Did the IRS Introduce New Changes for the 2025 Offer In Compromise Program?
The IRS has announced changes intended to increase the efficiency of its collection procedures for 2025.
Although no direct adjustments have been made to date to the 2025 Offer in Compromise (OIC) program, the IRS is expected to adjust its overall collection efforts and that may include more rigorous reviews of OICs and a taxpayer’s ability to pay past due taxes.
If a taxpayer cannot pay back taxes in full, the OIC program provides relief by allowing them to pay only a portion of their total tax liability to settle what they owe the IRS.
Before accepting an offer, the IRS considers the taxpayer’s finances, from monthly income and expenses/spending to equity from assets, to determine if the amount offered for the OIC is reasonable.
According to the IRS Offer in Compromise page, the agency “generally approves” an OIC when the amount offered is what it expects to collect “within a reasonable period.”
How Does the IRS Determine My Eligibility and Ability to Pay Under 2025 OIC Guidelines?
Typically, you can apply for an Offer in Compromise if you are up to date on filing tax returns, have made required estimated payments, and are not in an active bankruptcy proceeding.
If you are a business owner with a certain number of employees, you must prove you are currently making tax deposits, including for the past two quarters.
If you apply for an OIC in 2025 and the IRS determines that you aren’t eligible, they’ll send a letter with specific reasons and return your OIC application fee.
You can use the free Wiztax IRS Pre-Qualifier tool to see whether you qualify for an Offer in Compromise, the type of OIC you’re eligible for (lump sum or periodic payment), and the reduced amount you can offer the IRS to settle back taxes.
Our pre-qualifier will also show if you can get hardship status to temporarily delay collections.
Can I Still Apply For an Offer in Compromise If I’m In an Active Bankruptcy Case in 2025?
Unfortunately, taxpayers with open bankruptcy cases are ineligible to apply for an OIC.
The IRS recognizes that bankruptcy proceedings typically aim to resolve an individual’s financial obligations, including federal and state tax liabilities.
An OIC agreement and ongoing bankruptcy proceedings can complicate both processes.
For example, an approved Offer in Compromise requires taxpayers to pay a lump sum or make periodic payments for tax debt.
However, this is inconsistent with the terms of most standard bankruptcy plans. Moreover, the bankruptcy court may discharge tax liabilities included in your OIC, making the OIC agreement invalid.
How Long Will It Take for the IRS to Approve My 2025 OIC Offer?
Depending on how busy the IRS is in 2025 and the complexity of your case, approval of offers can take 6 to 8 months or longer.
Once the IRS receives forms 656 and 433 from a taxpayer, they review each form for obvious errors or discrepancies before submitting it for further processing.
Once that’s complete, they will mail a letter with an estimated date and whether they require additional information before deciding.
Each OIC is assigned to an IRS Offer Specialist to complete the financial investigation and determine whether to approve the amount offered to settle the full tax debt.
What Happens When My 2025 Offer in Compromise Is Accepted? How Do I Pay?
When the IRS accepts your OIC, they have agreed to settle the full amount of your tax debt for the amount you offered.
Payments for the OIC amount are either lump sum or periodic. For lump sum, you pay 20% up front and the rest in 5 payments or less. For periodic, you make smaller payments over 24 months.
The OIC agreement includes payment schedule details that you must abide by to avoid defaulting and incurring fines and penalties or the IRS revoking the agreement and demanding full payment.
You can make OIC payments through the IRS website, mail a money order or check, or pay in person at an authorized IRS location.
How Does the IRS Handle OIC for Small Business Owners in 2025?
In 2025, the IRS will handle OIC applications for small business owners much like those for individuals, from assessing a business owner’s financial hardship and compliance with tax guidelines to determining their collection potential apart from the OIC.
In addition to submitting Form 656, small business owners seeking an OIC will need to submit Form 433-B (Collection Information Statement for Businesses).
If an offer isn’t accepted, the IRS may request additional information to calculate an alternative OIC offer amount that works.
Need help applying for an Offer in Compromise? Let us settle your debt for a fraction of what you owe.
You can start online by answering 6 simple questions.
6 Simple Questions. Free Evaluation.