Offer in Compromise

An Offer in Compromise (OIC) is a formal agreement between a taxpayer and the IRS to settle tax debt for less than the full amount owed. It's one of the most powerful resolution tools in the Internal Revenue Code — but the IRS rejects the majority of applications that aren't prepared by experienced tax professionals.

McCauley Law Offices has successfully negotiated hundreds of Offers in Compromise across Pennsylvania, New Jersey, and Maryland, routinely settling debts for pennies on the dollar. We analyze every angle of your financial situation to build an offer the IRS can't refuse.

What Is an Offer in Compromise and How Does It Work?

An Offer in Compromise under IRC § 7122 is a formal agreement where the IRS accepts less than the total amount you owe. The program exists because Congress recognized that requiring full payment from every taxpayer — regardless of ability — doesn't serve anyone's interest.

When you submit an OIC, the IRS evaluates your income, expenses, asset equity, and overall ability to pay. The goal is to determine your Reasonable Collection Potential (RCP) — the maximum amount the IRS believes it could collect from you over the remaining collection period. Your offer must meet or exceed this amount for the IRS to accept it.

While your OIC is under review, several important things happen:

• IRS collection activities — including wage garnishments, bank levies, and property seizures — are suspended
• Non-refundable payments and fees are applied to your outstanding tax balance
• The IRS may still file a federal tax lien to protect its interest
• The 10-year collection statute is paused (tolled) during the review period

Why Work With a Tax Attorney for an Offer in Compromise?

The OIC process is highly rigorous. The IRS rarely accepts offers unless it believes the amount offered represents the most it could realistically collect. DIY applications are rejected at dramatically higher rates because taxpayers miscalculate their RCP, submit incomplete documentation, or fail to present their financial situation strategically.

Here's how McCauley Law Offices gives you an advantage:

• We evaluate your eligibility and determine whether an OIC is the strongest resolution option — or if another approach (installment agreement, CNC status) would serve you better
• We calculate your RCP strategically, identifying every legitimate way to reduce the number the IRS uses to evaluate your offer
• We prepare a bulletproof application package — every form, every supporting document, every financial statement reviewed and optimized
• We negotiate directly with the IRS, responding to examiner inquiries and pushing back when the IRS overvalues assets or underestimates expenses
• We ensure post-acceptance compliance so your OIC isn't revoked after it's been accepted

Eligibility and Qualification Requirements

The IRS has two categories of requirements: eligibility requirements (the basic conditions you must meet) and qualification grounds (the specific reasons the IRS might accept your offer).

Eligibility Requirements

Before the IRS will even consider your application, you must:

• Have filed all required tax returns and made all required estimated payments
• Not be in an open bankruptcy proceeding
• Have a valid extension if applying for the current year
• If you're an employer, have made tax deposits for the current and last two quarters

If you apply without meeting these eligibility requirements, your offer won't be processed — the IRS will return your application and apply any payments to your outstanding balance.

Qualification Grounds

The IRS will accept an OIC based on one of three grounds:

• Doubt as to Collectability: Your income and assets are insufficient to pay your full tax debt. This is the most common basis — the IRS determines it's unlikely to collect the full amount.
• Doubt as to Liability: There is a legitimate dispute about whether you actually owe the amount assessed, or the correct amount.
• Effective Tax Administration: You could pay in full, but doing so would create severe economic hardship or would be unfair due to exceptional circumstances (disability, medical condition, etc.).

How to Submit an Offer in Compromise Application

Applying for an OIC requires accuracy, thorough documentation, and strict adherence to IRS guidelines. A single missing form or miscalculation can result in rejection. Here's the process:

1. Prepare and Submit Your Application Package

• Completed Form 433-A (OIC) (Collection Information Statement for individuals) or Form 433-B (OIC) (for businesses)
• Form 656 (Offer in Compromise) — or Form 656-L for doubt-as-to-liability cases
• A $205 non-refundable application fee (waived for low-income applicants)
• All required supporting documentation: bank statements, pay stubs, property valuations, monthly expense documentation

2. Choose Your Payment Option

• Lump Sum: Include 20% of your total offer amount with the application. If accepted, pay the remaining balance in 5 or fewer payments.
• Periodic Payments: Submit your first installment with your application and continue making monthly payments while the IRS reviews your offer. You must continue payments regardless of how long the review takes.

Low-income applicants who meet certification guidelines don't need to pay the application fee or make the initial 20% payment.

What Happens After Your Offer Is Accepted or Rejected?

If Your Offer Is Accepted

You must meet all terms listed in Form 656, including completing payments on schedule and remaining in full tax compliance for the next 5 years. Any tax refunds from the year of acceptance are applied to your balance. Once all terms are met, the IRS releases any existing federal tax liens.

If Your Offer Is Rejected

A rejection doesn't have to be the end. You have several options:

• Appeal the decision within 30 days using Form 13711 (Request for Appeal of Offer in Compromise)
• Submit a revised offer with stronger supporting documentation
• Explore alternative relief — installment agreements, penalty abatement, or Currently Not Collectible status

McCauley Law Offices regularly overturns OIC rejections on appeal. Our attorneys prepare comprehensive appeal packages that address the examiner's specific objections and present additional evidence.