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
The IRS does not publish a processing time on its offer in compromise page
Cost
An application fee and an initial payment apply
How the IRS decides
The IRS states it generally approves an offer when the amount offered represents the most it can expect to collect within a reasonable period of time. It names the factors it considers: ability to pay, income, expenses and asset equity. It publishes a Pre-Qualifier tool for a preliminary view.
Key Takeaways
- Settle tax debt for less than owed
- Most offers are not accepted
- 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
- 1All required tax returns must be filed
- 2Not in an open bankruptcy proceeding
- 3Must be current on estimated tax payments (if applicable)
- 4Must make required payments while OIC is being considered
- 5An application fee, which the IRS waives under its low-income certification. Current amount is on the IRS offer-in-compromise page.
How to Apply for Offer in Compromise (OIC)
Pre-Qualification
The IRS publishes a Pre-Qualifier tool for a preliminary view. Eligibility is decided by the IRS on your full financial position.
Gather Documents
Collect financial statements, bank records, pay stubs, and asset documentation.
Complete Forms
Fill out Form 656, Form 433-A (individuals) or 433-B (businesses), and supporting schedules.
Submit Application
Send your OIC package with the application fee and initial payment.
IRS Review
An IRS examiner reviews your financial situation and may request additional information.
Decision
IRS accepts, rejects, or returns your offer. You can appeal a rejection.
Payment & Compliance
Pay the accepted amount and remain compliant for 5 years.
Advantages
- The IRS states it suspends other collection activities while it evaluates an offer.
- Published grounds: Doubt as to Collectibility, and two Effective Tax Administration grounds.
- The IRS publishes a low-income certification that removes the application fee and the initial payment.
- It addresses the liability itself rather than only the penalties on it.
Disadvantages
- The IRS states it may file a Notice of Federal Tax Lien while an offer is under consideration.
- An application fee and an initial payment apply unless the low-income certification does.
- Non-refundable payments and fees are applied to the tax liability.
- The IRS decides, on your full financial position. No tool or page can tell you the outcome.
Frequently Asked Questions
How much will the IRS accept?
Can I make payments on an OIC?
What if my OIC is rejected?
Do I need a professional to file an OIC?
Is OIC Right For You?
Read what the IRS publishes about each program. Eligibility is determined by the IRS on your full circumstances.
Other Options
Taxpayers with steady income who can afford monthly payments
CNC StatusTaxpayers experiencing severe financial hardship
Penalty ReliefSituations where the same return type was filed on time for the prior three years and no penalty was assessed in that window — the timely compliance history the IRS tests for administrative relief
Pay in FullTaxpayers who have the funds available now and want to stop interest and penalties from growing further
Short-Term PlanTaxpayers who can pay the full balance within 180 days and want to avoid any setup fee
Guaranteed IAIndividuals whose income tax liability, excluding penalties and interest, is small enough to meet the published limit
Simple Payment PlanIndividual, out-of-business sole-proprietor, or non-trust-fund business taxpayers whose balance is at or below the published threshold
Full-Disclosure IABalances above the Simple Payment Plan's aggregate threshold
Appeals / CDPSomeone who disagrees with a specific IRS collection action — a lien filing, a levy, or a rejected/modified/terminated installment agreement
Innocent SpouseA joint filer who did not know about, and had no reason to know about, errors the other spouse made on a joint return
Injured SpouseA joint filer whose share of a joint refund was applied to the other spouse's separate debt — back taxes, child support, federal student loans, or other debts subject to offset
BankruptcyUnderstanding, in general terms, what the Bankruptcy Code says determines whether an income tax debt can be discharged
Details
Timeline
The IRS does not publish a processing time on its offer in compromise page. It states that an offer is automatically accepted if it does not make a determination within two years of the IRS receipt date, not counting any appeal period.
Costs
An application fee and an initial payment apply. The IRS states that under its low-income certification you do not have to send either. For a lump sum offer the IRS states the initial payment is 20% of the total offer amount; for periodic payment offers you continue paying monthly while it considers the offer. Current fee amounts are on the IRS offer in compromise page.
How the IRS decides
The IRS states it generally approves an offer when the amount offered represents the most it can expect to collect within a reasonable period of time. It names the factors it considers: ability to pay, income, expenses and asset equity. It publishes a Pre-Qualifier tool for a preliminary view.
Sources
- Offer in compromise — Internal Revenue Service, retrieved 2026-08-20
- Form 656-B, Offer in Compromise Booklet (Rev. 4-2026) — Internal Revenue Service, retrieved 2026-08-20
Last reviewed 2026-08-20. Sourced to primary IRS materials and editorially reviewed. Not reviewed by a tax professional. Not tax advice. Report a correction.