IRS Offer in Compromise: Basics, Who Qualifies - NerdWallet (2024)

FAQs

Who qualifies for an offer in compromise with the IRS? ›

To qualify for an OIC, the taxpayer must have filed all tax returns, have received a bill for at least one tax debt included on the offer, made all required estimated tax payments for the current year, and if the taxpayer is a business owner with employees, the taxpayer must have made all required federal tax deposits ...

The cons include:

You may not qualify. Not everyone qualifies for OIC. This method is typically best for people who have very few assets and who are low income earners. With this method, you are able to reduce what you owe.

Eligible taxpayers include individuals, businesses, trusts, estates and tax-exempt organizations that filed certain Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021, with an assessed tax of less than $100,000, and that were in the IRS collection notice process -- or were issued an initial ...

Offer in Compromise Acceptance Rate: How to Improve Your Chances with the IRS. People often complain that they should not file an Offer in Compromise for a client because the acceptance rate is only 36%. This percentage rate has been consistent for years (+/- 5%).

There are very stringent requirements for applying for an OIC. For starters, you have to have exhausted all other means of repaying the debt and you cannot have filed bankruptcy.

You must remain in compliance with filing and payment of all tax returns for a period of five years from the date the offer in compromise is accepted, including any extensions.

The IRS will often settle for what it deems you can feasibly pay. To determine this, the agency will take into account your assets (home, car, etc.), your income, your monthly expenses (rent, utilities, child care, etc.), your savings, and more.

Many offers in compromise applications are returned because they are incomplete. The IRS cannot process an offer if it is missing elements specific to applications and related documentation.

Processing times vary, but you can expect the IRS to take at least six months to decide whether to accept or reject your Offer in Compromise (OIC). The process can take much longer if you have to dispute the examiner's findings or appeal their decision.

6 years - If you don't report income that you should have reported, and it's more than 25% of the gross income shown on the return, or it's attributable to foreign financial assets and is more than $5,000, the time to assess tax is 6 years from the date you filed the return.

Will IRS ever forgive tax debt? ›

In some cases, it is possible to get IRS debt forgiven, but it is not a common occurrence, which is why the IRS may forgive a taxpayer's debt if they meet specific eligibility criteria.

Yes, after 10 years, the IRS forgives tax debt.

However, it is important to note that there are certain circ*mstances, such as bankruptcy or certain collection activities, which may extend the statute of limitations.

It does happen, but only in cases where a taxpayer clearly doesn't have the assets and/or income to pay off the tax debt in a reasonable time. If you have the money to pay the IRS—or will likely have it in the future—no amount of negotiating will convince the IRS to settle for less than you owe.

While the IRS may review your credit history as part of their evaluation of your OIC, your credit score will not be impacted by your compromise application. In fact, it's unlikely that credit services would have any idea that you've submitted anything at all, so you should be safe.

General Initiative Eligibility

You should be current on all federal tax filings and owe no more than $50,000 in back taxes, interest and penalties combined. If you're a small business owner, you could be eligible for relief under the Fresh Start Initiative if you owe no more than $25,000 in payroll taxes.

The IRS offers a tax debt forgiveness program for taxpayers who meet their qualification requirements in 2024. To be eligible, you must claim extreme financial hardship and have filed all previous tax returns. The program is available to certain people only, so contact us to find out if you qualify.

One-time forgiveness, otherwise known as penalty abatement, is an IRS program that waives any penalties facing taxpayers who have made an error in filing an income tax return or paying on time. This program isn't for you if you're notoriously late on filing taxes or have multiple unresolved penalties.