Offer in Compromise: How It Works and What You Can Do.

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When you owe the IRS more than is reasonably possible to pay and attempting to do so would create extreme financial hardship – don’t despair.

Alternative payment options are available and are actively open for enrollment. 

One of your options is known as an Offer In Compromise or OIC.

Total Tax has more than 30 years of experience negotiating with the IRS. Contact us today to get back on the path forward.

Keep reading to find out if you are eligible and how to apply for an Offer In Compromise (OIC).

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What is an IRS offer in compromise?

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An offer in compromise (OIC) is an IRS tax relief program that allows eligible taxpayers to settle outstanding balances for less than they owe.

There are two types of Offer in Compromise that the IRS accepts. The most common OIC payment options are summarized below.

Lump sum

A lump sum is defined as an “offer payable in 5 or fewer installments” and must be paid within five or fewer months after the IRS accepts.

A lump sum OIC must include a 20% non refundable payment equal to the number of the offer amount.

Let’s break this down.

For example, you owe $30,000 in back taxes and offer to settle your taxes with a lump sum of $20,000.

When you submit your OIC, you must include 20% of the lump sum offer, which in this example, would be $4,000.

If the IRS accepts your OIC, they will take the $4,000, and you will now owe the remaining $16,000 over the next five or fewer months.

It is important to note that the 20% lump sum due upfront is nonrefundable and does not guarantee that the IRS will accept your offer.

Regardless if the offer is accepted or denied, the IRS will keep the 20% and apply it to your overall balance.

Payment Plan

Not everyone can afford to throw down an entire lump sum. Thankfully there are more options.

A payment plan consists of six or more monthly installments to conclude within 24 months after the IRS accepts the offer.

You must include the first payment and an application fee when submitting a payment plan offer.

For example, let’s say you owe $30,000 in back taxes and offer to settle your taxes with a payment plan over 12 months.

When you submit your OIC, you include your first payment and your $205 application fee, which in this example would be $2,500+$205=$2,705.

Your remaining balance ($27,500) over the next 11 months would be $2,500 per month.

Note: the first payment and the application fee are nonrefundable and do not guarantee that the IRS will accept your payment plan offer.

If the offer is accepted or denied, the IRS will still take your first payment and apply it to your outstanding balance.

Who Is Eligible for an Offer in Compromise?

An offer in compromise is not available to everyone. To be eligible, you must meet specific criteria set forth by the IRS.


  1. All tax returns are filed and accurate.
  2. You have received a bill for at least one period of unpaid taxes.
  3. All estimated tax payments for the current year are paid in full.
  4. If you are a business owner, you must have made all federal tax deposits for both the current quarter and the two preceding quarters.
  5. Must not have an open bankruptcy proceeding.
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How to Apply for An Offer In Compromise (in 3 Steps)

Applying for an offer in compromise is complex and requires thorough preparation. Here are the three steps to applying for an OIC.

Step 1: Complete Form 656-B & Form 433-A

To apply for an offer in compromise you must complete IRS Forms 656-B  and 433-A. 

These forms will provide the IRS with detailed information about your financial situation, such as income, assets, and expenses.

Step 2: Submit Your Application & Fees

Along with your completed application you will need to pay all required fees. The current fee for submitting an OIC application is $205 and 20% of your offer amount.

Step 3: Wait for a Response from the IRS

Once your application is submitted and all fees are paid, the IRS will review your application before they contact you to challenge what you’ve submitted. They will request updated financial information to confirm application information and may challenge facts and circumstances and will expect that you know how you qualify.. 

The IRS will review your responses and updated information, and respond with their decision. It usually takes 6-8 months from the time you send your application until the IRS accepts or rejects the offer in compromise..

What is the Acceptance Rate?

Statistically, the odds of getting an IRS offer in compromise are low. In 2021, the IRS only accepted 30% of applications.

It’s not impossible, though. You can do this, and Total Tax can help. Total Tax can increase your odds with an acceptance rate of more than 90%. We achieve this by accurately assessing from the beginning whether or not you will qualify for an OIC.

Here’s how the IRS decides whether to accept an offer in compromise.

How the IRS decides whether to accept an offer in compromise

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While every case is different, the IRS may accept your OIC based on one of the following reasons:

Doubt as to liability

Doubt as to liability means that when the IRS considers the facts presented to them, it is uncertain whether or not you truly owe the taxes due.

If the IRS feels that they have enough evidence that you owe the taxes due, they may reject your OIC request.

Doubt as to Collectibility

Doubt as to collectibility means that the taxpayer’s income and assets are significantly less than the full amount of tax liability.

In this case, a lower payment (or no payment) may be accepted.

Effective Tax Administration

In the rare case where there is no doubt to liability and no doubt as to collectibility, but it would be impractical, unethical, or provide economic hardship – an OIC offer may be accepted.

If an Offer in Compromise is accepted

If your offer is accepted, you will need to meet all the offer terms in Section 7 of Form 656.

This includes filling out all requested/required tax returns and making all payments outlined in your OIC.

Remember that when your offer is accepted, the following applies:

  • The IRS will not release federal tax liens until your full offer terms are satisfied and paid in full.

Your offer information and data are available for public review by requesting a copy of a public inspection file.


If an Offer in Compromise is rejected

If your offer is rejected, file for an appeal within 30 days using the Request for Appeal of Offer in Compromise, Form 13711

You can also contact the IRS Independent Office of Appeals, which offers additional help in appealing your rejected offer. They can help you with what your next steps are.

Don’t Face the IRS alone

There's no reason to face the IRS alone - Total Tax can help represent you in appellate court and review your forms for accuracy, so you can be confident that your Offer in Compromise application is prepared correctly.

With our experienced team of tax attorneys, we can give you the best chance at success when it comes to negotiating with the IRS. Contact us today to get started!

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