Wondering if you can settle your tax debt for less than owed? Then, you may want to check out the IRS’ Offer in Compromise Pre-Qualifier Tool. This tool can be useful for people who want to know more about their options, but it has huge limitations. It may tell you that you qualify in cases where you don’t or that you don’t qualify in cases where you do.
To get accurate and personalized help that you could never get from an online app, reach out to a tax attorney. At Wiggam Law, we have helped many clients obtain settlements or other resolutions on their tax debt. To learn more, contact us today.
What Is the OIC Pre-Qualifier Tool?
The Offer in Compromise Pre-Qualifier Tool is an IRS app that shows you the likelihood of qualifying for an offer in compromise.
You answer a few pre-qualification questions. Then, you enter information about your tax debt, income, assets, and expenses, and then the tool shows you the amount of offer you qualify for or says that you don’t qualify. Although the tool is useful, it has limitations, and you may want to consult with a professional.
How to Use the Prequalifer Tool
The tool features six sections. Let’s examine how to complete each section and understand why the tool asks certain questions.
Status – Prescreening Qualification Questions
On the first screen, answer the following questions:
- Are you party to a bankruptcy?
- Have you filed all federal returns?
- Have you made all estimated tax payments?
- Have you submitted all federal tax deposits if you have employees?
To qualify, you must not be in a bankruptcy case, and you must answer yes or non-applicable to the other three questions. If you think that you may qualify but have unfiled returns or undeposited payroll taxes, you can get past this screen by answering that you have filed all your returns or made your deposits.
Then, you can understand the likelihood of acceptance by reviewing the rest of the tool. However, you will need to file those returns or make the deposits before you actually apply for an offer, or you will not get accepted.
Basic Info
On this screen, you enter basic info about where you live, the amount of your tax debt, and the number of members in your household. You must also note the most recent tax year related to the tax debt you’re requesting an offer – for example, if you’re requesting an offer on 2022 and 2023 taxes, you enter 2023.
When you apply for an offer in compromise, the IRS essentially wants you to pay the very most you can afford to pay. To reduce subjectivity, the IRS sets very strict standards on how much taxpayers should be spending on essentials, and the amounts vary based on the number of people in your household and the cost of living in your area.
To give you an example, imagine you live in Fulton County, Georgia, and are the only person in your household. The IRS’ standards say you should spend no more than $2,248 on housing, but if you were in a five-member household, this number would increase to $3,152. This includes rent or mortgage payments and utilities. The agency has similar limits for all other expenses.
Assets
In the asset section, you list bank account balances, home value, the amount owed on your mortgage, vehicle equity for one or two vehicles, the value of retirement accounts, value of stocks or other investments, equity of other real estate that you own, and other equity in assets. There is also a spot for miscellaneous.
The tool uses this information to generate the offer you’re likely to get. It takes into account all of the cash in your bank account over $1000 (regardless of family size), 80% of your home’s equity, 80% of the equity in other real estate, 80% of your retirement account, and 100% of stocks and bonds. It also takes into account some of your vehicle’s equity—but generally, only if the equity is worth $5,000 or more.
Here’s a quick example. Say you have $3,000 in your bank account, your home is worth $300,000, and you owe $240,000, and you have $10,000 in a retirement account. The tool will generally add $10,000 to your offer. This amount will be added to your disposable income and be displayed on the final screen.
The $10,000 includes $2,000 from your bank account, nothing from your house (because they only factor in 80% of your home’s value minus the mortgage), and $8,000 from your retirement account.
If you have enough equity in your assets to pay off your tax debt in full, the tool will not let you past this screen, telling you that you don’t qualify for an offer. Generally, this is accurate, but there are definitely exceptions.
For example, if you note that your only asset is a modest value home with no mortgage, the tool will say that you don’t qualify – even if your home value is as low as $40,000 (and you owe less than that amount). However, in reality, the IRS may be willing to consider other factors, such as your ability to obtain and repay a loan, the chances of finding a new home, and the economic impact of moving. The IRS is not in the business of taking people’s homes unnecessarily.
