How much should I offer the IRS in an Offer in Compromise?

Your OIC amount should be based on the IRS's calculation of your Reasonable Collection Potential (RCP), not an arbitrary number. The IRS uses Form 433-A (OIC) to calculate your RCP using this formula: (monthly disposable income x number of months remaining on the collection statute) + (quick sale value of assets). Monthly disposable income is your gross monthly income minus allowable expenses (using IRS National and Local Standards). Quick sale value of assets is typically 80% of fair market value minus any encumbrances. For example: if your monthly income is $5,000, allowable expenses are $4,500, and you have 60 months remaining on the statute, your income portion is $500 x 60 = $30,000. If your assets (equity in home, car value, bank accounts, retirement accounts) have a quick sale value of $20,000, your total RCP is $50,000. Your offer should be at or near this amount. Offering significantly less than RCP will result in rejection. Offering slightly above RCP increases approval chances. A tax professional experienced in OICs can identify legitimate expenses the IRS must allow and properly value assets to minimize your RCP.