Offer in Compromise Help
Settle Your IRS Tax Debt for Less Than You Owe
An Offer in Compromise (OIC) is one of the most powerful tax relief tools available — it allows qualifying taxpayers to settle their IRS debt for less than the full amount owed. If the IRS determines that paying the full balance would create financial hardship, or there’s genuine doubt about what you legally owe, an OIC may be an option. At HofflerSmith Financial Services, we evaluate your eligibility and handle the entire process on your behalf.
Who Qualifies for an Offer in Compromise?
The IRS evaluates OIC applications based on three grounds:
- Doubt as to Collectibility — The most common basis. The IRS agrees your assets and future income make it unlikely they’ll ever collect the full balance. Your offer is based on your “reasonable collection potential.”
- Doubt as to Liability — You genuinely dispute that you owe the tax. This applies when there’s a legitimate legal question about the assessed amount.
- Effective Tax Administration — You technically could pay, but doing so would create exceptional hardship or be fundamentally unfair given your circumstances.
How the OIC Process Works
- Pre-Qualifier Analysis — Before we file anything, we analyze your income, expenses, and assets using the IRS’s own formulas to determine if you’re a realistic OIC candidate and what a reasonable offer amount looks like.
- Application Preparation — We prepare Form 656 (Offer in Compromise) along with the required financial disclosure (Form 433-A OIC), supporting documentation, and offer amount.
- IRS Negotiation — The IRS typically takes 6–12 months to review an OIC. During this time, we communicate with the IRS on your behalf and respond to any requests for additional information.
- Appeal if Rejected — If the IRS rejects your offer, you have 30 days to appeal. We evaluate whether an appeal makes sense and handle it if so.
Beware of OIC Mills
You’ve heard the radio ads promising to settle your tax debt for “pennies on the dollar.” Most of these “OIC mills” charge large upfront fees and submit offers with little chance of approval. At HofflerSmith, we won’t recommend an OIC if it’s not genuinely the right solution for you — and we’ll tell you upfront what a realistic offer looks like before we file anything.
The OIC Process: What to Expect Step by Step
Navigating an Offer in Compromise with the IRS is a detailed process that typically takes 6 to 12 months from start to finish. At HofflerSmith Financial Services, our Enrolled Agents guide you through every phase so you always know where you stand.
Step 1: Financial Assessment and Eligibility Review
Before submitting an OIC, the IRS requires a thorough review of your finances. We analyze your income, expenses, assets, and future earning potential to determine whether the IRS is likely to accept a reduced settlement. This includes completing IRS Form 433-A (for individuals) or Form 433-B (for businesses), which detail your entire financial picture.
Step 2: Calculating Your Reasonable Collection Potential
The IRS uses a formula called Reasonable Collection Potential (RCP) to determine the minimum amount they will accept. This calculation considers the equity in your assets plus your future disposable income over a set period. Our team works to present your finances in the most favorable light allowed under IRS guidelines, ensuring that allowable expenses are properly accounted for and assets are accurately valued.
Step 3: Preparing and Submitting Form 656
We prepare IRS Form 656, the official Offer in Compromise application, along with all required financial documentation. The current application fee is $205, though this may be waived if you qualify as a low-income taxpayer. We determine whether a Lump Sum Offer or a Periodic Payment Offer is the better strategy for your situation.
Step 4: IRS Review and Negotiation
Once submitted, an IRS examiner reviews your offer. During this time, all collection activity is paused. The examiner may request additional documentation. Our Enrolled Agents handle all IRS communications on your behalf, responding promptly to keep your case moving forward.
Step 5: Resolution and Compliance
If your OIC is accepted, you must comply with all tax filing and payment obligations for the next five years. HofflerSmith helps you stay in compliance with annual tax preparation and planning services.
Who Benefits Most from an Offer in Compromise?
An OIC is not the right solution for everyone. The best candidates include taxpayers who owe significantly more than they could realistically pay, individuals who have experienced job loss, serious illness, or divorce, self-employed individuals whose business income has dropped sharply, and retirees on fixed income with large tax balances from prior years.
Common Reasons OIC Applications Are Rejected
The IRS rejects approximately 60 percent of all OIC applications. Common reasons include offering too little based on the RCP calculation, having unfiled tax returns, not being current on estimated tax payments, and providing incomplete financial information. Working with an experienced Enrolled Agent significantly improves your odds of acceptance.
Frequently Asked Questions
How long does the OIC process take?
Most OIC cases take between 6 and 12 months. During this time, the IRS suspends all collection activities including levies, liens, and wage garnishments.
Can the IRS reject my offer?
Yes. If rejected, you have 30 days to appeal. During the appeal, collections remain paused. If unsuccessful, we pursue alternative resolution strategies.
Do I need all tax returns filed?
Yes. The IRS requires all returns to be filed before considering an OIC. HofflerSmith can prepare unfiled returns as part of the process.
Why Choose HofflerSmith?
HofflerSmith Financial Services has helped hundreds of New Jersey taxpayers resolve IRS debt. Our Enrolled Agents have over 25 years of combined experience. We offer free consultations, flat-fee pricing, and personal attention from start to finish. Contact us at (856) 740-4912.
