Understanding Offer in Compromise: When Settling IRS Debt for Less Is Possible

The IRS Offer in Compromise (OIC) program allows qualifying taxpayers to settle their tax debt for less than the full amount owed. While this option is well known, many misunderstand how it works, who qualifies, and what realistic outcomes look like. An OIC is not a quick fix, but for the right taxpayer, it can be a meaningful path toward long-term financial stability.

This guide explains how the OIC program works and what taxpayers should consider before applying.

What Is an Offer in Compromise?

An Offer in Compromise is a formal agreement between the IRS and a taxpayer to settle a tax debt for less than the total amount owed. The IRS will only approve an OIC if the amount offered represents the most they can reasonably expect to collect within the remaining time frame allowed by law.

Who May Qualify?

The IRS considers several factors when reviewing an OIC application:

• Income
• Expenses
• Assets
• Ability to pay
• Age and health considerations
• Long-term financial outlook

Taxpayers who have little ability to pay, or whose payment would create financial hardship, may qualify.

Types of Offers in Compromise

Doubt as to Collectibility

Filed when the taxpayer cannot pay the full amount before the collection statute expires.

Doubt as to Liability

Filed when the taxpayer believes the assessed tax amount is incorrect.

Effective Tax Administration

Filed when paying the full balance would create exceptional hardship, even if technically possible.

Requirements Before Applying

Before submitting an OIC, taxpayers must:

• File all required tax returns
• Be current on estimated tax payments (if self-employed)
• Be current on withholding (if employed)
• Have received a bill for at least one tax debt included in the offer

Failure to meet these requirements can result in an automatic rejection.

What Happens After Submitting an OIC?

The IRS typically takes months to review an OIC. During this evaluation, they may request:

• Additional financial documentation
• Bank statements
• Proof of expenses
• Updated income records

While the offer is under review, most collection actions are paused.

When an OIC Is Not the Best Option

An OIC may not be appropriate when:

• A taxpayer can afford a reasonable monthly payment plan
• The offer amount does not reflect the taxpayer’s ability to pay
• Assets or equity are available to satisfy the balance

In these cases, another relief option may be more appropriate.

How Alpine Tax Resolution Supports OIC Evaluations

Alpine performs pre-qualification screenings to determine whether an OIC is realistic before any application is filed. We analyze IRS transcripts, financial records, and collection statutes to create an informed, accurate picture of eligibility. If an OIC is not the best option, we help taxpayers explore other relief strategies such as installment agreements or currently not collectible status.

Sources

IRS Offer in Compromise Program
https://www.irs.gov/payments/offer-in-compromise

Understanding Federal Taxes – USA.gov
https://www.usa.gov/taxes

‍