The formula
IRM 5.8.4.3 defines RCP as “the amount that can be collected from all available means, including administrative and judicial collection remedies.” IRM 5.8.4.3.1 lists four components that are ordinarily included:
| Component | What it captures |
|---|---|
| Assets | Net realizable equity in everything the taxpayer owns, domestic and foreign |
| Future income | Monthly income minus allowable expenses, times 12 (lump sum offer) or 24 (periodic offer), capped at the months left on the collection statute |
| Amounts collectible from third parties | For example through a transferee assessment, a nominee or alter ego lien, or a suit to set aside a fraudulent conveyance |
| Assets beyond the government's reach | Assets available to the taxpayer that the lien will not reach, such as equity in assets outside the country |
Dissipated assets can be added on top (IRM 5.8.4.3(2)). The RCP is computed on the liability due when the offer was submitted, assessed and unassessed (IRM 5.8.5.2). Form 433-A (OIC) Section 8 mirrors the same arithmetic: available assets (Box A, plus Box B for business assets) plus future remaining income (Box G at 12 months or Box H at 24 months) equals the minimum offer amount. Form 433-B (OIC) runs the business version. Our RCP calculator follows the same structure.
The IRS will not drop an asset from RCP just because it cannot or will not levy it. IRM 5.8.5.4: “Do not eliminate assets or value them at zero dollars simply because the taxpayer is unable to borrow against the equity in the asset or the IRS chooses not to take enforcement action against the asset.” Hardship arising from that asset is an effective tax administration or special circumstances argument, not a valuation argument.
Step one: the full-pay test
Before computing RCP, the examiner checks whether the taxpayer can pay in full through an installment agreement over the remaining collection statute, by liquidating or borrowing against equity, or both. IRM 5.8.5.2 instructs examiners not to apply the $1,000 cash and $3,450 vehicle allowances in this initial calculation, and not to reduce the liability by the initial offer payment or periodic payments received during the investigation (a refund offset or levy proceeds can reduce it). If full pay is possible, the examiner asks the taxpayer to withdraw and enter an alternative resolution, and otherwise rejects the offer. The exception: when the taxpayer raises special circumstances or ETA criteria, the investigation continues without the initial full-pay calculation.
If full pay is not possible, the examiner also estimates what a partial payment installment agreement would collect before the CSED. Under IRM 5.8.4.3(4), when that amount is substantially more than the offer, acceptance “may not be in the government's best interest”, and the taxpayer is given a chance to increase the offer or withdraw and enter the agreement before rejection. Use the statute date calculator to check the months remaining; see the CSED page for what suspends it.
Valuing assets
Assets are valued at net realizable equity: quick sale value (QSV) less liens with priority over the federal tax lien and applicable exemptions (IRM 5.8.5.4.1). QSV is the price a motivated seller could get in a short period, “usually 90 calendar days or less”, and IRM 5.8.5.4.1(3) says “Normally, QSV is calculated at 80 percent of FMV.” The percentage can move up or down by asset type and market; in a fast real estate market QSV can equal fair market value. When an asset is being sold to fund the offer, the actual arm's length price is used instead, reduced by sale costs and the current year tax consequence.
| Asset | How the examiner values it | IRM |
|---|---|---|
| Bank accounts (individuals) | Balance on Form 433-A (OIC) less $1,000. The examiner reviews about three months of statements for wage earners and six for non-wage earners and may reduce the balance by a month of allowable expenses where balances fluctuate. | 5.8.5.7 |
| Bank accounts (businesses) | Balance on Form 433-B (OIC); the $1,000 reduction applies only to individual accounts. | 5.8.5.7 |
| Vehicles | Private party value, generally discounted to 80% for QSV, less $3,450 per car used for work, income or family welfare (one car for a single taxpayer, two for joint taxpayers). | 5.8.5.12 |
| Real estate | FMV from multiple sources (assessment, online databases, comparables, recent purchase price), then QSV less senior mortgages. | 5.8.5.13 |
| IRA, 401(k), Keogh | Cash value less taxes and early withdrawal penalty if the taxpayer is not near retirement; plans that cannot be reached until separation may have no equity, or may be treated as income for retirees. | 5.8.5.10 |
| Life insurance | Cash surrender value if retained; sale or loan value if used to fund the offer. | 5.8.5.9 |
| Income-producing assets | Equity in assets critical to a viable ongoing business is generally not added; the income stream is captured in future income instead. | 5.8.5.15 |
On business assets, IRM 5.8.5.15(3) states the rule: “equity in income producing assets will not be added to the RCP of a viable, ongoing business; unless it is determined the assets are not critical to business operations.” When the taxpayer borrows against such an asset to fund the offer, the loan payment can be allowed as an expense.
The booklet confirms the allowances are individual-only and conditional: they are “only applied if you are an individual and after we determine you cannot full pay the liabilities from equity in assets, an installment agreement, or a combination of both.”
Voluntary retirement contributions are a common trap. IRM 5.8.5.10 says that if significant voluntary contributions were made after assessment or within three years before the offer, and the funds cannot be reached, the contributions may be included in RCP as a dissipated asset.
Dissipated assets
IRM 5.8.5.18 allows the examiner to add the value of assets sold, transferred, encumbered or otherwise disposed of in an attempt to avoid paying the tax. That is normally a transfer for less than full value, or use of proceeds for something other than items necessary for the production of income or the health and welfare of the family, after assessment or within six months before or after it. Key limits:
- “Generally, a three year time frame will be used to determine if it is appropriate to include a dissipated asset in RCP.” The year of submission counts as a full year, so an offer submitted in 2026 generally looks back to 2023.
