If you're struggling with tax debt, the idea of paying a fraction of what you owe may sound too good to be true. But for some taxpayers, an Internal Revenue Service (IRS) program called an Offer in Compromise (OIC) can make that possibility real.
At Powell Tax Law, we help individuals and business owners navigate IRS solutions and tax legal advice, including whether an OIC is a viable path.
In this article, we’ll explain what an OIC is, how to tell if you qualify, and what realistic expectations you should have before applying.
An Offer in Compromise allows a taxpayer to settle their tax debt for less than the full amount owed.
The IRS may accept an OIC if doing so reasonably represents what it expects to collect, given your assets, income, expenses, and future earning potential.
Put another way: if you genuinely cannot pay the full balance and your overall financial picture shows limited resources, an OIC may provide a “fresh-start” solution.
Did you know? In 2024, the IRS accepted 7,199 OICs out of 33,591 submitted.
Not everyone who wants an OIC will get one or even qualify to apply. There are strict eligibility rules and, even among qualified applicants, a modest acceptance rate.
To apply for an OIC, you generally must:
If you don’t meet these baseline requirements, the IRS will either return or reject your application without full review.
Even among those who qualify, acceptance hinges on a financial test the IRS calls the Reasonable Collection Potential (RCP). This is their estimate of what they realistically believe they could collect from you, now and over time. RCP considers:
If your offer is significantly below the RCP, the IRS is very likely to reject it. The amount you offer must approximate what the IRS deems collectible.
Because of these tight criteria, only a fraction of applications succeed. According to recent data, thousands of applications are approved, but many more are returned or denied each year because of the difficult requirements each applicant must meet to be approved.
Myth: “I can offer a tiny fraction, like 10%, and the IRS often accepts it.”
Reality: There is no fixed “discount rate.” The IRS does not accept a percentage-of-debt rule. What matters is the financial reality. If your offer doesn’t meet or exceed your RCP, it’s likely to be denied.
Myth: “Anyone who owes a lot qualifies for an OIC.”
Reality: Debt amount alone doesn’t make you eligible. You must meet the compliance requirements and show that you cannot truly pay. Even then, approval is uncertain. Many applications are rejected simply because the applicant could reasonably pay under IRS calculations.
Myth: “The OIC process is fast and guaranteed once you apply.”
Reality: The OIC process takes time. The IRS evaluates your financial picture in depth. If accepted, you must follow strict payment terms and remain compliant for five years after acceptance; otherwise, the agreement may default, and the full liability could be reinstated.
If you’re considering an Offer in Compromise, here’s how to approach it realistically:
An Offer in Compromise can be a powerful way to resolve IRS tax debt, but it is not a quick fix or a guaranteed win. It requires honest financial disclosure, thorough documentation, and realistic expectations. If you’re thinking about whether an OIC could be right for you, the most important first step is honest assessment: do you truly lack the ability to pay the full debt, and can you meet the IRS’s compliance requirements?
At Powell Tax Law, we specialize in IRS solutions and tax legal advice for individuals and business owners. If you’d like help evaluating whether an Offer in Compromise is a viable option, or want assistance preparing your case, contact us today for a consultation.