Offer In Compromise

Settle your tax debt for less with an IRS Offer in Compromise. Our tax experts help you apply correctly and avoid costly mistakes.

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How an Offer in Compromise works

What you owe

$42,300

The IRS settles for what you can realistically pay

You settle for

$5,100

Often just 5–15% of what you owe — penalties and interest included. (illustrative example)

Did you know that you can settle your debt with the IRS for less than the full amount you owe with their Offer in Compromise program? The program allows taxpayers to settle with the IRS on tax debt that has been incorrectly assessed or for liabilities they cannot afford to pay.

The IRS Code states: “We will accept an Offer in Compromise when it is unlikely that we can collect the full amount owed and the amount you offer reasonably reflects the collection potential...” (Internal Revenue Code section 7122).

Often it is possible to fully and completely eliminate the taxes you owe - including all penalties and interest - at an enormous discount. There is no preset bottom limit that the IRS will accept to settle your debt especially if your offer is done “right.”

If done correctly your debt may be settled for only 5-15% of what you presently owe. The key is to determine the least amount that the IRS will accept from you before you make the offer.

$A tax debt settled for a fraction$

Settled for a fraction of what you owe

The full amount hanging over you

5–15%

A correctly built offer can settle for this small share of what you owe.

1 in 3

Roughly how many offers the IRS actually accepts — preparation is everything.

1 in 3

accepted

≈ 33% acceptance rate

Here’s the part most ads about this program leave out: the IRS doesn’t accept every offer, or even most of them. Acceptance rates have hovered around one in three applications over the past decade, and the number moves year to year based on the applicant pool and how well offers are prepared. That’s not a reason to rule out an IRS offer in compromise. It’s a reason to make sure yours is built correctly the first time, since a rejected offer still costs you the non-refundable application fee and the time spent waiting on a decision.

Before you apply, know what’s involved

01

What the Offer in Compromise Application Actually Requires

An offer in compromise application isn’t a short form. It’s a full financial disclosure. The IRS requires Form 656 along with Form 433-A (for individuals) or Form 433-B (for businesses), a detailed accounting of your income, expenses, assets, and equity, and a $205 application fee in most cases (waived only if you meet low-income certification). Most applicants also submit an initial payment — either 20% of the offer amount upfront for a lump-sum offer, or the first installment for a periodic-payment offer — which the IRS keeps regardless of whether your offer is accepted.

Before any of that, you also need to be current on your filings. The IRS will not consider an offer from a taxpayer who has unfiled returns or has missed current-year estimated payments, and an open bankruptcy proceeding disqualifies you outright. This is where working with an individual tax services or business tax services team pays off early — getting your filing history clean before you apply is often the difference between an offer that gets considered and one that gets rejected on a technicality.

Form 656The offer itself

Form 656

Form 433-A / 433-BIndividual or business financials

Form 433-A / 433-B

Income, expenses, assets & equityA detailed accounting

Income, expenses, assets & equity

$205 application feeWaived only for low-income

$205 application fee

Initial payment20% or the first installment

Initial payment

Current on filingsNo open bankruptcy

Current on filings

02 Watch out for OIC mills

A Word of Caution: Not All Offer in Compromise Help Is Legitimate

The IRS itself has flagged aggressive advertising around this program as a genuine problem. So-called “OIC mills” — companies that promise IRS tax settlement for pennies on the dollar regardless of a taxpayer’s actual situation — made the IRS’s 2026 Dirty Dozen list of tax scams, and the agency specifically warns that these firms often overpromise results and charge high fees to people who were never going to qualify in the first place.

The IRS’s own guidance is to work with a licensed enrolled agent or a reputable accounting firm rather than a high-pressure sales operation — which is exactly the kind of offer in compromise help we provide. We don’t take on a case and promise a number before we’ve actually run your financial picture through the IRS’s collection-potential formula.

A caution against offer-in-compromise scams

How professional guidance changes the odds

Why Professional Guidance Matters for Offer in Compromise Help

The single biggest driver of a successful outcome isn’t the size of your debt — it’s whether the offer amount and the paperwork behind it actually match what the IRS’s own formula says you’re able to pay. That number, called your Reasonable Collection Potential, is calculated from your income, allowable living expenses, and equity in assets. Get it wrong in either direction and the offer is likely to be rejected, or you’ll end up settling for more than you needed to.

