Offer in Compromise Attorney

Written by Sam Brotman, J.D., LL.M. (Taxation), MBA — Managing Attorney, Brotman Law  ·  Updated May 2026

What an OIC Is and Isn't

An Offer in Compromise is not an IRS discount program. It is a statutory settlement mechanism, and most submitted offers are rejected.

The legal authority is IRC § 7122. Treasury Regulation § 301.7122-1 sets out how the IRS evaluates offers. There are three grounds on which an offer can be submitted:

Doubt as to Collectibility (DAC) is the most common ground. You owe the tax, but the IRS concludes it cannot collect the full amount before the Collection Statute Expiration Date (CSED) — the 10-year window under IRC § 6502 during which the IRS can pursue collection. Most OICs are DAC cases.

Doubt as to Liability (DAL) is essentially a disguised audit dispute. You are arguing that you do not actually owe what the IRS assessed. A DAL offer is less common and often better handled as an amended return, audit reconsideration, or Appeals proceeding.

Effective Tax Administration (ETA) is the narrowest ground. The IRS could collect in full, but doing so would create an economic hardship or would be contrary to equity and good conscience. The IRS grants ETA offers rarely. The standard is demanding and the IRS's acceptance rate on ETA submissions is low.

On the acceptance question: the IRS publishes its OIC acceptance data each year in the Data Book. Historically, roughly 30–40% of submitted offers are accepted. That figure looks favorable until you account for the offers that should never have been filed. Many rejected offers represent cases where the taxpayer's RCP exceeded the offer amount, the financial disclosures were incomplete, or the taxpayer owed unfiled returns. Filter those out, and the acceptance rate on well-prepared offers is substantially higher.

How the IRS Calculates Your Offer — Reasonable Collection Potential

Reasonable Collection Potential (RCP) is the IRS's calculation of the minimum it will accept. Your offer amount must equal or exceed RCP for the IRS to be required to accept it under Treas. Reg. § 301.7122-1(d)(3).

The formula:

RCP = Quick-sale value of assets + Future income factor

You report your financial picture on Form 433-A (OIC) if you are an individual, or Form 433-B (OIC) if you are a business. These Collection Information Statements are the backbone of the application. Inaccuracies on either form are among the most common reasons offers fail.

Asset Valuation

The IRS values your assets at quick-sale value — generally 80% of fair market value. So if you have a home worth $500,000 with a $350,000 mortgage, the IRS computes equity at $400,000 quick-sale value minus $350,000 in liens, or $50,000 in net quick-sale equity that goes into your RCP.

Retirement accounts (IRAs, 401(k)s) are included at full value minus a 20% reduction — but the IRS does not subtract early withdrawal penalties or the tax you would owe on the distribution. The IRS's position is that the taxpayer can access the funds, and those funds count. This creates significant disagreements in cases where the bulk of a taxpayer's assets are locked in retirement accounts.

Future Income

The future income component depends on which payment structure you elect:

• Lump sum offer: 12 months of disposable monthly income (DMI).
• Periodic payment offer: 24 months of DMI.

Disposable monthly income is not your actual take-home pay minus your actual expenses. It is your gross income minus the IRS Collection Financial Standards. The IRS publishes National Standards (food, clothing, and personal care, by household size and income level) and Local Standards (housing and utilities, and transportation, by county and region) each month. Documented expenses outside those standards — health care, child support, court-ordered payments — can be included with documentation. Expenses the IRS does not recognize are excluded, regardless of how real they are.

The practical consequence: many taxpayers believe they have no disposable income, run the IRS's standards, and discover the IRS calculates a DMI that is hundreds of dollars per month higher than their actual situation. That gap determines whether an OIC is viable.

The 20% Non-Refundable Deposit

A lump sum offer requires a 20% non-refundable deposit submitted with the application (Form 656), per IRC § 7122(c)(1)(A). The IRS keeps this deposit whether the offer is accepted or rejected. For a $50,000 offer, that is $10,000 that does not come back.

There is a low-income exception: if your adjusted gross income is at or below 250% of the federal poverty guidelines, the $205 application fee and the 20% deposit are both waived.

The OIC Application Process

The application package consists of Form 656 (the offer application), Form 433-A or 433-B (financial disclosure), the $205 application fee, the 20% deposit (or proof of low-income exception), and supporting documentation.

Supporting documents typically include three months of bank statements for all accounts, recent pay stubs or profit-and-loss statements, the most recent two years of tax returns, documentation of any encumbered assets, and lease agreements or mortgage statements. The IRS can and does request additional documentation during the review.

