How to Calculate the Amount to Offer for an IRS Offer in Compromise

By Beech Carden On Mar 10, 2023

If you want to use the IRS Offer in Compromise program to reduce your IRS debt, you must understand its formula. If the IRS accepts your Offer in Compromise, you may be capable of paying off the outstanding balance in monthly instalments. However, you must compute your offer before applying for an OIC, and if you do it incorrectly, your offer will be denied.

While creating an Offer in Compromise calculator, there are many specifics to take into account, but it all boils down to one fundamental principle: You need to determine how much cash or assets you have on hand to satisfy your IRS obligation. Your offer will probably be accepted if it is less than the amount you owe and you satisfy the other conditions of the Offer in Compromise.

Formulas For Offers in Compromise:

There are 2 fundamental formulas for Offers in Compromise:

A five-month payment schedule: (Monthly Income Available x 12) + Personal Asset Worth
A 24-month payment schedule: (Monthly Income Available x 24) + Personal Asset Worth

Available Monthly Income is calculated as Monthly Income – Monthly Expenditure. In other words, how much money you will have per month that you can use to pay off your IRS debt.
Some items that qualify as income include wages, account withdrawals (like those from a retirement account), social security contributions, alimony, if you own a business, your net business income, etc.
Your monthly costs consist of facilities and services, auto loans and upkeep expenses, expense-based medical insurance, childcare consumption, attire, and various others.
The next step is to calculate the worth of your total assets. The IRS needs to know about each of your financial holdings to determine your potential for collection.
The agency does not simply look at your wages and other sources of income. This covers things like real estate, cars, cryptocurrencies, equities, bonds, furniture, jewellery, and more.

You can submit an IRS Offer in Compromise by yourself, but doing so can be extremely difficult and there is a chance that you will not receive the greatest settlement amount. Consequently, if you have any questions about your tax debt, do not be afraid to seek professional assistance.