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The IRS offer in compromise agreement (OIC) is a government-sanctioned tax debt settlement program created by the Internal Revenue Service to help taxpayers settle their tax debts for a fraction of the full amount of what they owe. A taxpayer is enrolled in this program when an agreement has been reached between that taxpayer and the Internal revenue Service (IRS) on a reduced amount to be paid against the full amount of tax debts owed by the taxpayer.

An Offer in Compromise agreement may seem like a great solution to the mounting debts of most taxpayers but the truth is that just a fraction of taxpayers that apply for the OIC program will qualify for it.

Only about 40% of total applicants get accepted for the Offer in Compromise program, this is because the IRS always ensures that only those who will not be able to pay the total debt owed at the due time get on the OIC program. After assessment by the IRS, taxpayers who may be able to fully pay the tax debts through an installment payment agreement or any other means of payment will not qualify for the OIC and are therefore placed on alternative methods of payment that are more suitable for their respective situations.


Considerations for IRS Offer of Compromise

The IRS does not have a specific settlement amount for given amounts of tax debt owed. The amount to be paid by different taxpayers depends on the individual and unique financial situation. Therefore, the agreed-upon Offer in Compromise settlement amount of one taxpayer may be different from the agreed amount for another taxpayer.

Certain factors are usually considered when drawing up an Offer in Compromise suitable for each taxpayer to determine how much they will eventually pay. The factors include:

  1. The ability of the taxpayer to pay
  2. The income of the taxpayer
  3. The living expenses of the taxpayer
  4. The value of assets owned by the taxpayer


The IRS offer in Compromise Determination Process

The IRS ensures that they can get as much payment as is possible from a taxpayer in tax debt. Therefore, they have standard procedures they follow to determine the best Offer in Compromise settlement amount for each taxpayer. This amount is reached and agreed upon after the following checks:

  1. Determination of the total income that the taxpayer receives per month by going through payslips and business account statements.
  2. Determination of total cost of essential living expenses. The IRS may also help the taxpayer to cut down unreasonable expenses to create more room for the payment of their tax debts.
  3. A valuation of total assets owned by the taxpayer is carried out

After these assessments,  the possible Offer in Compromise settlement value can now be determined based on the results from the financial assessment. For acceptance, the IRS ensures the total amount agreed upon is equal to or greater than the taxpayer’s ability to pay and never lower than that.


The three main criteria required to qualify for the IRS Offer in Compromise

  1. If the taxpayer’s asset value and income are less than the full amount of tax debts to be paid.
  2. If there is a disagreement or genuine doubt about the existence of the tax debts or the amount of tax debts to be paid by the taxpayer.
  3. If due to certain circumstances, paying the full tax debts will lead to severe economic hardship for the taxpayer.

Possible reasons for IRS Offer in Compromise rejection.

There are pertinent reasons why close to 60% of applications for the IRS offer in compromise are usually rejected. After financial assessment by the IRS, it is discovered that the majority of applicants could afford to pay back their tax debts in full and also,  some do not provide important financial information and documents required for consideration. This eventually leads to the rejection of their appeal for an Offer in Compromise. Nevertheless, if a taxpayer does not agree with their rejection into the Offer in Compromise agreement program, an appeal can be made to the court for reconsideration.

Are you considering applying for an Offer in Compromise? Worried that you may not get accepted? Why not put it in the hands of a team of experienced professionals willing to fight on your behalf?


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