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Offer in Compromise (OIC)

An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. The IRS may accept an OIC if it represents the most they can expect to collect within a reasonable time.

Timeline

7-12 months for IRS decision, plus time for preparation and any appeals

Cost

$205 application fee (waived for low-income), plus initial payment (20% for lump sum or first month for periodic)

Success Rate

Approximately 30-40% of OICs are accepted

Key Takeaways

  • Settle tax debt for less than owed
  • 30-40% acceptance rate
  • Takes 7-12 months to process
  • Requires full financial disclosure

Best For

  • Taxpayers who cannot pay their full tax liability
  • Those facing financial hardship
  • People with limited assets and income
  • Those with older tax debts approaching the collection statute

Requirements

  • 1
    All required tax returns must be filed
  • 2
    Not in an open bankruptcy proceeding
  • 3
    Must be current on estimated tax payments (if applicable)
  • 4
    Must make required payments while OIC is being considered
  • 5
    Application fee ($205) unless you qualify for low-income waiver

The Process

1

Pre-Qualification

Use the IRS Pre-Qualifier tool or consult a tax professional to determine if you may qualify.

2

Gather Documents

Collect financial statements, bank records, pay stubs, and asset documentation.

3

Complete Forms

Fill out Form 656, Form 433-A (individuals) or 433-B (businesses), and supporting schedules.

4

Submit Application

Send your OIC package with the application fee and initial payment.

5

IRS Review

An IRS examiner reviews your financial situation and may request additional information.

6

Decision

IRS accepts, rejects, or returns your offer. You can appeal a rejection.

7

Payment & Compliance

Pay the accepted amount and remain compliant for 5 years.

Advantages

  • Can settle for significantly less than you owe
  • Fresh start with clean tax record after completion
  • Collection activity stops while OIC is being considered
  • Removes tax liens after successful completion

Disadvantages

  • Long processing time (7-12 months average)
  • Complex application process
  • Low acceptance rate (30-40%)
  • Must remain compliant for 5 years after acceptance
  • IRS keeps any refunds during the 5-year period

Frequently Asked Questions

How much will the IRS accept?
The IRS will generally accept an amount equal to or greater than your Reasonable Collection Potential (RCP) - the amount they believe they could collect from you through other means.
Can I make payments on an OIC?
Yes. You can choose a lump sum offer (pay within 5 months) or periodic payment offer (pay over 6-24 months). Lump sum offers often result in lower settlement amounts.
What if my OIC is rejected?
You have 30 days to appeal a rejection. During the appeal, collection activity remains on hold. If ultimately rejected, you can explore other options like installment agreements.
Do I need a professional to file an OIC?
While not required, professional help significantly improves acceptance rates. Tax attorneys, CPAs, and Enrolled Agents understand IRS procedures and can properly document your case.

Is OIC Right For You?

Use our free tools to see if you qualify and estimate your potential outcome.

Calculate SettlementTake the Quiz

Other Options

Payment Plan

Taxpayers with steady income who can afford monthly payments

CNC Status

Taxpayers experiencing severe financial hardship

Penalty Relief

First-time penalty situations (clean compliance history)

Details

Timeline

7-12 months for IRS decision, plus time for preparation and any appeals.

Costs

$205 application fee (waived for low-income), plus initial payment (20% for lump sum or first month for periodic).

Success Rate

Approximately 30-40% of OICs are accepted. Professional assistance can improve these odds.