What Is an Offer in Compromise?

An offer in compromise allows you to settle your tax debt for less than the full amount owed. The IRS accepts an OIC when it represents the most the government can expect to collect within a reasonable period. The process is heavily documented and generates multiple letters at each stage.

A Returned Offer

If your offer is returned before being considered on the merits, the IRS correspondence will state the reason. Common reasons include not filing all required returns, not making required estimated tax payments, or being in an open bankruptcy. A returned offer is different from a rejected offer: the IRS did not decide whether the amount was acceptable because a threshold requirement was not met.

During Processing

While your offer is being evaluated, you must continue making any required payments. If you submitted a lump sum offer, you made a 20% down payment with the application. If you submitted a periodic payment offer, you must make the proposed payments while the offer is pending. Missing these payments can result in the offer being returned.

The Rejection Letter

If the IRS rejects your offer, you receive a rejection letter. It explains why the offer was rejected and notifies you of your right to appeal within 30 days. Common rejection reasons include the IRS determining you can pay more than you offered, disagreements about asset values, or disputes about your income and expenses.

The 30-day appeal deadline is critical. An appeal gives you a fresh look from the IRS Independent Office of Appeals.

The Acceptance Letter

When the IRS accepts your offer, you receive an acceptance letter. This is the letter you have been waiting for, but it comes with conditions. You must comply with all tax filing and payment obligations for five years after acceptance. If you fail to file a return on time or incur a new tax balance during the compliance period, the IRS can default the offer and reinstate the original debt.

Payment Terms

Your accepted offer spells out its payment terms. If you submitted a periodic payment offer, keep paying on the schedule you agreed to. Make every payment on time. A missed payment during the compliance period can void the entire offer.

The OIC process is long, documented, and unforgiving. Every letter in the sequence matters, every deadline is real, and five years of compliance after acceptance is the price of settling your debt for less than you owe.