The RCP Formula
RCP = Net Asset Equity + Future Available Income
- Net asset equity — the IRS's assessment of liquidation value for all assets (real estate, bank accounts, vehicles, retirement accounts at 80% value, business interests) minus secured debts
- Future available income — monthly income minus IRS-allowable expenses, multiplied by 12 (lump sum offer) or 24 (periodic payment offer)
IRS Allowable Expense Standards
The IRS does not accept actual expenses at face value. It applies National Standards (food, clothing, personal care) and Local Standards (housing and transportation) that set maximum allowable amounts. In high-cost areas like the Bay Area, local housing standards are higher — which can benefit California taxpayers in OIC calculations.
Why RCP Matters
The IRS will generally not accept an offer below the RCP. Understanding RCP before submitting an OIC is critical — submitting an offer below RCP without proper documentation is a common reason applications are rejected. Professional preparation significantly improves acceptance rates.
Example
Net asset equity of $15,000 + ($500/month available income × 12) = $15,000 + $6,000 = $21,000 RCP. If the taxpayer owes $80,000, an offer of $21,000 (settling for roughly 26 cents on the dollar) should be acceptable to the IRS.
Disclaimer: This glossary entry is for general educational purposes only and does not constitute legal or tax advice. Laws change frequently and vary by individual circumstances. Consult a licensed California attorney or CPA for guidance on your specific situation.