An Offer in Compromise (OIC) is an agreement between you and the IRS that settles your tax debt for less than the full amount owed. It's an option when you can't pay your full tax liability, or when paying the entire tax bill would cause a financial hardship. The goal is a compromise that's in the best interest of both you and the IRS.
You can read FAQs from the IRS here - Offer in Compromise - Frequently Asked Questions and IRS Topic No. 204 - Offers in Compromise.
The IRS recommends exploring all other payment options before submitting an OIC. Also, an OIC can't be filed if you have an open bankruptcy. You can use the Offer in Compromise Pre-Qualifier Tool to see if you might be eligible by entering your financial information and tax filing status to calculate a preliminary offer amount. If the IRS pre-qualifier tool shows that you can pay your full liability, you may still file an OIC to discuss your individual financial situation with the IRS; they'll consider your unique set of facts and any special circumstances affecting your ability to pay when reviewing your application as well as your income, expenses, and asset equity.
The Form 656-B - Offer in Compromise Booklet covers everything you need to know about submitting an OIC, including how much it costs to apply and how the application process works. It also includes the forms that must be completed as part of the application. The current application fee is $205; however, if you meet the definition of a low-income taxpayer you don’t have to pay this fee. Your initial payment will vary based on your offer and the payment option you choose, in a lump sum or in installment payments.
The IRS will return any OIC application if you haven't filed all your required tax returns and haven't made required estimated payments. While your offer is being reviewed, among other things, a Notice of Federal Tax Lien (a public notice to creditors that you owe a tax debt) may be filed; other collection activities are suspended; the legal assessment and collection period is extended; and you are not required to make payments on an existing installment agreement.
If your OIC is accepted, you must meet all the offer terms and stay in compliance, or you will be found in default. Federal tax liens are not released until your offer terms are satisfied.
If the IRS rejects your offer, you have 30 days to file an appeal using Form 13711 - Request for Appeal of Offer in Compromise. The IRS Independent Office of Appeals provides information about how the appeals process works here: Appeal Your Rejected Offer in Compromise (OIC).
IRS VIDEO: Settle for Less with the IRS: Offer in Compromise
You may wish to seek the help of an experienced, qualified tax professional for this process. Please feel free to book a free 30-minute consultation with us or send us an email.
Resources: Offer in Compromise - Frequently Asked Questions
Topic No. 204 Offers in Compromise
Offer In Compromise Pre-Qualifier Tool
Appeal Your Rejected Offer in Compromise (OIC)
Offer in Compromise (OIC) Disagreed Items
Settle for Less with the IRS: Offer in Compromise (IRS Video)