How Receptive Is The IRS To An Offer In Compromise?

If you listen to the radio, you may often hear about the IRS settling tax debts for a fraction of what you owe. This advertisement usually refers to the Offer in Compromise (OIC) program that the IRS offers on a limited basis. How receptive is the IRS to an OIC? Keep reading to find out, then talk to our Chicago tax lawyers at North Suburban Legal Services if you have questions.

Offer In Compromise Overview

An OIC program allows a limited number of taxpayers to settle their debt for less than they owe. You need to meet specific requirements to apply for the program. However, the IRS rejects more applications than it accepts. For example, in 2021, the IRS accepted only 15,154 out of 49,285 requests. So, while the IRS is receptive to an offer in compromise, chances are high that it will be rejected.

The chances of it being accepted rise if you have an experienced tax professional or attorney handle the matter. Also, the IRS will often approve the OIC if you offer the most they can collect in a reasonable time. You also should consider all payment options before you submit your offer.

How To Apply For An Offer In Compromise

There are three parts to the OIC application process. First, your Chicago tax lawyer can help you with the application:

  • Fill out IRS forms 433-A and 656. If you think the tax debt does not belong to you or does not exist, you can complete Form 656-L.
  • Pay the $205 application fee. This is non-refundable, but it can be waived if you can prove you have a low income.
  • Make a payment towards the new balance you propose.

You will need to give the IRS a lot of documentation about your income, assets, cash in the bank, and debt. You must also provide information about your rent, groceries, utilities, and related expenses. Taxpayers can fill out the documents themselves, but having an attorney do it for you might increase your chances of acceptance.

IRS Rules About Offer In Compromise

The IRS may be open to an offer of compromise in these situations:

  • If there is any doubt about liability. An OIC meets this standard if there is a dispute about how much tax is owed according to the law.
  • If there is doubt that what you owe is collectible. Doubt about the ability to collect happens if your assets and income are below what you owe.
  • The IRS can also accept an OIC according to effective tax administration. This means there is no doubt about what you owe or that you could pay it, but it would create economic hardships or be unfair.

How You Can Pay An OIC

If the IRS accepts your proposal, you have two options to settle your tax debt:

Payment Plan

You must pay the debt within 24  months and send the first payment with your OIC application. However, the IRS will not refund the money even if it rejects the plan; it will simply put the money towards the debt you owe. Therefore, it is wise to continue to make payments while you wait for the IRS decision.

Lump Sum

It must be paid within five months if you want to pay a lump sum. At least 20% of what you owe must be with your application. The money will not be refunded if they accept your proposal.

If the IRS rejects your OIC, you have other options. For example, you can sign up for an installment plan for what you owe. Or, talk to your attorney about asking for ‘currently not collectible’ status.

Tips For Getting An OIC Accepted

The biggest reason an OIC is rejected is the application needs to be completed. The IRS will not decide if the application is missing anything. Also, to qualify, you cannot open a bankruptcy case and must have filed all of your tax returns. You must also have filed the correct IRS forms and be current with your estimated tax or income tax withholding for that calendar year. You can increase your chances of approval by:

  • Paying the offer amount in full on time
  • File all tax returns on time
  • Allow the agency to keep your tax payments, credits, and refunds to lower your tax liability
  • Allow the IRS to keep your tax refunds even if they approve the OIC

Hiring a tax attorney or tax professional to assist you with filing an OIC is also strongly recommended. The process is complex, and an experienced tax professional or attorney is more likely to fill it out correctly.


A successful compromise offer is complete and well-organized and gives the agency the best chance to accept it. If the IRS assigns an offer specialist to your case, do your best to get the OIC resolved with them.

Also, be communicative with your offer specialist and try to negotiate before they reject the offer. It is often easier to have the OIC accepted before they reject it than to salvage the proposal before they send a rejection letter.

However, if the IRS rejects the proposal, all is not lost. Review what the IRS says in the rejection and talk to your lawyer or tax professional about strengthening the offer. If necessary, you can withdraw your offer or take it to Appeals.

An OIC is challenging to get the IRS to accept. However, if you use the best practices offered here, there is a better chance of acceptance. It is always best to have an OIC application handled by an experienced tax attorney or professional. They have insider knowledge about how to fill out these applications and get the IRS to accept an OIC.

Talk To Our Chicago Tax Lawyers Today

If you have trouble with the IRS, you must have the best legal representation for a favorable outcome. If you want to submit an Offer In Compromise, your attorney will have a higher chance of getting the application accepted. Talk to our Chicago tax lawyers at North Suburban Legal Services today at (312) 909-6089.




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