Settle Tax Debt for Less: Indiana Offer in Compromise and Payment Plan Options

Introduction

Struggling with Indiana back taxes can feel overwhelming, especially when interest, penalties, and aggressive collection actions continue to build. For many taxpayers facing financial hardship, paying their full tax debt is unrealistic. Thankfully, the Indiana Department of Revenue (Indiana DOR) offers relief through its offer in compromise (OIC) program—a solution to help individuals and businesses resolve state tax problems before they escalate further.

The Indiana offer in compromise is a formal compromise agreement that lets qualified taxpayers settle their tax liability for less than the total amount owed. This program can be beneficial for those dealing with medical bills, loss of income, limited assets, or the death of an immediate family member. In some cases, a natural disaster or personal devastation may also qualify you for relief under the state’s hardship request guidelines. The Indiana offer might be the way forward, regardless of whether you're behind on taxes due to unforeseen circumstances or ongoing financial strain.

Unlike the federal IRS OIC application, Indiana’s compromise program is managed by the Taxpayer Advocate Office, which reviews each OIC application and supporting documents—such as bank statements, pension statements, utility statements, and tax returns—on a case-by-case basis. This guide will walk you through who may qualify, how to submit your application, and what steps you can take to strengthen your submission. Whether you’re applying as an individual or on behalf of a business, this resource will help you understand the process and resolve your tax debt with the Indiana Department of Revenue.

What Is the Indiana Offer in Compromise?

An Indiana offer in compromise is a formal settlement agreement between a taxpayer and the Indiana Department of Revenue. It allows eligible individuals or businesses to resolve their outstanding tax liability for less than the full amount owed. The program's goal is to provide relief to taxpayers who cannot fully pay their tax debt due to financial hardship or extenuating circumstances.

This compromise program is authorized under Indiana Code 6-8.1-3-17(a), which grants the Commissioner the authority to accept reduced payments when there is doubt about the tax's collectability, the accuracy of the assessed amount, or when full collection would cause significant financial distress. The Indiana offer in compromise provides a legal path for taxpayers to address and resolve their debt while avoiding further enforcement actions like wage garnishments, liens, or levies.

Unlike the IRS OIC application process, which is handled federally, the Indiana OIC is reviewed and processed by the state’s Taxpayer Advocate Office. This office is dedicated to ensuring that each offer receives fair consideration and that the taxpayer’s rights are protected throughout the process. While acceptance is not guaranteed, submitting an accurate and well-supported application greatly increases your chances of approval.

The program can be a powerful tool for those facing unmanageable tax problems. If you owe Indiana back taxes and cannot realistically pay the full amount—even with a payment plan—this compromise agreement may be your best opportunity to regain financial stability. However, it’s essential to understand the rules, documentation requirements, and decision factors before submitting an OIC application.

Eligibility Requirements for an Indiana OIC

Before submitting an Indiana offer in compromise, you must meet several eligibility requirements established by the Indiana Department of Revenue. These rules are in place to ensure that only taxpayers who genuinely cannot pay their tax liability are considered for relief. Failing to meet any one of these conditions may result in automatic rejection of your OIC application.

The table below summarizes the core eligibility criteria and important notes:

• Filing Status: All required Indiana tax returns must be filed
  • Note: If you didn’t file because you believed you weren’t legally required, you must provide an explanation.
• Current Compliance: All required filings and payments must be up-to-date while the Offer in Compromise is under review
  • Note: You must also remain compliant for five years after the offer is accepted.
• Bankruptcy Status: Cannot be in an active bankruptcy proceeding
  • Note: You must wait until your case is discharged or dismissed before applying.
• Estimated Payments: All current-year estimated tax payments must be paid, if applicable
  • Note: Especially relevant for self-employed individuals and businesses.
• Previous OIC: Cannot have received an Indiana Offer in Compromise within the past five years
  • Note: This requirement is intended to prevent abuse of the program.
• Tax Liability Status: Tax debt must be final or the subject of a pending appeal
  • Note: You cannot use the OIC program to dispute an assessment that isn’t yet final.

