IRS deals drop sharply

The IRS accepted about 5,500 offers in compromise in fiscal 2025, down 57% from 12,700 in 2023. Meanwhile, taxpayer applications jumped 29% to 38,800.

“I've never seen a number that low. That's terrible.”

What is an offer in compromise

The program lets taxpayers settle tax debts for less than the full amount owed. It's designed for those who can't pay or would face financial hardship.

Dollar value also collapsed

Offers accepted in fiscal 2025 were worth $98.1 million, less than half the $214.5 million in 2023. The average accepted offer was about $18,000.

Low-income households hit hardest

The decline burdens lower-income taxpayers who rely most heavily on the program. Experts warn of crushing debt and stress for those seeking a fresh start.

“These numbers are alarming.”

Program dates back to 1864

Congress has allowed the IRS to compromise tax liabilities since 1864. The goal is to reach an agreement that suits both the taxpayer and the agency.

How the IRS evaluates offers

The IRS assesses a taxpayer's reasonable collection potential by reviewing income, expenses, and assets like homes, cars, and bank accounts.

Easy to accumulate tax debt

Innocent mistakes like claiming a tax credit for the wrong number of months, or tapping a 401k after job loss, can snowball into huge debts with interest and penalties.

“It's not always that you're some horrible person who's dodging taxes on purpose.”

Tax compliance is the incentive

Taxpayers whose offers are accepted must file all required returns and pay taxes on time for five years. If they don't, the original debt springs back.

“A big part of the program is getting people back into the tax system and doing what they're supposed to do.”

A win-win for both sides

The government collects revenue it might not otherwise get, while taxpayers escape an insurmountable financial hurdle. Both benefit from the arrangement.

“It's a win-win.”

IRS workforce shrinks 28%

The IRS lost about 31,000 employees from January 2025 to January 2026, a 28% reduction. Tax examiners and revenue agents saw cuts of about a third each.

Staffing poses operational risks

A federal watchdog report found that staffing shortages create elevated operational risks for the agency. Assessing offers requires manual, labor-intensive work.

“There are no employees to do this kind of work. There needs to be a human being looking at this.”

Manual work hard to automate

Assessing offers requires analyzing specific facts and circumstances of each case, vetting forms, and reviewing tax compliance. A complete investigation can take up to 24 months.

Easier to say no than yes

Remaining IRS workers may face pressure to reject more applications. Saying no requires less work and analysis than approving an offer.

“It's easier to say no than it is to say yes.”

Decline started before Trump

The drop in acceptances began during the Biden era too, suggesting workforce cuts alone don't fully explain the decline. Other factors may be at play.

Applications may have more errors

The IRS sometimes returns applications with mistakes or missing information instead of accepting or rejecting them. More errors could explain fewer acceptances.

Acceptance rate stable when processed

The IRS says the acceptance rate for cases that reach a determination has remained stable at about 51-53%. This suggests the problem is applications not reaching that stage.

“The acceptance rate for offer in compromise cases that reached an acceptance or rejection determination has remained stable in fiscal year 2026 compared with fiscal year 2025.”

IRS may prefer other methods

The IRS might prefer keeping taxpayers in currently not collectible status, which delays collection but allows garnishing refunds and placing liens.

“It's got to be their training: They're being told, 'Offers are not our preferred method.'”

Stricter requirements for seniors

The IRS has recently required elderly homeowners to show reverse mortgage denials to qualify for offers, a tougher standard than before. Many seniors resist this approach.

Reverse mortgages complicate matters

Seniors often resist reverse mortgages because their home may be their only asset and they want to leave it to children. This makes meeting the new IRS requirement difficult.