over a set period, considering your income and necessary expenses.
This calculator simplifies by asking for inputs that broadly represent these categories. The actual IRS calculation is far more detailed and requires full financial disclosure.
Example Calculation:
Let's say you owe $15,000 in tax debt. You believe there's $3,000 of doubt regarding collectibility due to your inability to pay. Your total assets, like a small savings account and an older car, have a liquidation value of $4,000.
The IRS would likely consider your offer based on these factors. If they focus on the liquidation value of your assets, they might expect an offer close to or exceeding that $4,000. If they focus on your inability to pay (economic instability/collectibility doubt), they might consider a lower amount.
In this simplified model, if the calculator uses a blend or prioritizes the asset liquidation value as a baseline, the potential offer might be around $4,000 or slightly more, aiming to capture the realizable value of your assets. The actual IRS determination would depend on a full review of your income, expenses, and all assets.
Disclaimer:
This calculator is for informational and estimation purposes only. It does not constitute financial or legal advice. The IRS has its own complex formulas and criteria for approving Offers in Compromise. For accurate advice and assistance with filing an OIC, consult with a qualified tax professional or attorney.