The IRS Offer in Compromise Pre-Qualifier is a free online tool at irs.treasury.gov/oic_pre_qualifier that estimates whether you could settle your federal tax debt for less than the full balance, and roughly what your minimum offer would need to be. It walks you through the same financial calculations the IRS uses when reviewing a formal application, then tells you whether you appear to qualify. Running it before you file saves the $205 application fee and weeks of paperwork if the numbers don’t work in your favor.
The tool is a guide, not a guarantee. Even if it says you can pay your liability in full, you can still submit an offer and explain your circumstances to the IRS. And if it says you qualify, the IRS still reviews every number when you file the formal package.
Who Can’t Use the Tool
The pre-qualifier doesn’t work for partnerships, corporations, or taxpayers who live in a U.S. territory, a foreign country, or use a military APO/FPO address. Those filers need to work through the paper forms directly.
Threshold Questions the Tool Asks First
Before the pre-qualifier looks at your finances, you have to clear four eligibility gates. Fail any one and the tool stops.
- Every federal tax return you’re legally required to file must already be filed. No exceptions. A missing return from three years ago has to be submitted before the IRS will consider your offer.
- You cannot have an open bankruptcy case. The IRS won’t negotiate a tax settlement while a bankruptcy court has jurisdiction over your debts.
- If you owe estimated taxes for the current year, those payments must be current.
- If you have employees, all required federal tax deposits for the current quarter and the two preceding quarters must be made.
You also need to have received a bill for at least one tax period included in the offer. The debt has to be formally assessed before a compromise is on the table.
What You’ll Need Before You Start
The tool asks for real numbers, not estimates. Gather these records first so the result reflects your actual situation.
Income. Your current monthly gross earnings, before taxes and deductions. A recent pay stub works for W-2 employees. Self-employed filers need average gross monthly revenue.
Assets. Current values for bank accounts, vehicles, real estate, retirement accounts such as 401(k)s and IRAs, and other property. You’ll also need balances on any loans secured by those assets, such as mortgages and car loans. What you paid for something doesn’t matter; what matters is what it could sell for today minus what you owe on it.
Expenses. Housing costs (mortgage or rent, property taxes, insurance), utilities, vehicle payments, and insurance premiums. The IRS may not credit what you actually spend. It compares your figures against government-set allowances and often uses the lower number.
How the Tool Calculates Your Minimum Offer
The number the pre-qualifier produces is your Reasonable Collection Potential, or RCP. Under the “doubt as to collectibility” basis the tool is built around, that number is the floor for any offer the IRS will accept. RCP has two components added together: the equity in your assets plus a portion of your future income.
Net Realizable Equity in Assets
The IRS doesn’t use full market value. It applies a “quick sale value,” typically 80% of fair market value, to reflect what an asset would actually fetch in a rapid sale. From that discounted value, it subtracts secured debts against the asset. What’s left is your net realizable equity.
A home worth $200,000 has a quick sale value of $160,000. Subtract a $140,000 mortgage and you’re left with $20,000 in net realizable equity. That calculation runs across every asset you own, including bank accounts (counted at face value), vehicles, retirement accounts, and real property.
Future Income
The tool then looks at how much monthly income you have left after allowable living expenses. That monthly surplus gets multiplied by a factor based on how you plan to pay:
- Lump sum offer, paid in five or fewer installments within five months: monthly surplus × 12.
- Periodic payment offer, paid over 6 to 24 months: monthly surplus × 24.
The multiplier matters. A periodic payment offer requires you to account for twice as much future income. If you can put together the 20% upfront payment a lump sum offer requires, the lower multiplier often produces a significantly smaller minimum offer.
Why the Number May Be Higher Than You Expect
The pre-qualifier doesn’t credit your actual monthly spending. It uses standardized allowances, and your real expenses only count if they fall below those limits.
National Standards cover food, housekeeping supplies, apparel, personal care, and a miscellaneous allowance, in fixed amounts based on household size. A single person’s total allowance is $839 per month. A family of four gets $2,129. Each additional person beyond four adds $394. Out-of-pocket healthcare costs have a separate national standard broken out by age (under 65 and 65 or older).
Local Standards cover housing, utilities, and transportation. They vary by county and family size, which is why the tool asks for your location. A family of four in Manhattan gets a much higher housing allowance than one in rural Arkansas. The figures come from Census Bureau and Bureau of Labor Statistics data, published by state down to the county level.
The IRS generally allows the lesser of what you actually spend or the standard amount. If you spend $3,000 on housing in a county where the standard allows $1,800, the tool credits you $1,800. That inflates your apparent monthly surplus, which inflates your minimum offer.
If the Tool Says You Qualify
A promising result from the pre-qualifier is a green light to prepare the formal application package, not proof the IRS will accept your offer. The package includes:
- Form 433-A (OIC), the Collection Information Statement for individuals and self-employed taxpayers, documenting every asset, liability, income source, and expense in detail. Business entities use Form 433-B (OIC).
- Form 656, the actual offer form, where you state your proposed amount and payment terms. Individual and business tax debts go on separate Form 656s.
- The $205 application fee, non-refundable, paid once regardless of how many tax periods your offer covers.
- An initial payment: 20% of your proposed amount for a lump sum offer, or the first monthly installment for a periodic payment offer.
Low-income certification waives both the $205 fee and the initial payment. You qualify if your adjusted gross income from your most recent return, or your household’s gross monthly income multiplied by 12, is at or below the threshold for your family size. In the 48 contiguous states, a single person qualifies at $37,650 or below, and a family of four qualifies at $78,000 or below. Alaska and Hawaii use higher limits.
For a periodic payment offer, you must keep making the proposed monthly installments while the IRS reviews your case. Missing one during review can be treated as withdrawing the entire offer.
What Filing an Offer Sets in Motion
The pre-qualifier is worth running carefully because filing an offer has consequences beyond the fee and paperwork.
Collection activity pauses. Federal law bars the IRS from levying your property or wages while your offer is pending. That protection extends for 30 days after a rejection, and if you file an appeal within those 30 days, the levy prohibition continues through the appeal. For many filers, this is the immediate practical benefit of submitting an offer.
The collection clock pauses too. The IRS generally has 10 years from assessment to collect a tax debt. Filing an offer suspends that clock for as long as the offer is pending, plus the 30-day post-rejection window, plus any appeal period. If your offer is rejected after 18 months, you’ve given the IRS an extra 18-plus months to collect. This is the trade-off most people don’t think about, and it’s the strongest reason to run the pre-qualifier honestly before committing.
The 24-month review window. The IRS has 24 months from the date you submit an offer to make a decision. If it doesn’t reject the offer within that window, the offer is deemed accepted. Time spent in judicial proceedings over the tax liability doesn’t count toward the 24 months.
Five-year compliance requirement. Acceptance isn’t the finish line. For five years after your offer is accepted, you must file every required return on time and pay every tax obligation when due. No new installment agreements, no new offers. If you default, the IRS can reinstate the original tax debt (minus payments already made) plus interest and penalties accrued from when the liability first arose, and it can refile federal tax liens. Many accepted offers eventually unravel here, so budget for full compliance before you file.