Fresh Start Program
IRS Offer in Compromise (OIC)
Thousands of Americans qualify to reduce their tax debt each year through the Offer in Compromise program. If you're experiencing financial difficulties and owe tax liability to the IRS, an OIC settlement may be a legitimate option for you.
Key Insights
What Is an Offer in Compromise?
An OIC is a formal agreement with the IRS that may allow you to settle your tax debt for less than the full amount owed. This program exists under federal tax law and provides relief when paying your entire tax liability would create economic hardship. OIC is the best option available through the IRS Fresh Start Program — with many people saving 95% or more on their tax debt. However, the eligibility requirements are strict.
How to Qualify for an Offer in Compromise
To qualify, you must first comply with the IRS by filing all applicable unfiled tax returns. You may be eligible if you meet the following requirements:
- You filed all required tax returns for the past six years
- You do not have an ongoing bankruptcy case
- You must file the current year's tax return or have a valid filing extension
- As an employer, you must have made tax deposits for the current and past 2 quarters
There is no minimum tax liability amount necessary to qualify. Resolution eligibility depends on each taxpayer's unique financial and liability situation.
Three Paths to OIC Eligibility
Doubt as to Liability
Applies when a taxpayer believes the amount assessed by the IRS is incorrect due to errors or misapplied rules. You are disputing the validity of the tax debt rather than seeking relief based on financial hardship.
Doubt as to Collectibility
The most common type of OIC. Intended for taxpayers who cannot fully pay their tax debt. You agree the debt is correct, but paying the full amount would cause significant hardship. The IRS analyzes your assets, income, and net realizable equity.
Effective Tax Administration
You may qualify even if you technically have the ability to pay, but doing so would create significant financial strain or would be unfair under the circumstances.
The Two Types of OIC Payments
Lump Sum Cash Offer
Pay an initial installment (generally 20% of the offer amount) when you file. If the IRS accepts your offer, pay the remaining balance in five or fewer payments. This path can reduce the total time you spend in the process.
Periodic Payment
Submit your first payment with the application and continue making monthly payments while the IRS investigates your case. If the offer is accepted, you continue paying until the agreed amount is satisfied. The IRS generally has 24 months to make a decision.
If the IRS Rejects Your OIC
If your OIC is rejected, you have the right to file an appeal using Form 13711 within 30 days of the rejection date. You can also submit a new offer with different terms or explore alternative payment plans. A tax professional can assist in preparing an application that documents your financial situation and supports your claim.
Frequently Asked Questions
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