Before the IRS will process an OIC, you must be current on all filing obligations. If you have unfiled tax returns, the IRS will return the offer unprocessed. Same applies if you are in an open bankruptcy — an OIC cannot be submitted while bankruptcy is pending.

IRS processing time is typically 6–12 months. During that period, collection activity is suspended. Importantly, the CSED — the 10-year collection statute under IRC § 6502 — is tolled while the offer is pending, plus an additional 30 days after final rejection. If your CSED calculation is close, the suspension matters and needs to be factored into the strategy before filing.

If the offer is accepted, you will receive Form 7249 (Offer Acceptance Statement). You then have a compliance obligation: stay current on all tax filings and payments for five years following acceptance, or the IRS can revoke the accepted offer.

If rejected, you have 30 days to appeal to IRS Appeals by filing Form 13711 (Request for Appeal of Offer in Compromise). The 30-day deadline is firm.

OIC vs. Other Resolution Options

The right resolution path depends on your specific RCP, the time left on your CSED, and your projected income over the next few years — not on which option sounds best.

Here are the realistic alternatives:

Installment agreement (Form 9465): You pay the full balance over time — up to 72 months for most streamlined agreements. Collection stops, penalties reduce (the failure-to-pay penalty drops to 0.25% per month while an installment agreement is in effect), but the balance does not go down. This is the right path when RCP exceeds what you can offer in a settlement.

Partial-pay installment agreement (PPIA): Your monthly payment is set below the level needed to pay the full balance before CSED expires. The IRS agrees to the lower payment knowing the remaining balance will expire uncollected. The IRS reviews PPIAs every two years to check for changed financial circumstances. If your income increases significantly, the payment goes up.

Currently Not Collectible (CNC): The IRS suspends collection entirely when your income falls below the Collection Financial Standards. The CSED continues running — which is the key advantage over an OIC, where the statute tolls. CNC is appropriate when the facts on the ground are genuinely dire and the CSED clock is relatively short.

The short version: if RCP analysis shows your assets and income genuinely support an offer below the balance owed, an OIC is worth pursuing. If RCP is close to or above the balance, a PPIA or CSED strategy is probably more realistic. We run this analysis before recommending any path.

Why OIC Submissions Fail

Most rejected offers fail for predictable reasons — none of which are surprises if the preparation was done right.

Offer below RCP without adequate justification. The IRS calculates RCP and if your offer is below it, the offer is rejected. The 20% deposit stays with the IRS. This is the most common failure mode, and it is entirely avoidable with a proper pre-filing RCP analysis.

Incomplete or inaccurate financial disclosure. The Form 433-A or 433-B must be complete and accurate. Omitting an asset, understating income, or listing expenses the IRS's standards do not recognize without documentation all result in rejection or, worse, a referral for investigation of the financial disclosure itself.

Unfiled tax returns. The IRS will not process an OIC if you have outstanding unfiled returns. Get current on filing before submitting anything.

Open bankruptcy. An OIC cannot be pending while you are in bankruptcy. If both are in play, sequence them carefully.

The 20% deposit is gone regardless. If the offer is rejected on any ground, the IRS keeps the 20% deposit. This is not a refund situation. It is another reason to do the analysis before filing.

How Brotman Law Handles OIC

We run the RCP analysis before we file anything. If the numbers don't support an offer, we say so.

Since 2013, we have resolved 2,500+ tax matters and saved clients $1B+ in taxes and penalties. A meaningful share of that work has been IRS collection resolution — OICs, PPIAs, CNC determinations, and installment agreements — across a wide range of financial situations.

Here is what the engagement looks like on an OIC case:

We start with an RCP analysis: pull your account transcripts, collect the financial data, run the Collection Financial Standards calculation, and give you an honest assessment of whether an offer is viable and at what amount. If the analysis supports filing, we prepare the full application package — Form 656, Form 433-A or 433-B, all supporting documentation — and submit it. During the IRS review period, we respond to IRS requests for additional information and keep you informed of where things stand.

If the offer is rejected and appeal is warranted, we prepare and file Form 13711 within the 30-day window and represent you before IRS Appeals.

If the OIC is not the right path, we tell you that before you spend $205 and 20% of an offer amount to find out the hard way. We coordinate the right alternative — installment agreement, PPIA, CNC — from the same analysis.

Book a free 15-minute call to talk through your situation. I can usually tell within that call whether an OIC is worth pursuing and what the approximate offer amount would look like.