- Transfers more than three years back can still count if they occurred within six months before or after assessment, and the time frames may not apply to transfers made on notice of or during an examination.
- If no tax liability existed at the time of the transfer, the asset generally was not dissipated in disregard of the liability.
- Tax paid on the sale can reduce the value placed on the dissipated asset.
- Examiners are told not to expand the investigation solely to hunt for dissipated assets.
A gift made after the statutory lien attached is treated as an asset, not a dissipated asset, because the lien followed the property. When a dissipated asset is the reason for rejection, IRM 5.8.5.18(3) says the basis must be stated as not in the best interest of the government.
Future income
Future income is “an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future” (IRM 5.8.5.20). Current income is the starting point, adjusted for known changes. The examiner considers age, health, marital status, dependents, education, work experience and employment status, and may use expected income for a seasonally unemployed or temporarily underemployed taxpayer.
| Payment terms | Months of future income | Source |
|---|---|---|
| Lump sum: 5 or fewer payments within 5 months | 12, or the remaining collection period if less | IRM 5.8.5.25; IRM 5.8.5.30 |
| Periodic: 6 to 24 months | 24, or the remaining collection period if less | IRM 5.8.5.25; IRM 5.8.5.30 |
| Lump sum approved with terms beyond 5 months | Computed as a periodic offer (24) | IRM 5.8.1.15.4; IRM 5.8.4.3.1 |
The CSED cap works on the period that controls the overall ability to pay. IRM 5.8.5.25(4) gives two examples: a single-year offer with 10 months left on that year's CSED uses 10 months; a multi-year offer where the longest CSED has 111 months left still uses 12 or 24 months, not the three months left on the shortest period.
Allowable expenses
Allowable expenses come from the Collection Financial Standards and IRM 5.15.1. IRM 5.8.5.22.1 says taxpayers are allowed the National Standard amount for their family size “without a need to substantiate the amount actually spent”, while amounts above the standard need documentation. See IRS Collection Financial Standards. Offer-specific restrictions:
- Conditional expenses and the one-year rule that apply to installment agreements do not apply to offers (IRM 5.8.5.23).
- Discretionary investments are not allowed, including payroll savings plans, whole life premiums, mutual fund purchases and voluntary retirement contributions (IRM 5.8.5.23).
- The booklet says the IRS generally will not allow private school tuition, college expenses, charitable contributions and other unsecured debt payments.
Spouses and shared households
One RCP is generally prepared for married taxpayers who live together, even when two Forms 656 are filed because of a separate liability, and the total of the offers must equal or exceed that RCP (IRM 5.8.5.5, 5.8.5.24). When only one spouse is liable, the non-liable person's assets and income are generally excluded, but the liable taxpayer is allowed only the share of household expenses they are required to pay. Community property and domestic partnership laws override that rule in the states where they apply. Jointly owned assets are generally split equally between owners unless that would be inequitable.
A worked illustration
Hypothetical numbers, single individual, to show the mechanics (not an IRS example):
| Item | Computation | Value |
|---|---|---|
| Residence | FMV $300,000 x 80% = $240,000 QSV, less $200,000 first mortgage | $40,000 |
| Car | Private party $15,000 x 80% = $12,000, less $3,450 | $8,550 |
| Checking and savings | $4,000 less $1,000 | $3,000 |
| 401(k), not near retirement | $30,000 less estimated tax and early withdrawal penalty (say $9,000) | $21,000 |
| Total assets | $72,550 | |
| Future income, lump sum | ($6,000 income less $5,600 allowable expenses) x 12 | $4,800 |
| Future income, periodic | $400 x 24 | $9,600 |
| RCP | Lump sum / periodic | $77,350 / $82,150 |
If the liability plus accruals is above those figures and full pay through an installment agreement is not possible, the offer amount must generally meet the applicable RCP. If the liability is below RCP, a DATC offer fails and only an ETA offer remains.
When the numbers are disputed
The examiner shares preliminary asset and income tables before deciding. When an examiner's value exceeds the taxpayer's, IRM 5.8.5.4.1 requires a discussion with the taxpayer or representative, then a manager discussion if agreement is not reached, and notes that Fast Track Mediation “is an avenue that may be pursued to resolve a dispute over the calculation of RCP”. Bring appraisals, comparable sales, lender statements and documentation for any expense above the standards. If the offer is rejected, the RCP computation is the core of the appeal; see the offer overview and mediation in Appeals. Fix the numbers at the administrative stage: in a later CDP case the Tax Court only asks whether the examiner's calculations were reasonable, and the Ninth Circuit has held that computational errors do not help a taxpayer whose offer stays below ability to pay once they are corrected (Murphy and Keller, discussed on the CDP page).
Questions practitioners ask
Is the 80 percent quick sale discount automatic?
No. IRM 5.8.5.4.1 calls 80 percent the normal figure but allows higher or lower percentages by asset type and market, including 100 percent where property sells quickly at full value.
Does the IRS count a spouse's income if the spouse is not liable?
Generally the non-liable spouse's income and assets are excluded, but the liable spouse is allowed only their share of household expenses. Community property states follow state law (IRM 5.8.5.24).
Why did the examiner use expected income instead of current income?
IRM 5.8.5.20 allows expected income when unemployment or underemployment is temporary or seasonal, such as a teacher working a lower paid summer job. Long-term unemployment is computed on current income.
Can a retirement account be excluded entirely?
Only when it cannot be borrowed against or liquidated until separation and the taxpayer cannot reach it within the offer period (IRM 5.8.5.10). Otherwise equity is cash value less tax and any early withdrawal penalty.
Does the $1,000 cash allowance apply to a business account?
No. IRM 5.8.5.7 limits it to individual bank accounts.