The IRS Offer in Compromise (OIC) program is a way to settle your debt for less than you owe. With it, you may get help paying IRS debt if your income prevents you from repaying your debt. The government also calls it the IRS Fresh Start Program. 

You can apply for OIC if you need help with tax debt for yourself or your business. The IRS analyzes your income, assets, and profits to determine if you qualify for debt forgiveness. Through the program, you may save hundreds to thousands and cut your installment plan to as little as two years instead of four or five years. 

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Reducing Your Tax Debt May Be Possible With an IRS Offer in Compromise
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To participate in the Offer in Compromise program, you must meet the requirements established by the IRS. Here are the following factors used by the IRS to determine if you qualify:

  • Your household income
  • Your expenses
  • Your total assets
  • Your ability to pay 

Not all of your expenses count toward the program requirements, such as charity donations and school tuition. The IRS considers household expenses as rent, mortgage, utilities, child care, insurance premiums, and transportation costs. 

You must be current on your federal income tax filings and not declare bankruptcy. Also, you may not qualify if you have not yet received a bill for tax debt. 

You can use the agency’s OIC pre-qualifier tool on the IRS website to check if you meet the requirements. Some information you may need to check your qualifications include the following:

  • State, county, and ZIP code
  • Total members of your household and number of members older than 65
  • Total amount of tax debt, including penalties and interest
  • The most recent tax year you are requesting for OIC
  • Assets, such as bank balances, home and vehicle values, retirement accounts, etc.
  • Income from employment, business, child support, alimony, pensions, etc.

This information is used to determine not only if you qualify, but how much money can be knocked off your tax debt. For example, the IRS may reduce a $25,000 tax debt to $12,000 if your monthly income is close to or less than your monthly expenses. 

The IRS made recent changes to the Offer in Compromise program to reduce the duration of time and amount you pay. Before the revisions, the IRS looked at your potential income years in the future to determine a reasonable amount you could pay. 

Now, however, it considers the future income of:

  • One year (instead of four) for offers paid within five or fewer months. 
  • Two years (instead of five) for offers paid within six to 24 months. 

The IRS does not accept payment offers that take longer than 24 months. 

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