Understanding Offer in Compromise

What is an Offer in Compromise?

An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. It's a legitimate option for taxpayers who cannot pay their full tax liability or would face financial hardship if they did.

Eligibility Requirements

To be eligible for an OIC, you must meet all of the following:

• Have filed all required tax returns
• Have made all required estimated tax payments for the current year
• Have made all required federal tax deposits for the current quarter (if you're a business owner with employees)
• Not be in an open bankruptcy proceeding

Types of Offers

• Doubt as to Collectibility: When you can't pay the full amount
• Doubt as to Liability: When there's a genuine dispute about the amount owed
• Effective Tax Administration: When payment would create an economic hardship or would be unfair

The Application Process

1. Complete Form 656 and Form 433-A (OIC) or Form 433-B (OIC) for businesses
2. Submit the $205 application fee (unless you qualify for a waiver)
3. Make the required initial payment
4. Provide all required documentation
5. Wait for IRS review (can take 6-12 months)

Tips for Success

• Be thorough and accurate in your application
• Provide complete financial documentation
• Consider working with a tax professional
• Be prepared for a lengthy process
• Have a backup plan if your offer is rejected