Qualifying for a federal Offer in Compromise is a logic test, not a lottery. The IRS accepts an offer when the law gives it one of three grounds and your numbers pass the collection-potential test: the offer must equal or exceed what the IRS could reasonably collect from you anyway. This page explains that logic — the grounds, the RCP affordability test, and the compliance gates that decide whether the IRS will even evaluate you. (The tick-box pre-submission version is the separate eligibility checklist; the numbers themselves are run in the calculator.)
General tax information, not tax or legal advice. This page covers the federal IRS programme only — several states run their own offers in compromise with different rules.
The IRS doubts it can ever collect the full amount: your assets plus your future income (your reasonable collection potential, RCP) total less than you owe. Roughly the test: Offer ≥ (net realizable equity in assets) + (remaining monthly income × 12 or 24) If you could full-pay — through equity, or through an installment agreement inside the collection period — this ground fails and the offer will be rejected as a matter of arithmetic. Run the calculator before you conclude anything.
You have a genuine, supportable dispute that you do not actually owe the tax (or owe less than assessed) — a legal/factual argument, not a hardship story. These offers are evaluated on the merits of the dispute itself and use a different part of Form 656; if your real problem is an incorrect assessment, alternatives like audit reconsideration may be simpler.
You concede you owe it and could theoretically pay — but collection in full would create economic hardship (leave you unable to meet necessary living expenses, considering your circumstances) or would be inequitable/unfair due to exceptional circumstances (the classic pattern: a retiree whose only asset is the home whose equity technically covers the debt, but whose sale would leave them destitute; or serious illness consuming the income the formula assumes). ETA offers demand a narrative, documentation, and usually the strongest professional help in the OIC world.
State self-tests for their own programmes (Arizona’s DOR asks them verbatim) mirror the questions an IRS examiner will probe on the federal side: “Have I had a significant reduction in income?” — because RCP is computed from current income and assets; a recent job loss or business collapse is precisely what moves someone from “can full-pay” to “qualifies.” Document the change; examiners verify it against bank statements and transcripts.
How do I know if an offer is right for me? The IRS’s own FAQ frames it: an offer makes sense when you cannot pay the full liability (or paying would create economic hardship) and the amount you offer reflects your reasonable collection potential. This page’s grounds test + the calculator turn that framing into a decision.
Do I qualify for the low income certification? Certification (household income ≤250% of the federal poverty level) does not change whether you qualify for an offer — it changes what filing costs: no $205 fee, no payments during review. Full test: fee & waiver page.
Are my total assets worth less than I owe? That is the Arizona DOR self-test phrasing for its state programme — and the right federal instinct too, with a refinement: the IRS compares your net realizable equity (quick-sale value minus debts and exclusions) plus future income against the liability. Equity alone does not decide it; RCP does.
Have I had a significant reduction in income? If yes, say so and document it: RCP follows your present ability, so a documented income collapse is often the difference between a payment-plan answer and a qualifying offer (Arizona’s self-test again — the logic is identical federally).
Are my tax returns in full filing compliance? They must be — every required return filed before the IRS will process an offer (the third Arizona self-test question, and a federal hard gate). Unfiled years are fixed by filing, not by explaining.
What is undue economic hardship? NY State’s OIC page uses this heading for its programme; federally, the same concept powers the effective-tax-administration ground: full collection would leave you unable to meet necessary living expenses. It is an evidence test — expenses, health, dependants — not a feeling.
General tax information, not tax or legal advice. Sources: IRC §7122; Reg. §301.7122-1; IRS Offer in Compromise and FAQ pages; Form 656-B; Arizona DOR OIC self-test; NY State OIC programme page. Reviewed 2026-10-22.