How Much Will the IRS Usually Settle For? [Offer in Compromise Formula + Tips]

If you have a tax bill you can’t afford, the IRS may be willing to settle for less than you owe. This is called an Offer in Compromise (OIC). 

But how much will the IRS usually settle for? The federal tax agency will evaluate your financial situation, including assets, income, expenses, savings, and other factors, to determine how much you can feasibly pay.

If you’re considering an OIC to handle your tax debt, here’s what you need to know about how to determine what to offer and how to improve your chances of getting approved.

Table of Contents

1. How do I get an Offer in Compromise approved?
2. What percentage of my debt will the IRS usually settle for?
3. How to calculate your offer
4. Tips to increase your chances of success 

How do I get an Offer in Compromise approved?

For the 2023 tax year—the most recent data available—the IRS accepted roughly 42% of Offers in Compromise for a total of $214.5 million. That comes out to an average of about $16,875 per taxpayer. 

To get approved for an OIC, you’ll need to fill out certain forms detailing your financial situation, pay a $205 nonrefundable application fee, and include your nonrefundable initial payment.

Your initial payment may be a lump sum equal to 20% of your total offer amount, or you may choose to make periodic payments while the IRS considers your offer. Read our Offer in Compromise guide to learn more. 

I believe the individuals most likely to have their OIC approved are those with low income and high tax debt, limited or no significant assets, and those facing chronic illness or long-term disability that significantly reduces their earning potential.

What percentage of my debt will the IRS usually settle for?

The IRS doesn’t specify how much of your tax debt it may be willing to forgive, primarily because your results will depend on your circumstances. 

More specifically, the federal tax agency will evaluate your situation to calculate your reasonable collection potential to decide your eligibility and settlement amount. If your offer is equal to or greater than this number, it’ll accept it. 

Your reasonable collection potential will be based on the following:

• Assets: This may include real estate, bank accounts, investments, cash-value life insurance, digital assets, vehicles, and other personal property.
• Income: The IRS will examine your wages, business income, child support and alimony, retirement income, and other income sources.
• Expenses: The federal agency will compare your income to basic living expenses, such as housing, utilities, clothing, food, transportation, insurance, taxes, debt payments, and child and dependent care.

If you’re self-employed, you’ll also need to provide details about your company, payment processors, business bank accounts, assets, and revenue and expenses. 

How to calculate how much to offer in compromise to the IRS 

If you’re interested in an OIC but unsure whether you qualify, you can use the federal tax agency’s OIC prequalifier tool to evaluate your eligibility and come up with a preliminary offer estimate. 

However, to calculate an actual offer, you’ll need to print and fill out Form 433-A. Once you fill out all the details about your assets, income, and expenses, here’s how you’ll calculate your offer:

1. Tally up your asset equity: The form will walk you through adding up your total asset value minus any loan balances, such as a mortgage or auto loan. The result is your available individual equity in assets (Form 433-A Section 3, Box A: Available Individual Equity Assets).
2. Add up business asset equity: If you’re self-employed, you’ll also add up your assets minus corresponding loan balances to get your available business equity in assets (Section 4, Box B: Available Business Equity in Assets).
3. Determine your discretionary income: For this step, you’ll total your household income from all sources, as well as eligible basic expenses (Section 7, Boxes D and E). Then you’ll subtract your total household expenses from your total income to get your remaining monthly income (Box F, Remaining Monthly Income).
4. Figure your future remaining income: If you plan to make a lump-sum payment, followed by five or fewer payments across five months, you’ll multiply your remaining monthly income by 12. If you expect to make periodic payments over six to 24 months, you’ll multiply your remaining monthly income by 24 (Section 8).
5. Add up your assets and future remaining income: Your offer will be the sum of your available individual and business equity in assets plus your future remaining income. Note that the offer must be more than zero (Section 8). 

You may compare the offer amount to how much you owe to determine whether it’s worth it to submit your application. Remember, you need to pay an application fee and an initial payment, both of which are nonrefundable. 

If you’re having trouble completing the form, it may help to work with a tax professional who can walk you through the process and handle communication with the IRS.

Example: Calculate an Offer in Compromise

Let’s say Mark owes the IRS $42,000 in back taxes. He wants to see whether an Offer in Compromise could be a realistic option for settling his debt. After completing Form 433-A (OIC), here’s how he calculates his offer:

Step 1: Tally up asset equity
Mark owns a car worth $10,000 but still owes $6,000 on his auto loan. He also has a checking account with $2,000 and a retirement account with $5,000 (only 60% of which counts toward equity, or $3,000).

• Car equity: $10,000 – $6,000 = $4,000
• Checking: $2,000
• Retirement (60% rule): $3,000

👉 Total individual asset equity: $9,000

Step 2: Add up business asset equity
Mark is self-employed and owns business equipment worth $7,000. He doesn’t owe anything on it.

👉 Business equity: $7,000

Step 3: Determine discretionary income
Mark earns $4,500 per month, and the IRS allows him $4,000 in standard expenses (based on national or local standards and actuals).

👉 Remaining monthly income: $4,500 – $4,000 = $500

Step 4: Figure future remaining income
Mark plans to make monthly payments over 24 months.

👉 $500 × 24 = $12,000

Step 5: Add up total offer amount

• Asset equity: $9,000 (individual) + $7,000 (business) = $16,000
• Future income: $12,000

👉Offer in Compromise total: $28,000

Since Mark owes $42,000, this OIC could save him $14,000—if the IRS accepts the offer.

In my experience, this issue most often arises with freelancers and self-employed individuals who either fail to make quarterly tax payments or underpay them.

That said, tax debt can also result from errors made by a self-tax preparer or a professional tax preparer on a previous year’s return. In either case, if the tax owed exceeds $10,000, I strongly recommend working with a CPA or other qualified tax professional to navigate the OIC process effectively.

Read More:

How to Get Out of Tax Debt

Offer in Compromise tips to increase your chances of success 

An Offer in Compromise could save you thousands of dollars and give you a fresh start with the IRS. However, most applications don’t get approved. Here are our tips to help you improve your odds of acceptance:

• Avoid lowballing: The IRS has a specific process for calculating your offer. If you try to lowball the tax agency, it’s likely to reject your offer.
• Make sure your numbers are accurate: The IRS has ways to double-check your work, and leaving income out or falsely inflating your expenses isn’t a good look.
• Provide documentation: The federal tax agency will want to see documents proving the numbers you provide on the application form. If you can’t substantiate your claims, it could come back to bite you.
• Work with a tax professional: Navigating the OIC process can be tricky, especially if you’ve never dealt directly with the IRS before. A certified public accountant (CPA) can advise you based on your situation and options, and also guide you through the application process.
• Work with a tax relief company: If your tax debt is substantial, it may make sense to enlist the help of a tax relief company. These firms have experience working with the IRS and can make the process smoother. They may also help you understand and consider other options to get relief. Some of the best tax relief companies include Anthem and Alleviate. 

Also, note that if your OIC is denied, you have the right to appeal. This option may be worth pursuing if you don’t agree with the agency’s assessment of your financial situation or believe your special circumstance merits acceptance.

If you decide to appeal, you’ll have 30 days from the date of the rejection letter to do so.

Read More:

How to Settle Tax Debt With the IRS By Yourself: 5 Strong Strategies for 2025