Austin Tax Blog


Are you planning an Offer in Compromise to the IRS? Would you like to have an idea of a tentative amount that you may end up paying as an Offer in Compromise? If yes then you are at the right place as we would now reveal the IRS Offer in Compromise formula. Although, this is a standard formula, it is advisable to cross check with a tax expert in Austin to rule out any loop holes in calculation.

The IRS OIC formula is:

[(Monthly income – Monthly expenses) x 12 (or 24)] + [(value of assets – loans/mortgages) x 0.8]

Well, to put it in simple terms, if you are planning to file an OIC application then you can calculate the minimum offer in compromise by the following steps.

Firstly, subtract your monthly expenses from your monthly income. Now, there is a catch here as you may calculate entertainment expense also as a part of the monthly expense but the IRS may not. It will consider factors like money required for housing, utilities, clothing, fuel expense and a few rare luxury expenses. The balance got from this equation is then multiplied by 12 if you want pay offer in compromise in a next five months. However, if it takes you more than five months to pay the OIC amount then the balance is multiplied by 24.

Next thing that IRS Offer in Compromise formula considers is a portion of the value of your assets. For this, the IRS will deduct any loans or mortgages from the total asset value and then take a fifth (20%) portion of the balance. This is done individually for cars, home and other valuable assets and then the 20% of all the assets is added together. Here, we are considering that you regularly file your tax returns and are in compliance with IRS rules.

Furthermore, you need to add the calculated asset value to the cash flow value calculated in the first step. If you do not want to get into this calculation trouble then you can always use IRS offer in compromise calculator available online. So, now you have an estimated value which is the minimum offer in compromise value. Cross check it with a tax service provider in Austin to rule out any possibilities of rejection.

The need to hire a tax expert in Austin is to save you from any mistakes while proposing an Offer in Compromise to IRS. Also, when you take an expert advice, you can easily ask them to take corrective measures if and when needed. In essence, a tax expert is the key to get an OIC application approved and hence, worth an investment.

What is the IRS Compromise and Settlement

If you have any taxation issues or need free consultation on delinquent taxes then feel free to give us a shout. For more details, feel free to CONTACT US or We are available on call at 512-982-9284, Monday to Friday 10:00 am – 4:00 pm.