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Offer In Compromise
What is an Offer in Compromise?
An Offer in Compromise (OIC) is a formal agreement between a taxpayer and the IRS that allows eligible individuals and businesses to resolve tax debt for less than the full amount owed, if qualifications are met.
The IRS approves an OIC only when it determines that the amount offered reflects the most it can reasonably expect to collect based on your financial situation.
If paying your tax debt in full would create a proven financial strain, or if your assets and income are insufficient to cover the balance, an OIC may be a viable path to resolution.
When Does the IRS Accept an Offer in Compromise?
The IRS considers three legal grounds when reviewing an Offer in Compromise:
Doubt as to Collectability
This is the most common reason. It means you do not have sufficient income or assets to fully pay your tax debt.
Effective Tax Administration
You could technically pay the debt, but doing so would create financial hardship or would be unfair based on your circumstances.
(Note: These cases are less common and require strong supporting documentation.)
Doubt as to Liability
Doubt as to liability means there is a legitimate dispute about whether the tax debt is correct.
How Does the IRS Decide if You Qualify for an Offer in Compromise?
The IRS evaluates your offer using a financial calculation called Reasonable Collection Potential (RCP). RCP represents the total amount the IRS believes it can collect through your available assets and your future income, after allowable living expenses.
To be accepted, your offer must generally meet or exceed this calculated amount.
The IRS reviews three key areas:
Income
(including wages, business income, etc.)
Allowable Living Expenses
(based on IRS standards)
Asset Equity
(real estate, vehicles, bank accounts, investments)
The IRS does not allow all actual expenses. Many expenses are limited to standardized amounts under IRS Collection Financial Standards.
Offer in Compromise Payment Options
- Lump Sum Offer: Typically, the IRS will require you to pay 20 percent of the total amount you’re offering when you submit the offer. You’ll need to pay the rest in five or fewer payments, within five or fewer months of the date the IRS accepts the offer.
- Periodic Payment Offer: The IRS will require you to make the first payment when you submit the offer and the rest within 24 months, according to the terms of your offer.
For the IRS to accept an offer, you must file all tax returns due and be current with estimated tax payments or withholding. If you own a business and have employees, you must file all returns and be current on all your federal tax deposits.
Offer in Compromise Eligibility Checklist
To be eligible to apply for the Offer in Compromise IRS program, you generally must meet the following requirements:
- Filed all required tax returns
- Current on estimated tax payments or withholdings
- Not currently in an active bankruptcy proceeding
- Submitted a complete financial disclosure, application fee, and initial payment (taxpayers who meet low-income certification guidelines may have these waived while the IRS reviews the offer)
Before applying, you can use the IRS Offer in Compromise Pre-Qualifier Tool to estimate whether you may be eligible based on your financial information. While the tool does not guarantee acceptance, it can help you determine whether the Offer in Compromise IRS program may be an option before submitting forms and payments.
What Happens if Your Offer in Compromise is Declined (and How to Appeal)
A rejected OIC is not the end of the road. If your IRS Offer in Compromise is not approved, you have 30 days from the date of the rejection letter to appeal by filing Form 13711 with the IRS Independent Office of Appeals. In the meantime, other resolution options may still be available to you — including an installment agreement, penalty abatement, or Currently Not Collectible status if you’re experiencing financial hardship.
The right next step depends on why your offer was rejected and where your finances stand today. Optima Tax Relief’s licensed professionals can review your case, explain your options, and help you determine the strongest path forward.
How Optima Tax Relief Can Help with an Offer in Compromise
The Offer in Compromise process requires precision. Our team will review your full financial picture, determine whether an OIC is the right resolution strategy for your situation, and guide you through every step of the application. We’ll help you avoid the errors and omissions that most commonly lead to IRS rejection. If an OIC isn’t the right fit, we’ll identify the resolution option that is.
Optima Tax Relief is a nationally recognized tax resolution firm with a team of tax attorneys, Enrolled Agents, and licensed tax professionals who specialize in IRS Offer in Compromise filings. With over a decade of experience helping taxpayers resolve IRS debt, Optima has assisted clients across the country in navigating the OIC process — from eligibility review and financial disclosure preparation to negotiation and final resolution.
