What Is an Offer In Compromise (OIC) and How Does It Work?

An Offer in Compromise (OIC) is a tax settlement program offered by the IRS that allows eligible taxpayers to settle their tax debt for less than the full amount owed. It provides individuals and businesses facing financial hardship with a way to resolve their tax liabilities and achieve a fresh start. Here's how the OIC process works:

Frequently Asked Questions

What is an Offer in Compromise (OIC)?

An Offer in Compromise is an agreement that allows a qualifying taxpayer to settle a federal tax debt for less than the full amount owed. The IRS most often considers offers when there is doubt that the full balance can be collected within the time the law allows. You apply by submitting a formal offer with detailed financial information, and the IRS decides whether the amount reflects what it could reasonably collect. Whether an offer makes sense depends on your finances, which a tax professional can help you evaluate.

Who is eligible for an Offer in Compromise?

To be considered, you generally must have filed all required tax returns, made any required estimated payments, and not be in an open bankruptcy proceeding. Beyond those threshold requirements, the IRS examines your income, expenses, and assets to determine whether you can pay the full balance within the collection period. The IRS pre-qualifier tool can give a preliminary read on eligibility. For a fuller assessment of your circumstances, it can help to consult a qualified tax professional.

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

An Offer in Compromise can generally cover assessed federal tax liabilities, including income tax, along with related penalties and interest. Certain debts may not be eligible, and balances tied to open bankruptcy cases generally cannot be included. All the tax periods you want to resolve typically need to be listed on the offer. Because eligibility can depend on the specific type and status of each liability, a tax professional can help you confirm what can be included.

How is the amount of the OIC determined?

The IRS generally bases its evaluation on your reasonable collection potential, which combines the realizable equity in your assets with your projected future income after allowable living expenses. The calculation also depends on whether you choose the lump-sum or periodic-payment option, which affects how future income is counted. An offer is more likely to be considered when it reflects this collection potential rather than an arbitrary figure. A tax professional can help you understand how these calculations may apply to you.

Are there fees associated with applying for an OIC?

Yes, there is a non-refundable application fee for submitting an OIC. However, this fee may be waived if you meet certain low-income criteria.

What happens if my OIC is accepted?

If the IRS accepts your offer, you must pay the agreed amount according to the option you selected and remain compliant with all filing and payment requirements, generally for the next five years. Once the terms are met, the IRS releases any related federal tax liens. If you fail to keep up with the post-acceptance conditions, the agreement can default and the original liability can be reinstated with interest and penalties. A tax professional can help you stay on track with these obligations.

What happens if my OIC is rejected?

If your offer is rejected, the IRS will send a letter explaining why and outlining your right to appeal, which you generally must exercise within 30 days. You can use the appeal to provide additional information or address calculations that may have affected the decision. Other resolution options, such as an installment agreement or currently not collectible status, may also be available. Reviewing the rejection with a tax professional can help you decide on the best course of action.

How long does it take to process an OIC application?

Processing times vary, but reviewing an Offer in Compromise often takes several months to a year, depending on the complexity of your finances and the IRS workload. During the review, collection activity is generally paused, and the offer may be deemed accepted if the IRS does not make a determination within the period set by law. Submitting a complete and accurate application can help avoid delays. A tax professional can help ensure your package is in order before you file.

Can I negotiate with the IRS regarding the OIC amount?

There is room for discussion during the process, particularly if the IRS questions your financial information or proposes a different amount based on its calculation of your collection potential. You can respond by clarifying your finances or providing additional documentation to support your offer. If the offer is rejected, the appeals process provides another opportunity to make your case. Because these discussions hinge on detailed financial analysis, a tax professional can help you present your position effectively.

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

An Offer in Compromise can be a valuable tool for individuals and businesses struggling with overwhelming tax debt. However, the process can be complex, and it's often advisable to seek professional assistance to navigate it effectively and maximize your chances of success.

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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