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Offer in Compromise: Settle Your IRS Tax Debt for Less
If you owe more in taxes than you could ever reasonably pay, an Offer in Compromise (OIC) may let you settle your debt with the IRS for a fraction of the balance. We evaluate your eligibility, prepare the required financial disclosures, and negotiate the best possible outcome on your behalf.
* Free initial consultation with a licensed tax advisor to assess your eligibility.
What Is an Offer in Compromise?
An Offer in Compromise is a formal agreement between you and the IRS that resolves your tax liability for less than the full amount due. It is governed by Internal Revenue Code § 7122 and is intended for taxpayers who genuinely cannot pay the full balance, or who can show the assessed amount is incorrect.
The IRS does not accept OICs lightly. It applies a financial formula - your Reasonable Collection Potential (RCP) - that combines the equity in your assets with a portion of your future disposable income. A successful offer demonstrates, with documentation, that the RCP is less than your total debt.
Because the analysis is formula-driven, the quality of your financial disclosure matters more than persuasion. Small errors or missing documentation are the most common reasons offers are rejected.
When an OIC Makes Sense
- Doubt as to collectibility: You owe more than you could repay within the collection statute (typically 10 years) given your income and assets.
- Doubt as to liability: You believe you do not actually owe the amount assessed and can substantiate it.
- Effective tax administration: Full payment would cause economic hardship or be unfair given your circumstances, even if technically collectible.
How the IRS Calculates Your Offer Amount
Your RCP is the foundation of every OIC. Understanding it helps us present the strongest possible offer:
Asset equity The IRS counts the net realizable value of your cash, bank accounts, vehicles, real estate, retirement, and business assets (typically 80% of equity for most assets).
Future income A portion of your monthly disposable income is projected forward - 12 months for a lump-sum offer, or 24 months for a periodic-payment offer.
Allowable expenses The IRS uses national and local standards for housing, transportation, and other necessities, not your actual spending - which often reduces your disposable income.
Our Offer in Compromise Process
- Eligibility review. We run the IRS pre-qualifier logic and a financial snapshot to estimate whether an OIC is realistic before you commit.
- Get compliant. All required returns are filed (we prepare any unfiled years) - a hard prerequisite for any offer.
- Full financial disclosure. We complete Form 433-A(O)/433-B(O) with supporting documentation of income, assets, and expenses.
- Prepare and submit. We file Form 656 with the correct user fee and your initial payment (lump-sum or periodic), then track the case.
- Negotiate and resolve. If the IRS proposes changes, we respond with documentation or pursue an appeal. Upon acceptance, you make the agreed payments and stay compliant for five years.
Note: acceptance requires you to file and pay on time for the next five tax years. A missed year can reinstate the original debt.
Frequently Asked Questions
An Offer in Compromise is one of several resolution paths. If you are unsure which applies to you, schedule a free consultation and we will assess your situation confidentially.
What is an Offer in Compromise?
An Offer in Compromise (OIC) is an agreement with the IRS that settles your tax debt for less than the full amount owed. The IRS accepts an OIC when there is a legitimate doubt that the full debt can be collected, or that the assessed amount is correct. It is not a blanket discount - the IRS evaluates your income, assets, expenses, and future earning potential.
Who qualifies for an Offer in Compromise?
You may qualify if you have filed all required tax returns, are not in an open bankruptcy proceeding, and either cannot pay the full amount (doubt as to collectibility) or do not actually owe the amount assessed (doubt as to liability). The IRS uses a strict financial formula (Form 433-A(O)/433-B(O)) to calculate your Reasonable Collection Potential (RCP), which weighs your assets, future income, and allowable expenses.
How much will the IRS settle for?
There is no fixed percentage. The IRS calculates your RCP from your realizable asset equity plus a portion of your future income (typically 12-24 months of disposable monthly income, depending on the payment terms). A strong OIC presents accurate, well-documented financials that reflect your true ability to pay.
What are the steps to submit an Offer in Compromise?
1) File all past-due returns. 2) Complete Form 433-A(O) (individual) or 433-B(O) (business) with full financial disclosure. 3) Submit Form 656 with the required user fee (waived for qualifying low-income taxpayers). 4) Make the initial payment (lump-sum or periodic). 5) The IRS reviews, may request more information, and issues an acceptance, rejection, or counteroffer. While pending, most collection activity pauses.
Will an Offer in Compromise stop IRS collection actions?
Submitting a properly filed OIC generally pauses most enforced collection (levies, garnishments) while the offer is under review, as long as you stay compliant with current filing and payment obligations. It does not automatically stop an existing lien, but new levies are typically held.
What happens if my Offer is rejected?
You have 30 days to appeal a rejection through the IRS Office of Appeals, and the appeal may succeed if the IRS miscalculated your RCP or overlooked documentation. If the appeal fails, the amount offered is applied to your balance and collection resumes. We review the rejection rationale and pursue the best remaining resolution path, which may be an installment agreement or Currently Not Collectible status.
Why file your taxes with Mraz Tax Solutions?
We focus on individual and small business returns, whether you are filing a W-2, reporting 1099 income from the sharing economy, or running your own company.
Our process is designed to minimize your tax burden and secure the maximum refund you are legally entitled to by taking time to understand your situation, your records, and your long-term goals.
Individual & joint returns
Small business & self-employed
Credit & deduction optimization
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