What It Is
An Offer in Compromise is a deal with the IRS to settle your tax debt for less than the full amount. It is not a discount and it is not a loophole. The IRS accepts it only when the numbers show it could not collect more from you another way before the collection clock runs out. For the right person, it can clear a large balance for a fraction of what is owed. For the wrong person, it is months of paperwork that goes nowhere, which is why it helps to know whether you qualify before you spend the time.
Is This You?
- You owe more than you could pay off, even on a monthly plan
- Your income barely covers your basic living expenses
- You do not hold much equity in a home, vehicles, or retirement
- You are filed and current, or you can get there
If most of these fit, an offer is worth looking at. If you have real ability to pay, the IRS will expect a payment plan instead, and an offer will likely be rejected.
What You Can Do
These are the steps that get you to a yes or no on an offer. Work through them in order.
- File any missing tax returns so you are current
- Stay current on this year's estimated or withheld taxes
- Pull your IRS account transcripts to confirm the years and balances
- Add up the equity in everything you own, including home, vehicles, bank, and retirement
- Total your monthly income and your allowable living expenses
- Estimate your collection potential, which is asset equity plus future income
- Compare that estimate to what you owe to see whether an offer makes sense
- Confirm you are not in an open bankruptcy, which blocks an offer
- Decide between a lump sum offer and a periodic payment offer
- Gather your documentation: pay stubs, bank statements, bills, and asset values
Get the Offer in Compromise Checklist
The full checklist as a printable PDF, free. Enter your email and we will send it over so you can work through it at your own pace.
Want the Full Walkthrough?
Offer in Compromise Guide
The exact forms, Form 656 and Form 433-A (OIC), how to calculate your offer the way the IRS does, and the language that gets offers accepted.
If your finances are complicated or the balance is large, a licensed professional can be worth the cost. Send us your situation for a free review.