Income
the income section requires all of your income sources, such as wages, interest and dividends, partnership distributions, net rental income, net business income, child support, alimony, and any additional income.
Note that it asks you for net rental and business income. That means you should deduct your expenses from the amount you note. For example, if you rent out a home for $24,000 per year but you have $10,000 in expenses, you enter $14,000.
Expenses
In this section, you enter monthly housing expenses, vehicle loan payments, vehicle operating costs (gas, insurance, repairs, etc), public transportation costs, health insurance premiums, life insurance premiums, tax payments (federal, state, and local), court-ordered payments, and child dependent care costs.
When evaluating your ability to qualify for an offer in compromise, the IRS subtracts your monthly expenses from your monthly income. The difference is your disposable income, and the IRS expects you to devote most of these funds to your offer.
If you’re going to pay in a lump sum, you are expected to put 12 months of disposable income into the offer. If you’re making payments for up to two years, you are expected to include 24 months of disposable income in the offer.
To give you an example, let’s say you have $100 of disposable income. If you make a lump sum offer (due five months after acceptance), you add $1200 to your offer. If you are going to make payments, you add $2400 to your offer. The IRS shows you both offers on the final screen.
Note, however, that the IRS doesn’t necessarily take your actual expenses into account when calculating the proposed offer. The agency uses the financial standards that are explained throughout this post.
Proposal
On the proposal page, you will see your tax debt, the total available equity in your assets, your monthly income, allowable monthly expenses, and the total remaining income. If you are likely to qualify, the tool will tell you to prepare your offer in compromise and show you the amount of the offer you’re likely to get based on your reasonable collection potential.
If the tool calculates a reasonable collection potential of $0, it will not show an offer amount, and it may also recommend applying for currently non-collectible status. Note that you cannot apply for an offer for $0.
This page also notes that you should contact the IRS if you think exceptional circumstances are involved. Exceptional circumstances include anything that should reduce your offer. For example, if you need to spend over the IRS’s monthly allowance for a specific reason, such as medical concerns, you will include that information in your application, but the tool does not have the capacity to consider it. Similarly, the example of someone whose only asset is a modest value home that they cannot easily sell or borrow against may also be an exceptional circumstance.
Pre-Qualifier Limitations – Offer in Compromise Strategies
The IRS Pre-Qualifier Tool has the following limitations:
- Does not take into account the need for additional expenses due to illnesses or other issues.
- May be unrealistic about liquidating the equity in your home.
- Does not alert you about opportunities to increase expenses and reduce the offer.
The last point may sound odd. How can you increase expenses and reduce the offer? Well, as explained above, the IRS sets financial limits or standards that dictate how much a taxpayer should be spending. If you’re over the standard, the IRS will only consider the standard when calculating your disposable income. For most categories, if you’re under the standard, the IRS will take your actual number into account when calculating your disposable income.
This often leads to a situation where someone who doesn’t have a vehicle may get a lower offer if they buy a vehicle. For a quick example, say you don’t have a vehicle, your disposable income is $600 per month, and the IRS expects you to put all of this toward your offer. However, as of 2025, the IRS’s standard for car ownership costs is $619 for a single person plus $200 to $377 for operating costs, depending on where you live.
Rather than sending $600 per month to the IRS, this taxpayer may be better off getting a car with a monthly payment of $400 and monthly operating expenses of $200. Once those expenses are accounted for, the taxpayer doesn’t have any disposable income and thus doesn’t have to send that money to the IRS.
Alternatives to the Pre-Qualifier
The best alternative to the pre-qualifier tool is a consultation with a tax attorney. By talking with you about your finances and tax debt, an attorney can give you a good idea if this is the right program for your situation. To learn more about your options, contact us at Wiggam Law today. We look forward to helping you get back on track and out of tax debt. Schedule a consultation with our team or call us at (404) 233-9800.