In addition, taxpayers must show they can't pay their full debt, even through monthly payments or installment agreements. The Indiana Department of Revenue will require detailed financial documentation to support this claim, including bank statements, utility statements, pension statements, and proof of other allowable expenses.

If you do not meet all eligibility conditions, it’s best to address deficiencies—such as filing missing tax returns or resolving bankruptcy status—before submitting your offer. A complete and accurate application that aligns with these eligibility guidelines is essential for avoiding rejection and beginning the process to resolve your tax debt.

Types of Indiana Offers in Compromise

The Indiana offer-in-compromise program includes three distinct application categories. Each type is designed for a specific tax situation, and understanding these distinctions is essential for choosing the correct option on your OIC application. Selecting the wrong kind—or misunderstanding what each type requires—can lead to processing delays or outright rejection.

Doubt as to Collectability

This is the most commonly used type of compromise agreement. It applies when a taxpayer is financially unable to pay the full amount of their tax liability, either immediately or through a long-term payment plan. If your income, assets, and financial resources are insufficient to cover the full balance—even over time—the Indiana Department of Revenue may accept a reduced settlement amount.

To be considered under doubt as to collectability, you must provide extensive financial documentation that demonstrates your inability to pay:

• To demonstrate your available cash resources, provide recent bank statements for all personal and business accounts, such as checking, savings, and money market accounts.
  
• You should provide utility statements and records of ongoing monthly bills to establish your necessary living expenses and fixed obligations.
  
• Pension statements or retirement income documentation, if applicable, to show any retirement benefits or fixed-income sources you rely on.
  
• Documentation for all significant assets, such as property deeds, vehicle titles, loan balances, and insurance policies with cash value, is necessary to help determine what equity (if any) you can access.
  
• A completed Collection Information Statement (Form CIS-I or CIS-B) summarizes your financial situation and supports your request for a reduced settlement.
  

The Indiana Department of Revenue will review these documents to assess your current and future ability to pay. Your offer must represent the maximum amount the department could reasonably expect to collect based on your income and asset situation.

Doubt as to Liability

This option is for taxpayers who do not believe they owe the full tax assessed. It applies when there is a legitimate dispute regarding whether the debt is accurate or whether the tax laws were applied correctly in your case. This offer concerns whether you owe the amount, not your ability to pay.

To submit an offer based on doubt as to liability, you will need to provide:

• A written explanation describing why you believe the tax debt is incorrect, including references to relevant facts, figures, or applicable tax laws.
  
• To substantiate your claims, you should also provide detailed supporting documents, such as amended tax returns, accounting records, or previous correspondence with the Indiana Department of Revenue.
  
• Form TAO-PRP (Request for Assistance) must be submitted to the Taxpayer Advocate Office before filing your formal OIC application.
  This type of offer is often used when there was a misunderstanding or misapplication of tax law or when the taxpayer missed the window for a formal appeal, but can still present a compelling case.

Economic Hardship

The economic hardship option applies when the taxpayer does not dispute the debt and technically has enough assets or income to pay the balance. However, doing so would cause significant financial harm. This type of offer is based on compassionate grounds and is intended to prevent situations where a taxpayer would suffer unfair hardship as a result of full payment.

To qualify under economic hardship, you must include the following:

• A written narrative that clearly explains the nature of your hardship, such as a serious illness, job loss, disability, or other life event causing personal devastation.
  
• Documentary evidence of your hardship, including medical bills, unemployment records, proof of caregiving responsibilities for an immediate family member, or the impact of a natural disaster on your home or income.
  
• You should provide evidence that the full debt repayment would prevent you from meeting your basic living expenses or maintaining a minimum level of financial security.

Indiana reviews hardship offers on a case-by-case basis and will consider whether collecting the full amount would be unreasonable given your personal and financial circumstances.

Step-by-Step Application Process

Applying for an Indiana offer in compromise involves a detailed and document-heavy process. To give your application the best chance of acceptance, it’s critical to follow the steps carefully, gather all necessary records, and accurately present your financial information. Below is a clear, step-by-step guide to help you through the process.

Step 1: Gather Required Financial Documentation

Before completing your OIC application, you must compile a full picture of your financial situation. This documentation will allow the Indiana Department of Revenue to assess your ability to pay and verify the information on your forms.

