An Offer in Compromise (OIC) is an agreement between you and the IRS, where the IRS agrees to accept less than the full amount you owe. There are two main reasons the IRS may agree to accept less than the full amount you owe:
- Doubt as to Collectability: This means you don’t have enough income or assets to pay your debt in full. If the amount owed is correct, but you can’t afford to pay all of it, you can prepare and file an offer using the Form 656B, Offer in Compromise Booklet.
- Effective Tax Administration: You can pay your full debt, but it would create an economic hardship, or would be unfair or inequitable.
Another reason the IRS may accept payment of less than the full amount of tax owed is doubt as to liability (that is, you don’t believe you owe the tax, or you don’t believe the amount is correct). If you believe you don’t owe tax or the amount is incorrect, you can submit Form 656-L, Offer in Compromise (Doubt as to Liability).
You may use the IRS’s Offer-in-CompromiseAn agreement between a taxpayer and IRS for a taxpayer to pay less than the full amount owed. Pre-Qualifier tool to see if you qualify for an OIC.
Note: Except in the case of a doubt as to liability OIC, there is an application fee to apply for a OIC, and you must also send in an initial payment when you submit the offer. You may qualify for a Low Income Certification, if your gross monthly household income is less than a certain amount as shown in the IRS Form 656, Offer in Compromise. The certification is based on your family size and where you live. If you qualify, you’re not required to pay the application fee or to submit any payments with or during the consideration of your offer.