The IRS Does Not Set a Standard Offer Amount

There is no formula that tells you what to offer. The IRS will accept whatever amount you propose if it meets one condition: the offer must equal or exceed what the agency believes it can collect from you over time. That calculation depends entirely on your income, assets, and expenses — not on a percentage of what you owe or how long you've owed it.

The IRS calls this the reasonable collection potential, or RCP. It is the only number that matters. If your offer meets or beats the RCP, the IRS can accept it. If it falls short, the IRS will reject it or counteroffer. You do not negotiate against the debt itself; you negotiate against what the IRS thinks it can extract from your paycheck or bank account over the next five to ten years.

Key Takeaways

  • Your offer must equal or exceed what the IRS calculates as collectable from your income and assets over time, not a percentage of the total debt.
  • The IRS uses your monthly income, necessary living expenses, and asset value to determine how much it could collect; you must provide proof of all three.
  • Most accepted offers range from 20 to 40 percent of the debt, but this varies widely based on individual financial circumstances.
  • You submit Form 656 with your proposed amount, supporting financial documents, and a $225 filing fee that is not refunded if the IRS rejects your offer.
  • The IRS typically takes four to six months to decide, during which time collection action usually pauses but interest and penalties continue to accrue.

How the IRS Calculates What It Can Collect From You

The IRS starts with your gross monthly income from all sources: wages, self-employment, rental income, Social Security, unemployment, anything that comes in. It then subtracts the IRS's standard deduction for necessary living expenses — food, housing, utilities, transportation, insurance, child support, and other court-ordered payments. The result is your disposable income.

The IRS multiplies your monthly disposable income by 60 months (five years) to get one part of the RCP. It then adds the current value of your assets that could be seized: bank accounts, vehicles, retirement accounts (with limits), real estate equity. The total of these two numbers is what the IRS believes it can collect. Your offer must meet or exceed that total.

The IRS's expense standards are published and fixed — they do not account for your personal choices or hardship. If the standard for your county allows $1,800 for housing and you pay $2,500, the IRS uses $1,800. If you have a car payment of $400 but the standard allows $600, the IRS uses $600. You can claim higher expenses only if you document a specific, necessary cost that exceeds the standard — medical bills, court-ordered child support, or a disability-related expense, for example.

What Most Accepted Offers Look Like

Offers that the IRS accepts typically fall between 20 and 40 percent of the total debt owed, but this is not a rule — it is an observation based on accepted cases. Some people offer and are accepted at 5 percent; others offer 60 percent and are rejected. The percentage means nothing. What matters is whether your offer number exceeds the IRS's calculated RCP.

If you owe $50,000 and the IRS calculates your RCP at $12,000, an offer of $12,500 will likely be accepted. An offer of $11,000 will likely be rejected. If you owe $50,000 and your RCP is $2,000, an offer of $2,000 will be accepted even though it is only 4 percent of the debt. Conversely, if your RCP is $35,000, you would need to offer at least $35,000 to have a reasonable chance, even though you owe $50,000.

The most common reason an offer is rejected is that the person underestimated their own disposable income or did not disclose all assets. The IRS has access to wage records, bank deposits, and property records. If your offer assumes you have no savings but the IRS finds $8,000 in your account, the offer will be rejected.

Documents You Need to Submit With Your Offer

You submit your offer on Form 656, Offer in Compromise. Along with it, you must include:

  • Form 433-B (if self-employed) or Form 433-A (if employed), which lists your income, expenses, and assets in detail.
  • Recent pay stubs or proof of income from all sources for the past two months.
  • Bank statements for the past two months showing all accounts in your name.
  • A list of all assets you own: vehicles (with current value), real estate, retirement accounts, and anything else of value.
  • Proof of necessary expenses that exceed the IRS standard, if you are claiming them.
  • A check or money order for $225, which is the filing fee and is not refunded if the IRS rejects your offer.

If you are married and filing jointly, both spouses must sign the offer and provide financial information. If you are married but filing separately, you may be able to submit an offer based on your income alone, but the IRS will ask for your spouse's financial information as well.