Be sure to collect the following:

• Collect bank statements for the past three months to demonstrate your available cash flow, including checking, savings, and money market accounts.
  
• Investment account statements for stocks, mutual funds, retirement accounts, or bonds can help you assess your total asset value.
  
• Home equity is determined by real estate records, including property deeds, mortgage statements, and recent appraisals or tax assessments.
  
• Vehicle information should include titles, outstanding loan balances, and fair market values for any cars, motorcycles, or recreational vehicles.
  
• Life insurance statements should be included; if your policy has cash value, it can be considered an accessible asset.
  
• If you are self-employed, you must provide monthly income documentation, including recent pay stubs, Social Security award letters, or profit and loss statements.
  
• Documentation of monthly expenses, such as utility statements, rent or mortgage payments, medical bills, and other necessary living costs, is also required.
  

Step 2: Determine Your Minimum Offer Amount

Indiana calculates your minimum offer amount based on your available asset equity and projected future income. This ensures that your offer reasonably reflects your financial capacity.

When estimating your offer amount:

• Assets are valued at 80% of fair market value, less any outstanding loans or applicable exclusions. For example, Indiana allows a $1,000 exclusion from your total bank balances and a $3,450 equity exclusion on your primary vehicle.
  
  
• After deducting allowable living expenses from your total income, your monthly surplus is the basis for calculating future income. The state applies IRS national standards to determine what is “allowable.”
  
  

Combining your asset equity and disposable income over time will form the basis for your offer.

Step 3: Complete the Required Forms

Once your documents are in order and you’ve calculated your offer amount, you’ll need to complete the following forms as part of your OIC application:

• Form FS-OIC (Offer in Compromise Agreement): Includes your proposed offer amount, applicable tax years, and payment terms.
  
• Form CIS-I (Collection Information Statement—Individuals): Required if you're an individual, wage earner, or self-employed. This form details your income, assets, expenses, and liabilities.
  
• Form CIS-B (Collection Information Statement—Businesses): Required for corporations, partnerships, or LLCs.
  
• Form POA-1 (Power of Attorney): If you're working with a tax attorney or another authorized representative, this form allows them to communicate with the Indiana Department of Revenue on your behalf.
  

Please complete all forms thoroughly and sign them. Missing or incomplete sections can delay or invalidate your submission.

Step 4: Submit Your Application Package

After completing the forms and collecting supporting documentation, you must submit your OIC application to the Taxpayer Advocate Office.

Mail your completed packet to:

Taxpayer Advocate Office
Indiana Department of Revenue
PO Box 6155
Indianapolis, IN 46206-6155

You may also contact the office by phone at (317) 232-4692, fax at (317) 232-5425, or email at taxadvocate@dor.in.gov. However, do not email sensitive documents like bank statements or forms, as email is not secure for transmitting personal financial information.

Required Forms and Supporting Documentation

Submitting a complete and accurate Indiana offer in a compromise application requires more than just filling out a form. The Indiana Department of Revenue will review your financial disclosures and supporting documents to determine whether your offer represents the most the state can reasonably expect to collect. Omitting key forms or failing to include the necessary evidence can result in delays or outright denial.

Below is a breakdown of the essential forms and documentation you must submit with your OIC application.

Essential Forms

• Form FS-OIC (Offer in Compromise Agreement): This is the core document of your application. It outlines the amount you offer to pay, the tax periods in question, and whether you intend to pay in a lump sum or through monthly payments. It must be signed and dated.
  
• Form CIS-I (Collection Information Statement—Individual): If you're applying as an individual, this form provides a detailed summary of your income, expenses, assets, debts, and household financial circumstances.
  
• Form CIS-B (Collection Information Statement—Business): If the tax liability is tied to a business entity such as a partnership, corporation, or LLC, this form is required instead of the CIS-I. It covers business assets, liabilities, cash flow, and revenue.
  
• Form POA-1 (Power of Attorney): This form is required if you work with a tax attorney, CPA, or other authorized representative. It allows them to speak with the Indiana Department of Revenue on your behalf. Only original forms are accepted—do not submit copies or email versions.
  

