Offer in Compromise Success Rates 2024: What You Really Need to Know Before Applying

If you’re drowning in tax debt, you’ve probably heard about the IRS Offer in Compromise (OIC) program – the “pennies on the dollar” settlement that promises to slash your tax burden. But before you get your hopes up, you need to understand the reality behind the marketing hype. The 2024 statistics tell a sobering story about your actual chances of success.

The Hard Truth About 2024 OIC Success Rates

In fiscal year 2024, taxpayers proposed 33,591 offers in compromise to settle existing tax liabilities for less than the full amount owed. The IRS accepted only 7,199 offers, amounting to $163.4 million during the year. This translates to an acceptance rate of approximately 21.4% – meaning nearly 4 out of 5 applications were rejected.

However, other industry sources report slightly higher success rates. The current acceptance rate for OICs is 36.55%, indicating that slightly over one-third of submissions are approved, while some 2024 analyses suggest about 40% of OIC applications have acceptance. This statistic highlights the competitive nature of the program and the importance of presenting a well-substantiated case to the IRS.

The variation in these numbers reflects different measurement methodologies and timeframes, but the message is clear: your chances are far from guaranteed, regardless of what aggressive marketing campaigns might suggest.

Why Most Applications Fail

The IRS rejects over 75% of offers, usually because people don’t meet the financial criteria or make paperwork errors. The most common reasons for rejection include:

• Ability to Full Pay: A taxpayer who can fully pay the liabilities through an installment agreement or other means, generally won’t qualify for an OIC in most cases
• Incomplete Documentation: Missing or inaccurate financial information destroys credibility with the IRS
• Unrealistic Offers: Lowballing your offer makes the IRS less likely to accept it and negotiations more challenging
• Non-compliance Issues: To qualify for an OIC, the taxpayer must have filed all tax returns, have received a bill for at least one tax debt included on the offer, made all required estimated tax payments for the current year

Setting Realistic Expectations

The IRS uses a strict formula to determine what constitutes an acceptable offer. In most cases, the IRS won’t accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (RCP). This calculation considers your assets, income, expenses, and future earning potential.

The amount the IRS will agree to settle for varies significantly from case to case. The agency uses a formula to determine what you can realistically pay, considering your assets, income, monthly expenses, and savings. While there’s no standard percentage, the aim is to reach an agreement reflecting your maximum pay ability.

Professional representation can significantly improve your odds. The IRS accepts only about 24% of offer in compromise applications nationwide, but our acceptance rate is much higher because we only submit offers that meet the IRS’s strict criteria, notes one experienced tax resolution firm.

The Three Types of OIC Acceptance

Understanding which category you might qualify for is crucial:

• Doubt as to Liability: The IRS can accept a compromise if there is doubt as to liability. A compromise meets this criterion only when there’s a genuine dispute as to the existence or amount of the correct tax debt under the law
• Doubt as to Collectibility: The IRS can accept a compromise if there is doubt that the amount owed is fully collectible. Doubt as to collectibility exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability
• Effective Tax Administration: The IRS can accept a compromise based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances

Timeline and Process Expectations

Even if your application is accepted, patience is essential. The timeline for an IRS Offer in Compromise (OIC) can vary significantly, potentially extending up to 24 months. This includes the initial review of your Form 656 and supporting documents, the IRS’s comprehensive investigation into your financial situation, and the time needed for any appeals or negotiations. It’s a detailed process, but understanding that patience is key can help set realistic expectations.

Warning Signs of OIC Mills

The IRS has issued warnings about unscrupulous companies exploiting taxpayers’ desperation. These unscrupulous “mills” use aggressive marketing to make false claims of guaranteed settlements for “pennies-on-the-dollar,” or will say there’s a limited window of time to resolve tax debts through the IRS Offer in Compromise (OIC) program. Many OIC mills charge steep fees, give false assurances and can take advantage of taxpayers with empty promises that their tax debt will disappear. The result is often good money paid for bad results.

Professional Help That Makes a Difference

Working with experienced professionals who understand the intricacies of tax resolution can significantly impact tax resolution outcomes. Reputable firms like All County Tax Resolution, based in Wayne County, Pennsylvania, focus on realistic assessments and proper case preparation. That’s why we focus on one thing: getting you out of tax debt as quickly and affordably as possible. We don’t make promises we can’t keep. We don’t charge fees for services you don’t need. We just solve your tax problem so you can get back to your life.

Alternatives to Consider

If an OIC isn’t realistic for your situation, don’t despair. Most taxpayers do qualify for an IRS payment plan (or installment agreement) and can use the online payment agreement (OPA) to set it up to pay off a balance over time. Other options include:

• Currently Not Collectible status for severe financial hardship
• Innocent Spouse Relief for certain situations
• Penalty abatement for reasonable cause

The Bottom Line

While Offer in Compromise can provide genuine relief for qualifying taxpayers, the 2024 success rates make it clear that it’s not the universal solution often advertised. Understanding the OIC criteria and acceptance rates is crucial for making informed decisions about managing tax debts. While the process may seem daunting, proper preparation and knowledge can significantly enhance the likelihood of a favorable outcome.

Before pursuing an OIC, get a realistic assessment of your situation from a qualified tax professional. The key to success lies not in hoping for the best outcome, but in understanding exactly what the IRS requires and whether you truly qualify. With proper guidance and realistic expectations, you can choose the tax resolution strategy that actually works for your specific circumstances.