Offer in Compromise
Settle your tax debt for less than the full amount owed
Important: OIC Has Strict Requirements
Offer in Compromise has a low acceptance rate (20-30%) and strict qualification requirements. Consider these factors:
- Non-refundable $205 application fee (waived for low income)
- Must include initial payment with application
- IRS thoroughly investigates your financial situation
- Process can take 6-24 months
- Must stay current on all future tax obligations
What is an Offer in Compromise?
An Offer in Compromise (OIC) is an agreement between you and the IRS that settles your tax liabilities for less than the full amount owed. It's designed for taxpayers who either cannot pay their full tax debt or would suffer economic hardship if required to pay in full.
The IRS will generally accept an OIC when the amount offered represents the most they can expect to collect within a reasonable period of time. They consider your ability to pay, income, expenses, and asset equity to determine your reasonable collection potential.
Three Ways to Qualify for OIC
You must meet one of these qualification criteria
Doubt as to Collectibility
Unable to pay the full amount due to financial hardship
Examples:
- Income barely covers basic living expenses
- No assets that can be liquidated
- Future income unlikely to improve significantly
- Medical issues preventing employment
Doubt as to Liability
Dispute the accuracy of the tax debt
Examples:
- Tax was incorrectly assessed
- Return was prepared incorrectly by preparer
- Identity theft resulted in false tax liability
- IRS computational errors
Effective Tax Administration
Paying would cause economic hardship or be unfair
Examples:
- Exceptional circumstances make payment unfair
- Long-term illness or disability
- Care for dependents with special needs
- Natural disaster or other catastrophic events
OIC Process Overview
What to Expect:
- Comprehensive financial review
- IRS calculates your reasonable collection potential
- Offer amount must exceed collection potential
- Negotiation process with IRS examiner
Timeline & Costs:
- $205 application fee (non-refundable)
- Initial payment required with application
- 6-24 month processing time
- Professional help often recommended
Required Forms and Documentation
Forms you'll need to complete for your OIC application
Form 656 (Offer in Compromise)
Official IRS application form for submitting your offer
Form 433-A (Individual) or 433-B (Business)
Collection Information Statement detailing your financial situation
Form 656-L (Low Income Certification)
If you qualify for fee waiver based on income
Supporting Documentation
Bank statements, pay stubs, asset valuations, and other financial records
Consider These Alternatives First
Easier Options:
- • First Time Abatement (high success rate)
- • Reasonable Cause (good success rate)
- • Installment Agreement (high success rate)
Why Consider Alternatives:
- • Higher success rates
- • Faster resolution
- • Lower costs and fees
- • Less intensive documentation
Licensed Professional Assistance Recommended
Why Licensed Professional Help?
Licensed tax attorneys, CPAs, and enrolled agents can provide legal representation and professional advice for OIC applications.
Official IRS Resources
Get official forms and detailed information directly from the IRS
Licensed professional consultation strongly recommended for OIC applications