An offer in compromise is real; it works, but most people don’t qualify.
Both halves of that sentence matter. In fiscal year 2025, the IRS accepted 5,464 of the 38,797 offers submitted, roughly 14 percent (source: IRS Data Book). The firms advertising tax debt settled for pennies are selling the 14 percent to the 86 percent.
Acceptance is narrow, not because the IRS is stingy. An offer in compromise is arithmetic, not persuasion. The IRS calculates what it could collect from you before the collection statute expires, and if that number is higher than what you offered, it says no. Hardship does not move it. A good story does not move it. The numbers move it.
Levy & Associates runs that calculation before you spend anything, and tells you honestly what it says. Some of our staff spent years as former IRS Revenue Officers on the other side of these files. Our practice is civil only. Levy & Associates does not represent clients in criminal tax matters of any kind.
It is called Reasonable Collection Potential, and it is the whole game.
RCP = net realizable equity in your assets + your future income over a set period
The period depends on how you structure the offer: 12 months of future income for a lump sum offer, 24 months for a periodic payment offer. That single choice can double the income half of the calculation, which is why the payment structure is a strategic decision rather than a preference.
Net realizable equity is not market value. The IRS generally discounts assets to a quick-sale value, then subtracts what you actually owe. Future income is not your salary. It is what remains after the IRS allows you certain living expenses, and it uses its own Collection Financial Standards for many of those rather than what you actually spend.
Both halves are where cases are won and lost. The IRS rarely refuses an offer at or above your RCP. An offer below it is refused almost automatically. The work is building the financial statement accurately and arguing every allowance you are entitled to, not writing a compelling letter.
Under IRC 7122, the IRS can compromise a liability on three bases. Almost everyone is in the first one.
| Ground | The argument | Notes |
|---|---|---|
| Doubt as to Collectibility | You cannot pay the full balance before the collection statute expires | The overwhelming majority of offers. Decided on RCP |
| Doubt as to Liability | You do not actually owe what the IRS says you owe | Filed on Form 656-L. No application fee and no Form 433 required, because your finances are irrelevant to whether the assessment is right |
| Effective Tax Administration | You could pay, but collecting in full would create economic hardship or would be unfair given exceptional circumstances | Rare and fact-specific. Genuinely available in the right case, most often serious illness or care obligations |
If your real complaint is that the assessment is wrong, do not file a collectibility offer. Doubt as to Liability is a different form, requires a different analysis, and costs nothing to file. That distinction is constantly missed, even by firms that should know better.
An offer that fails these gets returned, not rejected, and the IRS keeps your fee.
| Item | Amount | Waived? |
|---|---|---|
| Application fee | $205, non-refundable | Yes, with low-income certification |
| Lump sum offer initial payment | 20 percent of the total offer, with the application | Yes, with low-income certification |
| Periodic offer initial payment | The first proposed monthly installment, then monthly payments while the IRS reviews | Yes, with low-income certification |
Low-income certification applies at or below 250 percent of the federal poverty guidelines, measured by household size and income or, under the Taxpayer First Act, by adjusted gross income from your most recent return. You claim it on Form 656.
The fee and the initial payment are not refundable if the offer is rejected. They apply to your balance, so the money isn’t wasted, but you don’t get it back. That is the practical argument for running the RCP calculation before filing rather than after.
If you accept a lump sum offer, the balance is due in five or fewer payments. A periodic offer runs in monthly installments, and you keep paying them while the IRS decides.
The package is Form 656 plus Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, assembled from the Form 656-B booklet, along with bank statements, pay stubs or profit and loss statements, loan balances, vehicle values, retirement account statements, and proof of every allowable expense you are claiming.
Form 433-A (OIC) is not a tax form. It is a financial reconstruction that the IRS verifies against your transcripts and third-party data. Treating it like a form to fill in is the most common reason a credible offer fails.
Investigation can take up to 24 months. That length has one consequence worth knowing: under IRC 7122(f), if the IRS doesn’t reject an offer within 24 months of submission, it is deemed accepted. Time counts.
While the offer is pending, interest keeps accruing, the collection statute is paused, and you must stay compliant. A lapse in filing or paying during the review will end the offer.
We cover the financial statements in more depth in our guide to filling out Forms 433-A and 433-B, and the practical mechanics of where to mail an offer in compromise.
An accepted offer doesn’t end the relationship. Read these before you decide it is what you want.
Five years of perfect compliance. File on time and pay on time for five years after acceptance. Miss it, and the IRS can reinstate the entire original liability, less what you paid, plus accrued interest.
Your refund for the year of acceptance goes to the IRS. Not applied to the offer amount. Kept.
A filed tax lien generally stays in place until you meet the offer terms. Acceptance does not release it on its own, though the lien comes off once you complete the terms.
Accepted offers are a matter of public record. They go into a public inspection file for one year, showing the liability and the terms.
None of this makes an offer a bad idea when you qualify. It makes it a decision, not a windfall.
This is the part the advertising leaves out, and it is where most of our clients actually land.
Partial pay installment agreement. You pay monthly, but not enough to clear the balance before the collection statute expires, and the remainder goes uncollected. For many people, this delivers an outcome close to an offer with far less friction. It requires financial disclosure and periodic review.
Currently Not Collectible. If you cannot meet basic living expenses, collection pauses. Penalties and interest keep running, and the collection statute keeps running, which can be better than an offer for someone with a short remaining statute.
Penalty abatement. Frequently overlooked. Penalties can be a substantial share of the balance, and taxpayers with a clean three-year history can get first-time abatement administratively. We pursue penalty abatement as its own line of attack rather than as a consolation prize.
A straightforward installment agreement, sometimes after paying down the balance below a threshold to simplify approval.
