IRS Offer in Compromise Acceptance Rate Falls

New federal data shows the Offer in Compromise acceptance rate dropped sharply in fiscal year 2024, even as more taxpayers applied for tax debt relief through the IRS Offer in Compromise program. The figures come from the latest IRS Data Book and suggest a tougher environment for resolving serious tax debt and other tax liabilities.

Federal Data Shows Fewer Tax Settlement Approvals

Statistics from the IRS Fiscal Year 2024 Data Book reveal a significant change in the Offer in Compromise application process. Taxpayers submitted 33,591 applications during the fiscal year, up from 30,163 the year before.

Despite the increase in filings, only 7,199 offers were accepted. That produced an acceptance rate of roughly 21.4 percent, far below the previous year’s rate of about 42.1 percent.

Over the past decade, approval levels have typically been higher. The lower acceptance rate in FY 2024 suggests that taxpayers seeking tax relief through this program may face stricter financial analysis and documentation requirements.

Offer in Compromise Program Allows Certain Tax Debts to Be Settled

The Offer in Compromise program allows taxpayers with serious tax liabilities to settle tax debt for less than the full balance owed. The authority for these settlements is Internal Revenue Code section 7122.

The program evaluates whether the offer amount represents the most the government can reasonably collect from a taxpayer. In some cases, the IRS may approve an offer under Effective Tax Administration if paying the full balance would create financial hardship.

Taxpayers must submit Form 656 along with an application fee and an initial payment unless they qualify for a waiver. The process often requires full disclosure of income and expenses, tax returns, and supporting documentation related to monthly expenses, disposable income, and asset equity.

Reasonable Collection Potential Guides Financial Review

A central factor in the Offer in Compromise review process is Reasonable Collection Potential. This calculation estimates how much a taxpayer can realistically pay by evaluating equity in assets, future earnings, and disposable income after allowable monthly expenses.

Applicants typically submit Form 433-A or Form 433-B, known as the Collection Information Statement, which provides a detailed financial analysis of income and expenses, asset equity, and other financial conditions. These documents allow the agency to estimate reasonable collection potential before determining whether the offer amount is acceptable.

If the proposed settlement falls below the calculated amount the agency expects to collect, the Offer in Compromise application may be denied.

Rising Applications Do Not Translate to Higher Success

The FY 2024 statistics highlight an important trend in tax debt resolution. Even though more taxpayers submitted Offer in Compromise applications, the number of approvals declined sharply.

Tax professionals note that many applicants also explore other payment options, such as installment agreements, payment plans, partial-pay installment arrangements, or Current Not Collectible Status. These alternatives may provide tax relief when an Offer in Compromise does not meet eligibility standards.

Some taxpayers seek professional assistance from an enrolled agent, a tax attorney, or a tax lawyer before filing. Advisors often use tools such as the IRS Pre-Qualifier Tool to estimate eligibility before submitting the application.

Incomplete Applications Often Lead to Immediate Returns

Applications can be returned if the taxpayer has not filed all required tax returns or has unpaid current tax payments. An open bankruptcy proceeding, missing financial documentation, or unpaid federal tax deposits can also halt the review.

When the agency rejects an offer after full evaluation, taxpayers typically receive an IRS rejection letter explaining the decision. They may appeal by submitting Form 13711 to the Independent Office of Appeals.

The appeal process can provide another opportunity for taxpayers to pursue a final resolution of outstanding tax debt, particularly when additional financial information or revised income and expenses are presented.

Sources

• IRS Fiscal Year 2024 Data Book
• Offer in Compromise Program Information
• IRS Topic 204: Offer in Compromise
  

‍By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now