An Offer in Compromise (OIC) is an IRS program that allows you to settle your tax debt for less than the full amount owed. If you qualify, the IRS may accept a reduced payment based on your ability to pay, income, expenses, and assets.
How Does It Work?
The IRS evaluates your "Reasonable Collection Potential" (RCP)—essentially what they believe they could collect from you over time. If your RCP is less than your total debt, you may be able to settle for that lower amount. The IRS considers your income, necessary living expenses, and the equity in your assets.
Who Might Qualify?
OIC is not for everyone. You're more likely to qualify if you have significant debt relative to your income and assets, limited ability to pay, or circumstances that make full payment a hardship. The IRS rejects many offers, so it's important to have a realistic assessment before applying.
What to Expect
Applying for an OIC involves submitting Form 656 and supporting documentation. The process can take several months. There's an application fee (waived for low-income taxpayers), and you may need to make an initial payment. If the IRS accepts your offer, you'll typically pay the agreed amount in a lump sum or over a short period.
Get Help
Because OIC eligibility is complex, many people work with a licensed tax professional who can assess their situation and help prepare a strong offer. We connect you with qualified professionals who can review your case.