Before you read further — which describes you?
Quick Answer
The IRS accepts an Offer in Compromise only when four conditions are met: (1) one of the three statutory grounds applies — Doubt as to Collectibility, Doubt as to Liability, or Effective Tax Administration; (2) the offer amount equals or exceeds Reasonable Collection Potential; (3) the taxpayer meets threshold eligibility (filing compliance, no bankruptcy, fees/deposit); and (4) the taxpayer accepts the 5-year post-acceptance compliance covenant. The short version is that meeting all four conditions consistently leads to acceptance. Missing any one typically leads to rejection or return of the offer.1
Checking OIC conditions before filing? A 15-minute consultation is free.
OIC conditions are the four gates every offer must pass. Understanding them before filing prevents the most common failure modes — rejected offers and lost deposits. This chapter walks through each condition.
For OIC overview, see What is OIC?. For application, see How to Apply.
The Four Conditions for OIC Acceptance
| Condition | Requirement2 |
|---|---|
| Threshold Eligibility | Filing compliance, no bankruptcy, fees/deposit, current-year compliance |
| Statutory Ground | DATC, DATL, or ETA |
| RCP Compliance | Offer at or above Reasonable Collection Potential |
| 5-Year Covenant | Post-acceptance timely filing and payment for 5 years |
Quick Reference
Jump to the condition: threshold eligibility, statutory ground, RCP compliance, or 5-year covenant. For document lookup, see the OIC conditions reference. To verify conditions, a 15-minute consultation is free.
1. Threshold Eligibility
Threshold eligibility means the taxpayer qualifies to have the IRS consider the offer. Four requirements: filing compliance for prior 6 years, no active bankruptcy, $205 application fee plus 20% deposit (or low-income certification), and current-year tax compliance.
If this is you: Verify all four threshold items before drafting the offer. Missing any one returns the offer as not processable.
Threshold Verification Strategy
- Pull wage / income transcripts.
- File all missing returns.
- Confirm no bankruptcy pending.
- Prepare fee and deposit or Form 656 low-income certification.
- Verify current-year estimated tax / withholding.
2. Statutory Ground: DATC, DATL, or ETA
The offer must fit one of the three statutory grounds under IRC §7122.
If this is you: Identify the ground. Doubt as to Collectibility (most common) when RCP is below balance. Doubt as to Liability when the tax itself is disputed. Effective Tax Administration when collection would be inequitable despite ability to pay.
3. RCP Compliance
The offer amount must equal or exceed Reasonable Collection Potential. RCP = Net Realizable Equity in assets + future income × 12 or 24 months.
If this is you: The single most consequential number. Below-RCP offers are rejected and the 20% deposit kept. Run the RCP calculation honestly before setting the offer amount.
4. 5-Year Compliance Covenant
The accepted OIC requires timely filing and payment for 5 years after acceptance. Any default — late filing, new balance due, unpaid estimated tax — reinstates the full original liability.
If this is you: Accepted OIC requires strict compliance going forward. The 5-year window is a real obligation. Plan for it — W-4 adjustments, estimated tax, timely filing. A single default reinstates everything.
OIC conditions all met but unsure about acceptance probability? Book a consultation to scope pre-submission analysis.
OIC Conditions Document Lookup
| Document | Purpose |
|---|---|
| Form 656 | OIC application |
| Form 433-A (OIC) / 433-B (OIC) | Financial statement |
| Form 656-B | OIC Booklet / instructions |
| IRC §7122 | OIC statute |
| Treas. Reg. §301.7122-1 | OIC regulations |
| IRM 5.8 | OIC procedures |
| Publication 594 | IRS Collection Process |
Found your letter or notice code? The next step is confirming your exact deadline and whether you need representation. A 15-minute call answers both. Book a free call →
OIC Conditions and CSED
- CSED tolls during OIC review plus 30 days.
- OIC 5-year covenant extends beyond CSED in some cases.
- Default during covenant reinstates full liability.
Condition Compliance and Acceptance
| Condition Status | Typical Outcome |
|---|---|
| All 4 conditions met | ~80% to 90% acceptance |
| Threshold failure | Offer returned |
| Below RCP | Rejection; deposit kept |
| Ground weak / missing | Rejection |
| Covenant default post-acceptance | Reinstatement of full liability |
Condition Failure Escalation
Threshold Failure
Offer returned without review. Cure the threshold (file returns, pay fee, wait for bankruptcy discharge) and resubmit.
