One of the most misunderstood parts of the Offer in Compromise (OIC) process is the concept of Reasonable Collection Potential, or RCP. You may have heard you can “settle with the IRS for less,” but how much less depends entirely on what the IRS believes you can afford to pay.
At Back Tax Rescue, we help clients throughout Gwinnett County understand how RCP works—because it directly determines whether your OIC will be accepted or denied. If you’re hoping to reduce your IRS debt, this guide will explain how RCP is calculated and how to legally reduce your offer amount.
📊 What Is Reasonable Collection Potential (RCP)?
RCP is the IRS’s formula for deciding how much they expect to collect from you, either through asset liquidation or future income. If your Offer in Compromise is lower than your calculated RCP, it will most likely be rejected.
📌 Think of RCP as your financial fingerprint—it’s unique, and it’s how the IRS evaluates your ability to pay.
🔍 The Two Parts of RCP: Assets + Future Income
✅ 1. Net Realizable Equity in Assets
This includes:
- Home equity
- Vehicle equity
- Bank accounts
- Investments (stocks, crypto, etc.)
- Retirement accounts (partial equity may be considered)
- Other valuable assets (boats, collectibles, etc.)
The IRS often applies a “Quick Sale Value” discount—typically 80% of market value—and subtracts any loans or debts tied to the asset.
✅ 2. Future Income Potential
The IRS estimates your monthly disposable income (after allowable expenses), then multiplies that number by:
- 12 months if you’re offering a lump sum OIC
- 24 months if your offer is a payment plan
💡 This is where many taxpayers lose leverage—because they don’t know which expenses are “allowable” by IRS standards.
📄 How the IRS Calculates Your Monthly Disposable Income
They subtract your actual income by standardized “allowable expenses”—based on national, regional, and local data. These include:
- Housing and utilities (based on county and household size)
- Food, clothing, and miscellaneous
- Transportation (loan/lease and operating costs)
- Health insurance and out-of-pocket medical
- Childcare or dependent care
- Court-ordered payments or alimony
- Minimum student loan payments (rarely accepted)
If you spend more than the IRS deems necessary in any category, they may reject or reduce those expenses unless you provide strong documentation.
⚠️ Common Mistakes in RCP Calculations
- Overestimating income (by including fluctuating or one-time amounts)
- Underreporting allowable expenses
- Missing asset value discounts (forgetting to subtract debt or use quick sale value)
- Failing to update information before submission
✅ A small error in RCP can cost you thousands in overpaid settlement or lead to a full rejection.
🔽 Can You Lower Your RCP Legally?
Yes—and we help clients do it all the time.
🔧 Here’s how:
- Delay filing until expenses or income decrease
- Adjust the offer type (lump sum uses 12 months of income vs. 24)
- Use accurate asset valuation strategies (e.g., quick sale value, equity limits)
- Document and validate every allowable expense
- Exclude temporary income or one-time assets
By proactively planning the timing and content of your OIC, you significantly improve the likelihood of approval and reduce your offer amount.
📁 Example of RCP in Action (Simplified)
Ashley from Snellville owes $38,000 in IRS debt.
- She has $4,000 in usable home equity
- She has $1,500 in her bank account
- Her monthly income is $3,800
- After allowable expenses, her disposable income is $275
RCP Calculation (Lump Sum Offer):
- Assets: $5,500
- Future income: $275 × 12 = $3,300
- Total RCP = $8,800
We helped her submit an OIC for $9,000, which was accepted. She avoided overpaying—and erased nearly $30,000 in tax debt.
👨💼 Why Work With a Tax Pro for Your RCP?
IRS officers review OICs with a fine-tooth comb. If you overstate income, miss allowable expenses, or present inflated asset values, your offer could be denied—even if you technically qualify.
At Back Tax Rescue, we:
- Analyze and optimize your RCP calculation
- Ensure all supporting documents are IRS-compliant
- Reduce the risk of rejection with strong case presentation
- Handle all communication with the IRS so you don’t have to
📞 Don’t Guess Your RCP—Let’s Calculate It Together
If you’re considering an Offer in Compromise, your RCP is the number that matters most. Get it right from the start.
📞 Call Back Tax Rescue: 470-699-1187
📧 Email: info@backtaxrescue.com
🗓️ Book a Free Offer in Compromise Consultation »
You could qualify to settle your IRS debt for far less than you think—but only if the numbers work. Let’s run them together.
