The Ultimate IRS Offer In Compromise Guide
Writen by Sergio Melendez | Last updated 12/04/2024
Feeling weighed down by IRS tax debt? The IRS Offer In Compromise guide might be your way out of tax debt. The IRS OIC program is a great opportunity to settle your debt for less than what you owe, giving you a chance to finally break free and regain control of your finances.
This guide is broken into 12 chapters & is designed to simplify the OIC process and give you the tools you need to succeed. Whether you’re just starting or looking for expert insights, I’ll walk you through each step to help you make the best decisions for your situation.
Let’s work together to make tax relief a reality for you.
TLDR | Key Takeaways
Chapter 1: File all required tax returns to get into compliance before submitting an Offer In Compromise (OIC).
Chapter 2: Adjust withholdings or make estimated payments to avoid future tax issues.
Chapter 3: Address IRS collections with temporary solutions like Currently Not Collectible (CNC) status.
Chapter 4: Use the Semper Tax Relief Offer In Compromise Calculator to calculate your offer amount.
Chapter 5: Complete IRS Form 433-A (OIC) with detailed financial information.
Chapter 6: Draft your offer using IRS Form 656 and choose your payment option.
Chapter 7: Organizing Your IRS Offer In Compromise Packet for Submission
Chapter 8: Understand the IRS OIC process, which can take 8–12 months.
Chapter 9: Be prepared for acceptance, rejection, or return of your OIC and know your next steps.
Chapter 10: Appeal a rejection with Form 13711 or fix issues if your offer is returned.
Chapter 11: Stay compliant with tax laws for five years after acceptance to keep your agreement valid.
Chapter 12: Explore alternatives like CNC status, Hardship Payment Plans, Penalty Forgiveness, and Innocent Spouse Relief if the OIC isn’t right for you
Before applying for the IRS Offer In Compromise, your tax returns must be all filed up to the current year, otherwise the IRS won’t even consider your offer.
If you’re behind on filings, you must begin by getting into compliance. I have a 3 step system in place to help catch you up.
To start catch up on tax filings, you can get your IRS Wage & Income Transcripts, review year by year Tax regulations credits & deductions & submit the tax returns. The IRS Wage Transcripts have limited information & also helps if you gather your tax documents like W-2s or 1099s.
Preventing future tax problems is just as important as resolving your current debt. The main reason for correcting issues is that the IRS will bring back your Tax Debt in the future should your OIC get accepted now if you are not in filing compliance. I discuss this more in Chapter 10 below
If you’re an employee, check your W-4 withholdings to make sure enough taxes are being taken out. The IRS Withholding Estimator is a great tool for this.
If you’re self-employed, prioritize making estimated tax payments on time. Set aside a portion of your income each month and use accounting software to stay on track. These small steps go a long way in showing the IRS you’re committed to staying compliant.
If the IRS is taking collection actions, like garnishing wages or bank levies, there are ways to get temporary relief. It is key to communicate with the right collections dept of the IRS your case is assigned to.
One option is Currently Not Collectible (CNC) status, which pauses collections if paying your debt would cause financial hardship.
You could also set up a short-term payment plan, which allows you to make manageable payments while preparing your Offer In Compromise.
IRS Collections officially pauses when you submit your Offer In Compromise, and it remains in this status until the end of the OIC procedure.
A great step to start the OIC is to calculate an offer amount! You can use our free Calculator to see how much to offer the IRS. Click Here to use the Easy OIC Calculator
Calculating your offer for an Offer In Compromise might feel intimidating, but it’s a straightforward process when you break it down. The IRS uses your Reasonable Collection Potential (RCP) to decide how much they’ll accept.
Your RCP is based on your disposable income and the value of your assets. If you’re unsure, that is normal to feel as the rules get very technical for the OIC program.
The IRS has a clunky tool which has frustrated its users, known as the Pre-Qualifier Tool. It is very technical to use, and is not just a calculator, but an overall OIC program tool to see if you’re eligible.
Form 433-A (OIC) is where you officially lay out your financial situation for the IRS and calculate your offer amount for your tax debt. You’ll need to provide details about your income, expenses, and assets to support your offer.
Be thorough and honest—the IRS will verify everything you disclose on the 433AOIC. Don’t rush this step; it’s the foundation of your OIC. When I draft a 433A-OIC I review the form with my clients to verify all information is accurate, eliminating mistakes to ensure the Offer In Compromise submission is strong.
Once you’ve prepared IRS Form 433-A (OIC), it’s time to submit your offer using IRS Form 656. This is where you officially propose your IRS Settlement amount and choose a payment option—either a lump sum or monthly payments.
