How to Get an IRS Offer in Compromise (OIC) Accepted
- Settle Your Tax Debt for Less Than you Owe
- What Do I Need to Do to File an OIC
- What are the Different Types of Offer in Compromise?
- What Form do I Use for an Offer in Compromise?
- Does it Costs Money to File an OIC?
- How does the IRS Determine if you qualify for an OIC?
- The IRS Offer in Compromise Time Schedule
- What Happens When the Offer in Compromise is Accepted?
- What Happens When the Offer in Compromise is Rejected?
- Disadvantages of Filing an Offer in Compromise
- Chapter I Can a Business File an Offer in Compromise?
- Should I Hire an Attorney to Complete an OIC?
Struggling with tax debt can feel overwhelming, particularly when the amount owed seems insurmountable. An IRS Offer in Compromise (OIC) allows individuals to settle their tax debts for less than what is owed. This post will explain what an offer in compromise is, the requirements to file one, and how the IRS evaluates various offers. By understanding this process, the taxpayer will better understand their tax relief options. Engaging with this content can provide clarity on how a tax attorney may assist in negotiating a favorable tax settlement.
Settle Your Tax Debt for Less Than you Owe
Taxpayers must meet specific criteria to qualify for an OIC. The IRS evaluates factors such as income, expenses, and asset equity to determine whether offering a reduced amount is viable based on the taxpayer's financial situation.
The OIC process requires submitting a formal application along with the necessary documentation. Upon review, the IRS may accept, reject, or propose a different offer based on their findings regarding the taxpayer's ability to pay.
Successfully obtaining an OIC can provide significant financial relief. It enables taxpayers to resolve their debts and move forward while minimizing the stress associated with unpaid taxes.
What is the Percentage of Accepted OIC's
The acceptance rate for an Offer in Compromise (OIC) can vary significantly depending on the taxpayer's financial situation and the specifics of their case. Historically, the IRS has accepted around 20% to 40% of submitted offers, underscoring the importance of properly preparing the application. Taxpayers who can demonstrate genuine financial hardship and cannot pay their tax debt can enhance their chances of acceptance.
What Do I Need to Do to File an OIC
Before you spend $205 on the application fee, you must meet the mandatory processability requirements:To file an Offer in Compromise (OIC), taxpayers must:
-
- Filing Compliance: All required tax returns for the last 6 years must be filed.
- Payment Compliance: You must be current on estimated tax payments for 2026.
- Deposit Compliance (Businesses): Employers must have made all federal tax deposits for the current and past two quarters.
- No Open Bankruptcy: If you are currently in a bankruptcy proceeding, you are ineligible for an OIC.
What are the Different Types of Offer in Compromise?
The IRS offers three primary programs under the Offer in Compromise (OIC) framework: Doubt as to Collectability, Doubt as to Liability, and Effective Tax Administration.
Doubt as to Collectibility
The Doubt as to Collectability program within the IRS Offer in Compromise (OIC) framework is specifically tailored for individuals who demonstrate an inability to pay their tax debts due to financial circumstances. Taxpayers applying under this program must outline their income, expenses, and assets to support their claim, indicating that their tax liabilities exceed their ability to pay fully. By effectively communicating their financial distress, these taxpayers can work towards a resolution that alleviates some of their tax burden.
There are two types of payment plans under this form of OIC:
- Lump Sum OIC Payment: Lump-sum offers must be paid in 5 or fewer monthly payments . All payments must be submitted to the IRS within five months of the offer being accepted. When submitting the application, you must include 20% of your offer plus the application fee. There is no guarantee of acceptance; if rejected, the IRS will apply the payment toward the tax debt.
- Period OIC Payment: Under this plan, you have up to 24 months to pay the offer amount in full. You are not required to make a 20% down payment under this plan.
Doubt as to Liability
The Doubt as to Liability program is a segment of the IRS Offer in Compromise framework tailored for those who contest the validity of the tax owed. Taxpayers may believe they do not owe the amount indicated by the IRS due to errors or discrepancies in their tax assessment. This program allows individuals to present their case, including supporting documentation that clarifies their position on liability, ultimately providing an avenue to reduce tax debts through legitimate disputes.
