What Is an Offer in Compromise?
An Offer in Compromise is a formal agreement between you and the IRS to settle your tax debt for less than the full amount. The IRS considers three grounds for acceptance: doubt as to collectibility, doubt as to liability, or effective tax administration.
- Settle tax debt for pennies on the dollar
- Fresh start after acceptance
- Stops collection activities during review
- Available for income taxes, payroll taxes, and penalties
OIC Qualification Requirements
To be considered for an OIC, you must meet specific eligibility criteria and demonstrate genuine inability to pay.
- All tax returns must be filed
- Current year estimated payments must be made
- Cannot be in open bankruptcy
- Must have received a bill for at least one tax debt
- Must demonstrate Reasonable Collection Potential
How the IRS Calculates Your Offer
The IRS uses the Reasonable Collection Potential (RCP) formula: RCP = (Monthly Disposable Income x 12 or 24) + Net Equity in Assets. Your offer must generally meet or exceed this amount to be considered.
OIC Application Process
Submit Form 656-B (Offer in Compromise Booklet) with Form 433-A (OIC) for individuals or 433-B (OIC) for businesses, plus a $205 application fee and initial payment. Processing takes 6-12 months on average.
Payment Options
Lump Sum: Pay 20% with application, balance within 5 months of acceptance. Periodic Payment: Pay first month's payment with application, continue monthly payments during consideration, balance within 24 months of acceptance.