IRS Offer in Compromise Frequently Asked Questions (FAQs)
An IRS offer in compromise is a settlement with the federal government to pay less than you owe on your tax debt.
That said, the IRS rejects the majority of offers in compromise it receives, and the reasons for this are manifold.
For one thing, many people — and even tax professionals — who submit offers in compromise don’t really know what they’re doing. They submit an offer that “sounds right” to them, often affixing a letter to the offer begging the IRS for mercy. Unfortunately, that’s not how the process works.
For another thing, the offer in compromise process takes a long time. First, you submit your offer. Then you wait for several months for the IRS to review it. Then, the offer examiner at the IRS assigned to your offer will likely have questions for you, which it is very important for you to answer quickly.
To help you better understand offers in compromise and their intricate rules, I’ve put together this list of IRS offer in compromise frequently asked questions (FAQs).
Table of Contents
1. How can I get an offer in compromise approved?
You can get an offer in compromise approved by making sure that you qualify for an offer in compromise, completing Form 433-A (OIC) and Form 656, and submitting these forms along with your required documentation, application fee (if applicable), and down payment (if applicable) to the appropriate address in the Form 656 instructions.
2. How can I make sure I qualify for an offer in compromise?
There are two kinds of requirements for an offer in compromise:
- Baseline requirements
- Mathematical requirements
3. How much should I offer in compromise to the IRS?
You should offer at least your reasonable collection potential.
4. Is it an Offer in Compromise requirement for employees to be sufficiently withheld? Does tax compliance only apply to the self-employed?
No, tax compliance applies to all taxpayers, not just the self-employed. When submitting an Offer in Compromise (OIC), the IRS requires you to be compliant with your current year’s taxes, regardless of your employment type. For wage earners, this means ensuring that your employer withholds enough taxes from your paycheck to cover your expected tax liability. If your withholding is insufficient, you may need to make estimated tax payments. Failure to comply can lead to your offer being deemed unprocessable or even defaulted if accepted.