The Internal Revenue Service has expanded its Individual Online Account platform to include a digital Offer in Compromise feature, allowing taxpayers to check eligibility, calculate potential settlements, and submit applications online. Introduced during fiscal year 2025, the update provides individuals and businesses facing tax debt with a faster and more secure way to resolve overdue taxes, eliminating the need for paper forms or mail.
The Offer in Compromise program enables taxpayers to settle their tax debt for less than the full amount owed, provided that paying in full would create financial hardship. To qualify, taxpayers must have filed all required tax returns, made estimated payments for the current tax year, and not be in an open bankruptcy proceeding.
Each application requires a $205 application fee and an initial payment of $205. Both are non-refundable but may be waived for low-income applicants. The IRS evaluates eligibility by reviewing adjusted gross income, expenses, assets, and other relevant financial information before proceeding with the assessment.
Taxpayers can choose between two payment options: a lump sum offer that includes an initial payment equal to 20 percent of the proposed amount, or a periodic plan allowing monthly installments while the IRS evaluates the case. Applicants may also designate payments toward a specific tax year or tax liability.
The online system eliminates the need for mail and paper forms, allowing taxpayers to submit and track their applications through their Individual Online Account. The IRS expects this digital process to reduce wait times and simplify compliance for those managing debt from the current year return.
When the IRS evaluates an Offer in Compromise, it performs a legal assessment to determine whether the proposal represents the most the agency can collect within a reasonable period. The IRS considers income, expenses, assets, and employment status before deciding whether to accept or reject an offer.
If the IRS accepts the offer, taxpayers must comply with all filing and payment obligations for the next five years. If rejected, taxpayers have a 30-day appeal period through the IRS Independent Office of Appeals. Offers are not automatically accepted, and missing supporting documentation can delay the decision.
The IRS continues to warn taxpayers about “Offer in Compromise mills” — third-party firms that charge excessive fees and promise automatic acceptance of offers. The agency advises individuals to contact the IRS directly or work with a certified tax professional to ensure their application meets all financial disclosure and supporting documentation requirements.
The IRS has clarified that any non-refundable payments submitted with an application will be applied to the outstanding balance, even if the offer is later denied. Taxpayers are encouraged to verify eligibility before filing to prevent unnecessary costs or delays.
Before requesting an Offer in Compromise, taxpayers should explore payment plans or installment agreements to manage their tax debt. The IRS recommends these options for those who can pay within the standard collection period but do not qualify under the compromise program.
Tax professionals can help taxpayers decide which payment option best fits their financial situation. These advisors assess income, expenses, and assets to ensure that offer terms are realistic and align with IRS requirements.
Once the IRS accepts an offer, taxpayers must remain compliant with all filing and payment obligations for a period of five years. Failure to file a current-year return or make future payments could void the agreement and reinstate the original tax liability.
To avoid complications, the IRS encourages taxpayers to keep detailed records, respond promptly to any request for additional information, and contact the agency if they need to adjust payment terms or schedules.
The IRS’s adoption of digital tools for the Offer in Compromise program reflects its broader strategy to modernize taxpayer services. Over the last two fiscal years, the agency has added features such as secure messaging, access to W-2 and 1095-A forms, and expanded self-service payment plan management.
This modernization reduces administrative burdens for IRS employees while helping taxpayers stay current on their obligations. The National Taxpayer Advocate’s Fiscal Year 2026 Objectives Report to Congress praised these efforts, noting that they promote accessibility and transparency.
Digital submissions enable IRS examiners to review financial information and supporting documentation promptly. Automated data checks ensure accuracy and consistency in the processing and review of offers.
By digitizing internal workflows, the IRS can collect revenue more efficiently while giving taxpayers a faster way to resolve outstanding liabilities. These updates also reduce reliance on manual collection activities and improve accountability across all stages of review.
The new online system significantly benefits low-income taxpayers who may not be able to afford third-party assistance. By allowing direct digital submission of forms, fees, and supporting documentation, the tool provides secure access to the same settlement opportunities available to higher-income filers.
The IRS emphasizes that taxpayers experiencing financial hardship can now apply for relief and expect faster updates on their case status. This ensures equitable access to official debt resolution programs and limits exposure to unregulated service providers.
Once the IRS accepts an offer and the taxpayer complies with all terms, the remaining balance is considered settled. The modernization helps taxpayers pay off tax debt, reduce interest, and rebuild long-term financial stability.
The system also supports compliance by automatically tracking deadlines, payment amounts, and estimated completion dates — ensuring that taxpayers can meet all ongoing obligations under their accepted offer.
The IRS plans additional online improvements in fiscal year 2026, including enhanced document uploads, expanded payment options, and real-time application tracking. The agency also intends to improve data security, transparency, and communication between taxpayers and employees.
By digitizing the Offer in Compromise process, the IRS is establishing a faster and more accessible way for taxpayers to pay, settle, and comply with their federal tax obligations. The modernization effort is expected to reduce backlogs, enhance accuracy, and increase taxpayer confidence in the IRS's management of debt relief and collection activities.
For accuracy and transparency, this article references official federal publications and expert materials related to tax administration and debt resolution:
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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