Tax issues with the IRS can feel overwhelming, but relief options exist. One of the most effective tools is the Offer in Compromise (OIC).

This program allows eligible taxpayers to settle their debt for less than the full amount owed. It’s designed for those who can prove that paying in full would cause financial hardship.

Understanding the Offer in Compromise

An OIC is not an automatic solution. The IRS requires extensive documentation to prove that you cannot afford to pay the full balance.

If approved, you agree to repay a reduced amount through either a lump sum or a structured payment plan. In return, the IRS halts collection actions and provides a path forward.

It’s important to note that once an offer is accepted, the IRS may keep future tax refunds to apply toward your debt.

How the Offer in Compromise Works

The process is straightforward but requires accuracy and persistence. Here’s what typically happens:

  1. Submit Application – File Form 656 with a $205 application fee (unless you qualify for a low-income waiver).
  2. Initial Payment – Include your first payment with the application. The type of payment plan determines how much.
  3. IRS Review – The IRS evaluates your financial situation, including income, expenses, assets, and future earning potential.
  4. Decision Issued – Your offer is either accepted, returned for corrections, or denied. Returned offers can usually be resubmitted with proper documentation.
  5. Final Agreement – If approved, you’ll receive written confirmation and begin making agreed payments until the debt is resolved.

Payment Options Under an OIC

The IRS provides two ways to pay if your offer is accepted:

  • Lump Sum Cash Offer

    • You must send 20% of the total offer amount with your application.
    • If approved, the balance is paid in five or fewer additional payments.
  • Periodic Payment Offer

    • Your first installment is due when you apply.
    • You then make monthly payments while the IRS reviews your proposal.
    • If accepted, you continue making payments until the balance is cleared.

Key Things to Remember During the Process

While the IRS evaluates your offer:

  • Payments and fees are non-refundable.
  • You may receive a Notice of Federal Tax Lien.
  • Collection activities may be suspended during review.
  • The IRS can extend the collection period.
  • You must stay current on all new tax payments.
  • Existing installment agreements do not need to continue while an OIC is pending.
  • If the IRS does not respond within two years, your offer is automatically accepted.

Do You Qualify for an OIC?

The IRS approves OICs based on strict criteria. You may qualify if:

  • All required tax returns have been filed.
  • You are current on estimated or withholding tax payments.
  • You cannot pay the full amount before the statute of limitations expires.
  • The amount offered represents your reasonable collection potential (calculated from assets and income).
  • You can stay compliant with tax obligations for at least five years after acceptance.

The IRS also provides an online pre-qualifier tool to help you determine eligibility before submitting an application.

Common Reasons an OIC Is Rejected

  • Incomplete forms or missing documentation.
  • Failure to file all required tax returns.
  • Offering less than what the IRS believes it can reasonably collect.
  • Falling out of compliance with estimated or withholding payments.

Why Professional Help Matters

Applying for an OIC is not simple. Small mistakes can delay or derail your proposal. Working with an experienced tax professional ensures that your application is accurate and well-documented.

At Tax Law Advocates, our team of enrolled agents, tax attorneys, and accountants can:

  • Review your financial records against IRS standards.
  • Prepare a strong proposal that reflects your true ability to pay.
  • Handle communication with the IRS to reduce stress.
  • Increase your chances of securing approval.

Take the First Step Toward Relief

Paying back taxes is difficult, but you don’t have to face it alone. At Tax Law Advocates, we use detailed financial analysis to demonstrate why an OIC is the right solution for you.

Call 855-612-7777 today to schedule a consultation. With expert guidance, you can reduce your tax burden and move forward with peace of mind.