IRS Offer in Compromise: A Remedy of Last Resort

For the IRS, an Offer in Compromise strategy is a last resort. They will consider granting this relief only if you’ve exhausted all other options and meet certain requirements. Here’s what you need to know:

What Is an Offer in Compromise?

An Offer in Compromise (OIC) is a way to resolve your tax debt for less than the total debt amount. It’s available to those who lack the financial resources to pay the debt. The IRS expects taxpayers to consider all other payment options before turning to an OIC.

Who Is Eligible for an Offer in Compromise?

You may apply for OIC when you meet the following criteria:

  • You’ve filed all required tax returns
  • You’ve made all required estimated payments
  • You aren’t involved in an open bankruptcy proceeding
  • If applying for the current tax year, you have a valid extension for your current year return
  • If you’re an employer, before being eligible to apply, you must have made tax deposits for the current and previous two quarters

OIC Limitations

It’s easy to see the appeal of an OIC. It allows people to pay off their tax debt for less than the total amount they owe. Not everyone qualifies for OIC, and the IRS takes the long view on tax debt collection: If you can pay over the course of time, they’re unlikely to approve your OIC application.

Individuals must either be unable to pay back the total amount or be able to show that paying back the full amount would create a financial hardship. In addition, the IRS considers all assets, not just cash assets, when determining if you can pay your full tax debt.

If you qualify as low-income under IRS guidelines, you won’t have to pay the application fee or make monthly payments while the IRS reviews your OIC application.

The agency advises those who apply for OIC that they’re likely to approve an application when the amount you offer is more than the IRS expects they can collect within a reasonable amount of time

Resolving Your Tax Debt

When you have tax debt, figuring out how to pay that debt and your available options can be confusing. The Highland Tax Group can walk you through your options and ensure you’ve completed the requirements to avoid being denied relief on a technicality. Contact us to learn how we can help.