Verifying the balance first. Before any of the above, check whether the number is right. A Substitute for Return, misapplied payments, or uncredited withholding can substantially inflate a liability, and correcting it can sometimes remove the reason for an offer entirely.
Our guide on three alternatives to an offer in compromise goes further.
You will see the Fresh Start Program advertised as though it were a separate application you can submit. It is not, and firms that describe it that way are usually selling something.
Fresh Start is the name for a set of administrative changes the IRS made beginning around 2011 and expanded in 2012. It relaxed several existing programs: it made offers in compromise easier to qualify for by changing how future income is calculated, raised the balance threshold at which the IRS generally files a lien, expanded lien withdrawal availability, and widened streamlined installment agreement access.
There is no Fresh Start form. There is no Fresh Start application. Instead, you can pursue an offer in compromise, an installment agreement, or lien relief, each with its own process. Our article on the IRS Fresh Start program explains what actually changed.
A rejection is not the end.
You have 30 days from the rejection letter to appeal to the IRS Independent Office of Appeals, using Form 13711. Appeals is independent of the unit that rejected the offer, and rejections frequently turn on a specific disputed valuation or expense allowance rather than on the whole case. Those are exactly the disagreements Appeals exists to resolve.
Payments and the fee you already paid apply to your balance. And a rejection often clarifies the path: the IRS has now told you what it thinks it can collect, which is precisely the number you need to build a partial pay installment agreement or a Currently Not Collectible request.
More in our guides on why an OIC gets denied and what to do when your offer is rejected.
A federal offer does not touch a state liability. Different programs, different grounds, different forms.
Michigan operates its own offer-in-compromise program through the Department of Treasury, separate from the federal one, with its own grounds and application. A federal settlement leaves a Michigan balance exactly where it was, and the Michigan state tax lien under MCL 205.29 runs on a seven-year renewable clock rather than the federal ten-year collection statute. More on our Michigan tax attorney page and our Michigan offer in compromise guide, and you can reach the team through our Lathrup Village office.
Florida has no individual income tax and no offer-in-compromise program equivalent to the federal one. The state can compromise tax, penalty, or interest only on limited statutory grounds. Anyone telling a Florida business owner they can settle a Florida sales tax liability the way they would settle an IRS balance is mistaken. See our Florida tax attorney page, and Florida clients can reach our Delray Beach office.
We run the RCP calculation first. Before an engagement, before a fee, before anything. If the numbers do not support an offer, you will hear that in the first conversation.
We pull the transcripts and verify the balance. A liability inflated by a Substitute for Return or misapplied payments changes the entire analysis.
We build the financial statement properly, arguing every allowance you are entitled to, because that is where the offer amount is actually determined.
We choose the structure deliberately. Lump sum versus periodic changes the future income multiplier from 12 to 24 months. It is not a payment preference; it is part of the offer amount.
We stay with it through Appeals if the offer is rejected, and pivot to the right alternative if the answer is that an offer was never the path.
Our accounting team handles any missing returns in-house, since nothing proceeds until you are compliant.
What percentage of offers in compromise does the IRS actually accept?
In fiscal year 2025, the IRS accepted 5,464 of the 38,797 offers submitted, roughly 14 percent (source: IRS Data Book). The rate moves year to year and was closer to 21 percent in fiscal 2024. The number is low because acceptance is arithmetic rather than discretionary: the IRS compares your offer to its calculation of Reasonable Collection Potential, meaning your net asset equity plus your future income over 12 or 24 months, and rejects offers below it. Be skeptical of any firm quoting a high acceptance rate or promising a settlement before it has reviewed your finances.
How much will the IRS settle for?
There is no percentage. The IRS does not discount balances; it calculates what it can collect. Your minimum offer is generally your net realizable equity in assets plus your monthly disposable income multiplied by 12 for a lump sum offer or 24 for a periodic offer. Two people owing the same amount can get completely different answers depending on what they own and what they earn. Anyone quoting a settlement figure before reviewing your financial statement is guessing.
What does it cost to apply, and do I get it back if I am rejected?
The application fee is $205 and is non-refundable. A lump-sum offer also requires a 20 percent initial payment with the application; a periodic offer requires the first monthly installment, plus continued monthly payments during review. The IRS waives both the fee and the initial payment for taxpayers who qualify for low-income certification, generally at or below 250 percent of the federal poverty guidelines. If the IRS rejects your offer, you don’t get the money back; it is applied to your outstanding balance instead of lost.
How long does an offer in compromise take?
The IRS can take up to 24 months to investigate an offer, and many take six months to a year. There is a meaningful rule attached to that outer limit: under IRC 7122(f), if the IRS has not rejected an offer within 24 months of submission, it is deemed accepted. While the offer is pending, interest continues to accrue, the ten-year collection statute is paused, and you have to stay current on all filing and payment obligations, or the offer will terminate.
What happens after the IRS accepts my offer?
Three things people are often surprised by. You must file and pay on time for five years after acceptance, and missing that can reinstate the original liability less what you paid, plus interest. Your refund for the year the offer is accepted is kept by the IRS rather than applied to the offer. And any filed Notice of Federal Tax Lien generally stays in place until you have satisfied the offer terms, at which point it can be released. Accepted offers also go into a public inspection file for one year.
If an offer in compromise is the right path, we will tell you, and we will build it properly. If it isn’t, we will tell you, and there are usually better alternatives than what’s being advertised to you.
Our team includes CPAs, Enrolled Agents, attorneys, and former IRS Revenue Officers. Our work is civil resolution only. We do not represent clients in criminal tax matters.
Call 248-557-4048 for a confidential conversation or contact us online.
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