Offer in Compromise Success Rate: What Are Your Actual Odds?

An offer in compromise is a useful tool for taxpayers, and very tempting to many people with debt they can’t manage. Unfortunately, the offer in compromise success rate is low. Very few people meet the qualifications to apply for an offer in compromise (OIC), and the approval rate for those who do qualify is low. It’s important to understand these qualifications, what common mistakes are, and how you can appeal an OIC rejection.

What Is an Offer in Compromise?

An OIC is a method taxpayers can use to pay off their tax liability to the IRS for less than they owe. Unfortunately, it’s easy to get into tax debt. Unexpected emergencies can lead to penalties that grow in interest over time. In 2024, the IRS assessed more than 50.7 million civil penalties.

What Is the Success Rate of an Offer in Compromise?

The success rate of an OIC was about one in five as of 2024. The IRS looks at facts like your income, expenses, and assets to determine if an offer you make is what the agency can reasonably collect from you.

In 2023, the IRS accepted 12,711 OICs out of 30,163 offers, for a success rate of 42% for taxpayers. In 2024, the IRS received 33,591 OICs and accepted 7,199. This was a success rate of 21%.

Qualifications for an Offer in Compromise

To be able to file for an OIC, the following must all be true:

• You have filed all required tax returns and estimated payments
• The IRS sent you a bill for at least one of the debts that is addressed by the OIC
• You have paid the application fee if required
• You have included the first portion of your OIC payment
• If the OIC applies to the current tax year, then you have a valid extension for that return
• If you are an employer, you’ve paid your deposits for the past two quarters and the current quarters
• You are not in an active bankruptcy proceeding

Even after applying, the IRS may only approve an OIC if you can prove one of the following:

1. A genuine doubt that you owe the tax assessed
2. A genuine doubt that the IRS can collect the full debt amount from you because of your financial circumstances
3. It would be effective tax administration for the IRS to accept the OIC, because collecting the full amount would be unfair or cause you financial hardship

What Are Reasons the IRS Rejects an Offer in Compromise?

There are many potential reasons the IRS may reject an OIC, such as:

• Tax noncompliance: If you are not up-to-date with your current required tax forms or have not secured a valid extension for the current year, then you are not eligible to file for an OIC.
• Incomplete forms of proof: If you do not have enough information to determine your ability to pay, or are missing required forms and documentation, the IRS is likely to reject the offer or request that you send more information. If you state that there is doubt to liability or collectibility but fail to prove this, that can also result in a rejection.
• Other tax debt settlement options: If the IRS believes that you have the financial ability to enter into an installment agreement, then it will not accept an OIC. The IRS will also not accept an offer if it reviews your financials and believes that you are capable of paying the full value of your tax debt.

When taxpayers file an OIC without an attorney, errors are much more likely, as are rejections. If you hire an OIC lawyer, they can help you determine eligibility upfront, so you know whether it is worth the time to request an OIC. If you do qualify, then your attorney can help you gather the correct information to prove your case to the IRS.

Filing an Appeal for a Denied Offer in Compromise

If you filed for an OIC and were rejected, you have 30 days from the date on the rejection notice to appeal that decision. In 2024, the IRS received 3,805 appeals for OICs. 5,276 appeals were closed.

The appeal must outline important information, like:

• Your name, address, and taxpayer information
• A statement about appealing the decision of the OIC rejection
• A list of the information you don’t agree with in the rejection
• The reasons for disagreeing with the decisions made by the IRS
• Any law you are relying on for your appeal

You may show that you disagree with the IRS’s determination that you can afford the liability by showing that your income or assets are not the value the IRS stated they were. You may want to highlight any other special circumstances that create financial hardships for you.

After the appeal window passes, the IRS can continue collection actions, such as wage garnishment or levies.

Other Options for Resolving Your Tax Debt

The IRS may reject an OIC because you could use other methods to resolve your tax debt, such as:

1. An installment agreement, or a payment plan with the IRS
2. Currently Not Collectible status, which temporarily pauses collections of your debt
3. Penalty abatement, which can reduce your total debt by clearing specific penalties and interest
4. Innocent spouse relief, if the debt you owe was created by your spouse on a joint tax return
5. Bankruptcy, which can discharge some tax debt

FAQs About Offer in Compromise Success Rate

What Is the Success Rate of Offers in Compromise?

In 2024, the success rate of offers in compromise was 21%, a significant drop from 42% the previous year. OICs are not easy to get. There are numerous qualifications to apply, and even then, your offer might not be accepted. It’s important to assess the qualifications, try other methods of debt resolution first, and determine what a reasonable offer is. If your offer is rejected, you still have options, including appealing the decision.

What Is a Reasonable Offer for an Offer in Compromise?

A reasonable offer for an offer in compromise to the IRS depends on what the agency can reasonably expect to collect and what you can pay. The agency will consider your assets, income, and expenses to determine what you can afford and whether an offer is reasonable. When creating an OIC, you want to find a balance of what the IRS will accept without offering more than you can pay.

Why Is It Important to Hire an Offer in Compromise Lawyer?

It’s very helpful to hire an offer in compromise lawyer if you have significant tax debt. An attorney assesses whether an OIC is the right option for you and helps you create a strong application. Your lawyer can calculate what a reasonable offer likely is in your unique case and help you negotiate with the IRS. If your offer is rejected, an attorney can help you with the appeals process. Your case is more likely to succeed with a lawyer.

Is There a Drawback to an Offer in Compromise?

Yes, there are drawbacks to an offer in compromise, including that they can still cause financial hardship even if they are accepted. If you offer the IRS too much in an OIC, you may end up facing financial hardship even with the lesser amount. If you can’t pay, the OIC can enter default, and the IRS can collect the debt through other methods.

Offer in Compromise Attorney at TaxSmith, LLC

At TaxSmith, LLC, we have over a decade of experience in tax law and debt settlement. Contact our firm today and learn how we can help.