What is an IRS Offer In Compromise?
An Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances, including your:
- Ability to pay
- Income
- Expenses
- Asset equity
The IRS generally will approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time.
How does an Offer in Compromise work?
Both you and the IRS acknowledge that there is no feasible way for you to pay off all your tax debt. This means that you do not have enough income to pay off your debt and do not have enough valuable assets that the IRS could seize.
You offer to pay the IRS the maximum amount that you can afford even though that amount may fall far short of the actual tax debt.
If the IRS accepts that the amount you offer to pay is the most that it could reasonably expect to collect from you, it will agree to compromise and essentially lower your tax debt to match the amount you can pay.
Once you have finished paying the agreed-upon amount, the tax debt is considered “paid in full.” This is true even if the agreed-upon Offer in Compromise is only a small percentage of what you originally owed.
To be eligible for an Offer in Compromise the taxpayer must demonstrate that collection of the full tax would create an economic hardship or would be unfair and inequitable.
