When an Offer in Compromise Makes Sense (And When It Does Not)

After learning how IRS collections progress and how installment agreements work, many taxpayers ask the same question.

Can I settle my tax debt for less than I owe?

This is where the Offer in Compromise enters the conversation. It is also where expectations often collide with reality.

At Capital City Professional Services, we spend a great deal of time explaining what an Offer in Compromise actually is, because misunderstanding this option leads to disappointment, wasted time, and sometimes a worse position than before.

What an Offer in Compromise Really Is

An Offer in Compromise is a formal agreement where the IRS accepts less than the full balance owed because it believes it cannot reasonably collect the full amount within the allowable time.

This decision is not emotional. It is mathematical.

The IRS evaluates:

• Income

• Allowable living expenses

• Assets and equity

• Future earning potential

• Compliance history

If the numbers show the IRS could collect the balance through payments or asset liquidation, an Offer in Compromise will not be approved.

When an Offer in Compromise Makes Sense

An Offer in Compromise is appropriate in limited but very real situations.

It may make sense when:

• Income is low and unlikely to increase

• Assets are minimal or protected

• Expenses meet hardship thresholds

• There is no realistic ability to pay the debt in full before the statute expires

• The taxpayer is fully compliant with filing requirements

In these cases, settlement is not a favor. It is a practical decision by the IRS.

When an Offer in Compromise Does Not Make Sense

This is where many people are misled.

An Offer in Compromise is usually not appropriate when:

• The taxpayer has steady income

• Assets have available equity

• Monthly cash flow supports a payment plan

• Compliance is not current

• New tax debt continues to accumulate

In these situations, submitting an offer often results in denial after months of waiting, fees paid, and lost momentum.

Worse, during review, the IRS gains updated financial information that can accelerate collections later.

Why “Pennies on the Dollar” Is a Dangerous Phrase

Marketing has done significant damage to the Offer in Compromise program.

Settlement is not based on how unfair the debt feels. It is based on what the IRS believes it can collect.

No legitimate professional can guarantee approval before reviewing full financial documentation. Any promise made before analysis is marketing, not strategy.

What Happens During the Offer Review Process

Submitting an Offer in Compromise is not quick.

The IRS may:

• Review bank statements and pay stubs

• Question expenses

• Request additional documentation

• Take months to issue a decision

During this time, strict compliance is required. Missed filings or new balances can cause immediate rejection.

How Offers Fit Into the Bigger Resolution Strategy

An Offer in Compromise is not the best solution for most taxpayers. It is the right solution for the right financial profile.

In many cases, installment agreements or partial payment plans provide more stability and less risk. For others, hardship status may offer temporary relief while income recovers.

The key is matching the tool to reality, not desire.

Final Thoughts

An Offer in Compromise is neither a miracle nor a myth.

It is a specific solution for a narrow set of circumstances.

Understanding when it works and when it does not protects you from false hope and wasted time. Real tax resolution is built on honest analysis, not promises.

When settlement makes sense, it should be pursued carefully and strategically.

When it does not, choosing a different path is not failure. It is wisdom.