Tax Tip 2023-58: An Offer in Compromise can help certain taxpayers resolve tax debt

IRS Tax Tips

April 27, 2023

Issue Number: Tax Tip 2023-58

An Offer in Compromise can help certain taxpayers resolve tax debt

When a taxpayer can't pay their full tax liability or if paying would cause financial hardship, they may want to consider applying for an Offer in Compromise. This agreement between a taxpayer and the IRS settles a tax debt for less than the full amount owed. The goal is a compromise that?s in the best interest of both the taxpayer and the agency. The application fee for an offer in compromise is $205. Low-income taxpayers don?t have to pay this fee, and they should check if they meet the definition of low-income in the instructions for Form 656, Offer in Compromise.

When reviewing applications, the IRS considers the taxpayer's unique set of facts and special circumstances affecting their ability to pay including their:

Income.
Expenses.
Asset equity.

The Offer in Compromise Booklet has detailed information
The booklet covers everything a taxpayer needs to know about submitting an Offer in Compromise including:

Eligibility.
Costs to apply.
Application process.
Forms.

The booklet is also available in Spanish. Taxpayers should download and use the latest version of the OIC booklet to avoid processing delays.

Taxpayers can also watch a how-to video series on Offer in Compromise
The IRS has a free how-to video series on Offer in Compromise available in English, Spanish and Simplified Chinese. The playlist has easy-to-find information that taxpayers need to know when they consider and apply for an OIC. Topics in the series include:

Overview of the OIC process, forms and pre-qualifier tool.
Step-by-step guides for completing Forms 433-A and 433-B OIC.?These are collection information statements which are required for both individual and business-related offers.
Step-by-step example of how to complete Form 656, Offer in Compromise.
Checklist of everything that?s needed to submit a valid offer.

Taxpayers can see if they?re eligible with the pre-qualifier tool
Taxpayers can enter their financial information and tax filing status in the tool to calculate a preliminary offer amount. The tool is only a guide. The IRS will make the final decision on whether to accept the taxpayer?s application.

Beware of offer in compromise mills
Offers in compromise are an important program to help people who can't pay to settle their federal tax debts. But "offer in compromise mills" can aggressively promote offers in compromise in misleading ways to people who clearly don't meet the qualifications, often costing taxpayers thousands of dollars. Taxpayers can check their eligibility for free using the IRS Offer in Compromise Pre-Qualifier tool.?

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Issue Number: Tax Tip 2023-58