Include your $205 application fee and initial payment unless you qualify for a waiver. Before submitting, double-check your forms for accuracy. Very important to make a copy of the packet for your records. This step officially puts your plan in motion!
Submitting your Offer In Compromise isn’t just about filling out forms—it’s about making it as easy as possible for the IRS agent to review your case. A well-organized packet can make a big difference in how quickly and smoothly your OIC is processed.
Start by writing a clear and professional cover letter. Think of this as a summary of your submission. It should include your offer amount, payment type (lump sum or periodic), and a brief overview of the documents you’re including, such as proof of income, expenses, and assets.
When putting your packet together, divide it into sections with cover sheets to label each category. For example:
One section for income documentation like pay stubs or profit and loss statements.
Another for expense verification, such as rent and utility bills.
A section for asset documentation, including property values or bank account summaries.
This kind of organization helps the IRS quickly locate the information they need. Before sending it off, double-check that everything is included and in the correct order. An organized packet shows the IRS you’re serious about resolving your tax debt and helps move your case along faster.
The OIC procedure is like navigating through muddy waters. After you submit your Offer In Compromise, the IRS assigns your case to an agent who reviews the entire OIC documents: the 433A-OIC, 656 & your supporting Documents. This process can take 8–12 months, so be patient. Should the IRS take longer than 24 months, your OIC is automatically accepted.
During the review, the IRS pauses collections, thus giving you some breathing room. It may be common that the IRS agent will request additional information or documents, and you must respond timely to avoid a return or rejection. Staying proactive helps ensure a smoother process.
The IRS Agent can decide your OIC application in one of three ways:
Acceptance: Your offer is approved, and you commit to the offer amount accepted
Rejection: Your offer is denied, but you can appeal the IRS Agent’s decision.
Return: Your application is sent back for non-compliance or missing requirements.
The worst of the 3 outcomes for the OIC is a return. If this was a board game like Monopoly it is returning back to the starting line. If you want to proceed with the OIC you would have to resubmit a new OIC packet since there are no appeals rights. Whatever the outcome, stay proactive. If rejected or returned, or Accepted, there are still ways to move forward. Below I will discuss Rejection & Acceptance of the OIC.
If the IRS rejects your OIC, don’t lose hope as it is not the worse case scenario. You can file Form 13711 to appeal the decision within 30 days. An OIC Appeal is a second chance in 1. You need to address the reasons for rejection and provide any additional documentation or information needed.
Appeals can be tricky, because you are dealing with both the technical aspects of an Offer In Compromise as well as the procedure of the Office of Appeals. My clients have taken advantage of being represented, because I'm the one that has filed all the documents & remained in contact with the IRS throughout the OIC procedure. So it’s helpful to work with a tax professional who can strengthen your case.
If your offer for the OIC is accepted by the IRS to eliminate your back taxes, congratulations! But remember, you must stay compliant with tax laws for the next five years—file returns on time and pay taxes owed. Falling out of compliance could mean the tax debt will be returning, thus turning your dream back into a nightmare.
Do whatever it takes in the future to File on time & pay off any amount prior to deadlines! Set reminders for deadlines and review your withholdings or estimated payments to avoid issues. Staying compliant is key to keeping your fresh start intact.
When the IRS OIC program is just not right for you or your tax situation, there can a different program you may to consider these alternatives:
Currently Not Collectible (CNC) Status: Stops the IRS collections due to financial hardship.
Hardship Payment Plans: Offers reduced monthly payments tailored to your financial situation.
Innocent Spouse Relief: Provides relief from tax liabilities when it’s unfair to hold you liable for the tax debt because of your Spouse or Ex-Spouse.
Reconsideration Programs: Allows you to dispute inaccurate tax assessments, whether from an unfiled tax return, closed Audit or a closed AUR CP2000 assessment.
Penalty Forgiveness: Eliminates tax penalties under qualifying circumstances.
An alternative to the OIC sometimes comes to light when evaluating the totality of your circumstances. I have seen it first hand when evaluating a tax case, and recommend a different solution for a client.
Dealing with IRS tax debt can be overwhelming, but the Offer In Compromise (OIC) program offers a real chance for a fresh start. By following the steps outlined in this guide, you can take control of your tax situation and work toward resolving your debt.
If you need expert help navigating the OIC process or exploring other options, don’t hesitate to reach out. At Semper Tax Relief, we offer free case reviews to assess your situation and develop a strategy tailored to your needs.
Contact us today for a free case review and start your journey toward financial relief Call (949) 506- 3457 to schedule your free case review ( 24 hours /day + 7 days / week) or click below to book online!