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What is an Offer in Compromise?



An offer in compromise is a tool that many taxpayers can use to settle their federal tax debts. If a person owes money to the Internal Revenue Service (IRS) but cannot afford to pay the full debt, he or she may be able to offer the IRS a smaller, more affordable amount as settlement. This is known as an offer in compromise (OIC). The offer can include a lump sum payment or a series of payments over a period of months. Unlike a traditional IRS payment plan, if the IRS accepts the OIC and the taxpayer pays as agreed, the IRS will forgive the rest of the taxpayer’s debt.

Not everyone can use the OIC program to pay off their debt. Eligible taxpayers must have filed all their tax returns and cannot have an open bankruptcy case. They must also make an initial payment and pay an application fee. (Applicants who qualify as low-income do not have to pay a fee or make an initial payment.) Taxpayers can use a Pre-Qualifier tool on the IRS website to check if they are eligible for the OIC program. The IRS provides all the forms and instructions needed for making an OIC on its website; find “Form 656-B, Booklet” at  www.irs.gov/payments/offer-in-compromise.

An OIC can make a huge difference in a person’s life. Attorney Dennis Dobos, who runs the Legal Aid Society of Cleveland’s Low Income Taxpayer Clinic, says that OICs give much-needed relief to his clients.

“The program has the potential to engage so many taxpayers,” Dobos says. “It allows for a fresh start, both financially and emotionally.” Without IRS debt weighing them down, people are free to more easily pursue other life goals. Debt relief can also help improve a person’s health and contribute to their general stability.

Visit the IRS website noted above for more information. For help resolving a dispute with the IRS, call Cleveland Legal Aid’s Low-Income Taxpayer Clinic at: (1-888) 817-3777.

This article was written by Melody Goodin and appeared in The Alert: Volume 35, Issue 2.