IRS Offer in Compromise (OIC): How It Works

An Offer in Compromise is an IRS tax relief program designed to settle your tax debt for less than the full amount you owe. This may be a legitimate payment option to explore if you’re experiencing significant financial hardship and cannot reasonably afford to pay your tax liability in full.

If you qualify for Offer in Compromise, you don’t have to make periodic payments to the IRS. Instead, you pay one smaller lump sum, settling your tax debt for good. OIC is the best option available through the IRS Fresh Start Program, with many people saving 95% or more on their tax debt. However, the eligibility requirements are strict.

Achieving an Offer in Compromise requires presenting a strong case that either proves your economic hardship or proves that you don’t owe the amount the IRS claims you do. This includes evaluating your personal financial information, such as:

• Current income
• Expenses
• Ability to pay
• Asset equity

Settling your tax debt through an Offer in Compromise can reduce your tax liability to a small fraction of the original amount. TaxRise clients who are eligible for the Offer in Compromise program typically see significant tax debt reductions – with some saving as much as 99%. Discover if you may qualify in a quick consultation with a TaxRise representative today.

To qualify for an Offer in Compromise, you must first comply with the IRS by filing all applicable unfiled tax returns.

You may be eligible for an OIC settlement if you meet the following requirements:

• You filed all required tax returns for the past six years.
• You do not have an ongoing bankruptcy case.
• You must file the current year’s tax return or have a valid filing extension.
• Before applying as an employer, you must have made tax deposits for the current and past 2 quarters.

There is no minimum tax liability amount necessary to qualify for an Offer in Compromise. Instead, resolution eligibility depends on each taxpayer’s unique financial and liability situation. If your OIC is accepted, you must remain in compliance with all filing and payment requirements for five years, or the IRS can reverse its decision and hold you liable for the full amount of your previous debt.

To ensure you are compliant with IRS requirements, we recommend connecting with a trusted tax professional. At TaxRise, we routinely handle the most complicated tax situations and negotiate OIC settlements for qualifying clients. Contact us today at 833-419-RISE (7473) or schedule a free consultation to discover if you may qualify for an Offer In Compromise.

When the IRS talks about “economic hardship,” they’re not just talking about being uncomfortable or inconvenienced. They’re looking for situations where paying your full tax debt would take away the essentials of everyday life. This could mean being unable to cover necessary living expenses like housing, food, or medical care. If paying the IRS would leave you without the basics, that’s when hardship becomes part of the conversation.

Hardship also extends to more serious circumstances. For example, someone managing a chronic illness may technically have assets on paper, but draining those resources to pay the IRS could mean sacrificing access to medical care. Or, forcing the sale of a modest home might technically satisfy the tax debt but leave the family without shelter. The IRS recognizes that financial fairness isn’t just about numbers—it’s about making sure taxpayers aren’t left in impossible situations.

At its core, an OIC based on economic hardship is about balance. You acknowledge your debt, but you also show that paying it in full would create an outcome that’s unfair, unreasonable, or even harmful. Your Offer in Compromise application should tell your story in a way the IRS understands, so your case isn’t just about what you owe—it’s about the life you deserve to keep living.

Before we dive into the details, it’s important to know that not all Offers in Compromise are alike—the IRS recognizes different reasons why a taxpayer might qualify.

Not every tax debt story is the same—and the IRS knows that. Sometimes, the issue isn’t whether you can pay, but whether you truly owe what the IRS says you do. That’s where doubt as to liability comes in. This type of Offer in Compromise is built around the idea that the amount the IRS claims isn’t accurate. Maybe it’s the result of a calculation error or a misapplied rule. Whatever the reason, you’re not asking for forgiveness based on financial hardship—you’re standing up and saying, “I don’t believe this bill is correct.”

On the other hand, doubt as to collectibility is the more common path. Here, you agree the debt is accurate, but paying the full amount would be impossible without financial ruin. In these cases, the IRS looks at your situation and may agree to accept less than the total balance. It’s their way of saying: “We’d rather find a fair resolution than chase money you don’t have.” Whether it’s questioning the accuracy of your bill or proving you can’t realistically pay it, both paths exist to give taxpayers a chance at a fresh start—and that’s exactly where TaxRise steps in to guide you.

