How Much Will the IRS Usually Settle For? (Orange County CPA Guide)
Settling with the IRS Is Possible — But It’s Not a One-Size-Fits-All Deal
You’ve probably heard the claim: “Settle your tax debt for pennies on the dollar.” But is it true? And how much will the IRS really accept to settle your balance?
The short answer: it depends on how the IRS determines your ability to pay — not just how much you owe.
At Boulanger CPA, we’ve helped clients across Orange County reduce six-figure debts through Offers in Compromise, Partial Pay Installment Agreements, and hardship relief. This IRS installment agreement guide explains how settlements are calculated, why Offers are rejected, and what strategies can protect you from aggressive IRS collection actions.
π§ What Is an Offer in Compromise?
The Offer in Compromise (OIC) is a formal agreement between you and the IRS to settle your debt for less than you owe.
The IRS only accepts Offers when:
- You can prove you can’t afford to pay the full amount
- Your Offer equals or exceeds your “Reasonable Collection Potential” (RCP)
- You’re in full filing compliance and not in bankruptcy
This is not a one-size-fits-all solution. Many Offers are denied — and understanding why the IRS rejected your Offer in Compromise is key to preparing a stronger case.
π° So… How Much Will the IRS Usually Settle For?
The IRS calculates your minimum acceptable offer based on a formula:
RCP = Net Realizable Equity in Assets + Future Disposable Income
Let’s break that down.
β 1. Your Assets
This includes:
- Bank accounts
- Real estate equity
- Vehicles
- Retirement accounts
- Stocks, bonds, and crypto
- Business ownership
The IRS uses quick-sale values, not full market value. Still, equity counts heavily.
β 2. Your Monthly Disposable Income
They calculate:
- Monthly income (wages, self-employment, rental)
- Minus allowed expenses (housing, food, car, health care)
Then multiply your disposable income by:
- 12 months (if you’re offering a lump sum)
- 24 months (if you’re offering monthly payments)
π’ Example: IRS Settlement Calculation
| Category | Amount |
|---|---|
| Equity in home | $5,000 |
| Car equity | $2,000 |
| Bank account | $1,000 |
| Disposable monthly income | $200 |
| Offer multiplier | × 12 |
Minimum Offer = $5,000 + $2,000 + $1,000 + ($200 × 12) = $10,400
This is how the IRS calculates what they’ll accept.
π How the FTB Evaluates Your Ability to Pay (similar process at the state level)
We calculate settlement eligibility using the same financial standards the IRS uses — before you apply. Schedule a strategic review with a CPA who’s done this hundreds of times.
π Can You Really Settle for Pennies on the Dollar?
Yes — if you qualify.
Some clients with limited income, high expenses, or no assets settle for 5–15% of what they owe.
But if you have high income, real estate equity, or valuable assets? The IRS expects more.
π§Ύ What’s the IRS Offer in Compromise Success Rate?
- The IRS accepts about 30%–40% of submitted Offers nationally
- Success rates increase significantly with:
- Professional preparation
- Full financial disclosure
- Reasonable offer amounts
β³ How Long Does It Take?
- The IRS can take 6–12 months to review your Offer
- Collections are generally paused during review
β Common Mistakes That Cause Offer Rejections
- Offering too little
- Omitting income or assets
- Failing to file all required tax returns
- Missing estimated payments (if self-employed)
- Submitting weak or incomplete documentation
β How to Increase Your Chances of IRS Settlement
β 1. Work With a Tax Resolution CPA
The IRS Offer program is document-heavy and unforgiving.
An experienced CPA knows:
- Which expenses are allowable
- How to present hardship effectively
- How to avoid red flags that cause automatic rejection
β 2. Be Honest — and Thorough
Disclose all income, assets, and debt. Hiding anything will get your Offer denied.
β 3. Submit a Realistic Offer
The IRS doesn’t accept “$1,000” Offers unless the math supports it.
Make your Offer reflect what they could reasonably collect.
β 4. Keep Filing Current
You must:
- File all required tax returns
- Make current-year estimated payments (if required)
Professional representation also opens the door to IRS tax relief near you, where local experts help negotiate directly with IRS agents.
π‘οΈ What Happens After an Offer Is Accepted?
- Your debt is legally settled for the offered amount
- You must stay compliant for 5 years
- If you default during that time, the IRS can reinstate the full original debt
If your Offer is denied, we can help you secure an installment plan or other California installment agreement options that may resolve your debt.
π§ How Boulanger CPA Helps Orange County Taxpayers
We help individuals and businesses in Irvine, Anaheim, Santa Ana, Fullerton, and throughout Orange County:
- Analyze Offer eligibility
- Prepare and submit IRS Offer packages
- Avoid Offer rejections and collection threats
- Negotiate directly with IRS personnel
- Protect wages, accounts, and property during the process
π Call
657-218-5700
π
www.orangecounty.cpa
To protect your future and explore every tax relief strategy available, explore more in Defend What’s Yours.
Frequently Asked Questions
How much will the IRS usually settle for?
The IRS bases settlement offers on your “reasonable collection potential” (RCP). This includes disposable income and the value of assets you could liquidate. Many accepted offers settle for significantly less than the original balance.
Does everyone qualify for an Offer in Compromise?
No. Most taxpayers do not qualify. You must prove you cannot reasonably pay the full balance through income or assets within the collection statute.
How does the IRS calculate settlement offers?
The IRS reviews your monthly income and expenses, plus asset equity. Your settlement amount typically equals disposable income for 12–24 months plus liquid asset value.
Can I negotiate the amount the IRS will accept?
Yes. While you can’t negotiate like a typical settlement, you can strengthen your case with accurate financials, supporting documentation, and professional representation.
What if the IRS rejects my Offer in Compromise?
You can appeal a rejection or submit a new offer if your financial situation has changed. Many offers succeed on appeal with stronger documentation.
Are there alternatives if I don’t qualify for an OIC?
Yes. Options include installment agreements, partial-pay installment agreements, penalty abatement, or Currently Not Collectible status.
Does California’s FTB have a settlement program too?
Yes. The Franchise Tax Board offers an Offer in Compromise program for state tax debt, though eligibility rules differ from the IRS.
Should I hire a CPA for an OIC?
Yes. Professional guidance improves your chances of approval and ensures accurate disclosure of financials to maximize settlement savings.
ο»Ώπ£ About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, based in Orange County, California.
With over a decade of experience helping individuals and businesses resolve serious IRS and State tax issues, Marc specializes in tax resolution strategies including Offers in Compromise, wage garnishment relief, and back tax compliance.
He is licensed as a Certified Public Accountant in both California and Oklahoma, and has a proven track record of helping clients settle complex tax debts and regain financial stability.
π Learn more at www.orangecounty.cpa or call (657) 218-5700.
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