The biggest hurdle you’ll have to overcome when applying for an offer in compromise is having your application accepted. However, this isn’t the only hurdle you’ll encounter during this process which makes it difficult to guess how long an offer in compromise might take.
The IRS usually accepts or rejects an offer in compromise within a year. Still, the agency might need more time to reach a decision in complex cases. Consequently, a taxpayer’s number of revenue sources and assets affect the duration of the process.
Let’s look at how long an offer in compromise takes and what you can do to help the IRS reach the decision faster.
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Table of Contents
The Minimum Requirements for Submitting the Offer in Compromise Application
The IRS won’t consider offers in compromise that don’t meet its baseline requirements, so you must ensure that your offer checks all the boxes before you take any further steps.
You’ll have to meet the following conditions before applying for an offer in compromise:
- The IRS won’t consider your offer if you’re in an ongoing bankruptcy proceeding
- Properly filed tax returns for the last six tax years
- Settle all tax payments for the current tax year
You can also use the IRS Offer In Compromise Pre-Qualifier Tool to determine if you’re eligible to apply. The processing of your application won’t start until you meet these requirements.
The approval of an offer in compromise will take much longer if you don’t meet one or more requirements at the time of application. That’s why the easiest way to speed up this process is to pay all due taxes and show a clean tax account record to the IRS.
The Average Duration of an Offer in Compromise Take
Broadly speaking, most offers in compromise take seven to twelve months. However, this period can be much longer if you still haven’t filed all your tax returns for the last six years.
The time frame only indicates the amount of time that usually passes from the moment a taxpayer applies for an offer in compromise until the IRS accepts it. Once the offer in compromise is approved, a taxpayer must continue to pay and file taxes for the next five years.
So the entire offer in the compromise process usually takes more than five years, but in this article, we’ll only focus on the period between the application and the final approval.
This stage has two phases:
- Collecting information – You must gather all information you need to fill out Form 433-A (OIC) and all other forms you must file. This phase usually takes between thirty and sixty days.
- Offer in Compromise Review – The IRS needs six months to review an offer in compromise and give a taxpayer its final decision.
The best-case scenario is that your offer in compromise will be accepted within seven months.
Simple Cases
Most taxpayers applying for an offer in compromise don’t have multiple income streams, luxury assets, or vast retirement accounts. Their income is reported through Form W2, and their net worth doesn’t change unexpectedly.
Under these circumstances, the IRS will need approximately six to ten months to review the application and give a taxpayer their decision.
Complex Cases
Having more than one source of income, renting the property you own, or keeping money in multiple retirement accounts complicates the offer in compromise review and extends the waiting time.
In addition, the math behind how much you should offer in a compromise is becoming more complex with each source of income and asset you have.
The IRS usually reviews and approves or denies complex offers in compromise within 18 months, although in some cases, the agency decides in a year.
Variability is another factor we must mention here.
Taxpayers with regular W2 jobs can sometimes have volatile investments whose value can skyrocket or plummet unexpectedly during the offer in compromise. They usually go through this phase longer than those that don’t have volatile assets.
On the other hand, stable stock or other assets that don’t have significant value oscillations won’t significantly impact the duration of the offer in the compromise process.
Two-Year Limit
The IRS will provide an automatic answer to your offer in compromise within two years. The two-year rule doesn’t guarantee the decision will be in your favor because the IRS has the right to reject it.
However, the review phase, in most cases, doesn’t last longer than 18 months, regardless of how complex they are.
Expediting an Offer in Compromise
Aside from avoiding delays while preparing for an offer in a compromise application, there isn’t much more you can do to speed up the review process. As we already noted, the IRS will need at least six months, often more, to complete the review and provide you with their decision.
So, here’s what you can do to shorten the processing time.
Submit all Documentation
The full offer in the compromise package includes more than ten documents. So, you’ll have quite a bit of work to do before you submit the application. Working with a CPA might make this phase somewhat easier as you’ll have assistance at every step of the way.
Here’s the full list of the documents you’ll have to prepare before you submit your application.
- Form 656 Offer in Compromise ( filled out and signed)
- Form 433 OIC – (filled out and signed)
- Tax returns filed up to twelve weeks prior to the application date (copies only)
- Pay stubs (copies only)
- Personal bank account statements for the last three months (copies only)
- Business bank account statements for the last six months (copies only)
- Latest pay stubs (copies only)
- Paid $205 application fee with a money order or check made payable to the U.S. Treasury. Taxpayers with low-income certification don’t have to pay this fee.
- A money order or check for the initial offer in compromise made payable to the U.S. Treasury. Low-income certification holders are exempt.
- Child support court orders or proof of alimony payments if applicable (copies only)
- Lender statements, if applicable (copies only)
Please note that forgetting to include one or more of the documents above in your application will cause a processing delay.
Double-Check the Address
Sending an offer in a compromise application to the wrong address will delay the earliest possible date when the IRS can start reviewing it.
Taxpayers living in the states below should send their offer in compromise application to Memphis IRS Center COIC Unit P.O. Box 30803, AMC Memphis, TN 38130-0803.
AZ, CA, CO, HI, ID, KY, MS, NM, NV, OK, OR, TN, TX, UT, WA
Your application should go to the following address if you live abroad or in one of the states not mentioned above:
Brookhaven IRS Center COIC Unit P.O. Box 9007 Holtsville, NY 11742-9007
Frequently Asked Questions
The $205.00 application fee you must pay before submitting your application is nonrefundable, and you won’t be compensated if the IRS rejects your application. The fee can be waived if a taxpayer qualifies for the low-income certification.
OIC examiners must determine a reasonable collection potential for all applications submitted due to doubt as to collectability. The duration of this stage in the review phase of the application process depends on a taxpayer’s financial situation.
OIC approval rates vary, but most years, the IRS rejects over 60% of the offer in compromise applications it receives. Hence, your odds of having the offer in compromise accepted are less than ideal.
You’ll have thirty days to appeal the decision after you receive the rejection letter from the IRS.
Find a CPA
Fighting the IRS and winning is a major accomplishment. Still, the chances of accepting your offer in a compromise application are less than great, especially if you don’t have professional help.
Go to choicetaxrelief.com or call 866-800-TAX to speak with a CPA who can help you keep the waiting time at a minimum and boost your chances of the IRS accepting your offer in compromise.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
