July 20, 2021

An offer in compromise allows taxpayers to settle their tax debt for less than the full amount that they owe. This option should be considered for taxpayers who are unable to pay their full tax liability. The IRS will look over the following when determining whether or not an individual is a candidate for an offer: 

  • Ability to pay 
  • Income 
  • Expenses 
  • Asset equity 

When reviewing an Offer in Compromise (OIC) application, the IRS will typically approve an offer if they feel that it will be the most that they can collect from someone within a reasonable period of time. Taxpayers should also look into all other options that the IRS provides when it comes to paying back their tax balance just in case they may not be eligible for an OIC. 

How to find out if you are eligible 

Taxpayers are required to have all their tax years filed and have attempted to make estimated tax payments before being considered for an offer in compromise. If your application is rejected for these reasons, the fee included with an OIC application will be returned. Any initial payment required with the returned application will be applied to reduce your balance due. Taxpayers that are in an open bankruptcy will automatically be disqualified. 

How to submit your application 

Individuals that are considering submitting an application should utilize instructions in Form 656-B, Offer in Compromise Booklet. A completed OIC package should include: 

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms. 
  • Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656. 
  • $205 application fee (non-refundable). 
  • Initial payment (non-refundable) for each Form 656. 

Payment options 

Payment options will vary based on the offer the IRS provides and the payment option you choose: 

  • Lump Sum Cash: Taxpayers will be required to submit an initial payment of 20 percent of the total offer amount with their application. If the offer is accepted, taxpayers will receive a written confirmation from the IRS. The remaining balance due on the offer will need to be paid in five or fewer payments. 
  • Periodic payment: An initial payment will need to be submitted with an application. A taxpayer will be required to continue to pay the remaining balance in monthly installments while the IRS considers their offer. If the offer is accepted, a taxpayer will be required to pay monthly until it is paid in full.  

Accepted OIC 

  • You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments. 
  • Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt. 
  • Federal tax liens are not released until your offer terms are satisfied. 
  • Certain offer information is available for public review by requesting a copy of a public inspection file. 

Rejected OIC 

  • You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise. 
  • The IRS Independent Office of Appeals provides additional assistance on appealing your rejected offer. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.