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Published: September 10, 2020   |   Last Updated: October 26, 2022

Offer in Compromise

  • Doubt As to Liability (DATL)
  • Doubt As to Collectability (DATC)
  • Effective Tax Administration (ETA)

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Station Overview

 

If you can’t pay your tax debt in full, or if paying it all will create a financial hardship for you, an offer in compromise (OIC) may be an option. An OIC (also known as an offer) is an agreement between you and the IRS, where the IRS agrees to accept less than the full amount you owe to settle the debt.

This notice or letter may include additional topics that have not yet been covered here. Please check back frequently for updates.

Main reasons the IRS may agree to accept less than the full amount you owe:

  • Doubt As to Liability:   You don’t owe the tax or the amount is incorrect.  Use Form 656-L.
  • Doubt As to Collectability (DATC):  You don’t have enough income or assets to pay your balance due in full.
  • Effective Tax Administration: You can pay all your balance due, but it would create an economic hardship, or would be unfair or inequitable.

How did I get here?

You have a tax balance due and want more information about an OIC. You should review all the other options that might be available to you. Some of these will have lower fees and can be easier and faster to obtain.

What does this mean to me?

Before the IRS will consider an offer, you must make all required estimated tax payments for the current year, and if you are a business owner with employees, make all required federal tax deposits for the current quarter and the two preceding quarters.

Taxpayers in an open bankruptcy proceeding aren’t eligible to enter into an OIC.

Use the IRS Offer in Compromise Pre-Qualifier Tool to see if you may be eligible to make an offer. This tool is only a guide and does not guarantee acceptance of your offer. You can still discuss questions you have about filing an offer by contacting the IRS.

If you submit an offer, you will be required to pay a filing fee and initial payment unless you meet low-income waiver criteria. You will also be required to provide a complete financial statement showing all your assets and income. The IRS will generally keep any payments made toward the offer (even if your offer is not accepted) and you must remain current with all tax filing and payment obligations throughout the offer process. If your offer is accepted, the IRS will keep any refund you are owed for tax returns filed through the date the IRS accepts your offer.

Submitting an offer will extend the time period the IRS has to collect your tax debt. You can read more about the offer process and find frequently asked questions here.

What are my next steps?

If you decide to submit an offer, you’ll need to give the IRS complete financial information. Make a list of your income, expenses, and assets and any debts owed against those assets. Follow the instructions in Form 656-B Booklet, Offer in Compromise, to prepare and file your offer. The booklet contains instructions on the required forms to submit, low-income waiver guidelines, payment options, offer terms and other information about the offer process.

Note: Submitting an offer doesn’t guarantee the IRS will accept your offer. It starts the process of evaluating your situation, your ability to pay, and the amount you’re offering. You can submit an offer on taxes owed individually and for your business.

Where can I get additional help?

Understanding your notice or letter

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Browse common tax issues and situations at TAS Get Help

If you still need help

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

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Where am I in the tax system?

Offer in Compromise

  • Doubt As to Liability (DATL)
  • Doubt As to Collectability (DATC)
  • Effective Tax Administration (ETA)
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