Offer in Compromise (OIC): Important Facts You Need to Know

IRS Offer in Compromise (OIC)

What is an Offer in Compromise?

The Offer in Compromise (OIC) is an IRS program that allows certain taxpayers to settle their tax debt for less than the full amount owed. It is not a scam and is a legitimate way to resolve tax issues for those who owe taxes they cannot afford to pay or would suffer financial hardship if required to pay the full liability.

Who Qualifies for an OIC?

Taxpayers may be eligible for an OIC if:

• They are unable to pay the full tax debt in a lump sum or through a payment plan.
• They are current with all required tax filings.
• They are not currently involved in a bankruptcy case.
• Can demonstrate the offer is the most the IRS can reasonably expect to collect based on their income, assets, and expenses.

OIC Types

1. Doubt as to Collectability – The taxpayer’s income and assets are insufficient to pay the full amount of the debt.
2. Doubt as to Liability – The taxpayer contests the debt, believing that they do not owe all or part of the debt.
3. 3. Effective Tax Administration – The taxpayer technically can pay the full amount, but an exception would result in undue hardship (rare exceptions for cases such as elderly people on a fixed income).

How an OIC Works

Submit an offer using IRS Form 656 and financial statement forms 433-A (OIC) or 433-B (OIC) for businesses.

Pay the $205 application fee, or $107 if you qualify for a low-income exception.

Select the payment option:

• Lump Sum: Pay 20% with the offer and pay the remaining in 5 or fewer installments.
• Periodic Payments: Pay in monthly installments while the offer is under review.

IRS OIC Timeline

The IRS typically takes 6–12 months to review and accept or deny the offer.

During this period:

• Collections activity stop.
• The taxpayer must remain up-to-date with all required tax filings.

OIC Important Points

• The IRS has strict guidelines for eligibility and will reject improper applications.
• Taxpayers must have filed all required tax returns before applying.
• If accepted, the taxpayer must remain in full compliance with tax obligations for 5 years, or the OIC may be revoked.
• Accepted OICs may be publicly reported in a public database.

OIC Application Help

Preparing an OIC application requires detailed financial analysis. Tax professionals such as Padilla and Company LLC can help to ensure all required forms are complete and that the proposed offer is realistic to increase the chance of approval.