Do I Qualify for an Offer in Compromise? Here’s How to Know

If you’re behind on taxes and feeling overwhelmed, you’re not alone. Many taxpayers find themselves in this situation, searching for relief options and hoping for a way out. One of the most talked-about programs is the IRS Offer in Compromise, often referred to as an OIC.

You may have seen ads promising to settle your tax debt for “pennies on the dollar.” While the program is real, it comes with strict guidelines, and many people don’t actually qualify. This leads to frustration, wasted time, and in some cases, falling for promises that sound too good to be true.

In this guide, we’ll walk you through what an Offer in Compromise really is, how the IRS decides who qualifies, common reasons for denial, and how to determine if it’s worth pursuing in your situation.

What Is an Offer in Compromise?

An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. The IRS offers this program to taxpayers who can’t reasonably pay their debt in full. If approved, you agree to pay a reduced amount, and the IRS considers the debt satisfied.

However, this option is not open to everyone. The IRS only accepts offers when it believes the reduced amount is the most it can realistically expect to collect based on your financial situation. If they believe you can pay the full debt through a payment plan or by liquidating assets, your offer will be rejected.

How Does the IRS Decide Who Qualifies?

Eligibility for an Offer in Compromise is based on what the IRS calls your Reasonable Collection Potential (RCP). This is the amount they believe they can collect from you, both now and in the future. To calculate that, they look at: 

• Your monthly income
• Your necessary living expenses
• Any equity in assets, such as your home, car, retirement accounts, or savings 

If your RCP is significantly less than what you owe, the IRS may approve your offer. If they believe they can collect more than you’re offering, they’ll reject it.

Example:
You owe $60,000 in taxes. After reviewing your finances, the IRS determines your collection potential is only $12,000. If your offer matches that figure, it might be accepted. But if the IRS believes you could pay the full $60,000 over time, they’ll likely decline the offer. 

Why Are Most Offers in Compromise Denied? 

Most OIC applications are rejected because the applicant either doesn’t meet the qualifications or provides incomplete or inaccurate information. In many cases, people are misled by tax resolution firms that promise results without fully explaining the requirements. 

Here are common reasons the IRS denies offers: 

• You can afford to pay the full debt over time
• Your financial information is incomplete or inaccurate
• You haven’t filed all required tax returns
• You’re not current on recent tax payments
• Your offer amount is too low to be considered reasonable 

Before applying, it’s critical to make sure your returns are up to date and your financial disclosures are complete and accurate.

Can I Assess My Eligibility on My Own?

The IRS provides an Offer in Compromise Pre-Qualifier Tool on its website that allows you to get a rough sense of whether you may qualify. It asks questions about your income, expenses, and assets to help determine your eligibility. 

While this tool is helpful for a basic self-assessment, it doesn’t capture every detail that may affect your outcome. If you have a business, own property, or have irregular income, it’s a good idea to get a professional evaluation. A licensed tax professional can walk through the numbers with you and offer insight into what the IRS is likely to decide.

What If I Don’t Qualify for an Offer in Compromise?

If an OIC isn’t the right fit, there are other options that may help you manage or reduce your tax burden. Some alternatives include: 

• Installment Agreement: A structured payment plan that allows you to pay your balance over time
• Currently Not Collectible (CNC) status: A temporary delay in IRS collections if you truly cannot pay anything right now
• Penalty Abatement: A reduction or elimination of certain penalties if you qualify for relief 

These options can still bring significant relief and help you move forward without the pressure of aggressive collection actions.

What do I do next?

Tax debt can feel overwhelming, but it doesn’t have to control your future. Whether you’re just starting to explore your options or you’ve already been denied an Offer in Compromise, there is a way forward, and it starts with understanding what’s available and what makes the most sense for your situation. 

At PaulHood, we work with business owners and individuals to evaluate tax resolution options and build a plan that fits their real financial picture. Whether an Offer in Compromise is right for you or not, we’ll help you understand your next best step. 

Schedule a risk-free consultation today to get honest answers and personalized guidance. You don’t have to figure this out alone.