How to Qualify for an Offer in Compromise
An offer in compromise may resolve an eligible tax debt for less than the full balance. The IRS evaluates each application; submitting an offer or meeting initial eligibility requirements does not guarantee acceptance.
What is an Offer in Compromise?
For an offer in compromise, the IRS considers income, necessary living expenses, asset equity and ability to pay. Offers may use lump-sum or periodic payments. The amount and payment requirements depend on the application and applicable rules.
Is an Offer in Compromise Right for You?
An offer may be appropriate when the full balance cannot be collected or payment would create qualifying hardship. Other grounds include a genuine dispute about the correct tax liability. Review other payment options before applying.
Requirements for an IRS Offer in Compromise
Review the current IRS application instructions and eligibility tool before preparing an offer.
Your Tax Bill
Eligibility is based on the applicable offer criteria and the taxpayer’s circumstances, rather than a general minimum debt requirement.
Your Income
The IRS reviews income and allowable living expenses to assess payment capacity.
Your Assets
Asset equity is part of the evaluation. Being unable to pay immediately does not by itself establish eligibility.
Personal and/or Financial Situation
Health, employment and family circumstances can affect income and necessary expenses. They do not automatically qualify someone for an offer.
- Health Issues
Document relevant medical costs and effects on earning capacity. - Death or Disability of a Taxpayer
These circumstances require an assessment of the applicable tax liability and financial facts. - Certain Types of Employment
Self-employment, tipped work and seasonal work do not establish eligibility by themselves. - Certain Types of Hardship
The IRS evaluates documented hardship under its offer criteria. Relevant records may include:
- IRS notices and outstanding balances
- Required tax-return filing status
- Current estimated tax payments
- Household income records
- Necessary living expenses
- Home and other real-estate equity
- Vehicle and other asset equity
- Bank and investment balances
- Employment or self-employment records
- Supporting hardship documentation
These records support the IRS review; providing them does not guarantee approval.
Pros and Cons of an Offer in Compromise
An accepted offer can reduce an eligible balance, but the application requires documentation and IRS review. The standard application fee is $205, with exceptions. Initial and ongoing offer payments depend on the payment option; qualifying low-income individuals receive specific fee and payment relief.
Interest continues on the tax debt until an offer is accepted. The IRS may file a tax-lien notice, and existing liens are not released until the offer’s payment terms are satisfied. The agreement also requires future filing and payment compliance.
How to Qualify for an Offer in Compromise
Follow the current Form 656-B instructions or the IRS individual online-account process. Required returns and estimated payments must be current, and an open bankruptcy generally makes an applicant ineligible. Employers have additional deposit requirements. If accepted, meet all payment and future filing obligations in the agreement.
Official references: Offer in compromise · Offer eligibility and reasons · Offer fees and obligations.
Speak to a Tax Relief Specialist
Our specialists take the time to listen and understand your current situation and goals (including any immediate tax relief you may need to stop or prevent a wage garnishment, lien, or bank levy).
