Offer in Compromise Timeline: How Long It Takes

An Offer in Compromise (OIC) lets qualified taxpayers settle for less than the full balance. It’s powerful—but slow. Simple cases may resolve in about 6–9 months; complex cases can take a year or more. Below we map each step, the typical timeframe, and practical tips to avoid resets.

Key Takeaways

• OIC can settle for less than owed, but approval rates are limited and documentation must be exact.
• Eligibility hinges on reasonable collection potential (RCP): income minus allowable expenses plus asset equity.
• During review, most collections pause, but a federal tax lien can still be filed.
• Accepted OICs require five years of perfect compliance or relief can be reversed.

Understanding OIC: Caveats You Should Know

• Payments sent with the application are non‑refundable (applied to your liability).
• Collection Statute Expiration Date (CSED) is extended while the offer is pending.
• The IRS may file a Notice of Federal Tax Lien during review.
• If you apply for an OIC while on an Installment Agreement, you may stop IA payments while the offer is under review.
• If the IRS doesn’t decide within two years of receipt, the offer is deemed accepted (appeal time excluded).

Eligibility: Three Paths to Acceptance

1) Doubt as to Collectibility

Used when you cannot pay the full liability now or within the collection period. The IRS computes RCP from:

• Future income minus allowed living expenses (IRS National/Local Standards)
• Quick‑sale value/equity of assets (real estate, vehicles, cash, investments)

The IRS may also consider asset accessibility and state protections, including property transferred to defraud creditors and property held solely by a non‑liable spouse under certain state law regimes.

2) Doubt as to Liability

There’s a genuine dispute about whether the tax is owed. You’ll submit evidence with Form 656‑L.

3) Effective Tax Administration

Rare. Even if you could technically pay, the IRS can accept an offer when collection would cause economic hardship or would be unjust under exceptional circumstances.

Application: Forms, Fees, and Payment Options

• Forms: 656 (collectibility), 656‑L (liability), and 433‑A/B (financials).
• Fee: $205 (waived for low‑income certification).
• Lump‑sum offer: 20% due with application; remainder in ≤5 installments within 5 months of acceptance.
• Periodic offer: First installment with application; continue monthly during review; up to 24 months post‑acceptance.

OIC Steps & Realistic Timelines

1. Pre‑qualification (days): Confirm filings are current, estimates/withholding updated, and bankruptcy not pending. Use pre‑qualifiers as a rough screen only.
2. Prepare & file (2–6 weeks): Forms 656 and 433‑A/B with full documentation; include the fee (waived for low‑income) and initial payment for lump‑sum offers.
3. IRS review (6–12+ months): Reviewer may request clarifications or more documents. Respond quickly; missed deadlines can return the offer and forfeit appeal rights.
4. Decision (weeks–months): Approved, rejected, or counteroffer. Rejections can be appealed; counteroffers may add time but still lead to resolution.
5. Payment after acceptance (up to 24 months): Lump‑sum within 5 months or periodic payments over up to 24 months. Five‑year compliance required after acceptance.

What Speeds or Slows an OIC

• Complex finances (multiple income sources, assets, businesses) extend review time.
• IRS backlog fluctuates seasonally and by staffing.
• Incomplete/incorrect applications trigger back‑and‑forth and returns.
• Late responses to document requests can restart the clock.
• Appeals add months to a year or more.

Alternatives When You Need Relief Faster

• Installment Agreement: Quick to set up; keeps you compliant while reducing enforcement risk.
• Currently Not Collectible (CNC): For temporary hardship; pauses active collections while income stabilizes.
• Penalty Relief: First‑time abatement or reasonable‑cause relief can lower the amount to resolve even without settlement.

Explore: OIC service, Installment Agreements, CNC, Penalty Abatement.

Is OIC Right for You?

• You cannot pay the full debt now or within the collection window
• Payment would create hardship; documentation supports your claim
• You meet filing/payment compliance requirements

If approved, be ready for five years of on‑time filing and payments; refunds through the acceptance date are kept by the IRS.

FAQs – Offer in Compromise

How to Expedite Your OIC

• Submit complete, accurate forms the first time
• Respond to IRS requests immediately with organized docs
• Use professional preparation for complex finances or prior issues