How Do I Know Whether I Qualify for an Offer in Compromise?
You may qualify for an Offer in Compromise if you have filed all required tax returns, made required estimated payments, are not in an open bankruptcy, and (for employers) have made tax deposits for the current and prior two quarters. Beyond eligibility, the IRS generally accepts an offer only when it equals the most the IRS could reasonably collect from your income and assets. If you can pay in full over time, an offer is usually not the right tool.
Step 1: Basic eligibility
- All required tax returns are filed.
- Required estimated tax payments for the current year are made.
- You are not in an open bankruptcy proceeding.
- Employers: federal tax deposits are current for this quarter and the two before it.
If you apply without meeting these, the IRS returns the application.
Step 2: Reasonable collection potential
The IRS calculates your “reasonable collection potential.” It has two parts:
Net equity in assets: bank balances, vehicles, real estate, retirement accounts and business assets, valued at quick-sale value minus loans.
Future disposable income: your monthly income minus allowable living expenses under IRS collection standards, multiplied by a set number of months.
Your offer generally needs to be at least this amount. This is why careful financial analysis matters: expenses the IRS does not allow, or assets valued incorrectly, can make a reasonable offer look too low.
Three types of offers
| Type | When it applies |
|---|---|
| Doubt as to Collectibility | You cannot pay the full balance within the collection period. This is the most common type. |
| Doubt as to Liability | There is a genuine dispute that you owe the tax. |
| Effective Tax Administration | You could pay, but doing so would cause economic hardship or be unfair given exceptional circumstances. |
Swipe sideways to see the full table →
Fees and payment options
- Application fee: $205, non-refundable.
- Lump-sum offer: 20% of the offer amount with the application, the rest in five or fewer payments after acceptance.
- Periodic payment offer: first payment with the application, then monthly payments while the IRS reviews the offer.
- Low-income taxpayers: the fee and initial payment may be waived.
What happens while the offer is reviewed
- Most IRS collection activity is suspended.
- The IRS may still file a Notice of Federal Tax Lien.
- The 10-year collection period is extended during review.
- If the IRS does not decide within two years, the offer is treated as accepted.
If the offer is accepted or rejected
If accepted, you must file and pay all taxes on time for five years, or the IRS can reinstate the debt. Liens are released once the offer terms are met. If rejected, you can appeal within 30 days using Form 13711.
Why many offers are rejected
- Unfiled returns or missed estimated payments.
- Offer amount below the reasonable collection potential.
- Incomplete financial documentation.
- Assets or income not disclosed.
Not sure an offer is right for you? See Offer in Compromise vs. installment agreement.
$552,716 IRS debt settled through an Offer in Compromise for $25,176
Read the case study →Published with client authorization. Results vary and depend on each case’s facts.
Talk to a CPA or Enrolled Agent
Every situation is different. We review your IRS transcripts and explain your options in plain terms.
Source: IRS – Offer in Compromise
This page provides general information, not tax or legal advice for your specific situation. IRS rules, fees and thresholds can change. Past results do not guarantee a similar outcome, and every case depends on its own facts. Franskoviak Tax Solutions, operated by Titan Tax Solutions, P.C., provides representation where permitted.