Understanding the IRS Offer in Compromise Application Process
Filing an Offer in Compromise with the IRS is one of the most complex tax resolution strategies available, and getting it right the first time matters. The IRS rejects approximately 60% of all OIC applications, often because the offer amount was too low, the financial documentation was incomplete, or the taxpayer did not meet basic eligibility requirements. At HofflerSmith Financial Services, our enrolled agents and tax professionals have helped Cherry Hill, NJ area taxpayers and clients nationwide navigate this process successfully for over a decade.
Step-by-Step: What Happens After You File an OIC
Once we submit your Offer in Compromise application, the IRS assigns your case to an Offer Examiner in the Centralized OIC unit in Brookhaven, NY or Memphis, TN. The examiner reviews your Form 656, your Form 433-A (OIC), and all supporting financial documentation. During the review period, which typically lasts 6 to 12 months, all IRS collection activity on your account is suspended. This means no new levies, no wage garnishments, and no seizure of assets while your offer is pending.
The examiner will calculate your Reasonable Collection Potential (RCP), which is the IRS formula for determining the minimum acceptable offer amount. Your RCP is calculated using your net equity in assets plus your future income potential over the remaining collection statute. If your offer meets or exceeds the RCP, the examiner is likely to recommend acceptance.
How We Calculate Your Offer Amount
Before filing, we perform a detailed financial analysis using the same methodology the IRS uses. This includes reviewing your bank statements, pay stubs, investment accounts, real estate equity, vehicle values, and monthly living expenses. We compare your expenses against the IRS Collection Financial Standards, which set allowable amounts for housing, transportation, food, and other necessities based on your geographic area and family size.
For a Lump Sum Cash Offer, you must pay 20% of the total offer amount with your application and the remaining balance within 5 months of acceptance. For a Periodic Payment Offer, you begin making monthly payments immediately upon filing and continue through the offer review period. We help you determine which payment option gives you the strongest chance of acceptance while keeping your financial obligations manageable.
Common Reasons the IRS Rejects OIC Applications
Understanding why offers fail helps us avoid those pitfalls. The most common reasons for OIC rejection include: offering less than your calculated Reasonable Collection Potential; having unfiled tax returns for any year; being in an open bankruptcy proceeding; failing to make current estimated tax payments during the review period; not providing requested documentation within the IRS deadline; or having an open audit or collection due process hearing. Our team ensures every one of these potential issues is addressed before we submit your application.
What If Your Offer Is Rejected?
If the IRS rejects your Offer in Compromise, you have 30 days to file an appeal with the IRS Independent Office of Appeals. We evaluate whether an appeal is strategic in your case. In many situations, the Appeals Officer may negotiate a revised offer amount that falls between your original offer and the amount the examiner calculated. If an appeal is not advisable, we explore alternative resolution strategies such as an installment agreement, Currently Not Collectible status, or partial pay installment agreement.
OIC Compliance Requirements After Acceptance
If the IRS accepts your Offer in Compromise, you enter a five-year compliance period during which you must file all tax returns on time and pay all taxes owed in full. If you fail to comply during this period, the IRS can default your offer and reinstate the full original tax debt minus any payments made. HofflerSmith provides ongoing support during your compliance period to help ensure you remain in good standing with the IRS.
Why Choose HofflerSmith for Your Offer in Compromise?
Our team includes enrolled agents who are federally authorized to represent taxpayers before the IRS. Unlike the national tax relief companies you see advertised on television and radio, we provide personalized service from experienced professionals who understand New Jersey and federal tax law. We conduct a thorough pre-qualification analysis before recommending an OIC, so you never pay for an application that has little chance of success. We handle all communication with the IRS, prepare every form and financial statement, and advocate on your behalf throughout the process.
If you owe more than $10,000 to the IRS and are struggling to pay, an Offer in Compromise may be the right solution. Contact HofflerSmith Financial Services today at 856-740-4912 for a free, confidential consultation. We serve clients in Cherry Hill, Haddonfield, Marlton, Voorhees, Mount Laurel, and throughout South Jersey and the Philadelphia metro area.
Frequently Asked Questions About Offers in Compromise
How long does the OIC process take?
The IRS typically takes 6 to 12 months to process an Offer in Compromise. Complex cases may take longer. During this time, collection activity is suspended on your account.
Is there a fee to apply for an OIC?
The IRS charges a $205 application fee plus the initial payment with your offer. Low-income taxpayers (those at or below 250% of the federal poverty level) may qualify for a fee waiver.
Can I submit an OIC for state taxes?
The IRS OIC program only covers federal taxes. New Jersey has its own tax settlement programs. We can assist with both federal and state tax resolution strategies.
Will an OIC affect my credit score?
An accepted OIC does not appear on your credit report. However, any prior tax liens filed by the IRS may still impact your credit. We can help you request lien withdrawal after your offer is accepted and paid in full.
What happens to my tax refunds during the OIC process?
The IRS retains any tax refunds you are owed during the calendar year your offer is accepted. This is a standard condition of all accepted offers.