Offer in Compromise
IRS Offer in Compromise
An Offer in Compromise is the IRS program that lets you settle tax debt for less than the full amount you owe. It is the real version of "settle for pennies on the dollar," but the IRS accepts it only when it agrees it cannot realistically collect more. Rejection rates are high when the offer is prepared without running the IRS formulas first. That is the part we do before anything gets filed.
Overview
Offer in Compromise: the essentials.
- IRS form
- Form 656 + 433-A/B
- Application fee
- $205 (waivable if low-income)
- Based on
- Reasonable collection potential
- IRS review
- Several months to ~2 years
The Offer in Compromise (OIC) is the settlement program most people mean when they ask whether the IRS will take less than they owe. The answer is sometimes yes, but not by goodwill. The IRS accepts an offer when the amount you propose meets or beats your Reasonable Collection Potential, the figure the IRS calculates from your assets plus your future income after allowable living expenses.
We prepare every Offer in Compromise in-house. Our Enrolled Agents, CPAs, and tax attorneys pull your IRS account transcripts, run the reasonable collection potential formula on your actual numbers, and only submit when the math supports acceptance. If your case does not qualify for an OIC, we tell you on the first call and move to the settlement program that does.
How this case usually unfolds
Could not pay the full balance · Offer in Compromise
An OIC case lives or dies on the reasonable collection potential math. We calculate it before filing, the equity in your assets plus future income after allowable expenses, and only submit when the number supports acceptance. When it does not, we say so and move to the settlement program that fits instead.
Sound similar to yours?
No two cases are identical, but patterns repeat. Talk to one of our Enrolled Agents to find out which programs apply to your situation.
Get Free ConsultationHow an Offer in Compromise works
An Offer in Compromise is filed on Form 656 with a detailed financial statement (Form 433-A or 433-B) that documents every asset, source of income, and allowable monthly expense. The IRS uses that packet to calculate your Reasonable Collection Potential, then compares it to the amount you offered. If your offer is at or above that number, the IRS has a formula-based reason to accept.
You choose how to pay an accepted offer: a lump sum (20 percent down, then the balance in five or fewer payments) or a periodic payment plan spread over the remaining months of the collection statute. The IRS charges a $205 application fee and requires the initial payment up front, though low-income applicants can qualify for a waiver of both.
The IRS takes many months to review an Offer in Compromise, and while it is under review the collection statute is paused. We handle every piece of correspondence during that window so a missed IRS request does not sink an otherwise-approvable offer.
The three types of Offer in Compromise
Most offers are the first type below. The other two are narrower, but they matter when the standard collectibility math does not tell the whole story.
Doubt as to Collectibility
The most common OIC. Used when you cannot pay the full balance and the IRS agrees that collecting it in full would leave you unable to cover basic living expenses. Acceptance turns on your reasonable collection potential, not on how much you owe.
Doubt as to Liability
Used when you dispute that you actually owe the assessed amount, for example an audit adjustment that was wrong or a Substitute for Return the IRS filed for you. Here the offer is about the correctness of the debt, not your ability to pay it.
Effective Tax Administration
A rarer offer for cases where you technically could pay, but doing so would be unfair or create economic hardship because of exceptional circumstances such as serious illness or age. You have to show that collecting in full would be inequitable.
Do you qualify for an Offer in Compromise?
Before the IRS will even consider an offer, you have to be current: all required tax returns filed, current-year estimated payments or withholding on track, and not in an open bankruptcy. Those are gate conditions, not the decision itself.
The decision itself is the reasonable collection potential math. The IRS adds the equity in your assets to your future monthly income (after subtracting allowable living expenses under the National and Local Standards), multiplied out over the offer term. If that number is less than the full balance, an Offer in Compromise is realistic. If it is not, a different program will serve you better, and pushing an offer that the formula does not support just wastes the application fee and months of review.
We run this calculation during the investigation phase, before you commit to an offer. You see the number the IRS will see, so there are no surprises when the packet is submitted.
If an offer is not the right fit: other ways to settle
An Offer in Compromise is one settlement path, not the only one. When the collection math does not support an offer, these programs settle the debt on terms you can actually meet. Many cases end up here, and the outcome is often just as good.
