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.
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.
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:
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.
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.
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:
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.
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:
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:
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.
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.
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:
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:
Combining your asset equity and disposable income over time will form the basis for your offer.
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:
Please complete all forms thoroughly and sign them. Missing or incomplete sections can delay or invalidate your submission.
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.
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.
In addition to the required forms, your application must include supporting documentation that verifies every aspect of your financial disclosures. Include:
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.
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.
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.
Accurate reporting is critical. If you undervalue your assets or fail to include necessary documentation, your application could be delayed or denied.
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.
The state may reduce or reject certain expenses if deemed excessive or unnecessary.
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.
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.
Applications are frequently rejected when taxpayers:
To give your OIC application the best chance of success:
Fully disclose your financial situation, and back it up with clear documentation.
File all required tax returns and remain current on payments during the review process.
Select doubts about collectability, liability, or economic hardship based on your unique situation.
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.
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.
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.
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.
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.
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.