Offer in Compromise

Tax obligations do not diminish without action. When the IRS escalates collection, wage garnishments, bank levies, and federal tax liens can follow quickly, often before you can properly respond. An offer in compromise offers a structured path to resolve the liability through a negotiated settlement based on your financial reality.

An offer in compromise is not a general hardship request. It is a formal process governed by strict eligibility standards and documentation requirements, and it is best made only after exploring your other options for paying the debt. Our attorneys evaluate your income, assets, and allowable expenses to determine whether a settlement is viable.

How an offer in compromise works

An offer in compromise lets you settle a tax debt for less than the full amount owed when full collection is unlikely. You acknowledge the debt but show you are unable to pay it in full. The IRS evaluates each request under the Internal Revenue Code and the Internal Revenue Manual, including Internal Revenue Code Section 7122, which governs the compromise of tax liabilities.

Approval turns on whether the IRS determines it can collect more through enforced collection than through the proposed settlement, based on a detailed financial disclosure with supporting documentation. The IRS reviews:

• Monthly income and necessary living expenses
• Equity in real and personal property
• Future earning potential
• Compliance with filing requirements
• Prior attempts to resolve the liability

An offer in compromise requires a consideration fee and completion of several additional tax forms. If the offer is rejected, the fee can be applied to your outstanding balance. A Low Income Certification is available, which waives the application fee and the need to make monthly payments while the offer is under review.

Why most applications fail without legal structure

The process demands extensive documentation and strict procedural compliance. The IRS applies national and local expense standards that often differ from your actual cost of living, and without aligning your disclosures to those standards, the IRS may deny the application regardless of genuine hardship.

Our attorneys determine whether an offer in compromise is the right resolution or whether alternatives, such as an installment agreement or currently not collectible status, produce a stronger outcome. Where an offer is appropriate, we build the submission to withstand IRS scrutiny from the outset, covering:

• Proper valuation of assets, including vehicles and real estate
• Application of IRS allowable expense standards
• Selection of lump sum versus periodic payment offers
• Anticipation of IRS counteroffers and appeals

Most offers and negotiations with the IRS happen by paperwork and mail, and you may never speak to the agent handling your case. That is why the documents need to be completed correctly and without mistakes the first time.

Who can qualify for an offer in compromise

Eligibility is not based solely on the amount you owe. The IRS requires that all tax returns be filed and that you are current with estimated payments or withholding, then calculates your reasonable collection potential, which sets the minimum offer it will consider. If your future income exceeds IRS thresholds, the agency may reject your offer even if you cannot pay immediately.

The IRS website offers a Pre-Qualifier Tool to help you decide whether to apply. Generally, you may qualify if you:

• Are not currently involved in filing bankruptcy
• Have filed all your tax returns and made all required payments
• Have an extension on file, if the request is for the current tax year
• Have made your current and previous two quarters' tax deposits before applying, if you are an employer

The IRS may ask for further proof of your inability to pay, such as income, bank account, and asset records, and you should be prepared to pay something even if your debts exceed your assets. Our attorneys evaluate each variable before filing, including ways to reduce calculated income and challenge asset valuations. If a monthly payment plan fits your situation better, see our installment agreements page, or return to our Tax Debt Relief overview.