What is an Offer in Compromise (OIC) and Who Can Qualify?

What is an Offer in Compromise (OIC) and Who Can Qualify?

Allan Rolnick

October 25, 2024

If you owe the IRS more than you can afford to pay, there may be a way to settle your tax debt for less than the full amount owed. This option is called an Offer in Compromise (OIC), and it can provide a fresh start for taxpayers facing overwhelming debt. However, not everyone qualifies, and it’s important to understand the process before applying.

What Is an Offer in Compromise (OIC)?

An Offer in Compromise is an agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount. The IRS considers your income, expenses, and the value of your assets when determining if you qualify and how much they’re willing to accept. The goal of the OIC program is to collect what the IRS can reasonably expect, rather than forcing taxpayers into financial hardship.

Who Can Qualify for an OIC?

The IRS looks at three main factors when considering an OIC:

• Inability to Pay: You must prove that you can’t pay the full tax debt through traditional means, such as an installment agreement.

• Doubt as to Collectibility: If the IRS believes they won’t be able to collect the full amount within the statute of limitations, you may qualify.

• Doubt as to Liability: In some cases, if there’s a legitimate dispute about the amount of tax owed, the IRS may accept an offer.

Generally, if you have significant income or assets that can cover your tax debt, you likely won’t qualify. But if paying the full debt would cause financial hardship, you may be a good candidate.

OIC Example: How It Works

Let’s look at a hypothetical example to see how an OIC might play out in real life.

Scenario:

John is a self-employed graphic designer who owes the IRS $50,000 in back taxes, including penalties and interest, after several tough years of business. He’s been unable to make payments and now faces the possibility of IRS collection actions.

John doesn’t have the ability to pay the full $50,000 without going into financial ruin, so he decides to explore the OIC program with the help of a tax resolution specialist.

After reviewing John’s income, expenses, and assets, the tax professional determines that the most they could reasonably expect to collect from John is $6,000. The IRS approves his OIC, allowing him to settle the $50,000 debt by paying just $6,000 over 24 months.

Result:

Instead of paying the full $50,000, John settles his debt for $6,000—saving him $44,000. More importantly, he avoids wage garnishments, levies, and the stress of ongoing collection actions.

How We Can Help You With an OIC

Qualifying for an Offer in Compromise can be a complicated and lengthy process, and the IRS rejects many applications due to incomplete paperwork or failure to meet strict criteria. That’s where we come in. As experienced Certified Tax Resolution Specialists, we help you determine whether you qualify for an OIC, prepare the required forms, and negotiate with the IRS on your behalf to get the best possible outcome.

If you think you might qualify for an Offer in Compromise or know someone who does, contact us at 718-841-7317 today for a 15-minute free consultation. We’ll review your situation and guide you through the steps to financial relief.

Who’s Allan Rolnick:

With 40 years of experience, I have mastered the art of navigating complex IRS challenges, resolving even the toughest tax issues. 

I’ve helped countless clients find fair and favorable solutions with the IRS and I can help you too.