What Is an Offer in Compromise (OIC)?

If you're drowning in IRS tax debt and can’t afford to pay in full, there may be a legal way out. This article applies to U.S. federal tax law and explains how an Offer in Compromise (OIC) works — one of the most powerful tools in the IRS’s tax relief arsenal. TaxRise helps qualified taxpayers settle their tax debt through the IRS Fresh Start Program.

An Offer in Compromise (OIC) is an IRS program that allows eligible taxpayers to settle their tax debt for less than the full amount owed if paying in full would cause financial hardship.

What This Means

With an Offer in Compromise, the IRS agrees to accept a reduced amount — sometimes significantly less — as full satisfaction of your tax liability. This program is ideal for people who owe more than they can realistically pay, even over time.

The IRS only approves OICs when it believes the amount offered is the most it can reasonably collect based on your assets, income, and expenses. The agency understands that some taxpayers simply cannot afford to pay their full tax bill. Rather than force financial ruin or collect nothing, the IRS uses the Offer in Compromise to recover as much as possible while giving taxpayers a fresh start.

OICs also help the IRS close collection cases and free up resources for enforcement on higher-value or fraudulent accounts.

Who Can Qualify for an Offer in Compromise

• Individuals who owe more than they can repay based on current income and assets
• Taxpayers facing financial hardship due to unemployment, illness, or major life events
• People already in IRS collections or receiving warning notices
• Self-employed individuals and small business owners in financial distress

Even if you’ve been denied for other tax relief options, you may still qualify for an Offer in Compromise if your financial situation supports it.

How Do I Apply for an Offer in Compromise?

Here’s how the OIC process works and what you need to qualify:

• OIC Eligibility Requirements:
  • You’ve filed all required tax returns
  • You’re not currently in bankruptcy
  • You’ve received at least one IRS tax bill
• How to Apply:
  • Complete IRS Form 656 and Form 433-A(OIC) or 433-B(OIC)
  • Submit a non-refundable application fee ($205) unless you meet the low-income criteria
  • Offer either a lump sum or periodic payment plan

The IRS reviews your entire financial profile, including bank accounts, property, vehicles, income, and allowable living expenses. If your offer reflects the maximum amount they could expect to collect, they may accept it.

Important: Most initial OICs are rejected due to errors, missing documentation, or unrealistic offers. Working with a tax professional may dramatically increase your chances of approval.

How TaxRise Can Help With Offers in Compromise

TaxRise has helped eligible and qualified taxpayers restore their financial freedom through IRS tax relief programs, including Offers in Compromise. Our licensed professionals carefully analyze your financials, calculate a compliant offer amount, and handle all communication with the IRS.

Schedule your free consultation and find out if you qualify for an Offer in Compromise or other tax resolution options today.

Frequently Asked Questions

• How much will the IRS accept in an Offer in Compromise?
  It depends on your financial situation. The IRS calculates your “reasonable collection potential” — the most they believe they can collect — and bases their decision on that number.
• How long does the Offer in Compromise process take?
  The IRS typically takes 6 to 12 months to review and decide on an Offer in Compromise. You must remain compliant during that time.
• Will an Offer in Compromise stop IRS collections?
  Yes. Once the IRS acknowledges receipt of your OIC application, they generally pause active collection actions like garnishments and levies.

Reviewed by TaxRise Tax Professionals
This article was reviewed by the TaxRise Tax Professional Team. TaxRise has helped thousands of Americans eliminate millions in IRS and state tax debt. This content is for informational purposes only and is not legal or tax advice.