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IRS Offer in Compromise: How It Works, Is it Right For You & Help

If you owe the IRS back taxes and find yourself unable to pay those taxes in full, there may be a program available which allows you to pay back only a portion of the tax liability owed. Many consumers have heard of the debt settlement process for unsecured debts, where credit card companies agree to a reduced payoff amount from individuals experiencing a financial hardship. The IRS has a similar program where a taxpayer can pay only a portion of what they owe in back taxes. The Offer in Compromise allows filers who meet certain conditions to avoid further collection actions if they are able to pay off a certain amount of the tax bill owed.

How Does an Offer in Compromise Work?

The IRS understands that in some situations it is easier and more cost effective to work with individuals who are truly experiencing a financial hardship which makes paying their full tax liability impossible. When specific conditions are met, the IRS will agree to accept a portion of what is owed and forgive the remaining balance versus continued collection actions which may not result in full payment anyway. When an Offer in Compromise is reached, both parties are able to resolve the issue without the use of extensive and aggressive collection efforts.  Some of the conditions which must be met before a taxpayer will be considered for this program are as follows:

  • Is it more likely the IRS will receive payment from the filer if they accept the Offer in Compromise versus continued collection. The IRS will make this consideration based on your financial situation. If they realize that further collection actions will cost them more money with no reasonable expectation of additional payment, you may qualify for an Offer in Compromise.


  • Is there doubt that the tax liability owed is correct. If this is a possibility, the IRS may decide to settle on a lesser amount and consider the debt repaid.


  • If the tax liability is correct, yet the collection of said taxes would result in an additional financial hardship which would be considered unfair and inequitable to the taxpayer. In other words, if the IRS forced the taxpayer to pay the entire amount, would the individual an extreme financial hardship.


  • The taxpayer cannot currently be in the process of bankruptcy and still qualify for an Offer in Compromise.


  • All proper documentation must be submitted as well as the application fee of $150 before any requests will be considered.


  • All necessary tax returns must have been filed.


Is An Offer In Compromise Right for You?

This option may be right for you if you meet the established requirements and have no other options available to repay your tax liability in full. You must be able to meet all the conditions set forth the by IRS and have the ability to pay the partial payment amount required. Whenever possible it is ideal to try to pay all tax liabilities in full as well as other debts to limit damage to your credit history as well as avoid tax penalties and fees that will only grow over time.

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