Offer in Compromise

An Offer in Compromise (OIC) is an IRS program that lets eligible taxpayers settle a tax debt for less than the full amount owed when paying the full amount would create financial hardship or is otherwise unaffordable. The IRS evaluates each case based on the taxpayer’s unique financial circumstances.

How the IRS evaluates an OIC

The IRS considers:
* Income and sources of income (wages, interest, dividends, etc.)
* Ability to pay and monthly cash flow
* Reasonable living expenses (rent or mortgage, utilities, food, transportation)
* Assets (bank balances, home equity, investments, and other property)

A taxpayer must generally have filed all required tax returns to be eligible. Taxpayers involved in an open bankruptcy proceeding are not eligible to apply for an Offer in Compromise.

Offer in Compromise Pre-Qualifier

The IRS provides an online Pre-Qualifier questionnaire to help determine preliminary eligibility. The questionnaire asks for:
* Household size and total tax debt
* Asset details (bank accounts, home equity, stocks/bonds, other assets)
* Income information (employment, investment income)
* Monthly expenses (housing, vehicle or public transportation, utilities, etc.)

After submitting this information, the tool indicates whether you might qualify for an OIC and helps you decide whether to proceed with a formal application.

How to apply

A formal OIC is submitted to the IRS using the Offer in Compromise procedures and forms (see IRS Form 656 and its instructions). The process requires comprehensive financial documentation to support the offer amount and your ability to pay.

Alternatives if you don’t qualify

If an OIC isn’t available or approved, alternatives include:
* An installment agreement (monthly payments) evaluated based on income, assets, and expenses.
* Applying online through the IRS Online Payment Agreement tool or by submitting Form 9465, Installment Agreement Request.

Next steps and tips

• Use the IRS Offer in Compromise Pre-Qualifier to assess eligibility before applying.
• Gather complete documentation of income, assets, and expenses to support any application.
• Consider consulting a tax professional (CPA, enrolled agent, or tax attorney) if your financial situation is complex or if you’re unsure which option is best.

Resources
* IRS Offer in Compromise (Form 656 and instructions)
* IRS Offer in Compromise Pre-Qualifier
* IRS Online Payment Agreement
* IRS Form 9465, Installment Agreement Request