IRS Programs

What is an Offer in Compromise?

An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that settles tax debt for less than the full amount owed. The IRS considers an OIC when a taxpayer cannot pay the full liability, when paying in full would create financial hardship, or when there is doubt that the assessed amount is correct.

How the OIC program works

Taxpayers submit IRS Form 656 along with a detailed financial disclosure on Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. The IRS evaluates the taxpayer's income, expenses, assets, and ability to pay. There is a $205 application fee (waived for low-income applicants) and an initial payment submitted with the offer.

The IRS generally approves an OIC when the offered amount reflects what they could reasonably collect through other means.

Who may qualify

The IRS considers several factors when evaluating an offer:

• Current income and future earning potential
• Reasonable living expenses (based on IRS Collection Financial Standards)
• Asset equity (bank accounts, vehicles, real estate, investments)
• Overall ability to pay the full debt within the collection statute

Taxpayers must be current on all filing obligations and, if applicable, current on estimated tax payments before the IRS will consider an offer.

Payment options

The IRS offers two payment structures for accepted offers:

• Lump sum: 20% of the offer amount submitted with the application, remainder paid in five or fewer installments after acceptance.
• Periodic payment: First payment submitted with the application, then monthly payments continue while the IRS reviews the offer and for 24 months after acceptance.

What to expect

The IRS typically takes 6 to 12 months to process an OIC application. During that time, the IRS generally suspends collection activity. If the offer is accepted, the taxpayer must remain compliant with all tax obligations for five years, or the agreement may be defaulted.

According to IRS data, roughly 30% to 40% of submitted offers are accepted. Working with a qualified Enrolled Agent, CPA, or Tax Attorney can help ensure the application is complete and accurately reflects the taxpayer's financial situation.

This information is for educational purposes only and does not constitute tax, legal, or financial advice. Eligibility for IRS programs is determined by the IRS based on individual circumstances. For official guidance, visit IRS.gov.