RCP Failure
Offer rejected. Appeal via Form 13711 within 30 days or submit new offer at revised amount.
Post-Acceptance Default
OIC terminates. Full original liability reinstates plus accrued interest. Payments made under OIC credit against reinstated balance.
The First 48 Hours Verifying OIC Conditions
- Pull transcripts.
- Verify filing compliance for 6 years.
- Confirm no bankruptcy.
- Check current-year compliance.
- Identify applicable statutory ground.
- Calculate RCP.
- Assess willingness to accept 5-year covenant.
The ROI Question
All four OIC conditions must be met. A $1,000 deposit + $205 fee can be wasted on a threshold-failed offer that could have been prevented with pre-filing verification.
When to Engage an Attorney for OIC Conditions Review
- Balance over $50,000.
- Complex RCP calculation.
- DATL or ETA ground.
- Multiple unfiled returns.
- Prior bankruptcy.
- Uncertainty about 5-year covenant compliance ability.
Any of the above apply?
A 15-minute consultation is free. We verify conditions and scope the offer.
Frequently Asked Questions
What are the conditions required for an IRS OIC?
Four conditions. Threshold eligibility (filing compliance, no bankruptcy, fees/deposit, current-year compliance). Statutory ground (DATC, DATL, or ETA). RCP compliance (offer at or above Reasonable Collection Potential). Post-acceptance 5-year compliance covenant.
What happens if I don’t meet all OIC conditions?
The offer is returned or rejected. Threshold failure returns the offer without review. RCP failure rejects the offer. Covenant default (post-acceptance) terminates the agreement and reinstates the full original liability.
What is the 5-year compliance covenant?
Post-acceptance requirement that the taxpayer timely file and pay all taxes for 5 years after OIC acceptance. Any default — late filing, unpaid estimated tax, new balance due — reinstates the full original liability. The covenant is a real ongoing obligation.
What is the statutory ground for OIC?
IRC §7122 recognizes three grounds. Doubt as to Collectibility (most common) — RCP below balance. Doubt as to Liability — tax itself disputed. Effective Tax Administration — collection would be inequitable despite ability to pay.
Can I file an OIC if I have unfiled returns?
No. Filing compliance for the prior 6 years is a threshold requirement. File missing returns before submitting the OIC. The IRS returns OICs with unfiled years.
Can I file an OIC during bankruptcy?
No. Active bankruptcy blocks OIC processing. Wait for bankruptcy discharge to complete, or pursue bankruptcy discharge of the eligible tax directly.
What is the OIC application fee?
$205 at submission. Non-refundable. Waived for taxpayers at or below 250% of federal poverty guidelines using Form 656 low-income certification.
What if my OIC gets accepted but I default?
The OIC terminates. Full original liability reinstates plus accrued interest. Payments made under the OIC credit against the reinstated balance. A single default ends the OIC — treat the 5-year covenant seriously.
Does a tax return filed late count as default?
Potentially. If the late filing is during the 5-year covenant period, it may constitute default. Filing on time with an extension typically does not default. The IRS evaluates case-by-case but strict compliance is the safer approach.
What is Effective Tax Administration OIC?
An OIC where the taxpayer technically has RCP equal to or greater than the balance but collection would be inequitable due to economic hardship, public policy, or exceptional circumstances. ETA is rare and narrowly granted. Documentation of hardship is essential.
Can I appeal a rejected OIC?
Yes. Form 13711 within 30 days takes the case to IRS Appeals. Appeals applies hazards-of-litigation analysis and frequently accepts offers at the level the initial reviewer rejected.
How long does OIC review take?
6 to 24 months typically. Initial processability: 30 to 60 days. Substantive review: 3 to 12 months. Appeals if rejected: another 6 to 12 months. Total timeline can span 1 to 2 years for complex cases.
Will my assets be liquidated under OIC?
No. OIC offers are paid from the offer amount (20% deposit + remaining per terms). Asset liquidation is not required — the IRS accepts the offer amount and releases any remaining balance. Asset value affects RCP calculation but the taxpayer does not have to actually sell assets.
If you have read this far, you have a notice and you are trying to understand it before doing anything that makes it worse. That instinct is correct.
The next right move is a 15-minute call. We will identify the audit type, confirm your deadline, and tell you honestly whether you need representation. There is no cost and no obligation.
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Next Steps in This Guide
If you want pre-filing conditions review, a 15-minute consultation is free.