IRS Offer in Compromise Attorneys
An IRS Offer in Compromise (OIC) lets qualifying taxpayers resolve federal tax liabilities for less than the full balance owed. The program is real, the savings can be substantial, and the rejection rate for self-prepared offers remains stubbornly high. Valley Tax Law has structured OIC submissions across California since 2018, and we know what the IRS Offer Specialist will and will not accept.
The IRS accepts Offers in Compromise only when collecting the full liability would create economic hardship or when there is legitimate doubt about the amount or collectibility. The math, the disclosures, and the supporting documentation all have to line up. Submit a number that looks too low without proving the IRS could not realistically collect more, and Appeals will return the file with a 30-day countdown.
Who Actually Qualifies for an Offer in Compromise
The IRS evaluates three grounds: doubt as to collectibility, doubt as to liability, and effective tax administration. The vast majority of accepted offers fall under doubt as to collectibility, which means the taxpayer cannot pay the full debt before the collection statute expires.
Reasonable Collection Potential (RCP) is the formula the IRS uses to set the floor. RCP equals net realizable equity in assets plus future income available after allowable expenses, multiplied by either 12 or 24 months depending on the payment option you choose. If your RCP is lower than the tax debt, you have a mathematical case for settlement.
Filing compliance is a hard prerequisite. Every required return must be filed, current-year estimated payments must be made, and businesses with employees must be current on federal tax deposits. Skip any of these and the IRS will return the offer without processing it.
The Two Payment Options and Why They Matter
Lump Sum Cash Offer: pay 20 percent with the application and the balance in five or fewer installments within five months of acceptance. RCP is calculated using 12 months of future income.
Periodic Payment Offer: pay the first proposed installment with the application and continue monthly payments while the IRS evaluates the offer. RCP uses 24 months of future income.
Most taxpayers benefit from the Lump Sum option because the 12-month multiplier produces a lower settlement number. The trade-off is finding the lump-sum funds, which often means a family loan, retirement withdrawal, or refinance. Our attorneys model both scenarios before recommending one.
The Documentation the IRS Will Request
Form 656 and Form 433-A (OIC) for individuals or 433-B (OIC) for businesses are only the cover sheets. The supporting file routinely runs 80 to 200 pages: three months of bank statements, pay stubs, retirement statements, vehicle valuations, home equity calculations, business profit and loss, accounts receivable aging, and proof of every allowable expense.
National and local IRS Collection Financial Standards cap your monthly expenses. If you spend more than the standard on housing or transportation, the excess will not count, and your RCP rises. Knowing where to argue the standards and where to accept them is the difference between an accepted offer and a counter-proposal you cannot afford.
What Happens After the Offer Is Submitted
The IRS suspends most collection activity while a processable offer is under review. Federal tax liens generally remain in place, but levies on wages and bank accounts pause. The IRS has two years from receipt to make a decision; if no decision is issued, the offer is deemed accepted.
If the offer is rejected, you have 30 days to appeal to the IRS Office of Appeals. Appeals routinely accepts offers that the original Offer Specialist rejected, particularly when the issue is the valuation of an asset or the treatment of a contested expense. We handle the appeal as part of the same representation.
Serving California Communities
Valley Tax Law represents clients throughout the Central Valley and Central Coast. Schedule a consultation at any of our offices, or by phone.
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