DIY Offer in Compromise

Offer in Compromise: How They Work

An Offer in Compromise (OIC) is an offer you make to the tax authority. It is, as its name implies, a compromise between the amount of taxes you owe and the amount you can reasonably afford to pay, whether all at once or over time. 

The IRS only processes OIC submissions if you meet all the required criteria listed in the Form 656b. If you will be submitting an OIC yourself, ensure you read everything on the OIC package so your OIC is not returned for missing information or payment (if applicable).

How-They-Work

Filing an OIC Yourself

This section will go over what you need to file an IRS OIC yourself if you only owe individual income tax liability. For any other types of taxes (such as civil penalties or payroll taxes), we suggest you contact us as the process becomes more complicated and it’s best to hire a professional to help you through that.

When working with the IRS, a lot of what you’ll need to know before filing your OIC is contained in the IRS Form 656 Booklet, available here.

Rules and regulations pertaining to how state tax authorities accept filings for Offers in Compromise vary from state to state. Check with your state’s department of revenue for more information. 

Before You File Your OIC

In anticipation of filing your OIC, keep one important fact in mind: your offer is almost guaranteed to be rejected if there is any way possible for you to pay the full amount you owe. Just because you’ve completed the right forms and included accurate information does not mean your offer will be accepted.

Steps for OIC Filing

When you’re ready, follow these steps to file your personal Offer in Compromise:

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Complete and submit a Collection Information Statement with supporting documents.

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Prepare to pay the application fee and any initial payments as applicable based on the type of Offer Payment Terms you chose.

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Wait for the IRS to review your application package. During this time, there should be no more additional collection actions taken once they deem the OIC package to be processable. Note that any collection actions (such as ongoing garnishment, levy, liens) that have been in place may not be released just because you filed the OIC. A tax lien may still be filed even after you file the OIC.

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Arrive at a negotiated amount of your owed taxes to be paid.

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Pay your negotiated tax bill according to the terms of the OIC.

As you’re paying down your tax bill, remember to file and pay your income taxes as you would during any other year.

DIY Tax Resolution Eligibility

There are some requirements and restrictions that pertain to individual taxpayers obtaining tax debt settlements on their own.

The requirements include:

  • Current filing status for returns (if you have not filed for a prior year past that year’s deadline, your OIC or other resolution proposals will be denied)
  • You have received a bill for at least one period of tax debt included in the offer
  • You have made all tax payments for the current year, if applicable

The restrictions include:

  • Active or open bankruptcy cases (you cannot be in bankruptcy and file an OIC or submit a resolution proposal at the same time)
  • Having enough equity in assets or disposable income that will result in full payment of the tax debt

DIY Tax Relief Resources

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