by Dave Horwedel, EA and CEO of Torchlight Tax.
Overwhelmed by IRS debt?
Wondering if you can pay off the IRS for less?
An Offer in Compromise (OIC) could potentially erase most of your IRS debt—legally.
An IRS Offer in Compromise is a legal settlement where the IRS agrees to take less than you owe.
There are three doors to qualify.
First, doubt as to collectability: you simply don’t have enough equity or income to ever pay it all. This is the most commonly used OIC. We show the IRS what they cannot realistically collect from you. Your quick-sale equity in assets plus your future disposable income after allowed living expenses is simply not enough. If that total is lower than your tax bill, that’s the heart of a settlement.
Second, doubt as to liability: the amount assessed is wrong. Maybe the audit missed facts, or the law was misapplied.
Third, effective tax administration: you technically could pay off the entire debt, but doing so would create an exceptional hardship or be unfair in your specific circumstances. Here’s an example of when this might apply: You have equity in your home that could cover your tax debt. However, you are disabled or lost your job or retired. If you sell your house you have no place to live. You cannot pay off your tax bill based on your current income without a great hardship. If the IRS agrees, then an Offer in Compromise based on Effective Tax Administration could win the day.
This is because the IRS VERY RARELY levies the home that the owner is living in. See my video “CAN THE IRS LEVY YOUR HOME” on the Torchlight Tax website or YouTube channel for more details. Or contact Torchlight Tax at 877-758-7797 or info@torchlighttax.com for a free consultation. If you have significant tax debt and significant home equity, you may qualify for an OIC. There are different scenarios based on your income and other assets, and we would be glad to assist you in making the correct decision for your exact situation.
Most people consult with us in advance to determine if the OIC is their best option. We usually do a Torchlight Tax Analysis first to see what works best for you.
If the OIC is your best option, here’s how we do it. We file Form 656—your actual offer—and a full financial disclosure: Form 433-A (OIC) for individuals, or 433-B (OIC) for businesses. We include an application fee and an initial payment unless you qualify for the low-income waiver. You can offer a lump sum, 20% down and the rest in up to five payments after acceptance, or a periodic plan paid over 6 to 24 months. The offer amount isn’t random; it’s the formula: realistic asset equity plus a set number of months of future income the IRS thinks they can collect.
Success comes from precision. All returns filed. Current-year withholding or estimates on track. Every number documented with bank statements, pay stubs, and asset records. We frame your story to match the math and the law—collectibility, liability, or hardship—so an IRS reviewer can say “yes” without guessing.
What kills an offer? Unfiled returns. Hidden or undervalued assets. Expenses the IRS won’t allow. Racking up new tax debt while the offer is under review. And even after acceptance, there’s a five-year compliance rule—stay current for five years or the deal can default and your tax liability returns.
Who should consider an OIC? Taxpayers with big balances and little equity or tight cash flow, or those with a strong argument that the IRS got the assessment wrong. If that’s you, an Offer in Compromise can be the clean break you need.
Is the Offer in Compromise right for you?
Contact Torchlight Tax for a free consultation at 877-758-7797 or fill out a form here. We will be glad to go over all your options and recommend a course of action.
For more tax-saving and asset protection strategies, visit the Torchlight Tax website or YouTube channel, where you will find 400 useful articles and videos.
