How the IRS decides whether to accept an Offer in Compromise (OIC)

The IRS evaluates every Offer in Compromise on three main grounds: doubt as to collectibility (most common), doubt as to liability, or effective tax administration. For an offer often marketed as a “Guaranteed Offer,” the practical test used by the IRS is whether the offer equals or exceeds the taxpayer’s Reasonably Collectible Amount (RCP). If the offer represents the most the IRS can reasonably expect to collect within a realistic time frame, the IRS is likely to accept it. (See IRS Offer in Compromise guidance: https://www.irs.gov/businesses/small-businesses-self-employed/offer-in-compromise-oic.)

Key IRS decision points:

  • Compliance: All required tax returns must be filed and all required estimated tax payments for the current year must be made before the IRS will accept an OIC.
  • Reasonably Collectible Amount (RCP): The IRS totals collectible assets and the future stream of disposable income after allowable living expenses. An offer at or above that RCP is presumptively acceptable under doubt as to collectibility.
  • Full disclosure: You must submit Form 656, Form 433-A (individual) or 433-B (business), and supporting documentation. Omissions or inaccuracies can lead to rejection.

Note: the IRS does not use the word “guaranteed” — no legitimate tax professional should promise acceptance. Instead, experienced practitioners compute the RCP and structure the offer to match it. In my practice, offers crafted to match a carefully calculated RCP succeed far more often than arbitrary reductions.

What does the IRS require to consider an OIC?

  1. File all required returns and be current on estimated payments. The IRS requires that you be in compliance before it will consider an OIC. (IRS OIC page.)

  2. Submit the correct forms and fees. Use Form 656 (Offer in Compromise) and the required Collection Information Statement (Form 433-A or 433-B). As of 2025, most offers require a non-refundable application fee (commonly $205) and an initial payment: for lump-sum offers, 20% of the offer; for periodic-payment offers, the first month’s payment. Low-income taxpayers who meet specific criteria may be exempt from the fee—always confirm the current fee rules on the IRS website. (IRS Form 656 instructions; Offer in Compromise booklet.)

  3. Complete documentation. Bank statements, paystubs, proof of monthly expenses (rent/mortgage, utilities, medical bills), and asset valuations are standard. The IRS applies national and local allowance tables to evaluate living expenses and will disallow unreasonable or undocumented expenses.

  4. Demonstrate inability to pay in full. The IRS accepts offers when the total of collectible assets plus the present value of future disposable income is less than the tax owed. This is the practical meaning behind a “guaranteed” offer: one that equals or exceeds the RCP calculation.

How the Reasonably Collectible Amount (RCP) works — simplified

The RCP is the sum of: (a) equity in assets that can be sold or seized (after allowable exemptions and secured debt), and (b) the amount the IRS can collect from future disposable income, calculated as monthly disposable income times a collection period. Practical points:

  • Equity: The IRS looks at fair market value less outstanding liens and allowable sale costs. Home equity is often adjusted by liens and realistic forced-sale discounts.
  • Disposable income: Monthly income minus allowable living expenses (IRS national and local standards plus certain necessary expenses). The IRS multiplies disposable income by a collection horizon (practical years in which the IRS expects to collect) to calculate present value.

In practice, I calculate a conservative RCP first, then prepare an offer that either equals that figure (lump-sum) or provides a realistic periodic schedule. Offers that ignore accurate asset valuations or overstate allowable expenses are usually denied.

For additional detail on the math the IRS uses to arrive at your payment amount, see our guide: “How the IRS Calculates Your Payment Amount in Offers in Compromise” (internal link: https://finhelp.io/glossary/how-the-irs-calculates-your-payment-amount-in-offers-in-compromise/).

