Every offer in compromise lives or dies on one number: reasonable collection potential. RCP is the IRS's calculation of what it could squeeze out of you through its own collection powers. Offer at least that much and acceptance is likely. Offer less and no story on earth gets it approved.
Which means the real work of settlement is not negotiation. It is engineering the inputs to that formula, legally and accurately, before the IRS runs it.
Component One: Net Realizable Equity
Every asset goes in at quick-sale value - typically 80 percent of fair market - minus secured debt against it. A $300,000 house with a $260,000 mortgage contributes not $40,000 but $-20,000, which counts as zero. Retirement accounts come in after the tax and penalty cost of liquidation. Vehicles get an equity exclusion. Tools of the trade get protection up to a limit.
The documentation does the talking: payoff statements, comparable sales, account statements. An undocumented asset gets valued by an examiner with no reason to be generous.
Component Two: Future Income
Monthly disposable income - income minus allowable expenses under IRS standards - gets multiplied by 12 for a lump-sum offer or 24 for a periodic-payment offer. That multiplier is why lump-sum offers usually produce lower totals, and why every dollar of allowable expense matters twelve-fold.
The expense standards allow more than people claim: housing and utilities to local limits, vehicle ownership and operating costs, out-of-pocket medical, health insurance, court-ordered payments, current taxes. Variable income gets averaged honestly rather than measured at its best month. This component is where prepared offers beat unprepared ones by tens of thousands of dollars.
The Add-Backs That Ambush People
Dissipated assets - money spent or property transferred while the tax was owed - can be added back into RCP as if you still had them. So can assets transferred to relatives for less than value. The cure is addressing the history in the package with explanations and documentation, not hoping the examiner does not look. They look.
If you want to know your RCP before the IRS calculates it for you, that is exactly what a consultation with me covers. The number decides everything, so get it first.