What is an Offer in Compromise?
The Basics
An Offer in Compromise is an agreement between you and the IRS that settles your tax for less than the full amount you owe. It's designed for taxpayers who cannot pay their full tax liability or would create financial hardship.
The IRS considers your unique set of facts and circumstances, including your ability to pay, income, expenses, and asset equity to determine if an OIC is appropriate.
Success Example
Do You Qualify?
- You cannot pay the full amount within the collection period
- Paying would create economic hardship
- There's doubt about the amount you owe
- Your income is limited or irregular
- You have minimal assets
- All tax returns are filed and current
- You can afford to pay the full amount
- You have significant assets or income
- You haven't filed all required tax returns
- You're currently in an open bankruptcy proceeding
- You can set up a payment plan to pay in full
- The IRS determines you can pay more
The OIC Process
Pre-Qualification
Use the IRS Pre-Qualifier tool or consult with a tax professional to determine if you're likely to qualify.
Gather Documentation
Collect financial statements, tax returns, bank statements, and other required documentation.
Complete Form 656
Fill out the Offer in Compromise application with detailed financial information and proposed settlement amount.
Submit Application
Submit your OIC package with the required application fee and initial payment.
IRS Review
The IRS reviews your application, may request additional information, and makes a determination.
Decision
The IRS accepts, rejects, or counters your offer. If accepted, you complete the payment terms.
Success Rates
- • Only about 25% of OIC applications are accepted
- • Professional help significantly improves success rates
- • Proper preparation is crucial for approval
Costs & Fees
- • $205 application fee (waived for low-income taxpayers)
- • Initial payment required with application
- • Professional fees typically $3,000-$7,000