On January 30, 2025, Senate Finance Committee leaders introduced a bipartisan proposal to overhaul the IRS Offer in Compromise program, which allows struggling taxpayers to settle tax debt for less than the full amount owed. The plan, part of the Taxpayer Assistance and Service Act, would streamline the review process, reduce lengthy delays, and improve access to debt relief for taxpayers facing financial hardship.
The Offer in Compromise (OIC) is a settlement option that lets taxpayers resolve tax debt for less than the full tax liability they owe. To qualify, applicants must submit a complete compromise application with financial information, supporting documentation, and all required tax returns. The IRS also requires taxpayers to be current on estimated tax payments and not in an open bankruptcy proceeding at the time of filing.
The IRS evaluates each case by considering the taxpayer’s monthly income, basic living expenses, and asset equity to determine their reasonable collection potential. If a taxpayer cannot fully pay the tax bill without facing economic hardship, the agency may find that they qualify for an OIC. Special low-income certification guidelines can exempt eligible applicants from paying specific fees, ensuring the best interests of both taxpayers and the government’s ability to collect revenue.
Most applicants must include a $205 application fee and an initial payment with their preliminary offer. Payment structures differ:
Under current law, the IRS may request additional documentation or supporting documents if the original submission lacks detailed information about the taxpayer’s financial condition.
If the IRS accepts an Offer in Compromise application, the taxpayer receives an acceptance letter confirming the agreement. They must comply with all compromise requirements, including staying current with tax filing status and making all required estimated payments for the next five years. If the agency issues a rejection letter, taxpayers can appeal the final decision and may need to pay the remaining balance of their full tax debt.
The OIC program has long been viewed as a critical compromise for taxpayers who are unable to fully pay their tax debt. By design, the IRS considers a taxpayer’s income, living expenses, and asset equity to determine whether an Offer in Compromise serves the best interest of both parties. Yet despite its role in providing tax debt relief, the system has faced persistent delays.
Under current law, all OIC cases involving more than $50,000 in unpaid tax liability must undergo a legal review by tax attorneys, regardless of complexity. Critics argue this requirement slows the OIC process, diverting limited IRS resources from cases that truly raise legal questions. According to the National Taxpayer Advocate, the review process consumes thousands of staff hours yearly, straining the agency’s ability to assist taxpayers effectively.
Lawmakers behind the Taxpayer Assistance and Service Act say removing blanket reviews would support effective tax administration while maintaining safeguards. Streamlining would allow the IRS to focus on cases with legitimate doubt or unique compromise requirements rather than routine financial hardship determinations.
National Taxpayer Advocate Erin Collins called the bipartisan proposal “a long overdue fix,” saying the changes will help taxpayers facing economic hardship. She emphasized that the IRS must balance the government’s need to collect revenue with a taxpayer’s ability to pay without undermining basic living expenses. According to her office, the measure would ensure the agency devotes resources where they are most needed, rather than on routine cases.
Supporters in Congress, including Senate Finance leaders Mike Crapo and Ron Wyden, argue the TAS Act will strengthen taxpayer protections. They stress that streamlining the IRS offer review will improve fairness and efficiency while preserving safeguards. An IRS spokesperson noted that the agency still requires supporting documentation and may request additional documentation during the compromise application review.
Tax professionals and attorneys have generally welcomed the proposal, though some caution that reforms must not erode oversight. For taxpayers, the result could mean quicker answers—whether an acceptance letter or a rejection letter—and fewer delays in the delivery of a final decision.
For taxpayers, a streamlined system could mean faster answers in the OIC program and fewer obstacles to resolving tax debt. If the IRS accepts a proposal, the taxpayer receives an acceptance letter and must comply with all compromise requirements, including filing required tax returns, making required estimated payments, and staying current on tax filing status for five years.
Applicants who receive a rejection letter may appeal the review process or explore other payment options. The IRS may also request additional information or supporting documents before issuing a final decision. For many taxpayers, quicker resolutions reduce uncertainty, help manage remaining balance concerns, and relieve ongoing economic hardship.
The agency encourages taxpayers to use their individual online account, noted by a locked padlock icon, to access detailed information about the OIC process, track payments, and upload supporting documentation as part of compliance.
The Senate Finance Committee will continue reviewing feedback on the Taxpayer Assistance and Service Act before advancing legislation. The IRS provides detailed information, eligibility tools, and forms on its official website for taxpayers seeking to qualify for an Offer in Compromise (OIC). Additional resources are available from the National Taxpayer Advocate and the Senate Finance Committee.
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