If you owe the IRS but can’t afford to pay in full, you’ve probably heard about settling your debt through an Offer in Compromise (OIC). But what most taxpayers don’t realize is this: the IRS uses its own formula to calculate what it thinks you can afford — and that number is often completely out of touch with reality.

In this article, we’ll break down how the IRS calculates your ability to pay, the concept of Reasonable Collection Potential (RCP), and why these estimates are often flawed. We’ll also explain how Polaris Tax & Accounting helps clients challenge incorrect assumptions and get real results.

What Is Reasonable Collection Potential (RCP)?

When you submit an OIC, the IRS doesn’t just look at your tax debt. They analyze what they believe they can collect from you through:

  • Future income (usually 12 or 24 months’ worth)
  • Equity in your assets (home, car, retirement)
  • Any disposable income beyond your basic living expenses

This calculation is called your Reasonable Collection Potential, and it’s the cornerstone of whether your OIC will be accepted or rejected.

Why the IRS’s Math Is Often Wrong

There are several reasons the IRS’s estimate of what you can pay is disconnected from reality:

  • Outdated Standards: The IRS uses national and local standards for living expenses, which may not reflect your actual cost of living.
  • Incorrect Asset Valuation: They often assume assets like cars or homes can be liquidated quickly and at full market value.
  • Failure to Adjust for Irregular Income: Gig workers, business owners, and seasonal workers often have income that fluctuates, but the IRS prefers a 12-month average.
  • Ignoring Special Circumstances: Childcare, medical needs, or special education expenses often get overlooked unless properly documented.

What Polaris Does Differently

Most national tax firms rely on surface-level data and quick quotes. At Polaris Tax & Accounting, we take a deeper approach:

  • Perform a full IRS transcript review to understand your true balance and collections timeline
  • Document your financials with IRS-approved backup
  • Run both the 12-month and 24-month OIC models to find your best outcome
  • Appeal IRS rejections when their RCP math is flawed
  • Offer strategic alternatives when an OIC isn’t the right move

Examples of IRS Math Gone Wrong

Case Study #1: A Plantation resident was told by another firm they owed $42,000 and couldn’t qualify for an OIC. We reviewed their IRS records and discovered incorrect income averaging. We submitted a corrected offer for $2,800, which was accepted.

Case Study #2: A self-employed client had the IRS valuing his business at $60,000 based on gross receipts. We submitted a detailed valuation showing it was worth less than $5,000 after debts and depreciation. The offer was adjusted accordingly.

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Want to Know What You Actually Owe?

If you’re overwhelmed by IRS debt and confused about what you truly can afford, Polaris can help. We don’t just fill out forms—we fight for realistic, strategic settlements that reflect your actual financial situation.

Schedule a confidential consultation today →