Offer in Compromise — Can You Really Settle Your IRS Tax Debt for Less?

If you’ve ever heard those ads claiming you can “settle your tax debt for pennies on the dollar,” they’re talking about the Offer in Compromise. But is it legit?

Short answer: Yes — but it’s not for everyone.

Let’s break down exactly what an Offer in Compromise (OIC) is, how it works, who qualifies, and how to know if it’s worth pursuing for your situation.

What Is an Offer in Compromise?

An Offer in Compromise is a formal agreement with the IRS to settle your tax debt for less than the full amount you owe. It’s one of the most powerful tools the IRS offers, but it’s also one of the hardest to qualify for.

In order to approve an OIC, the IRS must believe that:

They are unlikely to collect the full amount from you — either now or in the future — based on your financial situation.

Who Qualifies for an OIC?

You may be eligible if:

• You’ve filed all required tax returns

• You’re not in active bankruptcy

• You can prove you can’t afford to pay the full balance, either in a lump sum or via payment plan

• You meet strict income, expense, and asset thresholds

Just owing money isn’t enough — you must prove that full payment would create financial hardship.

How Does the IRS Decide?

The IRS looks at what’s called your Reasonable Collection Potential (RCP) — this includes:

• Your income

• Your monthly living expenses (based on IRS allowable standards)

• The value of your assets (house, car, savings, investments)

If your RCP is less than what you owe, they may accept your offer — but it needs to be backed up with strong documentation.

How Much Should You Offer?

Your offer is typically based on this formula:

(Available income per month) × 12 or 24 months + Net realizable value of assets

The lower your income and the fewer your assets, the lower your offer can be. But offering too little without justification? That’s a fast track to rejection.

Pros of an Offer in Compromise

✅ Settle your debt for less

✅ Stop IRS collections while your offer is being reviewed

✅ Get a fresh financial start

Cons to Be Aware Of

⚠️ It takes time — 6–12 months is common

⚠️ Strict documentation is required

⚠️ If you default later (miss future filings or payments), your offer can be reversed

Can You DIY It?

Technically yes, but in reality — OICs are often denied due to incomplete or inaccurate financials. A tax pro can help:

• Accurately calculate your RCP

• Complete the IRS Form 656 and 433-A(OIC) or 433-B(OIC)

• Strengthen your case with the right supporting documentation

Final Thoughts

Yes, you can settle with the IRS for less than you owe — but it depends on your numbers. The Offer in Compromise is a powerful option, but only for those who truly qualify.

Curious if you’re a candidate for an OIC? Book your Tax Strategy Session today and let’s walk through the numbers together.