Offer in Compromise: what it really takes to settle with the IRS
You've heard the ads: "Settle your IRS debt for pennies on the dollar."
Here's what the IRS's own numbers say. In fiscal year 2025, taxpayers proposed 38,797 offers in compromise. The IRS accepted 5,464. That's about 14%. The total accepted was $98.1 million.
An Offer in Compromise is real. I've gotten them accepted. But it's not a lottery ticket. It's a narrow doorway for people who truly can't pay.
What an Offer in Compromise is
An offer lets you settle your tax debt for less than the full amount. The IRS generally accepts an offer when it represents the most the IRS can expect to collect within a reasonable time.
To figure that out, the IRS looks at:
your ability to pay,
your income,
your necessary expenses, and
the equity in your assets.
If you can pay the debt in full through a payment plan, you generally won't qualify.
Who can apply
The IRS says you're eligible to apply if you:
filed all required tax returns and made required estimated payments,
aren't in an open bankruptcy, and
if you're an employer, made your tax deposits for the current quarter and the two before it.
What applying involves
Form 656 and a detailed financial statement (Form 433-A (OIC) for individuals, 433-B (OIC) for businesses), with documents.
A $205 application fee, unless you meet the low-income guidelines.
An initial payment. With a lump-sum offer, that's 20% of the offer amount up front. With a periodic payment offer, you pay monthly while the IRS reviews it.
Those payments generally aren't refundable. They go toward your tax debt even if the offer is rejected.
While the offer is being considered, the IRS generally suspends other collection, but it may file a lien, and the 10-year collection period is extended.
What an accepted offer looks like
When an offer is accepted, you get a formal acceptance letter (Letter 5483). I've received these for clients. It's a real, written deal, not a phone promise.
But acceptance comes with conditions:
Five years of compliance. You have to file all required returns and pay all taxes on time for five years after acceptance. Miss that, and the IRS can default the offer and bring the original debt back.
The IRS keeps certain refunds. Refunds for overpayments through the date the offer is accepted are kept and applied to the debt.
The lien stays until you finish paying. The IRS releases a filed lien only after the offer terms are satisfied.
If your offer is rejected
You can appeal within 30 days using Form 13711. Sometimes a rejection still leads to a workable result, like a payment plan.
What usually works instead
For most people with an IRS balance, the workhorse is an installment agreement. If you truly can't pay anything right now, Currently Not Collectible status may be the right fit. An offer makes sense when the numbers really support it.
That's why I run your numbers before you spend months and a nonrefundable fee on paperwork that was never likely to be accepted. If I don't think an offer fits, I'll tell you, and we'll look at the options that do.
Short FAQ
What percentage of offers in compromise does the IRS accept? In fiscal year 2025, the IRS accepted 5,464 of 38,797 offers proposed, about 14%.
How long does the IRS take to decide an offer? It varies. If the IRS doesn't decide within two years of receiving it, not counting any appeal, the offer is treated as accepted.
Do I have to stay compliant after an offer is accepted? Yes. Generally for five years: file all returns and pay all taxes on time.
Can I get my application fee back if I'm rejected? Generally no. The fee and initial payments are nonrefundable and are applied to your debt.
Wondering if you qualify?
Book a free 30-minute call to go over your case. For a quick question, you can call (718) 510-3166. I'll look at your numbers and tell you honestly.
General info, not advice for your specific case. Past results don't predict yours.
