Tips for Filing Your IRS Offer in Compromise

Mandi Rogier
Expert Contributor
Last Updated:
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  • An offer in compromise can settle your back taxes for less than you owe if the IRS approves your application.
  • You must prove to the IRS that you are unable to pay your back taxes both now and in the near future to get an offer in compromise.
  • Professional assistance can prove extremely valuable when navigating this complex process.

An offer in compromise is an official request you file with the Internal Revenue Service (IRS) to settle your back taxes for less than the total amount you owe. If you’re truly unable to pay the full sum of your back taxes either in full or with a reasonable payment plan, the IRS might agree to lower your total owed amount and accept a smaller lump sum or reduced payment plan. It’s important to understand the full process for the best chance of having your offer accepted.

Make Sure Your Taxes Are Up-to-Date

To get an offer in compromise accepted, you must be up-to-date on all your taxes. If you haven’t filed all your tax returns in the past, now is the time to do so. Though it might be unpleasant catching up on all you owe the IRS, this is the only way you can truly get your back taxes under control.

If you file an offer in compromise (OIC) and the IRS finds that some of your tax returns are still outstanding, it will return your offer and application fee. The IRS will take your initial payment and apply it to your outstanding back taxes. You cannot appeal this decision.

File Your Offer Promptly

It’s tempting to put off major back taxes for future repayment. This is particularly true if you’re expecting your income to increase in the future. However, putting off any type of back taxes is a bad idea. You should begin communicating with the IRS about your plan for repayment as soon as you know you owe money. The longer you stall, the more interest and fees you will accumulate.

There is another compelling reason to file your offer in compromise before you get that windfall. You’re actually qualified to apply for a lower settlement rate when your income is low than you would if you get that raise. File for an OIC immediately so you can eliminate the stress of worrying about when the IRS will take its next steps to collect money from you.

Tips for Filing Your IRS Offer in Compromise

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Create a Plan for the Future

If you’re accumulating new back taxes even as the IRS reviews your current offer in compromise, you’re not really setting yourself up for success. Look at the bigger picture, and consider your long-term financial situation. Understanding why you owe money in the first place is crucial to ensure you won’t owe more to the IRS in the future.

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Back taxes typically accumulates because you’ve failed to properly estimate what you’ll owe the IRS throughout the year. If you pay a sufficient amount from your paycheck or submit appropriate estimated payments each quarter, you shouldn’t end the year with a back taxes to the IRS. Re-evaluate how you’re handling your finances, and make a plan to stay on top of your taxes during the year so you won’t have to file for an offer in compromise again in the future.

Gather Your Paperwork

It’s not enough to simply fill in the right numbers when you’re applying for an offer in compromise. You need to provide documentation supporting these amounts. With the appropriate forms for your OIC, you must include copies of:

  • Your most recent pay stubs or earnings statements
  • Your most recent investment and retirement account statements
  • The most recent statement for all sources of income, such as rental income, child support, Social Security, and pensions
  • Bank statements for the last three months
  • Statements from lenders regarding loans, mortgages, and vehicles
  • List of notes receivable
  • Documentation supporting any special circumstances mentioned in the application
  • Verification of a delinquent state/local tax liability where applicable

If you’re filing for a business, you will need to include additional information and documentation, including:

  • A profit and loss statement for the last six to 12 months, where applicable
  • Your six most recent bank statements for the business accounts
  • The three most recent bank statements for investment and retirement accounts
  • Copies of loan statements, monthly payments, loan payoffs, and balances for any assets used as collateral
  • A copy of the most recent statement of outstanding notes receivable
  • A copy of the most recent statements from lenders regarding loans, mortgages, loan payoffs, monthly payments, and balances
  • Documentation supporting any special circumstances mentioned in your application

Get Professional Assistance

Filing an OIC is a long and complex process. There are many minor mistakes that might cause the IRS to throw out your offer. Because you must pay a significant application fee simply to request an OIC, it’s important to ensure this documentation is completed properly.

Back tax assistance companies specialize in helping individuals file for OICs. These professionals are familiar with all the ins and outs of the application process and can help make this significantly easier for you.

Include Your First Payment

You must include your first payment along with your offer in compromise. You might wonder why you should pay for an installment plan that’s not yet accepted. This first payment helps emphasize that you’re a reliable candidate for this type of payment option. Failure to include your first payment violates the terms of the OIC from the very beginning and will likely result in the IRS denying your application.

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You don’t lose anything if you make this payment and the IRS denies your OIC. The sum will still go toward your tax liability, so you will have taken a small chunk out of the total owed, which is progress either way.

If you’re interested in filing an OIC, consider starting with a free consultation from a back tax assistance company. Solvable has an extensive list of companies that can provide you the assistance that you need.


Mandi Rogier
Expert Contributor
Last Updated: