Glossary

Reasonable collection potential

Reasonable collection potential is the IRS's calculation of what it could collect from a taxpayer, the net realizable equity in assets plus future disposable income over a set number of months, and it is the number an Offer in Compromise must meet.

How it works

Reasonable collection potential is net realizable equity in assets (generally 80 percent of fair market value minus loans) plus future disposable income (monthly income minus allowable expenses) multiplied by 12 for a lump sum offer or 24 for a periodic payment offer. It is the number an Offer in Compromise must meet or exceed to be accepted for doubt as to collectibility.

Why it matters

Offers below this figure are rejected regardless of the story, and offers well above it overpay. Running the calculation first is the whole game.

Related: Offer in Compromise, allowable living expenses.

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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.

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