Settle Your Tax Debt with the IRS Offer in Compromise Program

If you’re facing overwhelming tax debt, you may have seen ads promising you can “settle your tax bill for pennies on the dollar.” While that phrase oversimplifies things, there is a legitimate IRS program that allows certain taxpayers to resolve their debt for less than the full amount owed. It’s called the IRS Offer in Compromise (OIC) — and for the right individuals, it can be a life-changing form of tax debt relief.

An experience tax attorney can help clients navigate the Offer in Compromise process from start to finish. Below, we explain how the program works, who qualifies, and what you can expect along the way.

What Is an IRS Offer in Compromise?

An Offer in Compromise is an agreement between a taxpayer and the Internal Revenue Service that allows you to settle your tax debt for less than the total amount you owe. In it's most common form, the IRS accepts a reduced payment if it determines that’s the most it can reasonably expect to collect based on your financial situation.

The program exists to give struggling taxpayers a fresh start, while still allowing the IRS to recover as much as possible.

Who Qualifies for an Offer in Compromise?

Not everyone qualifies for this kind of tax settlement, and the IRS reviews each case carefully over the course of several months. Generally, you may be eligible for an Offer in Compromise if one or more of the following apply:

1. Doubt as to Collectibility

You owe more than you can reasonably pay before the statute of limitations expires. In this case, the IRS may agree to accept less than the full balance due.

2. Doubt as to Liability

You believe you do not actually owe the tax debt, or there’s legitimate uncertainty about the IRS’s assessment.

3. Effective Tax Administration (ETA)

You technically owe the tax and have the means to pay, but doing so would cause undue financial hardship — for example, an elderly or disabled taxpayer who would need to liquidate essential assets.

Basic eligibility requirements include:

• All required tax returns have been filed.
• You’ve received at least one bill for the taxes you owe.
• You are not in an open bankruptcy case.
• You’re current on estimated tax payments (for individuals) or federal tax deposits (for businesses).

How the Offer in Compromise Process Works

Applying for an IRS Offer in Compromise involves several key steps:

1. Complete and Submit Forms

You’ll need to file Form 656 (Offer in Compromise) and Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms detail your income, assets, expenses, and debts. It is essential to fully report your income and expenses here to ensure the process goes smoothly. The IRS does provide estimates updated yearly of what they consider to be reasonable expenses.

2. Pay the Application Fee and Initial Payment

Most applicants must include a $205 application fee plus an initial payment:

• Lump Sum Offer: Submit 20% of your offer amount upfront.
• Periodic Payment Offer: Make the first monthly payment when you apply, and continue monthly while the IRS reviews your offer.

(Note: Low-income taxpayers may qualify for a fee waiver. The IRS website can help determine if this status applies to you)

3. IRS Review and Verification

The IRS reviews your financial information to determine your reasonable collection potential — essentially, how much the agency thinks it can collect. This step can take several months and may require you to provide updated documentation.

4. Offer Acceptance or Rejection

If your offer is accepted, you must stay compliant with all future tax filings and payments for five years — otherwise, the IRS can revoke the agreement.
If your offer is rejected, you have 30 days to appeal using Form 13711.

Common Misconceptions About the Offer in Compromise

Many taxpayers are drawn in by advertising that promises guaranteed settlements. The truth is that the IRS accepts only a small percentage of OIC applications each year. Offers are approved only when they represent a fair reflection of your financial reality.

That’s why working with a qualified tax attorney can make such a difference; careful preparation and professional representation can greatly increase your chance of success. The most common reason for a rejected offer is taxpayer error in filling out the forms, or a misunderstanding of the offer process.

The Benefits of Professional Representation

The Offer in Compromise process can be complex and time-consuming, and no two tax situations are the same. At The Law Office of Seth J. Howell, I can help you:

• Determine whether an OIC is the best option for your circumstances.
• Accurately complete all required IRS forms.
• Prepare supporting documentation that strengthens your case.
• Negotiate directly with the IRS on your behalf.
• Explore alternative tax relief options, to make sure we find the solution that is best for you.

A Path Toward a Fresh Start

An IRS Offer in Compromise isn’t right for everyone, but for those who qualify, it can be the difference between years of financial stress and a manageable, realistic resolution.

If you’re behind on your taxes and unsure where to turn, I can help you understand your options and begin to guide you toward lasting peace of mind.

Schedule a confidential consultation today to see whether you might qualify for the Offer in Compromise program.

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