Installment Agreement
A monthly payment plan that pays the balance over time. The IRS offers several tiers at different income levels, and we negotiate the smallest payment you may qualify for.
Partial Payment Installment Agreement
A monthly plan that does not pay the full balance before the ten-year collection statute expires. The IRS forgives whatever remains when the clock runs out.
Currently Not Collectible
The IRS pauses collection entirely when your income barely covers necessities. No garnishment, no levy, while the status holds. The debt stays on the books and is reviewed periodically.
Penalty Abatement
The IRS removes failure-to-file and failure-to-pay penalties (and the interest charged on them) when you have reasonable cause or a clean prior compliance history. On older balances the penalty stack can be a large share of what you owe.
Federal programs
Nine IRS programs. We look through them all.
Most tax debt is resolved through one of these nine programs. Which one fits depends on your numbers, your filing history, and assessment dates.
Client reviews
What clients say about Offer in Compromise.
5.0 on Google across 356+ verified reviews. A few relevant to Offer in Compromise below; read them all on our reviews page.
I cannot say enough good about Innovative Tax Relief. They have been very helpful and professional through this entire process. Josh has been a pleasure to work with and always tries to help if I don't understand something. I would highly recommend them to anyone needing help to resolve tax issues.
I was worried at first. I'm not really computer savvy. Pablo Nunez has so much patience with me. Talked to me, clearly explained, and walked me through computer difficulties. I'm not worried, and my stress levels have never been lower. Thank you, everyone at Innovative Tax Relief.
Their. Very. Respectable. They. Solve. My. Issue. With. The. IRS On. How. To. Be. On. The. Rite. Track. With. The. IRS. Payments
Since signing up with them it has been a load off my shoulders to get this situation resolved
Yes I Praise King Jesus, I Am Grateful for Helping Me getting My Taxes Resolved for Me!
Thank you to innovative tax relief for putting my tax problems behind me .. thanks to Peter for overseeing the process my case worker Lisa Liriano for reassuring me it’s all going to be fixed, and all the refiles from past years and just a mess you took over .. attorney Ryan for negotiations and protections from the IRS and saving me thousands of dollars .. you did exactly what you said you would do now I can breathe again ..Thank you Innovative Tax Relief
Frequently asked
What people ask about Offer in Compromise.
What is an Offer in Compromise?
How much should I offer the IRS in an Offer in Compromise?
How do you get an Offer in Compromise approved?
Does an Offer in Compromise affect my credit?
How long does an Offer in Compromise take?
Related services
Cases often touch more than one service.
Many cases start in one category and shift as we understand the numbers. Here are the services this one most often pairs with.
Penalty abatement
IRS Penalty Abatement
On an older tax balance, penalties are often a large share of what you owe. Penalty abatement is the process of getting IRS penalties removed, either through First-Time Abatement when your compliance history is clean, or through reasonable cause when something outside your control caused the problem. When a penalty is removed, the interest charged on that penalty comes off with it.
Learn moreIRS tax relief
Tax Relief Services & Programs for IRS Tax Debt
Tax relief services are not one product. The IRS offers multiple tax debt relief programs, and which one fits your case depends on your income, assets, and filing history. A licensed Enrolled Agent walks every option with you and runs the one that costs you the least.
Learn moreTax resolution
Tax Resolution Services
Tax resolution is the work of fixing an open IRS problem and getting collection to stop. When the IRS is sending letters, calling, or threatening to garnish wages, a tax resolution firm steps in, files Power of Attorney, and takes over from there. You do not talk to the IRS again unless you want to.
Learn moreNationwide · all 50 states
Offer in Compromise in all 50 states.
IRS representation is federal, so we handle Offer in Compromise for clients in all 50 states, remotely from our West Palm Beach headquarters. Florida is our home base, and we keep dedicated local pages for the metros we serve most.
Florida local pages
Ready to resolve your Offer in Compromise case?
Free consultation with our team. No obligation.
Prequalification
See if You Qualify for Tax Relief
How much do you owe?