What is an Offer in Compromise (OIC)?

An offer in compromise is a tool that many people use whenever they cannot afford to pay their taxes to the IRS. Here are the basics of the offer in compromise and how it works.

Offer in Compromise

An offer in compromise allows a taxpayer to pay less than they owe on their personal income taxes. With this method, the IRS agrees to take a smaller amount because of some extenuating circumstances. In order to submit an offer in compromise, you will need to fill out Form 656. 


There are a few different reasons that the IRS might consider accepting an offer in compromise. One reason is that the IRS doubts that they can collect the amount that is owed. For example, if someone owes a large amount of taxes but lost most of their resources in a bankruptcy case, the IRS might consider taking less than is owed. Another reason that they might accept an offer in compromise is if the individual does not believe that they owe the full amount of their tax liability on record. The IRS might also decide to accept an offer in compromise if they believe that is going to cause a severe financial hardship for the person if they pay their full tax bill.

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