Tax relief programs
Offer in Compromise
Settling an IRS balance for less than the full amount is real — but it isn't for everyone, and the rules are stricter than the ads suggest. Here's an honest look at how it works.
The basics
What an Offer in Compromise actually is
An Offer in Compromise (OIC) is a formal agreement in which the IRS accepts less than the full balance owed and closes out the rest. In the IRS’s own words, it’s a way to settle your tax debt for less than the full amount you owe. It exists because collecting the full amount from someone who genuinely can’t pay costs the government more than it recovers.
The IRS decides using a calculation, not a negotiation. It looks at your ability to pay, your income, your reasonable expenses, and the equity in what you own, and arrives at a figure — what the IRS calls your Reasonable Collection Potential — that represents the most it believes it could collect from you within a reasonable period of time. If that figure is less than what you owe, an offer becomes possible. An OIC is one of several tax resolution options the IRS offers, and it isn’t automatically the right one for every situation.
You have probably heard companies promise to settle tax debt for “pennies on the dollar.” No firm can know whether you qualify before reviewing your finances and your IRS transcripts, and no firm can guarantee the IRS will accept an offer. Any promise made before that review is a sales pitch, not an assessment.
What you may need to provide
Every case is different, and not every taxpayer needs the exact same documentation. In general, an offer application asks for:
- Income and pay information — pay stubs, self-employment records, or other income sources
- Household budget and expenses — what you spend monthly on housing, food, transportation, and other necessities
- Bank or investment account information — statements showing balances and recent activity
- Vehicle and property information — what you own and roughly what it’s worth
- Recent tax return information — the IRS generally won’t consider an offer until you’re caught up on filing
If you’re behind on returns, unfiled tax returns is usually the first thing to sort out before an offer is realistic. And if the IRS has already started taking money directly — through wage garnishment or a bank levy — those situations often call for a faster first move than an offer application allows.
For a fuller look at how a case moves from a first call to resolution, see how we handle a case from start to finish. Cost, timing, and other general questions are also covered in our FAQ.
Eligibility
Who tends to qualify
These are the factors that carry the most weight. Meeting them doesn't guarantee acceptance, and missing one doesn't always rule you out.
You're caught up on filing
All required returns must be filed before the IRS will consider an offer. This is the most common reason applications get returned unopened.
Your income barely covers necessities
The IRS allows specific amounts for housing, food, transportation and health care. What's left over after those allowances is what it expects you to pay.
You have limited equity
Home equity, vehicles, retirement accounts and savings all count toward what the IRS believes it could collect. Significant equity usually rules out an offer.
Our approach
How we handle an offer
We do the qualifying math before you commit, not after.
Transcript and financial review
We pull your IRS account transcripts and build your financial picture the way the IRS will, using its own allowance standards.
An honest recommendation
If the numbers don't support an offer, we tell you so and point you toward what does fit. We won't file an application we expect to be rejected.
Preparation and filing
Forms 656 and 433-A(OIC), the supporting documentation, and the application fee or low-income waiver, assembled to the IRS's specifications.
Working the case through
Examiners often request more documentation or propose a different amount. We respond on your behalf, and appeal a rejection when there are grounds to.
IRS review of an offer commonly runs many months, and timelines shift with IRS staffing. Collection activity is generally paused while an offer is pending, but your specific circumstances determine what applies to your case.
If an offer isn't right
Other paths worth considering
Most people we speak with end up in one of these instead. They're less publicized, but often the better fit.
Installment agreement
A structured monthly payment based on what you can actually afford, which keeps collection activity from escalating.
Learn moreCurrently Not Collectible
A pause on collection for taxpayers whose income doesn't cover necessary living expenses, reviewed periodically by the IRS.
Learn morePenalty abatement
Relief from penalties where reasonable cause or first-time abatement criteria apply, which can meaningfully reduce a balance.
Learn moreWorth knowing
When an offer usually isn't the right fit
An offer isn't always the best option. It's usually not the right fit if you can comfortably pay your balance through a payment plan, if you have significant equity in property, investments, or other assets relative to what you owe, or if you're not yet caught up on filing or current-year estimated payments — the IRS generally won't consider an offer until you are. In situations like these, another IRS resolution option is usually the better starting point, and we'll tell you that directly rather than file an application we don't expect to succeed.
Common questions
Offer in Compromise questions
What does it cost to apply?
The IRS charges an application fee and requires an initial payment with the offer, though both may be waived if you meet its low-income certification. Our professional fee is quoted in writing before any work starts and is separate from what the IRS charges.
What happens if the IRS rejects my offer?
You have appeal rights, and a rejection is sometimes reversed when the examiner's numbers can be corrected. If an appeal isn't warranted, we move to the next best option so you aren't left where you started.
Do I have to stay compliant afterward?
Yes. Accepted offers require you to file and pay on time for five years. Falling out of compliance can reinstate the original balance, so we help you set up withholding or estimated payments that keep it from happening.
Can you tell me over the phone whether I qualify?
We can give you a realistic read once we know your income, household size, expenses, and what you own — usually within the first conversation. A firm answer needs your IRS transcripts, which we can request with your authorization.
What's the difference between an Offer in Compromise and an installment agreement?
An Offer in Compromise settles your balance for less than the full amount, if the IRS agrees you can't reasonably pay it in full. An installment agreement doesn't reduce what you owe — it spreads the full balance into payments you can manage. Most taxpayers who don't qualify for an offer end up in an installment agreement instead.
Can I apply for an Offer in Compromise myself?
Yes. The IRS allows individuals to file Form 656 and Form 433-A(OIC) on their own — by mail or through an IRS Individual Online Account — and offers a free Offer in Compromise Pre-Qualifier tool on IRS.gov to get a general sense of eligibility before applying. Many people choose to have someone review the numbers and prepare the application with them, but it isn't required.
How long can the IRS review process take?
It varies by case and by how complete the application is when it's submitted. The IRS doesn't publish an average processing time, though by law an offer is automatically accepted if the IRS hasn't made a determination within two years of the date it was received.
What is Form 656?
Form 656 is the official IRS application for an Offer in Compromise. It's submitted along with Form 433-A(OIC) — a statement of your income, expenses, and assets — plus supporting financial documentation and either the application fee or a low-income certification.
Free consultation
Find out where you actually stand
We'll run your numbers the way the IRS does and tell you plainly whether an offer is realistic for you. No cost, and no obligation to hire us.
Request your free case review
Takes about two minutes.
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