That's a good question. So the government evaluates offers in compromises based on what a taxpayers reasonable collection potential is. Remember an offer in compromise is an agreement between the taxpayer and the government to forgive a past tax liability in exchange for future compliance. The government isn't likely to forget about the liability. The government wants to make sure that the offer it's getting from the taxpayer is fair to the government, so the government uses a formula called reasonable collection potential to determine that formula. The way reasonable collection potential works is the government looks at the taxpayer's current situation, it projects a period of time between the state and federal government. They do it slightly differently but the question essentially is okay John's taxpayer is submitting an offer in compromise: how much could we reasonably collect from John over the next five years and is that amount equal or lower than what John is offering? So you see how it works. They're taking a five-year period, they're saying how much can we get out of this guy and that amount is equal to or less than the amount of the offer. Then the government is inclined to take the offer so reasonable collection potential breaks down like this.

A reasonable collection potential, RCP is equal to the quick sale value of any assets that the taxpayer has plus income minus expenses over that period of time. So starting with the asset part of it, they'll take all the taxpayers assets and will say if the taxpayer were to liquidate their assets, that's what quick sale value is. Once they have the liquidation value of all the taxpayer's assets as of today, then they'll take that number, whatever that number is, and then you add that to what's the variance between the income and reasonable living expenses for the taxpayer over the next five years (60 months). The reason a lot of offer in compromises get rejected is number one, the taxpayer has sufficient assets which are way above what the taxpayer is offering but number two it's the difference between the income and expenses. So that's the calculation the government's running and actually if you go through the offer in compromise process, when the government comes back to you and either accepts your offer or presents a counteroffer or rejects it, they have these little tables that they use and they break down all your assets on a table and they break down the income that you have on a table and the expenses you have. So when we do an offer in compromise and we're negotiating, we're looking at this table to see how the government is calculating what the reasonable collection potential is. So that in a nutshell is how offers in compromise are evaluated and depending on the variables that you put into that formula, you'll get different results.