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Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS to settle a tax liability for less than the full amount owed. The IRS may accept an OIC when it represents the most the agency can expect to collect within a reasonable period.
Authority: IRC § 7122, IRM 5.8.1. All OIC determinations are subject to IRS review and discretionary approval based on financial condition, compliance status, and case-specific factors.
An OIC allows a taxpayer to propose a settlement amount to resolve their tax debt. If accepted, the taxpayer pays the agreed amount and the remaining balance is forgiven. The IRS evaluates whether the offer represents the maximum they could reasonably collect.
The IRS may accept an OIC on one of three grounds:
The taxpayer cannot pay the full liability before the Collection Statute Expiration Date (CSED) expires. This is the most common basis for OIC acceptance. The IRS calculates Reasonable Collection Potential (RCP) and compares it to the total debt.
The taxpayer disputes the correctness of the underlying tax assessment. This ground requires evidence that the assessed tax is incorrect due to IRS error, missing documentation, or legal interpretation.
Collection of the full amount would create economic hardship or would be unfair and inequitable despite the taxpayer's ability to pay. This is a discretionary ground based on exceptional circumstances.
The IRS uses a formula called Reasonable Collection Potential (RCP) to determine the minimum acceptable offer:
RCP = Quick Sale Value of Assets + Future Income
Lump Sum Offer
20% of offer amount due with application. Future income calculated over 12 months.
Periodic Payment Offer
Offer amount paid over 6-24 months. Future income calculated over 24 months.
The IRS has specific requirements that must be met before an OIC will be considered:
IRS Discretion:All OIC determinations are subject to IRS review and discretionary approval. Meeting the eligibility requirements does not guarantee acceptance. The IRS evaluates each case based on the taxpayer's complete financial picture and compliance history.
Estimate your quick sale value of assets plus 12 or 24 months of disposable income to see if an OIC might be viable for your situation.
The IRS will not consider an OIC if you have unfiled returns. Get current on all filings before applying.
Filing an OIC tolls (suspends) the collection statute. If your debt is close to expiring, an OIC may extend the IRS's ability to collect.
If you're facing active collection, request a hold while you evaluate whether an OIC is the right option for your situation.
Our tax professionals can contact the IRS today and request a hold on collections while we review your situation.
No obligation. We will review your case and contact you.
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