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.
5. Do you have to report cryptocurrency holdings in an Offer in Compromise?
Yes, you must report cryptocurrency holdings when submitting an Offer in Compromise. Form 433-A (OIC), Section 3, specifically asks for details about cryptocurrency, stablecoins, virtual currency, and digital assets. You must disclose the location of these assets, whether they are held on an exchange or self-custodied. Your cryptocurrency holdings factor into the calculation of your reasonable collection potential.
6. If I have equity in my home, can I submit loan denial letters with my Offer in Compromise to exclude the equity from my offer amount?
No, loan denial letters do not exclude home equity from being counted in your Offer in Compromise. The IRS considers the equity in your home as an asset, even if you cannot access it through a loan. However, for other hardship-based resolutions—such as Currently Not Collectible (CNC) status or a Partial Payment Installment Agreement (PPIA)—loan denial letters can be used to demonstrate financial hardship and support your case.
7. Can I submit an Offer in Compromise (OIC) if I am currently in an installment agreement with the IRS?
Yes, you absolutely can submit an Offer in Compromise even if you are currently in an installment agreement with the IRS.
Why Is the IRS Accepting Fewer Offers in Compromise Than They Used To?
Short Answer, yes.
What do the numbers actually show?
According to the IRS Data Book for the fiscal year ending September 30, 2024:
- Offer in Compromise (OIC) acceptance rates fell from ~42% to ~21%
- The IRS received more offers, but accepted about 5,500 fewer than the prior year
- At the same time, liens and levy actions increased
Why is this happening?
There are three main reasons behind the drop in acceptance rates.
1. Inconsistent IRS Review and Rejections of Otherwise Valid Offers
Some offers that should be accepted are being rejected at the initial IRS review stage.
- Offer examiners and specialists don’t always apply OIC rules correctly
- Managers sometimes approve rejections without correcting errors
- Many rejected offers are later approved on appeal
The issue?
Many taxpayers don’t know they can appeal, or they don’t have professional representation to do so.
As a result, valid offers may appear as “rejected” in the data—even though they could have been accepted with proper follow-through.
2. Inexperienced Practitioners Submitting Weak or Improper Offers
There has been a surge of newer practitioners entering the tax resolution space, including:
- Tax preparers shifting away from traditional tax prep
- CPAs or EAs with limited OIC experience
- Practitioners learning on the fly without proper training
Common problems include:
- Submitting offers without understanding IRS calculation rules
- Procedural mistakes that doom the offer from the start
- Filing offers for taxpayers who clearly don’t qualify
When large numbers of poorly prepared offers are submitted, acceptance rates drop across the board.
3. High-Volume “Offer Mills” Flooding the IRS With Unqualified Offers
Another major factor is the rise (again) of high-volume tax relief companies that:
- Spend heavily on TV, radio, and online ads
- Use aggressive sales tactics
- Promise Offers in Compromise without fully analyzing finances
These companies often submit offers simply because:
- It helps close a sale
- The offer sounds attractive to the taxpayer
- There’s little regard for whether the IRS is likely to accept it
The result:
- Thousands of unrealistic offers
- More rejections
- Lower overall acceptance rates
)
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