Frequently Asked Questions About Offer in Compromise
How long does the Offer in Compromise process take?
Timelines vary based on your financial situation, documentation, and IRS workload. Many cases take several months, and some may take longer depending on complexity.
Can I apply for an Offer in Compromise if I have unfiled tax returns?
No. The IRS will not review an OIC application if you have outstanding unfiled returns. You must file all required tax returns before submitting your offer. A qualified tax professional can help you get compliant and ensure your application is properly positioned once your returns are up to date.
Do I have to stay compliant with the IRS after my Offer in Compromise is accepted?
Yes. After acceptance, you must stay current on all tax filings and payments for five years. If you miss a filing, fail to pay taxes owed, or fall out of compliance during that period, the IRS can default your agreement and reinstate your full original tax liability. Staying compliant after acceptance is just as important as the application itself.
What are the most common reasons the IRS rejects an Offer in Compromise?
The most common reasons include unfiled tax returns, incomplete or inaccurate financial documentation, an offer amount below what the IRS calculates it can reasonably collect, and missing the required application fee or initial payment. Even minor errors can result in rejection. Working with an experienced tax professional helps ensure your application is complete, accurate, and as strong as possible.
When is an Offer in Compromise better than Currently Not Collectible status?
Currently Not Collectible (CNC) status temporarily pauses IRS collection activity, but it doesn’t reduce what you owe — interest and penalties keep accruing. An Offer in Compromise, if approved, actually settles your debt for less. If your financial situation is unlikely to improve significantly, an OIC may be the better long-term path. A tax professional can help you evaluate which option fits your situation.
Do I need a tax professional to apply for an Offer in Compromise?
You’re not legally required to hire one, but the OIC process is complex. It involves detailed financial disclosures, precise calculations, and specific IRS forms — and errors are one of the top reasons applications are rejected. An experienced tax professional, like the ones at Optima Tax Relief, can help you avoid costly mistakes, present your finances accurately, and improve your chances of approval.
How do I know if a tax relief company is legitimate?
Look for a firm staffed by licensed professionals — tax attorneys, CPAs, or Enrolled Agents — whose credentials you can verify. Check their BBB rating and be cautious of any company that guarantees results or makes promises before reviewing your financial information. A trustworthy firm will be upfront about your options and realistic about what to expect from the start.
Optima Tax Relief, LLC is a tax resolution firm independent from the IRS. This content is made available for informational and educational purposes only. Nothing included in the content should be taken as a guarantee, warranty, prediction, or representation about your specific situation. This content is not intended to be a substitute for professional advice and services. We encourage you to consult with a tax professional to discuss your specific tax matters. Individual results may vary. We do not provide tax, financial, bankruptcy, accounting, or legal advice and nothing contained in this content is intended nor shall be construed as such.
Blog Articles About IRS Offers in Compromise
What is an Offer in Compromise (OIC)?
An Offer in Compromise is a valuable tool that allows eligible taxpayers to settle their tax liabilities for less than the full amount owed. Learn the steps, who qualifies, and more.
How Long Does an Offer in Compromise Take?
While an Offer in Compromise can be a valuable and life-saving option for eligible taxpayers who owe, it’s important to understand that the process is not quick or straightforward.
How Much Should I Offer in Compromise?
The OIC allows taxpayers to settle their debt with the IRS for less than the full amount owed. However, determining the right amount to offer requires a careful evaluation of your financial situation.
Why Was My Offer in Compromise Rejected?
An Offer in Compromise allows you to settle your taxes for less than the full amount owed. But not every OIC gets accepted. If your Offer is rejected, it’s crucial to understand why and what steps you can take next.
Can You Reapply for an Offer in Compromise After It’s Denied?
If your Offer in Compromise was denied, you might feel like the IRS just closed the door on your best shot at resolving your tax debt for less than you owe. But here’s the good news: a denial doesn’t always mean it’s over.
Offer in Compromise for State Taxes
If you’re struggling with unpaid state taxes, you may feel like there’s no realistic way out. Fortunately, many states offer a form of tax relief similar to the federal program, an offer in compromise for state taxes.
Let Optima Tax Relief Help
Call 1-800-536-0734 for a free consultation.
Let Optima Tax Relief Help
Call 1-800-536-0734 for a free consultation.