Offer in Compromise for Businesses and Self-Employed Individuals

Frequently Asked Questions

An Offer in Compromise is a powerful program offered by the IRS that allows businesses and self-employed individuals to settle their tax debt for less than the full amount owed, under certain circumstances. It provides a fresh start for taxpayers struggling with overwhelming tax obligations.

What is an Offer in Compromise (OIC) for businesses and self-employed individuals?

An Offer in Compromise is a program offered by the IRS that allows businesses and self-employed individuals to settle their tax debt for less than the full amount owed. It's a way to help taxpayers who cannot afford to pay their entire tax liability.

Who is eligible for an OIC as a business or self-employed individual?

A business or self-employed taxpayer generally must be current on all required filings and, for ongoing businesses with employees, up to date on federal tax deposits for the current and preceding quarters. You also cannot be in an open bankruptcy proceeding. The IRS then evaluates the offer against the business's reasonable collection potential, including income and the equity in business assets. Because business finances can be complex, a tax professional can help confirm whether you meet the threshold requirements.

What types of tax debt can be included in an OIC?

An offer can cover many federal tax liabilities, including income tax and the related penalties and interest, and in some cases business taxes such as certain employment tax balances. The trust fund portion of payroll taxes is treated more strictly because it represents money withheld from employees, and a related trust fund recovery penalty may be assessed against responsible individuals. Sorting out which liabilities qualify can be tricky for businesses, so it is worth reviewing the specifics with a tax professional.

How is the OIC amount determined for businesses and self-employed individuals?

The IRS calculates an acceptable amount based on reasonable collection potential, which combines the equity in your assets with a projection of future income available after allowable expenses. For a business, that means looking at receivables, equipment, and cash flow rather than just personal finances. The figure is tailored to your situation rather than set as a flat percentage of the debt. Given how much the asset and income analysis drives the result, professional help in preparing the financials is often valuable.

Are there fees associated with applying for an OIC?

Yes. The IRS generally charges a nonrefundable application fee and requires an initial payment with the offer, the amount of which depends on whether you choose a lump-sum or periodic payment option. Low-income individual applicants who meet certain guidelines may qualify to have the fee and initial payment waived, though that waiver is more limited for businesses. The current fee amounts are set by the IRS, so check the latest figures or ask a tax professional before filing.

What happens if my OIC is accepted?

Once accepted, you pay the agreed amount under the terms you selected, and the remaining balance is considered settled. In exchange, you must stay compliant by filing and paying all taxes on time for the next five years, and the IRS typically applies any refunds during that period to the debt. Meeting these conditions keeps the agreement in good standing, while falling short can reinstate the original liability. Many businesses lean on a tax professional to manage the post-acceptance compliance.

How long does it take to process an OIC application?

Processing commonly takes about six to twelve months, and business offers with more complex financials can take longer. The IRS first verifies that the application is complete, then assigns an examiner to review the financial details and request any missing documents. If the IRS does not make a determination within two years of receiving the offer, it is treated as accepted by law. Responding quickly to information requests helps keep the timeline from stretching out.

Can I negotiate with the IRS regarding the OIC amount?

There is room for back-and-forth during the review. The examiner may calculate a different reasonable collection potential than you proposed, and you can respond with documentation, corrected figures, or an explanation of special circumstances. If the offer is rejected, you also have the right to appeal to the IRS Independent Office of Appeals. A well-supported case tends to fare better in these discussions, which is one reason businesses often work with a tax professional or attorney.

Is it advisable to seek professional help when applying for an OIC?

Navigating the Offer in Compromise program for businesses and self-employed individuals can be complex. It's often wise to consult with tax professionals or attorneys who specialize in tax resolution to increase your chances of a successful outcome and debt relief.

Remember that OIC applications can be complex, and the IRS has specific criteria for approval. Seeking professional guidance is often a wise decision to navigate the process successfully.

Request a free consultation with our experts today and take the first step towards achieving your goals.

This content was written and reviewed by the licensed tax attorneys at Victory Tax Lawyers, LLP. Our attorneys specialize in IRS tax relief and are licensed members of the California State Bar with a nationwide practice.

Last Reviewed: 2026  ·  Meet Our Attorneys →

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