How Long Does an Offer in Compromise Take?
An IRS offer in compromise generally takes 7 to 12 months from beginning to end. This length of time assumes that the taxpayer is in compliance with their tax return filing requirements.
This 7-to-12-month timeframe includes:
- 1-2 months to gather the information necessary to complete the offer in compromise forms, especially Form 433-A (OIC), as well as the documentation necessary to send in with the offer in compromise
- 6+ months of waiting for the IRS to review the offer in compromise
Note that for more complex offers in compromise where there’s a lot of back and forth on the backend with the IRS concerning the offer, we’ve seen this process take up to 18 months. But for the majority of our cases, right now we’re seeing offers in compromise take about 7 to 12 months from soup to nuts.
Also keep in mind that the timeframe above may be extended if you have not yet filed all required tax returns — generally the last six years’ worth — with the IRS. If you haven’t filed the necessary returns, you should allocate at least a few weeks to the preparation of those back tax returns.
Also, before I get into some special situations here, I do want to mention that it could be argued that the offer in compromise process can actually take more than five years because you are required by the IRS to remain in compliance with the filing and payment of all tax returns for five years from the date your offer in compromise is accepted.
So technically if you include that five-year post-acceptance compliance period, an offer could in that sense take over five or six years from beginning to end, but typically when people ask me, “How long does an offer in compromise take?” what they mean is, “How long does it take before the IRS makes a decision on my offer?” so that’s what I’m explaining here.
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Situations Where an Offer May Take Longer Than Usual
I mentioned previously that while the typical offer in compromise gets approved or rejected within 7-12 months, sometimes the process can take up to 18 months with the main determinant of how long an offer may take to be accepted being the complexity or even perhaps the variability of the client’s situation.
And I’ll give an example of what I mean by a “typical” offer in compromise situation, an example of what I mean by a more complex situation, and an example of what I mean by a more variable situation.
“Typical” Offer in Compromise
So our typical offer in compromise candidate — and just to be clear, offer in compromise candidates come in all shapes and sizes, so maybe “typical” is too strong a word — but a common offer in compromise client we serve is somebody with a “normal” W-2 job as their only stream of income and whose only assets are perhaps a non-luxury vehicle and perhaps some minimal brokerage or retirement accounts.
Assuming their situation doesn’t change much between the time their offer in compromise is submitted to the time the IRS reviews it, this taxpayer’s offer in compromise may very well be approved or rejected within 7-12 months.
Now, imagine that instead of having a “normal” W-2 job, a non-luxury vehicle, and a few hundred dollars in a retirement account, the taxpayer I previously mentioned owns multiple businesses, a couple pieces of property (with one of them generating rental income), a few cars, and has dozens of investment and retirement accounts.
Naturally, this sort of offer in compromise case will be more complicated because the offer in compromise formula is really all about determining how much excess monthly income a taxpayer has and how much equity in assets a taxpayer has.
This means that the more streams of income a taxpayer has and the more assets a taxpayer has, the longer it will take for the IRS to review the taxpayer’s offer in compromise.
So a case like this may take 12-18 months for the IRS to review rather than 7-12 months.
Charlie Sheen's Offer in Compromise
If your offer in compromise ends up in Tax Court, it could take even longer.
Take Charlie Sheen’s offer in compromise case, for example.
He — or, rather, his CPA — submitted three separate offers in compromise before the IRS approved it.
Over two and a half years elapsed between the time his first offer in compromise was submitted and his final one was accepted.
And Charlie found himself in Tax Court along the way.
Now, a taxpayer’s situation doesn’t necessarily have to be incredibly complex with all kinds of moving pieces in order for their offer in compromise to take longer than usual to be reviewed by the IRS.
Sometimes just the mere variability in a taxpayer’s situation could cause something of a delay.
For example, let’s say that when a taxpayer submitted their offer in compromise, they had the “normal” W-2 job, the “normal” car, and a retirement account that consists mostly of their employer’s own stock that they received through perhaps stock options or an employee stock purchase plan or something like that.
(Caveat — I’m not a financial advisor, but I generally wouldn’t recommend you have your retirement all in one company’s stock, your employer’s or otherwise, but nevertheless we see it all the time; some people do just that.)
Oh, one more factor here. This individual works at a high-flying tech company that recently went public and the company’s stock goes up and down like a roller coaster.
So this individual’s situation really isn’t all that complex — they have some job, a car, and a retirement account — but because their net worth is going up and down all the time because their primary asset is their employer’s highly-volatile stock, this could cause their offer in compromise to take a bit longer than typical to be accepted.
The Two-Year Rule
Thankfully, you are guaranteed to not have to wait forever for the IRS to respond to your offer in compromise.
In fact, your offer in compromise will be automatically accepted by the IRS if the IRS does not make a determination — i.e., either an acceptance or a rejection — of your offer in compromise within two years of the date it received it.
Of course, in order to qualify for this two-year rule, you must have submitted a processable offer in the first place.
How to Get Your Offer in Compromise Processed ASAP
No one likes waiting, and while you can’t force the IRS to review your offer in compromise in a specified timeframe of your choosing, you can take some steps to ensure that your offer in compromise will be processed as quickly as possible.
1. Make sure you’ve met the baseline requirements.
For one thing, make sure you have met the following baseline requirements to submit an offer in compromise:
- You must have filed all required tax returns for the past six years.
- You must be in current tax payment compliance — including estimated tax payments.
- You must not be in an open bankruptcy proceeding.
If you have not met these requirements, the IRS will ask you to meet these requirements first before it even deems your offer processable, and the process will be delayed.
2. Make sure you send a complete offer in compromise package.
The offer in compromise form (Form 656) isn’t the only thing you need to mail to the IRS when submitting an offer in compromise.
You also need to include:
- Signed Form 433-A (OIC)
- Signed Form 656
- A complete copy of any tax return filed within the 12-week period before you are submitting your offer
- Copies of your most recent pay stubs
- Copies of your most investment and retirement accounts
- Copies of three months’ worth of personal bank statements
- Copies of six months’ worth of business bank statements
- Copies of any statements from lenders
- Copies of court orders proving the amount of child support or alimony payments claimed in your offer
- A check or money order made payable to “United States Treasury” for your initial offer in compromise payment unless you qualify for low-income certification
- A separate check or money order made payable to “United States Treasury” for your $205 application fee unless you qualify for low-income certification
3. Send your package to the correct address.
Sending your offer in compromise to the wrong address is one of the best ways to delay its processing time.
So if you want the IRS to process your offer in compromise as quickly as possible, be sure to send it to the right address in the table below.
|If You Live In:||Mail Your OIC To:|
|AZ, CA, CO, HI, ID, KY, MS, NM, NV, OK, OR, TN, TX, UT, WA||Memphis IRS Center COIC Unit|
P.O. Box 30803, AMC
Memphis, TN 38130-0803
|AK, AL, AR, CT, DC, DE, FL, GA, IA, IL, IN, KS, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NY, OH, PA, PR, RI, SC, SD, VA, VT, WI, WV, WY, or a foreign country||Brookhaven IRS Center COIC Unit|
P.O. Box 9007
Holtsville, NY 11742-9007