What an OIC actually is
Section 7122 of the Internal Revenue Code authorizes the IRS to compromise (i.e., accept less than the full balance) a tax liability when one of three grounds is met:
- Doubt as to collectibility — the IRS doubts it can collect the full amount before the collection statute expires.
- Doubt as to liability — there is a genuine dispute about whether the taxpayer actually owes the assessed tax.
- Effective tax administration — collecting the full amount would create economic hardship or would be unfair given the taxpayer's circumstances.
The most common path is doubt-as-to-collectibility. The IRS looks at your finances and decides whether you can pay the full balance over the remaining collection-statute window (typically 10 years). If yes, the offer is rejected. If no, the IRS calculates your "Reasonable Collection Potential" (RCP) and the offer must be at least that amount.
The Reasonable Collection Potential math
The IRS's Form 433-A (OIC) is a financial disclosure that produces an RCP number. RCP is, very approximately:
- Your net realizable equity in assets — for each asset (real estate, vehicles, retirement accounts, securities), the IRS takes 80% of fair market value minus what you owe on it. The 80% "quick sale value" figure is documented in IRM 5.8.5.4.1 ("Normally, QSV is calculated at 80 percent of FMV"). The IRS officer handling your case may apply a different percentage where the asset class warrants it.
- Plus your future income— monthly income minus the IRS's allowable monthly expenses (per the Collection Financial Standards published at irs.gov/businesses/small-businesses-self-employed/collection-financial-standards), multiplied by either 12 (if you're paying lump-sum) or 24 (if you're paying over a periodic schedule).
Whatever number this produces is the floor for your offer. An OIC for less than your RCP is rejected. An OIC for at least your RCP, with a genuine doubt-as-to-collectibility argument, may be accepted.
Why most taxpayers don't qualify
The IRS's allowable monthly expenses are tight. They're based on national and local Collection Financial Standards and often allow less than what households actually spend. After the IRS subtracts allowable expenses from your income, the leftover — multiplied by 12 or 24 — frequently exceeds the balance owed. When that happens, the IRS's position is that you can pay the full balance over time and they reject the OIC.
The IRS's own statistics historically show OIC acceptance rates well below 50%. The current acceptance rate fluctuates; check the IRS Data Book for the most recent figures. Either way, the marketing claim that "most people qualify" for an OIC is a tax-resolution-mill talking point — not what the eligibility math actually says.
When an OIC actually makes sense
OIC works best when:
- The taxpayer has a fixed, low income (Social Security benefits, modest pension) and limited assets;
- The collection statute is approaching expiration and the IRS is unlikely to collect the full balance before it does;
- A specific liability is disputed (doubt-as-to-liability) and the OIC is the cleanest procedural path to resolution;
- Effective tax administration (medical hardship, severe economic dislocation) supports a less-than-full settlement.
The OIC process at a glance
- Use the IRS OIC Pre-Qualifier to estimate eligibility before paying the application fee.
- File Form 656, Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, the application fee, and the initial payment.
- IRS reviews your financial disclosure, often issues information requests, and may contact third parties to verify assets. Expect six to twelve months of processing time.
- IRS accepts, rejects, or returns the offer. If rejected, you have appeal rights to the Independent Office of Appeals.
Avoid the "pennies on the dollar" sales pitch
The most common predatory pattern in this niche is a TV ad or cold call that says "the IRS lets you settle your tax debt for pennies on the dollar." That sentence is a red flag. OIC accepts an offer at or above your RCP — there is no statutory mechanism for "pennies on the dollar" that bypasses the eligibility math. Tax-resolution mills using that framing have been the subject of FTC enforcement actions for years.
If you genuinely can't pay, the IRS's installment agreement program — including partial-pay installment agreements — is often the right path. If you're hiring help, hire a credentialed CPA, EA, or tax attorney. The Taxpayer Advocate Service is free, independent, and available when normal channels have failed.