Offer in Compromise

An Offer in Compromise is a settlement option that allows taxpayers to resolve tax liability for less than the total balance owed. The IRS considers your income, expenses, and asset equity, and generally won't accept an offer if you can pay in full through a payment plan or the equity in your assets. If you can't pay in full, or paying would cause financial hardship, you may be able to settle for a reduced amount, but acceptance isn't guaranteed.

To apply, you submit Form 656 with the required financial forms, the $205 application fee, and an initial payment, unless you're an individual who meets the Low-Income Certification guidelines, which waive the fee and payments. The IRS evaluates each case individually. While the IRS is considering your offer, it generally won't levy your property; if it accepts the offer, you must pay the agreed amount and stay current on filing and paying your taxes for five years. If the IRS rejects the proposal, taxpayers may appeal, adjust their request, or consider alternatives such as an installment agreement to spread payments over time.

Because the process is highly detailed, careful preparation is critical. Supporting documentation, accurate financial disclosure, and a clear explanation of hardship improve the likelihood of success. If the IRS accepts your offer and you meet its terms, an offer in compromise can resolve overwhelming tax debt that you couldn't otherwise pay.

Types of Offer in Compromise

An Offer in Compromise can be customized to address specific tax settlement needs, ranging from managing overwhelming individual and business tax liabilities to resolving employment tax obligations and disputed tax assessments. The type of offer determines the settlement basis, required documentation, evaluation criteria, and likelihood of IRS acceptance. Choosing the right type of offer is an important part of a tax resolution strategy.

• Doubt as to Collectibility Offers: Available when there is doubt that you could ever pay the full tax liability within the time the IRS has left to collect it. The IRS compares your reasonable collection potential, which is based on the equity in your assets and your future income after allowable living expenses, with the amount you owe.
• Doubt as to Liability Offers: Available when there is a genuine dispute about whether you owe the tax or how much you owe under the law. You apply on Form 656-L, and no application fee or payment is required. The IRS can't consider this type of offer if the liability was established by a final court decision or judgment.
• Effective Tax Administration Offers: Addresses exceptional circumstances where paying the full liability would not serve effective tax administration purposes, even though the taxpayer technically can pay. This is useful when taxpayers face unique hardships such as serious illness, disability, or other compelling circumstances that make full payment inequitable despite apparent financial capacity.
• Lump Sum Cash Offers: You send 20% of the offer amount with your application and, if the IRS accepts the offer, pay the rest in five or fewer payments within five months of acceptance. Because the IRS counts fewer months of future income for lump-sum offers (12 months instead of 24), the offer amount is generally lower than for a periodic payment offer, but you need access to the funds quickly.
• Resubmitted Offers: If an offer is returned or rejected, you may be able to submit a new offer with updated financial information. You can't submit a Doubt as to Liability offer at the same time as a Doubt as to Collectibility or Effective Tax Administration offer; any dispute about whether you owe the tax must be resolved first.

Why Offer in Compromise May Be Your Best Option

An offer in compromise may let you settle your tax debt for less than the full amount you owe if the IRS agrees you can't pay in full or that paying in full would cause a financial hardship. Not everyone qualifies, and applying doesn't guarantee acceptance. Possible advantages include:

• Debt Reduction: If the IRS accepts your offer, you may settle your tax liability, including penalties and interest, for less than the full amount owed. The offer amount must reflect your true ability to pay, and you can pay it as a lump sum (20% with the offer and the rest in five or fewer payments after acceptance) or through periodic payments. Applying does not guarantee acceptance.

• Collection Pause While Your Offer Is Pending: Once the IRS accepts your offer for consideration as pending, it generally won't levy your wages, bank accounts, or other property while it evaluates the offer. The IRS may still levy before that point and may file a Notice of Federal Tax Lien at any time.

• Lien Release After Payment: If the IRS accepts your offer, it generally releases the federal tax liens for the periods covered within 45 days after your final payment is received and verified. Until then, a filed Notice of Federal Tax Lien stays in place, and if you sell property subject to the lien, the IRS may be entitled to the proceeds.

• Staying in Compliance: If the IRS accepts your offer, you must file all required tax returns and pay all taxes on time for five years after acceptance. If you don't, the IRS may default your offer, and you'll again owe the original tax debt, less payments made, plus accrued penalties and interest. The IRS also keeps any refund, including interest, that you might be due for tax assessed before the date it accepts your offer.

Our 4-Step Offer in Compromise Process

We help you decide whether an offer in compromise fits your situation and, if it does, prepare and submit it. Acceptance is up to the IRS and isn't guaranteed.

1. Free Case Assessment: 

We review your complete financial situation, analyze your tax liability, and determine whether you qualify for Offer in Compromise consideration—whether through doubt as to collectibility, doubt as to liability, or effective tax administration grounds. This step includes pre-qualifier analysis to ensure your case meets basic eligibility requirements and has realistic prospects for acceptance before investing time and resources in the application process.

2. Eligibility & Needs Analysis 

We help you understand offer qualification requirements, calculate your reasonable collection potential using IRS formulas, and work out an offer amount and payment option that reflect your ability to pay. We'll compare a lump sum cash offer, which generally means a lower offer amount but requires 20% with your application and the rest within five months of acceptance, with a periodic payment offer, which you pay in monthly installments within 6 to 24 months, and identify any compliance issues that must be resolved before submission.

3. Document Preparation & Filing Our team prepares your offer application following IRS procedures, with accurate financial documentation and a clear explanation of your circumstances. We prepare Form 656 (Offer in Compromise) and Form 433-A (OIC) and/or Form 433-B (OIC) (Collection Information Statements), coordinate required supporting documentation, and check that the amount offered is supported by your financial information.

Ongoing Support & Updates After your offer is submitted, we monitor IRS processing, respond to requests for additional information, and negotiate with the IRS offer examiner or specialist assigned to your case as needed. If your initial offer is rejected, we evaluate appeal options, consider revised offers with updated financial information, or explore other resolution options, such as an installment agreement or currently not collectible status.