Types of OICs and how they affect acceptance odds

  • Doubt as to Collectibility: The IRS accepts the offer if the taxpayer can show they cannot pay the full liability and the offer equals or exceeds the RCP. This is the most typical basis for acceptance.
  • Doubt as to Liability: If there is a legitimate dispute over whether the tax is owed at all (for example, an audit dispute), the IRS may accept an OIC on these grounds.
  • Effective Tax Administration: If unique circumstances make collection unfair or inequitable (for example, severe illness that would make collection create hardship beyond the taxpayer’s control), the IRS may accept an offer even where collectible assets exist. These are rarer and require stronger documentation.

What “Guaranteed Offer” marketing means — and why to be cautious

Some tax firms advertise a “guaranteed” offer or a money-back guarantee. Understand that:

  • The IRS itself never guarantees acceptance. Any guarantee is a firm’s marketing promise about their work product, not IRS policy.
  • Guarantees may be conditional (e.g., “we guarantee we will prepare an offer; if it’s denied we refund fees”). Read contracts closely and ask for written terms.

In my experience, guarantees can be helpful if they come from reputable advisors who have transparent terms. But avoid firms that promise IRS acceptance as a certainty.

Common reasons the IRS will accept an OIC

  • Offer equals or exceeds the RCP and documentation is complete.
  • Taxpayer is current with filing and estimated tax commitments.
  • No previous asset concealment or misrepresentation.
  • Offer accounts for reasonable living expenses using IRS standards.

Common reasons the IRS will reject an OIC

  • Missing, inaccurate, or inconsistent financial information.
  • Undisclosed assets or income sources.
  • Offer amount is below RCP.
  • Noncompliance with filing or payment requirements.
  • The IRS determines collection is possible through other means (levy, installment agreement).

If your OIC is rejected, you have administrative appeal rights; see our article “Next Steps After an Offer in Compromise Denial: Appeals and Alternatives” for a practical roadmap (internal link: https://finhelp.io/glossary/next-steps-after-an-offer-in-compromise-denial-appeals-and-alternatives/).

Timing, processing and practical expectations

Processing times can vary. Complex offers with significant documentation may take several months to a year. The IRS often issues a preliminary denial with reasons, which allows you to supply additional information or appeal. Keep these practical tips in mind:

  • Submit a complete, well-documented package. That shortens processing time.
  • Be responsive to IRS follow-up requests; delays can lead to administrative closure.
  • Keep filing current while an OIC is pending. Additional unfiled returns can create new liabilities and complicate acceptance.

Practical steps to improve acceptance odds

  1. Get organized: File returns, gather bank statements, asset docs, paystubs, medical invoices.
  2. Accurately value assets: Don’t under- or over-value property; attach market comps for real estate where possible.
  3. Use IRS expense standards: Where permitted, rely on national/local standards rather than inventing large discretionary expenses.
  4. Consider a professional: A CPA, enrolled agent, or tax attorney who specializes in OICs can increase chances by correctly computing RCP and selecting the right submission type.
  5. Be transparent: Voluntary disclosure of past mistakes and full cooperation improves credibility with IRS examiners.

Alternatives to an OIC

If an OIC is unlikely to be accepted, consider:

Common mistakes to avoid

  • Waiting too long to file required returns.
  • Assuming your first offer should be an aggressively low number.
  • Failing to include the required initial payment or application fee.
  • Not using reliable documentation for asset values or expenses.

Final practical example from my practice

I worked with a taxpayer who owed $42,000 but had limited bank funds, a low equity vehicle, and modest monthly disposable income after necessary expenses. We prepared a detailed Form 433-A with bank statements, a vehicle valuation, and three months of paystubs. The offer matched the IRS RCP calculation and included the required 20% initial payment. The IRS accepted the offer within six months. The keys were accuracy, thorough documentation, and matching the offer to what the IRS could reasonably collect.

Sources and further reading

Professional disclaimer: This article is educational and reflects general rules and professional experience through 2025. It is not individualized tax advice. Consult a qualified CPA, enrolled agent, or tax attorney for guidance specific to your situation.