How to Calculate a Reasonable Starting Offer

Before you submit, you can estimate your own RCP using the IRS's published expense standards. Look up the standards for your county on the IRS website under "Collection Financial Standards." Add up your monthly income from all sources. Subtract the IRS standard for your family size and county for housing, food, transportation, and other necessities. Multiply the result by 60. Add the value of your liquid assets and any equity in property or vehicles. That number is roughly what the IRS will calculate.

If that number is lower than what you can afford to pay, offer the higher amount — it increases your chances of acceptance. If the calculated RCP is higher than you can pay, you have three choices: offer what you can afford and explain why (hardship, medical bills, disability), wait and resubmit later when your financial situation improves, or explore other options like a payment plan or currently not collectible status.

Do not guess at your offer amount. Submitting a low offer wastes the $225 filing fee and delays resolution. The IRS will counter with a number closer to its calculation, but you are not required to accept the counter. You can submit a new offer at any time.

What Happens After You Submit Your Offer

The IRS sends you a letter acknowledging receipt and assigning your case a number. Collection action — wage garnishment, bank levy, property seizure — usually pauses while the IRS reviews your offer, though interest and penalties continue to accrue on the unpaid balance. The review typically takes four to six months, sometimes longer if the IRS requests additional documents or clarification.

During this time, you must stay current on any new tax obligations. If you owe 2024 taxes and you are in the middle of an offer on 2022 taxes, you must file and pay the 2024 return on time. Failure to do so can result in rejection of your offer.

The IRS will either accept your offer, reject it, or counter with a different amount. If it counters, you have 30 days to accept the counter, submit a new offer, or withdraw. If you accept, you pay the agreed amount in a lump sum or in installments (usually within 24 months), and the remaining debt is forgiven. If you reject or do not respond, collection action resumes.

When an Offer in Compromise Is Not Your Best Option

An offer makes sense if you have limited income and assets and cannot afford a payment plan. It does not make sense if you have stable income and could pay the debt over time through a payment plan, because a payment plan does not require you to prove your financial situation or pay a filing fee.

If you are currently not working or have very low income, you may may have access to for currently not collectible status instead, which pauses collection action without requiring you to prove you can pay anything. This is free and can be renewed if your situation does not improve. An offer requires you to pay something now.

If you owe less than $10,000 and have any income, the IRS may prefer a payment plan. If you owe more than $250,000, the IRS has stricter rules about what it will accept. Talk to a tax professional or contact the IRS directly before spending time on an offer that may not fit your situation.

Frequently Asked Questions

Can I offer a percentage of what I owe, like 50 percent?

No. The IRS does not accept offers based on a percentage. Your offer must equal or exceed the IRS's calculated reasonable collection potential — the amount it believes it can collect from your income and assets over time. That number may be 10 percent of your debt or 80 percent; it depends on your financial situation, not on the size of the debt.

What if I cannot afford to pay the $225 filing fee?

You can request a fee waiver on Form 656 if your income is at or below 250 percent of the federal poverty line. Attach proof of income. The IRS will waive the fee if you may have access to, but you still must submit all required financial documents. Without the fee or a waiver, your offer will not be processed.

Does the IRS accept offers over the phone or online?

No. You must submit Form 656 by mail with all supporting documents and the filing fee. You cannot submit an offer through the IRS website or by calling. Mail your offer to the IRS address listed on Form 656 for your state. Keep a copy for your records.

What happens to my credit if I settle for less than I owe?

The IRS does not report to credit bureaus, so an accepted offer does not directly affect your credit score. However, the original tax debt may already be on your credit report. Once the offer is accepted and paid, you can request that the IRS remove the tax lien, which can improve your credit over time.

Can I submit an offer if I am in a payment plan with the IRS?

Yes, but the IRS may ask you to prove that your financial situation has changed since you entered the payment plan. If you are already paying and can continue, the IRS may reject the offer and ask you to keep paying. Submit an offer only if your circumstances have genuinely worsened and you can no longer afford the payment plan.