What Is an Offer in Compromise?

Offer in Compromise (OIC)

What Is an Offer in Compromise?

A program that allows taxpayers to settle their IRS tax debt for less than the full amount owed if they cannot pay the full amount or if doing so would create financial hardship.

Three Grounds for an OIC

1. Doubt as to Collectibility: You can't pay the full amount
2. Doubt as to Liability: You dispute whether you actually owe the amount
3. Effective Tax Administration: Paying in full would create economic hardship or be inequitable

IRS Evaluation Criteria

The IRS calculates your "Reasonable Collection Potential" (RCP):

• Equity in assets (home, cars, investments)
• Future income potential
• Monthly allowable expenses

The IRS generally won't accept an offer less than the RCP.

Application Process

1. Complete Form 656 (offer application)
2. Complete Form 433-A or 433-B (financial statement)
3. Pay $205 application fee (waived for low income)
4. Make an initial payment with the offer

Two Payment Options

• Lump Sum: Pay 20% upfront; remainder within 5 months of acceptance
• Periodic Payment: Pay the offered amount in 6–24 monthly installments

Processing Time

Typically 6–18 months. While pending, collection activities are paused.

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Overwhelmed by tax debt? We can evaluate whether an OIC could work for your situation.