IRS Offer in Compromise: Settle for Less Than You Owe
When you cannot pay your IRS debt or paying it would cause hardship, you can settle for less than you owe through an offer in compromise. The IRS reviews your income, your expenses and how much equity you hold in the things you own. The answer is usually no when a payment plan could pay off what you owe.
What would a plan cost you each month? Try the calculator
Who qualifies for an offer in compromise?
The IRS offer in compromise page lists four basic rules you must meet before the IRS looks at your numbers.
- You have filed all required tax returns.
- Your estimated payments for this year’s taxes are done.
- You have no bankruptcy case that is open.
- If you have employees, the tax deposits for this quarter and the two before it are paid.
How do you check whether an offer might be accepted?
The IRS offers the Offer in Compromise Pre-Qualifier. It asks about your income, your spending and what you own and it suggests a starting offer. Think of it as a rough check rather than an answer from the IRS.
If a payment plan could pay off the debt before the IRS collection deadline, an offer is unlikely. Before anything else, compare payment plans: a monthly plan or a partial payment plan.
What does an offer in compromise cost?
Every application requires a $205 fee and a first payment, unless the low-income rules apply to you. Just individuals may qualify as low income. For those people, the fee and payments are on hold until the IRS finishes its review of the offer.
- Lump sum: 20% of the offer is due at the time you apply. Once accepted, you pay the rest in five or fewer payments.
- Periodic payment: your first payment comes when you apply and the periodic payments keep going while the IRS reviews it. Once the offer is accepted, continue paying until you pay it in full.
How do you apply for an offer in compromise?
As an individual, you can apply through the IRS Online Account. Use the Form 656-B booklet if you have no account and every business must use it too. It holds Form 656 plus the financial statements, either the 433-B (OIC) or Form 433-A (OIC).
A belief that you owe nothing in tax points to a separate offer, which you make on Form 656-L.
What happens while the IRS reviews your offer?
The IRS pauses most collection and extends its deadline to collect. A tax lien might still be filed anyway. Continue making the offer payments, but a plan you already have for that same balance does not have to be paid.
If the IRS neither accepts nor rejects the offer within two years, it is accepted automatically. The IRS keeps the fee when it rejects your offer and the payments you made count toward the balance. You can request a review of the decision from the IRS Independent Office of Appeals.
Offer in compromise questions
How much will the IRS settle for in an offer in compromise?
A set percentage does not apply. The IRS reviews your income, your spending and the equity in your assets. The Pre-Qualifier gives you a rough starting figure.
What happens after an offer is accepted?
Every term in Section 7 of Form 656 must be met to keep the offer. A public file holds some details of the offer and tax liens last until the full offer amount is paid.
Can I have a payment plan and an offer at the same time?
Being on a plan does not stop you from applying for an offer. While your offer is under review, you continue making the offer payments. The plan for that same balance does not have to be paid.
Not sure an offer is your best choice?
Every option fits a different budget: a payment plan, an offer or a hardship pause. A properly licensed tax pro can look over your situation and tell you which to begin with. You can also put your number in the form.
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