Taxpayers who are unable to pay their tax debt in full may have options for resolving the balance. In some cases, the IRS may allow eligible individuals to settle their debt for less than the full amount owed through an offer in compromise.
This option is generally intended for taxpayers who cannot pay their full liability or for whom doing so would create financial hardship.
An offer in compromise, or OIC, is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount due.
When reviewing an application, the IRS considers several factors, including a taxpayer’s:
The goal is to reach a resolution that is in the best interest of both the taxpayer and the IRS.
Submitting an offer in compromise generally requires a $205 application fee as well as an initial payment.
However, some low-income taxpayers may qualify to have both the application fee and the initial payment waived. To determine whether these costs can be waived, taxpayers should review the instructions for Form 656-B, Offer in Compromise.
The IRS provides an Offer in Compromise Pre-Qualifier Tool that taxpayers can use to evaluate whether they may be eligible before submitting an application. The tool can also help users prepare a preliminary proposal.
Taxpayers who already have an offer in compromise in process may be able to make payments online through an IRS Individual Online Account. Eligible business taxpayers using a Business Tax Account may also be able to make OIC payments online, although applications cannot currently be submitted through that system.
Eligible taxpayers should review the most current version of the Offer in Compromise Booklet before submitting an application. Doing so may help prevent delays in processing and provide a clearer understanding of the requirements involved.
The booklet includes information on:
Taxpayers considering this option should also be aware of misleading companies sometimes referred to as “OIC mills.” These organizations often promote aggressive marketing claims, promise unrealistic results, and charge high fees to taxpayers who may not even qualify for an offer in compromise.
The IRS has included these schemes on its 2026 Dirty Dozen list of tax scams and abusive arrangements. Taxpayers can avoid unnecessary costs and pressure tactics by using the IRS’s free eligibility tools before working with a third party.
An offer in compromise can be a valuable solution for some taxpayers, but not everyone will qualify. Carefully reviewing IRS requirements and understanding the application process is an important first step.
If you are dealing with IRS tax debt and want to explore whether an offer in compromise or another resolution strategy may be appropriate, Porte Brown’s tax professionals can help you evaluate your options and move forward with greater confidence.
Source: IRS Tax Tip 2026-40
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