What is an OIC
An Offer in Compromise is an IRS program that lets a taxpayer resolve a tax balance for less than the full amount owed. The IRS considers a settlement when it believes the amount offered equals what it can reasonably collect within a set period. The evaluation looks at your assets and your future disposable income, which together form a figure often called reasonable collection potential.
An accepted offer closes the tax years included in the agreement, as long as you remain fully compliant for five years after acceptance. Compliance means filing all returns on time and paying all taxes in full during that period.
Who qualifies
- All required tax returns are filed.
- Current-year estimated payments (or federal tax deposits for businesses) are up to date.
- You can document income, expenses, assets, and debts.
- You are not in an open bankruptcy case for the same liabilities.
The IRS also reviews household resources. If a spouse or partner shares expenses, that support may be included in the ability-to-pay analysis.
Approval bases
Doubt as to collectibility
You cannot pay the full balance when the IRS compares your assets and future disposable income to the tax owed. This is the most common path to approval.
Doubt as to liability
You dispute that the assessed amount is correct. This route focuses on accuracy of the tax, not hardship. It requires records that support the corrected amount.
Effective tax administration
You might technically be able to pay, yet collection would be inequitable or would create exceptional hardship. This basis relies on strong third-party documentation, such as medical or care-related evidence.
How the IRS calculates ability to pay
The IRS looks at two parts. First, equity in assets, often using a quick-sale value. Second, a projection of future monthly disposable income over a set number of months. Together, these form the reasonable collection potential. Offers that are near realistic collection potential and supported by evidence have the best chance of approval.
| Component | What the IRS reviews | Documentation ideas |
|---|---|---|
| Assets | Home equity, vehicles, bank and brokerage accounts, retirement, cash value life insurance, business interests | Statements, valuations, payoff letters, property records |
| Income | W-2 wages, self-employment income, distributions, rental income | Pay stubs, profit and loss, 1099s, bank activity |
| Necessary expenses | IRS national and local standards, with possible documented exceptions | Leases, invoices, insurance EOBs, medical letters |
How to apply
- Confirm you are compliant: all returns filed and current-year payments made.
- Gather six to twelve months of statements and bills for income and expenses.
- Complete Form 656 and the correct financial statement: 433-A OIC for individuals or 433-B OIC for businesses.
- Choose a payment option: lump sum or periodic plan.
- Submit the package and respond promptly to any IRS requests.
- Stay fully compliant while the offer is pending and for five years after acceptance.
Costs and payment options
Most applicants pay an application fee and include an initial payment with the offer. There are two payment structures. A lump-sum offer uses a shorter projection for income and typically requires a larger upfront amount. A periodic plan spreads payments over time and uses a longer income projection. Low-income certification, if you qualify, can waive the fee and initial payments.
Timeline and what to expect
Review can take many months. You will work with an offer examiner who may request updated records. Keep returns filed on time and avoid new balances. If your offer is accepted, follow the payment terms exactly and remain compliant for five years to keep the settlement in place.
If you do not qualify
A licensed representative can also help you correct returns, reduce assessed balances where appropriate, and revisit an offer once facts change.
FAQ
Does the IRS accept many OICs
Acceptance is selective. Strong documentation and a realistic offer increase your chances.
Can self-employed taxpayers qualify
Yes. Be ready with profit and loss statements, business bank activity, and proof of necessary business costs.
Will a lien be removed after acceptance
Liens are generally released after the offer terms are satisfied and you remain compliant.
Can one offer include multiple years
Yes, you can include several assessed years in one offer as long as they are eligible and listed in the application.
Glossary
- Offer in Compromise
- A negotiated settlement of a tax balance for less than the full amount owed.
- Reasonable collection potential
- The IRS view of what it can collect, based on asset equity and projected disposable income.
- Effective tax administration
- A basis for compromise where collection would be inequitable or create exceptional hardship.
Get a fast review
Talk with a licensed tax professional to see if an OIC fits your facts, or if a payment plan or CNC is a better route.
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