What is an IRS Offer in Compromise 2025 Update
💰 What Is an IRS Offer in Compromise? (2025 Update)
If you’re staring down a big tax bill and wondering, “Can I settle this for less?” — the answer might be yes through an IRS Offer in Compromise (OIC).
This program allows qualifying taxpayers to negotiate their tax debt down to an amount the IRS agrees they can realistically pay. Sounds like a dream, right? Well, it’s possible — but it takes strategy, documentation, and patience.
Let’s break down what an Offer in Compromise is (and isn’t) in 2025.
🧾 So, What Exactly Is an Offer in Compromise?
An Offer in Compromise (OIC) is a formal agreement with the IRS to settle your tax debt for less than the full amount owed.
It’s essentially a fresh start option for taxpayers who:
Can’t afford to pay the full balance,
Dispute the amount owed, or
Would face severe financial hardship if they paid in full.
⚖️ Three Types of Offers in Compromise
There are three main categories of OICs:
1️⃣ Doubt as to Collectability – 💸 The most common. You’re saying, “I’d love to pay, but I just can’t.” The IRS reviews your income, expenses, assets, and ability to pay.
2️⃣ Doubt as to Liability – 🧾 Used when you genuinely believe you don’t owe part (or all) of the debt and can’t resolve it directly with the IRS.
3️⃣ Effective Tax Administration (ETA) – ❤️ For those who technically could pay but doing so would cause significant hardship — for example, draining retirement savings or forcing the sale of a home.
👉 Most taxpayers qualify under Doubt as to Collectability, so we’ll focus there.
🧩 Before You Submit an OIC — Key 2025 Considerations
✅ 1. Make Sure You’re Tax Compliant
The IRS won’t even look at your Offer if you have unfiled returns.
Before applying, make sure all your tax filings and estimated payments are current. Compliance is step one.
💻 2. Use the IRS Pre-Qualifier Tool
Visit irs.gov and use the Offer in Compromise Pre-Qualifier Tool.
This free tool helps estimate whether your offer stands a chance.
If it shows you have enough income or assets to pay in full, an OIC probably won’t be accepted — and you might want to explore other options, like installment agreements.
📝 3. Complete the Right IRS Forms
Once you’re ready, you’ll complete Form 656, the IRS Offer in Compromise Booklet.
This form requires details about your income, expenses, assets, and liabilities. Be honest and thorough — incomplete or inconsistent information can cause delays or denials.
💵 4. Choose a Payment Option
You’ll have two payment structures to choose from:
Lump Sum: Pay 20% of your offer upfront with your application.
Periodic Payment: Make monthly payments while the IRS reviews your offer.
Your initial payment is nonrefundable, even if the IRS says no — so be strategic.
⏳ 5. Be Patient (Really Patient)
Processing can take 6–12 months — sometimes longer.
Your case will be assigned to an IRS Settlement Officer who may request updated financial information.
If approved, you’ll get a conditional acceptance letter, which includes a five-year compliance rule: you must stay current on all filings and payments for five years or risk losing the deal.
🚫 If Your Offer Is Rejected
Don’t lose hope — you have options.
You can appeal a rejection within 30 days by submitting Form 13711 (Request for Appeal of Offer in Compromise).
If the appeal doesn’t go your way, you can also consider a Collection Due Process (CDP) hearing, which preserves your right to take your case to U.S. Tax Court if necessary.
Persistence and professional guidance can make a huge difference here.
💡 Final Thoughts (2025 Edition)
An IRS Offer in Compromise isn’t a magic wand — but for the right taxpayer, it can be a real lifeline.
If accepted, it can wipe away years of back taxes, penalties, and stress. But it’s also one of the IRS’s most scrutinized programs, meaning every form, figure, and claim must be accurate.
Before applying, get professional help to make sure your numbers — and your story — make sense.
👉 Book a call with Lisa Brugman, EA & Associates, and let’s see if an Offer in Compromise is right for you. .
We’ll help you evaluate your eligibility, prepare a strong submission, and navigate every step of the process with confidence.
