How Long Does an IRS Offer in Compromise Take?

How Long Does an IRS Offer in Compromise Take?

If you owe back taxes to the IRS, an offer in compromise may help you settle your tax debt for less than you owe. But how long does it take to get an offer accepted by the IRS? I did some research into this, and here’s what I found out.

What is an Offer in Compromise?

An offer in compromise allows you to settle your tax debt with the IRS for less than the full amount you owe. It’s like negotiating with the IRS to pay a reduced amount to consider your debt paid in full. The IRS will accept an offer in compromise if:

• You have no way to fully pay your tax debt
• The amount offered reasonably reflects the amount the IRS could collect from you

There are a few different types of offers in compromise:

• Doubt as to Collectibility – You can’t afford to pay your full tax debt. This is the most common type of offer.
• Doubt as to Liability – You don’t actually owe part or all of the tax debt.
• Effective Tax Administration – Paying your full tax debt would cause you exceptional hardship.

To get the IRS to accept an offer in compromise, you’ll need to fill out Form 656 and provide detailed financial information so the IRS can verify you can’t fully pay your tax debt. It’s a long and tedious process, but it may be worth it if you can settle for a fraction of what you owe.

The Offer in Compromise Timeline

So how long does this all take? Here is a general timeline of the major steps in the offer in compromise process:

1. You Submit Your Offer – You fill out Form 656 and any other required forms and send them to the IRS with supporting documentation. You’ll also include a down payment, usually 20% of your offer amount.
2. IRS Reviews Your Offer – Up to 24 Months – The IRS has up to 24 months to review your offer in compromise and make a decision. This is the longest phase.
3. IRS Requests More Information – Anytime – The IRS may request more financial information from you anytime during the review process.
4. You Provide More Information – Time Varies – You’ll need to quickly provide any additional information the IRS requests. This can pause the review timeline.
5. IRS Accepts Your Offer – Anytime – The IRS may accept your offer in compromise at any point within the 24-month review period.
6. You Pay Remaining Balance – 5 Months – For lump-sum offers, you’ll have 5 months to pay the remaining offered amount after IRS acceptance.
7. You Make Monthly Payments – 24 Months – For periodic payment offers, you’ll pay the remaining balance over 24 months after acceptance.

As you can see, the timeline is lengthy and not exactly straightforward. The key things to note are:

• The IRS has up to 24 months to review an offer in compromise.
• The IRS can request more information at any time, pausing the timeline.
• If accepted, you’ll have 5 months or 24 months to pay the remaining balance.

Next, let’s look at the factors that can impact the timeline.

Factors that Impact the Offer in Compromise Timeline

Many different factors can make an offer in compromise take longer to process. Here are some of the main ones:

1. How Much You Owe the IRS

The amount of your tax debt can impact the timeline. Offers for under $25,000 may be processed faster than larger balances over $25,000. Very large balances over $100,000 tend to take the longest.

2. Complexity of Your Finances

If you have complex finances, like lots of assets, loans, bank accounts, or sources of income, it will likely extend the timeline. Simple finances with just a job and checking account tend to be faster.

3. Type of Income

If you have self-employment income, that will extend the timeline, sometimes significantly. Offers from people with only W-2 wage income are often faster.

4. Communication Delays

Any delays in responding to IRS requests for information will pause the timeline. To keep things moving, respond right away to any IRS inquiries.

5. Starting Over from a Rejection

If your offer gets rejected initially and you have to reapply or file an appeal, that can add several months to the timeline.

6. Payment Plan Type

Lump-sum payment offers generally get processed faster than periodic payment offers requiring monthly installments.

As you can see, the complexity of your financial situation is a key factor in how long an offer will take. Self-employed taxpayers often have the longest timelines.

Does the IRS Really Have 24 Months to Review an Offer in Compromise?

You may be wondering if the IRS really takes the full 24 months to process offers in compromise. The good news is, they rarely take that long nowadays. Here are some quick facts on the 24-month guideline:

• The IRS aims to process most offers in under 12 months.
• Only about 5% of offers take the full 24 months.
• Many less complex offers are processed in 6 months or less.

So while the IRS is allowed 24 months, most offers don’t take nearly that long. But it’s still smart to plan for a longer timeline, just in case.

Can You Do Anything to Speed Up an Offer in Compromise?

Since offer processing times can vary so much, is there anything you can do to try to speed up the process? Here are some tips:

• Work with a tax professional – They can ensure proper documentation and help avoid delays.
• Gather documentation up front – Send all needed docs with your initial offer to avoid IRS requests later.
• Respond right away to any IRS requests – This prevents pauses in the timeline.
• Keep good records – If the IRS has questions later, you need to access docs quickly.
• Stay in touch with the IRS – You can call to check status and show you’re eager to resolve it.

While not guaranteed to expedite the process, these tips can help avoid common delays and keep your offer moving forward.

What If Your Offer in Compromise Is Rejected?

There’s always a chance the IRS may reject your offer in compromise after reviewing your financial details. If this happens, here’s the timeline to expect:

1. You’ll receive a rejection notice from the IRS outlining the reasons why.
2. You’ll have 30 days from the rejection date to file an appeal if you disagree.
3. The IRS will keep your down payment amount and apply it to your tax debt.
4. You’ll still owe the remaining unpaid tax debt.
5. You’ll need to quickly make new arrangements to resolve your tax debt.

As you can see, a rejection means you’re back to square one. Work with a tax expert to either file an appeal or find alternatives if your offer is rejected.

What Happens After the IRS Accepts Your Offer in Compromise?

If the IRS does accept your offer in compromise, here is what you can expect:

• You’ll receive an acceptance letter from the IRS outlining the remaining steps.
• For lump-sum offers, you’ll have 5 months to pay the remaining balance.
• For periodic payment offers, you’ll pay monthly installments over 24 months.
• The IRS keeps any tax refunds you’re due for that tax year.
• You must stay compliant with tax obligations for the next 5 years.

Once accepted, be sure to carefully follow the payment timeline outlined by the IRS. If you default on the agreement, the IRS can revoke the offer in compromise.

Should You Consider an Offer in Compromise?

With the lengthy timeline and strict approval criteria, you may be wondering if an offer in compromise is even worth pursuing. For some taxpayers, it can be:

• If you truly can’t afford to pay your full tax debt
• If you meet the IRS requirements for a successful offer
• If you are willing to provide extensive financial documentation
• If you have time to wait out the long process

You’ll increase your chances of success if you work with an experienced tax professional. They can provide guidance specific to your situation.

For some taxpayers owing back taxes, an offer in compromise provides the fresh start they desperately need. While not quick or easy, it can permanently resolve IRS debt for a fraction of what you owe.

I hope this gives you a better idea of the realistic timeline to expect if you pursue an offer in compromise. Let me know if you have any other questions!

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References

Here are the references cited in this article:

[1] https://www.irs.gov/businesses/small-businesses-self-employed/offer-in-compromise-faqs

[2] https://www.irs.gov/taxtopics/tc204

[3] https://www.irs.gov/payments/offer-in-compromise

[4] https://www.taxpayeradvocate.irs.gov/get-help/paying-taxes/offer-in-compromise/

[5] https://www.wtaxattorney.com/solutions/offer-in-compromise/

[6] https://trp.tax/tax-guide/irs-oic-time-frame/