To successfully navigate this program, taxpayers should prepare thorough documentation that outlines their claims. This includes appealing any erroneous assessments and providing evidence that supports their assertion that they do not owe the indicated tax amount. Engaging with tax professionals experienced in Offer in Compromise applications can significantly increase the chances of a successful outcome within the Doubt as to Liability program.
There are various situations in which this resolution may be ideal. Examples of IRS mistakes:
- The IRS made a mistake during an audit, resulting in an incorrect tax balance owed.
- a third party incorrectly reported the basis of an asset, resulting in additional tax owed or
- You have been incorrectly assigned a Payroll Trust Fund Penalty when you do qualify as such.
Effective Tax Administration
The Effective Tax Administration program within the IRS Offer in Compromise (OIC) framework is designed for taxpayers who face significant economic difficulties due to their tax obligations. This option allows individuals to settle their debts for less than the total amount owed if paying the full tax would result in undue financial hardship. By clearly demonstrating their financial struggles, taxpayers can gain some relief from their tax burdens through this program.
To qualify under the Effective Tax Administration program, applicants must present detailed financial documentation that illustrates their inability to pay without facing serious economic consequences. For instance, a taxpayer burdened with high medical expenses or unemployment might find this program applicable. Preparing a strong case, supported by documentation, can enhance the chances of success for those seeking resolution through this avenue.
What Form do I Use for an Offer in Compromise?
To apply for this type of offer in compromise, you must submit the following forms to the IRS:
- Form 656 (Offer in Compromise)
- Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals)
- Form 433-B (Collection Information Statement for Businesses)
To make the Offer In Compromise, you must use Form 656. To provide information about your financial situation, use Form 433-A; for business information disclosure, use Form 433-B. In addition to thoroughly completing the applicable 433 Forms, you must provide financial documentary support.
Does it Costs Money to File an OIC?
An application fee of $205 will be included with the application. The offer type being used determines what needs to be included. If your Offer In Compromise seeks a periodic payment, you must make your first monthly payment with the application. If the Offer In Compromise is for the lump sum tax payoff, you must include a 20% down payment.
You may qualify for a low-income fee exclusion, which waives the $205.00 fee. To see if you qualify, please review the income chart in the instructions for Form 656.
How does the IRS Determine if you qualify for an OIC?
The IRS assesses an Offer in Compromise by analyzing three critical factors: assets, income, and expenses. Examining a taxpayer's assets helps determine their overall financial strength, while income reflects their ability to pay debts. Expenses are analyzed to understand the taxpayer's financial obligations. Each of these elements plays a vital role in the evaluation process, impacting the potential outcome of the offer.
Assets
The IRS assesses a taxpayer's assets as a key element in evaluating an Offer in Compromise (OIC). This evaluation includes examining various forms of ownership, such as real estate, vehicles, and personal property. By reviewing these assets, the IRS determines the total equity available to apply toward the tax debt, which significantly affects the outcome of the OIC application.
Taxpayers must provide comprehensive documentation regarding their asset holdings, including appraisals and statements. For instance, a taxpayer owning a home with significant equity may influence the IRS's decision regarding the offer amount. Understanding how asset equity impacts the evaluation process can help individuals shape their OIC strategy effectively. Here are some examples of different assets:
- Real Estate: Includes homes and investment properties; significant equity affects settlement.
- Vehicles: Cars and trucks; their value is considered when evaluating equity.
- Personal Property: Includes valuable items like jewelry, art, and collectibles.
- Bank Accounts: Savings and checking accounts are assessed for available funds.
Income
The IRS places significant emphasis on a taxpayer's income when evaluating an Offer in Compromise (OIC). This assessment involves reviewing all sources of income, including wages, rental income, and business earnings. A clear understanding of one's financial picture is crucial; if the income supports a taxpayer's ability to pay, the IRS may be less inclined to accept a lower offer. Consequently, taxpayers should ensure that any submitted income documentation is accurate and comprehensive, reflecting their true financial situation.