This is also where an offer in compromise fits into a bigger picture rather than a one-time fix. Once an offer is accepted, you’re required to stay current on filings and payments for five years, or the settlement can be voided and the original debt reinstated. We build that compliance runway into your broader tax planning, so the relief you get from a successful offer actually sticks.

A professional calculating reasonable collection potential

The formula behind every offer

Incomewhat you earn

−

Allowable living expensesIRS standards

+

Equity in assetswhat you own

=

Reasonable Collection Potentialwhat the IRS says you can pay

It’s this number — not the size of your debt — that your offer amount has to match. Match it, and the offer holds up.

Illustrative example

How someone who owes $34,000 could potentially settle for much less

An Offer in Compromise is based largely on what the IRS believes you can realistically afford to pay — not on a preset discount percentage. Step through the math:

$6,700

Monthly household income

Illustrative allowable monthly expenses− $6,500

Housing, food, transportation, health care and other qualifying expenses.

Money remaining each month$200

$200 × 12 months$2,400

Plus available asset equity+ $1,000

Illustrative Offer in Compromise$3,400

The illustrative offer

$3,400

of $34,000 owed

≈ 10% of the $34,000 debt

That’s about 10% of the original tax debt — but 10% is not an IRS rule or standard settlement rate.

Some taxpayers may qualify for an offer that represents a very small percentage of what they owe. Others may qualify for a much higher amount, or may not qualify for an Offer in Compromise at all.

Why could the offer be so much lower?

The IRS looks at your income, necessary living expenses, assets, equity and overall ability to pay. If that financial analysis shows the IRS is unlikely to collect the full balance, it may consider settling for less. The IRS generally refers to this ability-to-pay analysis as Reasonable Collection Potential, or RCP.

Illustrative example only. The IRS does not settle Offer in Compromise cases using a fixed percentage of the tax debt. Eligibility and offer amounts depend on the taxpayer’s specific income, allowable expenses, assets, equity, ability to pay and other circumstances. Not everyone qualifies.

After your offer is accepted

5 years of staying compliant — not a 5-year payment plan

Your settled amount is paid under the offer terms. The five years that follow aren’t about paying down the debt — they’re about staying compliant: file on time, pay on time, and take on no new tax debt. We build that runway in.

Year 1

Stay compliant

Year 2

Stay compliant

Year 3

Stay compliant

Year 4

Stay compliant

Year 5

Stay compliant

Stay compliant all five yearsThe settled amount closes out the debt for good — a clean slate.

Fall out of complianceThe IRS can default the agreement and pursue the remaining original tax debt.

Offer in Compromise FAQ

Most decisions take 6–12 months, though complex cases with multiple income sources or business assets can take longer. By law, the IRS has up to 24 months to respond; if it doesn’t, your offer is automatically accepted (though in practice the agency almost always responds well before then).

You have 30 days from the date on your rejection letter to file an appeal using Form 13711, Request for Appeal of Offer in Compromise. Your appeal goes to the IRS Independent Office of Appeals, a separate division from the examiner who made the original decision.

Yes, you need to stay current on all filing and payment obligations for the current tax year while your offer is pending, and if you selected periodic payments you must keep making those monthly. Falling out of compliance during the review period is one of the most common reasons an otherwise solid offer gets returned without a decision.

A lump-sum offer requires a 20% initial payment with your application, and the remaining balance must be paid in five or fewer payments if accepted. A periodic-payment offer requires a smaller initial payment, followed by monthly payments while the IRS reviews your case and continuing until the offer is paid in full if accepted.

Businesses can apply too. Instead of Form 433-A, a business submits Form 433-B along with Form 656, and the IRS evaluates the company’s assets, income, and reasonable collection potential the same way it would for an individual. If you’re weighing this option for a business, our business tax services team can help determine whether an OIC or another resolution path fits your situation better.

Yes, but only for a limited time. The IRS maintains a public inspection file of accepted offers for one year, which includes the liability amount and settlement terms. After that year, the file is no longer part of the public record.

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