Offer in Compromise (OIC)
An Offer in Compromise is an agreement between a taxpayer and the IRS that settles tax debt for less than the full amount owed, available when the taxpayer cannot pay in full or when there is a legitimate dispute.
Exam Tip
Three grounds: doubt as to liability, doubt as to collectibility, effective tax administration. $205 application fee (waived for low income). Must be current on all filing and payment obligations. IRS considers reasonable collection potential (RCP).
What is an Offer in Compromise?
An OIC allows taxpayers to settle their tax debt for less than the full amount owed. The IRS evaluates the taxpayer's ability to pay, income, expenses, and asset equity to determine an acceptable offer amount.
Three Grounds for OIC
| Ground | When Used |
|---|---|
| Doubt as to liability | Legitimate dispute about whether tax is owed |
| Doubt as to collectibility | Cannot pay full amount within collection statute |
| Effective tax administration | Can pay but it would create economic hardship or be unfair |
Application Requirements
| Requirement | Details |
|---|---|
| Application fee | $205 (waived for low-income taxpayers) |
| Filing compliance | Must be current on all tax filings |
| Payment compliance | Must be current on estimated payments |
| Initial payment | Lump sum: 20% with application; periodic: first month's payment |
| RCP | IRS calculates Reasonable Collection Potential |
Exam Alert
Three OIC grounds: doubt as to liability, doubt as to collectibility, effective tax administration. $205 application fee (waived for low income). Must be current on ALL filing and payment obligations. IRS considers Reasonable Collection Potential (RCP) = future income + net equity in assets.
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Related Terms
Installment Agreement
An installment agreement is an IRS payment plan that allows taxpayers to pay their tax debt over time in monthly installments, with several types available depending on the amount owed.
Enrolled Agent (EA)
An Enrolled Agent is a federally authorized tax practitioner who has earned the privilege of representing taxpayers before the IRS by passing the Special Enrollment Examination (SEE) or through IRS experience.
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