Supporting Documentation Checklist

In addition to the required forms, your application must include supporting documentation that verifies every aspect of your financial disclosures. Include:

• Bank statements for all accounts (typically covering the last three months), showing balances and transaction history.
  
• Investment account statements, including retirement funds, brokerage accounts, and annuities.
  
• You should also provide evidence of your income, such as recent pay stubs, Social Security award letters, or self-employment profit and loss statements.
  
• You should also provide evidence of your monthly expenses, such as utility statements, rent or mortgage statements, and insurance premiums.
  
• Any owned or financed vehicle titles and loan balances should be included.
  
• You should also provide evidence such as real estate deeds, mortgage documents, and recent appraisals or tax assessments.
  
• Any applicable life insurance policies with cash value should also be included.
  
• Copy of any IRS OIC application or approval, if you have previously submitted one at the federal level.
  
• Copies of any tax returns filed within 60 days before submission.
  

Being thorough and accurate with your documentation not only improves your chances of approval, but it also demonstrates transparency and good faith in resolving your tax debt.

Financial Disclosure and Asset Valuation Guidelines

The Indiana offer in the compromise process places significant weight on your financial disclosures. To determine whether your offer is acceptable, the Indiana Department of Revenue will carefully evaluate your assets and income and compare them against allowable living expenses. This analysis helps the department assess whether you have the means to pay your full tax liability and whether your compromise agreement reflects the most the state can reasonably collect.

Asset Valuation Standards

The Indiana Department of Revenue uses a consistent method to determine the value of your assets. These calculations are based on current fair market values rather than original purchase prices, and specific exclusions or adjustments may apply to reduce the reportable value.

• After subtracting any outstanding mortgage or home equity loan balances, real estate is valued at 80% of its current market value. For example, if your home is worth $200,000 and you owe $150,000 on the mortgage, the net equity is $10,000—not the full value. You must provide documentation such as recent tax assessments, mortgage statements, or appraisals.
  
• Vehicles, including cars, trucks, and motorcycles, are valued at 80% of their fair market value, minus any remaining loan balance. Indiana allows a $3,450 equity exclusion on your primary vehicle, which helps protect some transportation equity for basic living needs. However, this exclusion only applies to one vehicle.
  
• Bank account balances must be reported in full, but Indiana allows a $1,000 exclusion from your total balance across all checking, savings, and money market accounts. This will enable taxpayers to maintain a basic cash cushion for everyday expenses.
  
• Investment accounts, including brokerage accounts, IRAs, 401(k)s, and other retirement funds, are valued at 80% of their current market value. If you’ve taken out loans against these accounts, those amounts are deducted from the total reported value.
  
• Business assets are evaluated at 80% of their estimated market value. However, if the equipment, tools, or inventory are essential to keeping the business operating and generating income, those items may receive special consideration or partial exclusion.
  
• Life insurance policies with cash value, such as whole life or universal life policies, are considered assets. You’ll need to report the current cash surrender value, which can typically be obtained from your insurance provider upon request.
  

Accurate reporting is critical. If you undervalue your assets or fail to include necessary documentation, your application could be delayed or denied.

Income and Expense Analysis

The Department of Revenue also analyzes your income and monthly expenses to assess your financial capacity. Indiana follows IRS national collection standards to determine each category's “reasonable” cost.

• Your household income includes all sources of funds that come into the home. This may include wages, self-employment income, rental income, pensions, Social Security, or disability payments. Each source must be documented through recent pay stubs, benefit letters, or financial statements.
  
• Your necessary monthly expenses include costs essential for daily living, such as housing payments (rent or mortgage), utilities (electricity, heat, water, and phone), transportation expenses required for work, and out-of-pocket medical costs not covered by insurance.
  

The state may reduce or reject certain expenses if deemed excessive or unnecessary.

• Credit card payments are typically not allowed as deductible expenses, even if they cover previous living costs.
  
• Private school or college tuition payments for dependents are generally disallowed unless required for special needs.
  
• Charitable contributions, while commendable, are not considered allowable when calculating ability to pay.
  
• Luxury or non-essential expenses, such as cable TV, streaming services, frequent dining out, and payments on recreational vehicles or second cars, are also excluded.
  

