The IRS does not publish a single “tax settlement calculator” that produces a final number, but it does host a free Offer in Compromise Pre-Qualifier Tool at irs.treasury.gov that estimates whether you might qualify to settle your tax debt for less than you owe and roughly what that offer would need to be. The tool applies the same formula IRS reviewers use, so the figure it returns is a realistic starting point rather than a marketing pitch. It is not a decision, though. The agency only commits to a number after a full financial investigation that can take up to 24 months.
What the Pre-Qualifier Tool Does
The Pre-Qualifier is a screening tool. It asks about your assets, income, monthly expenses, and filing status, then returns a “preliminary offer amount.” Along the way it checks eligibility basics: whether you have filed all required returns, made current estimated tax payments, and are not in an open bankruptcy proceeding. If any of those fail, it stops you before you spend hours on the financial section.
Two limits are worth knowing up front. The tool is for individual taxpayers only, not partnerships or corporations, and it will not work for anyone with a foreign or military APO/FPO address. And the number it produces is an estimate. A completed Form 656 package still has to go through a formal review, and the reviewer’s math on your assets and expenses may not match yours.
How the IRS Calculates What You Should Offer
The figure at the center of every Offer in Compromise is called Reasonable Collection Potential, or RCP. It answers one question for the IRS: how much can we realistically get from this taxpayer? Your offer generally has to meet or beat RCP, or it will be rejected.
RCP has two parts added together:
Net realizable equity in assets. The IRS values most assets at 80% of fair market value, a “quick-sale” discount, then subtracts any secured debt like a mortgage or car loan. Cash and bank balances count at face value. Negative equity in one asset cannot offset positive equity in another. Retirement accounts, real property, vehicles, digital assets, jewelry, and investments all belong in this bucket.
Future income. This is monthly disposable income (total income minus allowable living expenses) multiplied by 12 or 24 months, depending on which payment plan you choose.
Put together: RCP = Net Realizable Equity + (Monthly Disposable Income × 12 or 24). A taxpayer with $10,000 in net asset equity and $300 per month in disposable income needs to offer at least $13,600 under a lump-sum plan ($10,000 + $300 × 12), or $17,200 under a periodic-payment plan ($10,000 + $300 × 24).
The Expense Standards That Drive Your Disposable Income
Most disagreements between taxpayers and the IRS happen on the income side of the formula, because the agency does not let you subtract whatever you actually spend. Expenses are capped by published Collection Financial Standards, drawn from Bureau of Labor Statistics and Census Bureau data. The current standards were published April 21, 2025, and remain in effect through June 2026.
National Standards
National standards cover food, clothing, housekeeping, personal care, and a miscellaneous category. Monthly allowances:
- One person: $839
- Two-person household: $1,481
- Three-person household: $1,753
- Four-person household: $2,129
- Each additional person beyond four: add $394
Out-of-pocket health care has its own separate allowance: $84 per month per person under 65, and $149 per month per person 65 or older. That amount is on top of what you pay in health insurance premiums.
Local Standards
Housing, utilities, and transportation are capped by local standards that vary by state and metro area. For transportation, the nationwide ownership allowance is $662 per month for one vehicle and $1,324 for two. Operating costs (fuel, insurance, maintenance, registration) vary by region: a one-car household in Houston is allowed $359 per month; the same household in Seattle gets $270. Taxpayers without a vehicle can claim a $244 public transportation allowance instead. For both ownership and operating costs, the IRS allows the lesser of the standard or what you actually spend, so no car payment means no ownership allowance.
You can request the actual amount if your real expenses exceed the standard, but you need documentation showing the spending is necessary. Over half of those excess requests get denied, according to the Taxpayer Advocate Service.
Lump-Sum vs. Periodic Payment
The payment structure you pick affects both the size of the offer and the cash you need up front.
A lump-sum cash offer requires 20% of the total offer amount with your application. If accepted, you pay the remaining balance in five or fewer installments within five months. The RCP calculation uses 12 months of future income, which generally produces a lower required offer.
A periodic payment offer requires the first monthly payment with your application, and you continue making monthly payments while the IRS evaluates the case. If accepted, the balance is paid over 6 to 24 months. The RCP calculation uses 24 months of future income, so the minimum offer is higher.
Under both options, payments are nonrefundable. If the IRS rejects the offer, the money you have already sent is applied to your tax debt rather than returned.
Eligibility Basics
The IRS will not review an offer unless certain conditions are met:
- All required tax returns have been filed.
- You have received a bill for at least one tax debt included in the offer.
- Current-year estimated tax payments are made.
- You are not in an open bankruptcy proceeding.
- For business owners with employees: federal tax deposits are current for the quarter and the two preceding quarters.
Beyond those mechanical prerequisites, the IRS recognizes three legal grounds for an offer. “Doubt as to collectibility” is the most common and is what the RCP calculation supports: your income and assets are not enough to cover the full debt. “Doubt as to liability” applies when there is a genuine dispute about whether the tax is actually owed. “Effective tax administration” covers rare cases where you could technically pay in full but doing so would cause economic hardship or be fundamentally unfair given the circumstances.
The application itself requires Form 656 plus Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, along with three months of bank statements, recent pay stubs, investment and retirement account statements, mortgage and loan statements, and documentation of court-ordered obligations like child support. The application fee is $205, waived if you meet the low-income certification guidelines.
Private Calculators You May Find Online
Several tax firms host their own OIC calculators. They generally apply the same RCP formula (net realizable equity plus 12 or 24 months of disposable income) and can be useful for a ballpark, but each one carries a disclaimer that the result is informational only. Actual acceptance depends on the IRS reviewing a complete financial picture.
The IRS has repeatedly warned about “Offer in Compromise mills,” firms that market tax-debt settlement to people who are unlikely to qualify, charge large upfront fees, and produce little. They appear on the IRS’s annual Dirty Dozen list of tax scams. Warning signs include promises to settle debt for “pennies on the dollar,” pressure to pay nonrefundable fees immediately, more salespeople than licensed CPAs or attorneys on staff, and no real financial assessment before collecting money. Some states, including Michigan, require companies that collect money from clients to pay the IRS on their behalf to be licensed as debt management companies, which caps initial fees and adds regulatory oversight.
You can apply directly through the IRS at no cost beyond the $205 fee. If you want professional help, look for enrolled agents, CPAs, or attorneys in the IRS Directory of Federal Tax Return Preparers and verify credentials independently.
When the Number Doesn’t Work: Other Options
If the RCP figure is close to what you owe, or higher, an Offer in Compromise probably is not the right tool. The IRS offers several alternatives:
- Installment agreement. Monthly payments spread over time. Taxpayers owing less than $50,000 often qualify for a streamlined agreement of up to 72 months without detailed financial statements. A partial-pay installment agreement lets you pay based on ability even if the total will not cover the debt before the collection statute expires.
- Currently Not Collectible status. If your income does not cover basic living expenses, the IRS can temporarily suspend most collection activity. The debt does not go away, and interest and penalties continue to run.
- Penalty abatement. Penalties (not the underlying tax) can sometimes be reduced or removed through the First Time Penalty Abatement program or by demonstrating reasonable cause, requested on Form 843.
- Short-term extension. If you can pay in full within 180 days, you can request extra time without a formal agreement, setup fee, or financial disclosure.
If the collection statute is within two to three years of expiring, Currently Not Collectible status or a partial-pay installment agreement may produce a better outcome than an OIC, since the remaining debt can age out. Running your numbers through Form 433-A before you commit to an application is the most reliable way to see which path fits.