There’s also a third path called Effective Tax Administration (ETA). This applies when you technically could pay your tax debt in full, but doing so would create a serious hardship or would simply be unjust. Think of situations where paying the IRS would mean losing your home, draining medical savings, or facing an outcome that’s clearly unreasonable. In cases like these, the IRS may agree that collecting the debt as-is isn’t fair. An ETA-based OIC is less common, but it exists for one powerful reason: to make sure tax enforcement doesn’t come at the cost of basic human dignity.

Businesses, including C corporations, may also qualify for an Offer in Compromise if they cannot pay their tax debt in full. The IRS evaluates corporate OICs based on business income, expenses, and assets, just as it does with individuals.

For corporations, the process requires filing Form 433-B (OIC), which outlines the company’s financial status, including bank accounts, receivables, property, and equity. The IRS will only accept a corporate OIC if it determines the business cannot realistically pay the full debt through liquidation or future earnings.

If your C corporation is struggling under IRS debt, pursuing an OIC may protect your company from aggressive collection actions like liens and levies while providing a chance to settle for less than the total balance owed.

After ensuring your tax filings are up to date, you can officially request an Offer in Compromise with IRS Form 656. This form provides the IRS with your settlement offer, including the tax years with liability you wish to settle, your proposed offer amount, and how you intend to pay it.

In addition, applicants must complete Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms give the IRS a detailed picture of your financial situation, including income, expenses, assets, and liabilities. The IRS uses this information to calculate your “reasonable collection potential” — the most it believes it can collect from you.

The IRS rejects more than half of the Offer in Compromise requests that it receives each year. However, working with a tax professional can maximize your chances of approval. A tax resolution specialist can build a robust application that proves your financial hardship and inability to pay your tax balance.

If your OIC is rejected by the IRS:

• Within 30 days of the rejection date, you have the right to file an appeal using Form 13711 –
• Request for Appeal of Offer in Compromise.
• You can submit a new offer with different terms.
• You can explore alternative payment plans.

The IRS routinely warns taxpayers about shady tax relief companies known as Offer in Compromise mills. These predatory companies often mislead taxpayers with the false expectation of a guaranteed Offer in Compromise.

Only the IRS can approve an OIC or any other application for tax resolution programs. However, OIC mills will promise their clients a specific resolution before analyzing their tax situation or preparing the necessary forms for the IRS.

In addition, keep in mind that the IRS primarily communicates with taxpayers through mailed notices. If you receive an unexpected email or call concerning your account, contact the IRS to confirm its validity. Typically, the IRS will only attempt to call you after it has contacted you by mail. Learn more about IRS tax scams.

An Offer in Compromise itself does not directly appear on your credit report. However, the circumstances surrounding it may have indirect effects.

• If the IRS filed a tax lien before your OIC was accepted, that lien may remain on your credit history until it is resolved.
• Successfully completing an OIC may improve your long-term financial outlook, since the IRS will no longer pursue aggressive collection activity.
• The greatest credit benefit comes from resolving your tax debt entirely and avoiding future liens or levies.

You are not required to seek professional help to submit for an Offer in Compromise. However, working with a tax relief professional may increase your likelihood of approval.

The IRS rejects a majority of OIC applications, and many taxpayers find it difficult to succeed without expert representation. Representing yourself in this case is almost like facing a prosecutor without a lawyer present. We recommend consulting with a tax practitioner to avoid setbacks regarding strict IRS requirements and paperwork. Leveraging professional help may also reduce the chance of your application being rejected.

• DIY Filing: Lower upfront cost, but higher risk of mistakes, missing documents, or unrealistic offers.
• Hiring a Tax Professional: Increases your likelihood of approval by ensuring the application meets IRS standards. Professionals understand IRS formulas, know what documentation is required, and can negotiate directly with the IRS on your behalf.

At TaxRise, we secure many approved OICs for qualified individuals each year, often saving clients tens of thousands in tax debt. Our tax relief specialists can file any unfiled tax returns you may have and negotiate with the IRS on your behalf to help you get the best possible resolution.

Your chance of achieving an offer in compromise increases when you have a trusted tax relief company like TaxRise on your side. Our team of tax professionals work with the IRS to achieve the best resolution possible for your situation.

We have the proven experience to navigate the complexities of IRS requirements on behalf of everyday taxpayers and businesses facing significant tax debt. As industry leaders, our tax strategy experts achieve tax settlement approvals for many clients each year.

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