IRS Tax Relief - Before You File an Offer in Compromise


New Rules For

IRS Offer in Compromise

You need to know that the IRS has made acceptance of an Offer in Compromise easier through the IRS Fresh Start Initiative.


“These changes to the Offer in Compromise program will help give taxpayers a fresh start,” said Doug Shulman, the IRS commissioner, in a conference call with reporters. These changes “are especially appropriate as the American people and small businesses are climbing out of the worst recession in a generation.”

“I’ve made a whole set of changes to the Offer in Compromise (OIC) program since I’ve been here to try to increase the participation rate, increase the acceptance rate, because it’s good for the tax system,” Doug Shulman, the IRS Commissioner said.

If you are unable to pay your tax liability in a lump sum or through an installment agreement and you have exhausted your search for other payment arrangements, you may be a candidate for an offer in compromise.

All Taxpayers Do Not Qualify for an Offer in Compromise

Absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an offer in compromise will not be accepted. The IRS must allow you specific allowable expenses such as rent/mortgage, food & clothing, utilities, auto payment, auto allowance, transportation expenses (mass transit), medical expenses, health insurance, child support, secured loans, etc).

The Three Types of Offer in Compromise

The IRS may accept an Offer in Compromise based on three grounds:

1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.

3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.



The IRS will cease all collection activity once the Offer in Compromise is filed. The IRS will keep all payments and credits made, received or applied to the total original tax liability before the Offer in Compromise (OIC) was submitted.  The IRS may also keep any proceeds from a levy that was served prior to the submission of an OIC, but which were not received at the time the OIC was submitted.


The IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts your Offer in Compromise (OIC).

Exception: An Offer in Compromise submitted under the basis of doubt as to liability.

Federal Tax Liens are Not Released

If there is a Notice of Federal Tax Lien on record prior to acceptance of the offer, the lien is not released until the Offer in Compromise (OIC) terms are satisfied or until the tax liability is paid, whichever comes first.  A Notice of Federal Tax Lien may be filed during the course of the OIC investigation.

Statutory Period for Collection Suspended

The statutory period (Statute of Limitations) for collection is suspended during the period that the Offer in Compromise (OIC) is under consideration (pending) and is further suspended if the OIC is rejected by the IRS and you appeal the rejection.


Should your Offer in Compromise (OIC) be rejected, you will have the opportunity to file an appeal which will be heard by the IRS Office of Appeals.  There are no appeal rights associated with offers that are returned, withdrawn or terminated.

OIC Payment and Application Fee Exceptions

If you qualify for a low-income exception waiver or you submit a doubt as to liability offer you are exempt from the $150.00 application fee and any OIC payments due upon submission of your Offer in Compromise (OIC) or during the course of the investigation. The low income waiver does not apply to businesses.

Five Year Compliance

If your Offer in Compromise is accepted, you must timely file all tax returns and timely pay all tax for five years or until the offered amount is paid in full, whichever period is longer. Failure to adhere to these terms will result in default of the offer and the IRS may then collect the amounts originally owed plus penalties and interest.

File your taxes and pay what is owed by April 15th for 5 straight years and 
you will "be home free"

Approved Installment Agreement

If you have an approved installment agreement and submit a periodic payment offer, you are not required to continue to make the installment agreement payments while the offer is being investigated.  You will, however, be required to make the OIC periodic payments as they become due.

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  1. If you have a tax liability owed to the IRS and cannot pay it, you need to look at an IRS settlement through the Offer in Compromise program.


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