Preparing and Submitting an Offer In Compromise

Preparing and submitting an Offer In Compromise is a complex process that requires careful consideration of your financial situation and adherence to IRS guidelines. If done correctly, it can provide substantial debt relief and a fresh start in managing your tax obligations.

Frequently Asked Questions

What is an Offer in Compromise (OIC), and how does it work?

An Offer in Compromise is a program offered by the IRS that allows eligible taxpayers to settle their tax debt for less than the full amount owed. It's designed to help individuals and businesses who are facing financial hardship and cannot afford to pay their entire tax liability.

Who is eligible to apply for an OIC?

Eligibility for an OIC is determined by the IRS based on your financial situation. To be eligible, you must demonstrate that paying your tax debt in full would cause financial hardship or be inequitable. The IRS considers factors such as your income, expenses, assets, and future earning potential.

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

Most types of federal tax debt can be included in an OIC, including income tax, self-employment tax, and certain penalties and interest.

How is the OIC amount determined?

The IRS calculates the OIC amount based on your ability to pay. This involves a comprehensive review of your financial situation, including your income, expenses, assets, and future earning potential. The final offer amount is typically a compromise between what you owe and what you can reasonably pay.

How do I prepare and submit an OIC?

Preparing an OIC starts with gathering a complete picture of your finances and completing the required forms — generally Form 656 along with the appropriate Collection Information Statement (Form 433-A (OIC) for individuals or 433-B (OIC) for businesses). You'll need to support the figures with documentation such as bank statements, pay records, and proof of expenses, and you must be current on your filing and estimated payment obligations. Because the calculations and paperwork are detailed, many taxpayers have a tax attorney review the package before it's submitted.

Is there a fee to apply for an OIC?

The IRS charges an application fee and generally requires an initial payment toward the offer when you apply, though the exact amounts can change, so check the current Form 656-B instructions. Low-income applicants who meet the IRS guidelines may qualify to have the fee and initial payment waived. Confirming the current figures before you file helps you avoid having an offer returned for an incorrect payment.

What happens after I submit my OIC application?

After you submit, the IRS reviews your forms and documentation and may request additional information before deciding. The process commonly takes several months, and during that time the agency verifies your income, expenses, and assets against what you reported. While the offer is pending, the IRS generally pauses most new collection action, but interest continues to accrue on the underlying balance.

What are my options if my OIC is accepted?

If your offer is accepted, you'll pay the agreed amount under the terms you selected, either as a lump sum or in periodic payments. Acceptance also comes with conditions: you generally must stay compliant by filing and paying on time for the next five years, and any refunds during that period may be applied to the debt. Meeting these terms is what allows the remaining balance to be considered settled.

What if my OIC is rejected?

A rejection isn't necessarily the end of the road. You typically have the right to appeal the decision, usually within 30 days, by filing Form 13711 to explain why you disagree with the IRS's findings. Depending on your circumstances, you might also revise and resubmit an offer or look at alternatives such as an installment agreement. A tax attorney can help you understand why the offer was rejected and weigh the next step.

Is it advisable to seek professional help when preparing and submitting an OIC?

It often is. The OIC process involves detailed financial calculations, strict documentation requirements, and rules that can be easy to misapply, and a small error can lead to a returned or rejected offer. A tax attorney can assess whether you're a realistic candidate, help you present your finances accurately, and handle communication with the IRS. Professional input can make the process smoother and help you avoid common pitfalls.

Remember that the OIC process can be complex, and professional assistance can be invaluable in navigating it effectively.

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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