What to Know About Offers in Compromise
If you’ve ever heard a commercial promising to “settle your IRS debt for pennies on the dollar,” you’ve heard of an Offer in Compromise (OIC). It sounds like magic: owe $30,000 and only pay $3,000? Where do you sign up?
The truth? It’s possible, but it’s not easy. And it’s not for everyone.
An Offer in Compromise is a legitimate IRS program that allows qualifying taxpayers to settle their debt for less than the full amount owed. But there’s a big catch: you have to prove that there’s no realistic way the IRS will collect more from you, even if they tried.
In other words, it’s not about what you want to pay; it’s about what the IRS believes they can reasonably get.
So, Who Qualifies?
The IRS only accepts OICs from taxpayers who are in rough financial shape. You need to show that, based on your income, assets, and future earning potential, there’s no way you can pay off the full tax debt even over time.
If you have equity in your home, savings, or a steady income, your chances of approval might be lower. But if you’re finding it hard to cover daily expenses and don’t have significant assets, you could still have a good shot at success.
Make sure you’re compliant first, so they can consider your offer. This means filing all necessary tax returns, and if you’re self-employed or making estimated payments, those should be current too.
How It Works
Submitting an Offer in Compromise (OIC) is a process that involves substantial paperwork and requires considerable time. It is necessary to complete Form 656 along with either Form 433-A(OIC) or 433-B(OIC), which provide a comprehensive breakdown of your income, expenses, debts, and assets. Additionally, an non-refundable application fee of $205 must be paid, along with an initial payment towards your settlement offer.
Then you wait, often for 6 to 12 months, for a decision to be made.
While your offer is pending, IRS collections are usually paused, which can be a relief. But if your offer is denied, you’ll still owe the full amount, plus any interest that’s accrued in the meantime.
What If You Don’t Qualify?
The good news is that the OIC isn’t your only option. Most taxpayers resolve their debt through an installment agreement, which allows you to pay off what you owe in monthly installments over time. If your situation is especially tight, the IRS may even agree to classify you as Currently Not Collectible, which pauses collections until your financial picture improves.
But be cautious about companies that promise a guaranteed settlement. No one can promise the IRS will accept your offer. That decision is based on hard numbers, not hope.
Ready To Talk to Todd?
Yes, settling tax debt for less is real, but it’s not a magic wand. The IRS only accepts Offers in Compromise when they believe it’s the best they can do.
If you think you might qualify, don’t go it alone. The application process is complex, and even a minor error can result in your offer being rejected.
Our firm is dedicated to supporting small business owners and individuals in crafting effective, realistic proposals. If an OIC isn’t the right fit for you, don’t worry, we’ll help you find the best alternatives.
Reach out to us for a free consultation and take that important first step toward peace of mind.
