Offer In Compromise: Settling your Liability
Offer in Compromise (OIC)
An IRS Offer in Compromise (OIC) is one of the most powerful tools available for resolving tax debt. Often referred to as the IRS’s “Make a Deal” program, it allows qualified taxpayers to settle their tax liabilities—including penalties and interest—for less than the full amount owed. Through this program, you propose to pay the IRS what you can reasonably afford (typically over 5 to 24 months), and in return, the IRS may agree to forgive the remaining balance.
Offers in Compromise are available not only to individuals but also to businesses struggling with tax debt.
Who is eligible for an oic?
To qualify for an Offer in Compromise (OIC), a taxpayer must meet several strict eligibility requirements. These include filing all required tax returns, making all necessary estimated tax payments for the current year, and, for businesses with employees, making all required federal tax deposits for the current quarter. Additionally, the taxpayer must not be in an open bankruptcy proceeding.
The IRS evaluates various factors when considering an OIC, including but not limited to the taxpayer’s age, health, income, assets, and overall tax liability. These elements help determine both eligibility and the acceptable offer amount.
Be cautious of tax resolution companies that make empty promises or guarantee approval of an OIC. In reality, a successful offer requires a detailed financial analysis and, in many cases, careful Pre-Offer Planning to assess whether you truly qualify and to maximize your chances of acceptance.
How Much to Offer?
The IRS will only accept an Offer in Compromise (OIC) if the amount offered is equal to or greater than the taxpayer’s Reasonable Collection Potential (RCP). The RCP represents the IRS’s calculation of what it believes it can reasonably collect and is determined by adding the taxpayer’s net equity in assets to their future expected income, minus allowable living expenses (i.e., disposable monthly income).
In essence, an OIC is a numbers game—it’s driven by a detailed financial formula.
Below is a simplified version of the equation used to determine the minimum acceptable offer under the two available OIC payment options:
Lump Sum Cash Offer
The OIC to be paid within 5 months or less after the offer is accepted:
(Disposable monthly income * 12) + Net realizable equity = Settlement amount
Periodic Payment Offer
The OIC is payable within 6 to 24 months after the offer is accepted:
(Disposable monthly income * 24) + Net realizable equity = Settlement amount
what happens next?
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1. OFFER IS ACCEPTED, NOW WHAT
If the IRS accepts your Offer in Compromise (OIC), you will no longer owe the full tax debt—as long as you fully comply with the terms of the agreement. To keep the offer in good standing, you must:
* Pay the agreed-upon amount according to the terms of your offer.
* File all required tax returns on time for the next five years.
* Pay all taxes owed during that five-year period in full and on time.
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2. Post-Offer Planning And IRS Transcripts Alert
Maintaining compliance after your offer is accepted is critical. If you fail to meet any of the terms—such as filing late or missing a tax payment—the IRS may default your agreement, reinstate the full original tax debt (minus any payments made), and resume collections with added penalties and interest.
To help you stay on track, we provide reminders and proactive alerts through our IRS Transcript Monitoring Program, so you don’t miss key deadlines or requirements.
Visit our IRS Transcripts page to learn more about how we help protect your hard-won resolution.