Moreover, the IRS analyzes monthly income to determine if any disposable funds can be used to settle tax debts. For example, if a taxpayer's monthly income after necessary living expenses leaves a significant surplus, the IRS may view this as an indicator that accepting the offered amount might not be justified. To improve the chances of a favorable outcome, it is essential for taxpayers to track and present their income clearly, including documenting any fluctuations that might indicate financial hardship, ultimately leading to a more compelling case.
Expenses
When evaluating an Offer in Compromise (OIC), the IRS closely examines taxpayers' expenses to determine their capacity. The agency looks at necessary living costs, including housing, utilities, and food, to assess how much disposable income remains each month. Accurately detailing these expenses substantiates a claim of financial hardship and influences the IRS's decision on whether to accept a reduced offer.
Taxpayers often struggle to document expenses correctly, which can affect their OIC submission. Any discrepancies or underreported costs may lead the IRS to conclude that the taxpayer has more available income than stated. Providing comprehensive and organized financial statements that reflect actual living expenses can significantly improve the chances of a favorable evaluation, making it essential for applicants to prepare carefully during this critical step in the OIC process.
The IRS takes its time evaluating an Offer in Compromise. Understanding just how long this process might take is important.
Supporting content
The IRS Offer in Compromise Time Schedule
The duration of the IRS Offer in Compromise (OIC) process can vary significantly based on several factors. Generally, taxpayers can expect the initial review of their offer to take approximately 6 to 9 months from the time of submission. This timeframe may fluctuate depending on the complexity of the case and the IRS's current workload. Here is a detailed breakdown of what to expect:
- Three Weeks — After the OIC is submitted by mail to the IRS one of two actions take place. A representative from the IRS will call and let you know you are not in compliance and they will give you time to fix the problem. Or, the more preferable option, you will receive a letter from the IRS letting you know a date that your offer will be reviewed.
- Six Months — Once you submit the offer, the IRS usually takes about six months to review it. The date will be listed in the letter.
- 30 Days After Rejection — If the IRS rejects your offer, you have 30 days to appeal. The IRS won’t engage in any enforced collection actions for 30 days so you can take this time to make other arrangements if you don’t want to appeal.
- Five Months After Acceptance — If the IRS accepts your offer to make a lump sum payment, you must make that payment within five months of acceptance.
- 24 Months After Acceptance — If the IRS accepts your offer for an OIC with payments, you make the payments over a 24-month period.
- Five Years After Acceptance — The terms of most OICs stipulate that you must stay compliant with tax payment and filing obligations for five years after you get an OIC. If not, the IRS may be able to revoke the agreement and demand payment in full. You can still file extensions.
What Happens When the Offer in Compromise is Accepted?
When the IRS accepts an Offer in Compromise (OIC), the taxpayer gains significant financial relief. The accepted offer sets the amount the taxpayer must pay to resolve their tax debt, effectively reducing the total burden owed to the IRS. This resolution ends the stress of ongoing collections or enforcement actions from the IRS. An accepted OIC provides the following:
- Financial Relief - The taxpayer pays a reduced amount to settle the tax debt.
- End of Collections - Ceases IRS enforcement actions like levies or garnishments.
- Stick to the Terms - The taxpayer must follow the payment schedule and future tax obligations.
- Completion - IRS releases liens and provides confirmation of settlement.
Supporting content
What Happens When the Offer in Compromise is Rejected?
When an Offer in Compromise (OIC) is rejected, taxpayers have important recourse options. They can appeal the IRS's decision and provide additional documentation that may strengthen their case. This section will explore the appeal process in detail, outline potential next steps for taxpayers, and examine how to address outstanding tax liabilities effectively.
Understanding Possible Outcomes of an Audit
When a taxpayer's Offer in Compromise (OIC) is rejected, they have the right to appeal the IRS's decision. This appeal process allows individuals to present additional information that may not have been included in the original submission, enhancing their chances for a favorable outcome. To initiate an appeal, a taxpayer must follow specific IRS procedures, which often include filing Form 13711, Application for Appeal of Offer in Compromise, within 30 days of receiving the rejection notice.
