Offer in Compromise: How to Settle Your IRS Tax Debt for Less

What is an Offer in Compromise (OIC) and How Can It Help You?

Owing the IRS can be stressful, but did you know you might be able to settle your tax debt for less than you owe? An Offer in Compromise (OIC) is a tax resolution program that allows eligible taxpayers to negotiate with the IRS and settle their debt for a reduced amount.

In this guide, we'll cover what an Offer in Compromise is, who qualifies, how to apply, and common pitfalls to avoid.

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What is an Offer in Compromise (OIC)?

An Offer in Compromise (OIC) is a legal agreement between a taxpayer and the IRS to settle outstanding tax debt for less than the full amount owed. The IRS may accept an offer if they determine that:

✔️ The taxpayer cannot afford to pay the full amount
✔️ Paying the full tax liability would cause significant financial hardship
✔️ The offer amount represents the most the IRS could reasonably collect

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Who Qualifies for an Offer in Compromise?

Not everyone qualifies for an OIC. The IRS considers several factors when determining eligibility, including:

1. Financial Hardship

The IRS reviews your income, expenses, assets, and liabilities to determine if you can afford to pay your tax debt in full.

✔️ Low monthly disposable income
✔️ High necessary living expenses
✔️ Limited equity in assets

2. Compliance with Tax Filings

Before submitting an OIC, you must: ✔️ Have filed all required tax returns
✔️ Be current on estimated tax payments (if self-employed)
✔️ Have no open bankruptcy proceedings

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3. Doubt as to Liability or Collectability

The IRS may accept an OIC if: ✔️ You dispute the accuracy of the tax debt
✔️ The IRS has low likelihood of collecting the full amount

💡 Unsure if you qualify? Talk to an expert today!

How to Apply for an Offer in Compromise

Applying for an OIC requires detailed financial documentation and strict adherence to IRS guidelines. Here’s how to do it:

Step 1: Complete IRS Form 656 & Form 433-A (OIC)

✔️ Form 656 – The official Offer in Compromise application
✔️ Form 433-A (OIC) – A financial statement detailing income, expenses, assets, and liabilities

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Step 2: Submit the Initial Payment & Application Fee

✔️ A non-refundable $205 application fee (unless qualifying for low-income exemption)
✔️ A down payment based on the offer type:

• Lump-Sum Offer: 20% of total offer amount upfront

• Periodic Payment Offer: First monthly installment

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Step 3: Wait for IRS Review & Decision

The IRS takes 6-12 months to review an OIC application. During this time: ✔️ They may request additional documents
✔️ You must continue making required payments
✔️ Your tax liens remain in place until acceptance

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Common Reasons the IRS Rejects Offers in Compromise

While an OIC is a powerful tool, the IRS rejects most applications due to common mistakes such as:

🚨 Inaccurate Financial Information – Failing to disclose all income and assets
🚨 Unrealistic Offer Amount – Offering less than what the IRS believes they can collect
🚨 Non-Compliance with Tax Filings – Failing to file past tax returns or make estimated payments
🚨 Not Following IRS Procedures – Submitting incomplete forms or missing payments

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What Happens After Your Offer is Accepted?

If the IRS accepts your OIC, you must: ✔️ Pay the agreed amount in full or according to the payment plan
✔️ Stay compliant with tax filings for at least 5 years
✔️ Avoid new tax debts or risk OIC default

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Alternatives to an Offer in Compromise

If you don’t qualify for an OIC, consider other IRS tax relief options: ✔️ Installment Agreement – Monthly payments over time
✔️ Penalty Abatement – Reduce IRS penalties
✔️ Currently Not Collectible (CNC) Status – Temporary relief if you can’t afford payments

💡 Not sure which tax relief option is best? Talk to our IRS experts today!

Conclusion: Get IRS Tax Relief with an Offer in Compromise

An Offer in Compromise can help you eliminate overwhelming tax debt and get a fresh start. However, the process is complex, and working with a qualified CPA or tax professional can increase your chances of approval.

✔️ Determine if you qualify for an OIC
✔️ Submit a well-prepared application to improve approval odds
✔️ Consider alternatives if you don’t qualify
✔️ Stay compliant after approval to avoid default

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