If your claimed expenses exceed what is allowed under national standards, the Indiana Department of Revenue may adjust them downward and recalculate your ability to pay. This could result in a higher minimum offer amount.

Being transparent and realistic with your financial disclosures not only speeds up the review process, but it also increases the likelihood that your offer in compromise will be accepted.

Why Indiana OIC Applications Get Denied—And How to Avoid It

Simple but avoidable errors lead to the denial of many Indiana offer-in-compromise applications. Understanding the most common issues—and how to correct them—can significantly improve your chances of approval.

Common Pitfalls to Avoid

Applications are frequently rejected when taxpayers:

• Submit incomplete or undocumented claims. All income, assets, and expenses must be verified with supporting documents like bank statements, utility statements, pension statements, and tax returns. Missing documents may result in immediate denial.
  
  
• Claim excessive or non-essential expenses. Indiana uses IRS national standards to determine acceptable living costs. Payments for luxury services, private education, or non-essential vehicles are often disallowed and can inflate your perceived ability to pay.
  
  
• Omit income or undervalue assets. The Indiana Department of Revenue reviews public and financial records to confirm the accuracy of your disclosures. Failure to fully report your income or assets may be considered a lack of transparency.
  
  
• Have the ability to pay in full. Your offer may be rejected if your financial analysis shows that you could satisfy your tax liability through a payment plan or monthly payments.
  
  
• Have a history of non-compliance. A record of unfiled returns, unpaid liabilities, or ignored notices can reduce your credibility, even if you now qualify under hardship standards.
  
  

Tips for a Strong Submission

To give your OIC application the best chance of success:

• Be accurate and honest

Fully disclose your financial situation, and back it up with clear documentation.

• Stay compliant

File all required tax returns and remain current on payments during the review process.

• Choose the correct OIC type.

Select doubts about collectability, liability, or economic hardship based on your unique situation.

• Seek guidance if needed.

A tax attorney or representative can help ensure your application is complete and aligns with Indiana’s compromise agreement guidelines.

By avoiding common mistakes and submitting a complete, well-supported OIC application, you significantly increase the chances of resolving your tax debt with the Indiana Department of Revenue.

Frequently Asked Questions

How does the Indiana offer in compromise help taxpayers resolve tax debt?

The Indiana offer in compromise allows taxpayers to settle their tax liability for less than the full amount owed. If accepted, the compromise agreement helps resolve tax debt through a structured process, giving eligible individuals and businesses a legal path to regain financial stability. The Indiana Department of Revenue reviews each OIC application carefully, considering the taxpayer’s income, assets, expenses, and ability to pay.

Can I qualify for an Indiana offer if I submitted an IRS OIC application?

Yes, you can apply for the Indiana offer in compromise even if you’ve submitted an IRS OIC application. However, approval from the IRS does not guarantee acceptance by the Indiana Department of Revenue. Indiana uses its compromise program standards. Be prepared to submit updated tax returns, bank statements, and pension statements as part of your hardship request. Each application is evaluated independently based on state tax liability.

What documents should I include with my Indiana OIC application?

To complete your Indiana OIC application, you must submit Form FS-OIC and detailed financial documents. These include recent bank statements, utility statements, pension statements, and proof of income or medical bills. Include relevant letters or records if you’ve experienced a natural disaster or personal devastation involving a family member. The Indiana DOR requires complete transparency to evaluate whether your offer in compromise is acceptable.

Will I be allowed to make monthly payments on my Indiana tax debt?

Under the Indiana compromise program, accepted offers may be paid in monthly payments rather than a lump sum. Your OIC application must clearly propose a payment plan that reflects your ability to pay over time. Depending on your income, assets, and documented financial hardship, the Indiana Department may allow up to 72 months to fulfill the agreement. Submitting a realistic and affordable payment schedule improves your chances of acceptance.

Should I hire a tax attorney to help file an Indiana offer in compromise?

While hiring a tax attorney is not required to file an Indiana offer in compromise, it can be beneficial, especially if you owe significant back taxes or have complex financial documents. A tax professional can ensure your Form FS-OIC is accurate, all required pages are included, and your hardship request is well-supported. This guidance can improve your security, reduce processing delays, and strengthen your case with the Indiana Department.