Offer in Compromise: Can Texas Taxpayers Settle for Less?

The Offer in Compromise is the IRS program that allows qualifying taxpayers to settle their entire tax debt for less than the full amount owed. It is real, it works, and in our 32 years of practice we have used it to resolve millions of dollars in tax debt for Dallas-Fort Worth clients. But it is not for everyone, and the IRS rejects many offers that are poorly prepared.

How the IRS Calculates What You Should Pay

The IRS uses a formula called Reasonable Collection Potential (RCP). RCP equals your net realizable equity in assets plus your future income over a set period (12 or 24 months depending on payment terms). If your RCP is less than your total tax liability, the IRS should accept an offer at or near RCP. The math determines the offer — not negotiation or persuasion.

Assets: What the IRS Counts

The IRS counts all assets at 80% of quick-sale value — meaning what you could realistically get if you had to sell quickly. Real estate equity, retirement accounts (at forced-sale value with a 20% discount for taxes and early withdrawal penalties), vehicles, bank accounts, and other financial assets are all included. In Texas, with its high real estate values and lack of state income tax savings to offset, asset equity is often the biggest factor in OIC calculations.

Income: The Allowable Expense Formula

The IRS subtracts allowable living expenses from your gross monthly income. Allowable expenses are based on national and local standards — not what you actually spend. The Dallas-Fort Worth metropolitan area has its own local standards for housing and transportation. If your actual necessary expenses exceed the standards, you can sometimes argue for additional allowances, but this requires documentation and persuasion.

The 20% Upfront Payment

For lump-sum offers (paid in five installments or less), the IRS requires a 20% non-refundable deposit with the offer application. For periodic payment offers, you must make monthly payments throughout the evaluation period. If the offer is rejected, the IRS keeps the deposit and payments and applies them to the liability. This is why it is critical to analyze the offer before submitting — a rejected offer costs money.

While the Offer Is Pending

During OIC evaluation, the Collection Statute Expiration Date (CSED) is tolled — meaning the 10-year clock on the IRS's collection authority pauses. The statute is also tolled for one year after rejection. This is an important consideration: if your CSED is approaching, an OIC may not be the right strategy, as it extends the collection window.

We analyze every new client case for OIC eligibility as part of our initial consultation. If you qualify, we prepare and submit offers that are designed to be accepted — with the documentation and financial analysis that the IRS expects.

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