One of the most nerve-wracking things about the IRS Offer in Compromise (OIC) is that it’s an offer—meaning that the IRS doesn’t have to accept it. However, if you understand the formulas used to calculate an OIC, you can increase the odds that it will be accepted. Let’s look at these formulas and how to increase the chance of success with your OIC.
What to Know Before You Submit Your Offer
Assuming you qualify for an OIC, you’ll need to fill out an application to the IRS to help settle your debts. You can take our quiz to find out if an OIC is the best decision for you.
Some things to keep in mind about an OIC before you submit your offer are:
- Taxpayers currently in open bankruptcy aren’t eligible for an OIC.
- Penalties and interest continue to accrue while the IRS evaluates your offer.
- You should only submit an offer for tax years that the IRS has assessed.
- You probably won’t qualify for an OIC if you have more assets than the balance due.
How the IRS Offer in Compromise Formula Is Calculated
You can use choose between two methods for calculating your OIC. One is paid off in five months and the other in 24 months.
- Five-Month Formula: (available income per month x 12) + amount of available assets based on Form 433-A(OIC) = Amount IRS will accept for an OIC paid within five months.
- Twenty-Four-Month Formula: (available income per month x 24) + amount of available assets based on Form 433-A(OIC) = Amount IRS will accept for an OIC paid within 24 months.
Let’s look at an example for each formula. If you have $300 available each month and $8,000 in assets, your offer with the five-month formula would be $11,600. The calculation is (300 x 12) + 8,000 = 11,600.
With the same $300 available each month and the same $8,000 in assets, but using the 24-month formula, the offer would amount to $15,200. The calculation is (300 x 24) + 8,000 = 15,200.
If you need help settling your debts with the IRS, an OIC might be your best option. At Highland Tax Group, we can assess your situation and help you submit an offer the IRS is more likely to accept.