During the appeal, taxpayers should focus on clearly demonstrating their financial circumstances. They can benefit from consulting a tax professional to strengthen their case through effective documentation and reasoning. By addressing the IRS's concerns directly and providing evidence of their inability to pay the full tax debt, taxpayers can significantly improve their chances of achieving a successful resolution to their tax issues:
- Review the rejection notice thoroughly.
- File an appeal using the appropriate form within the required timeframe.
- Gather comprehensive financial documentation.
- Consider professional assistance to enhance the appeal.
A rejected Offer in Compromise can leave one searching for options.
Alternatives to an Offer in Compromise
Taxpayers unable to settle their tax debts through an IRS Offer in Compromise have other viable options. These include:
- Currently Non Collectible (CNC)
- Installment Agreement (IA)
- Penalty Abatement
- Fresh Start Initiative
- Bankruptcy
Supporting content
Disadvantages of Filing an Offer in Compromise
Even though an Offer in Compromise (OIC) sounds great in theory, it does have its drawbacks. One potential disadvantage is the extensive qualification process, which requires thorough documentation and may take considerable time. This lengthy timeline may delay the resolution of the taxpayer's financial situation and the statute of limitations.
Another significant downside involves the IRS's strict evaluation criteria. Taxpayers must fully disclose their financial circumstances, including all assets. If the IRS deems the offer unacceptable, taxpayers may face denial. This rejection can lead to continued enforcement actions against their assets or income if unpaid taxes persist.
Additionally, upon acceptance of an OIC, taxpayers face a strict compliance mandate for future tax obligations. Failing to meet these obligations during the following five years can lead to the reinstatement of the original tax debt owed. As such, taxpayers must remain vigilant to avoid further financial difficulties.
Lastly, the Offer in Compromise process may not resolve all tax liabilities. Certain tax debts, such as those related to fraud or noncompliance, may not be eligible for an OIC. Taxpayers should understand that settling some debts through an OIC might leave them with other tax obligations still pending, which can create ongoing financial strain:
- A lengthy qualification process increases resolution times.
- Strict IRS evaluation criteria can lead to rejection.
- Future tax compliance is mandatory for five years.
- Not all tax debts qualify for settlement through an OIC.
The challenges of pursuing an Offer in Compromise can feel daunting and complex. Yet, with expert guidance, navigating these waters becomes clearer, paving the way toward a more hopeful resolution.
Can a Business File an Offer in Compromise?
Businesses can file an Offer in Compromise (OIC) with the IRS. This option is available to corporations, partnerships, and sole proprietorships seeking relief from tax debts they cannot pay in full due to financial distress.
To qualify for an OIC, businesses must be in compliance with all filing and payment obligations. This includes filing all necessary tax returns and making any required estimated payments, demonstrating a commitment to meeting its tax responsibilities moving forward.
The IRS evaluates a business's application for an OIC by assessing its financial capacity, income, expenses, and overall assets. A well-prepared application that clearly presents the business's financial position can significantly increase the likelihood of acceptance.
Understanding the nuances of submitting an OIC as a business can be complex. Therefore, taxpayers should consider consulting with tax professionals specializing in Offers in Compromise to increase their chances of achieving a favorable outcome.
Supporting content
Should I Hire an Attorney to Complete an OIC?
Engaging a tax attorney for the IRS Offer in Compromise (OIC) process significantly enhances a taxpayer's chances of success. These experts possess extensive knowledge of IRS regulations and can expertly navigate the complexities involved in submitting an OIC application. They can assist in gathering and organizing necessary financial documents, ensuring that the application is complete and adheres to all IRS guidelines.
Moreover, tax professionals can offer personalized advice tailored to each taxpayer's unique financial situation. For individuals unsure of their eligibility or the required documentation, professional guidance can alleviate stress and streamline the process. By addressing potential issues and presenting a strong case, tax experts can greatly improve the likelihood of an accepted offer, ultimately allowing taxpayers to resolve their tax debts more effectively.
From Our Blog
Stay up to date with what is new in our industry, learn more about the upcoming products and events.
How to Set Up an IRS Installment Agreement for Your Business in 2026
FUTA Credit Reductions: Why Your State’s Debt is Your Problem
