If you were hoping to settle an old tax bill for less, 2025 was a much tougher year to pull it off. The IRS signed off on about 5,500 offers in compromise in fiscal year 2025, a steep drop from around 12,700 approvals in 2023. At the same time, more people tried: submissions climbed about 29% to roughly 38,800. In short, demand went up while the success rate sank.
The program itself is straightforward in concept: taxpayers can settle for less than the full amount if paying in full is impossible or would create hardship. The agency says its aim is to reach a deal "that suits the best interest of both the taxpayer and the agency," and it decides based on a person's "reasonable collection potential," looking at income, spending and assets such as a house, vehicles and bank balances.
This tool has been around, in one form or another, since long before the modern income tax. Congress has permitted compromises on tax debts since 1864, as detailed by Keith Fogg of Harvard's Tax Litigation Clinic and his research assistant Shane Rice.
People on tighter budgets tend to lean on offers in compromise more, and the latest numbers have advocates worried. "I've never seen a number that low," said Nina Olson, the Center for Taxpayer Rights' executive director.
The dollars tell the same story. In fiscal 2025, total accepted offer amounts fell to $98.1 million - below 50% of the $214.5 million recorded in 2023. The average accepted offer last year was about $18,000. Experts also noted that if the IRS does not replace compromises with other effective collection actions, federal receipts could take a hit too.
It is easy to stumble into a tax bill that is hard to climb out of. Fogg pointed to common situations: a single parent who mistakenly claims a refundable credit for a child who lived with them for five months instead of the required six, or a worker who gets laid off and taps a 401(k) to stay afloat, only to be hit by taxes and penalties. Interest can quickly turn a manageable balance into something bigger. "It's not always that you're some horrible person" trying to dodge taxes, Fogg said.
No one can say for sure why approvals are down. An IRS spokesperson declined to explain the drop in acceptances, and the agency also declined to say whether staffing has played a role.
What is clear is that these cases take work. Deciding whether to accept an offer usually requires a person to gather and analyze detailed facts about a taxpayer's situation. Staff review finances, check that forms are complete and confirm past filing compliance.
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Meanwhile, the IRS has far fewer people to do that work than it had not long ago. A Treasury Inspector General for Tax Administration report released in June found the agency's headcount fell by roughly 31,000 people from the start of 2025 to January 2026, a 28% slide tied to Trump administration moves to shrink the federal workforce. Some frontline roles, including tax examiners and revenue agents, were cut by about a third.
The report warned that staffing shortages pose "elevated operational risks." During the 2025 tax season, the IRS also began laying off roughly 6,000 employees. Olson put it bluntly: "There are no employees to do this kind of work," and these cases require a human review. Fogg added that saying no can be faster than saying yes, which could nudge decisions toward rejections.
In March, IRS chief Frank Bisignano told lawmakers he feels good about the agency's employee count, and in April he told the Senate Finance Committee the IRS was not understaffed.
The IRS generally will not settle if it believes you can pay through other means, such as an installment plan. Eligibility also comes with conditions: you cannot be in bankruptcy; you need to be current on filing every required federal return even if you cannot pay; and you must be current on every required estimated tax payment for the current year.
There is also a big catch after approval. If your offer is accepted, you have to stay compliant for the next five years. Miss those obligations and the deal gets undone, bringing your old balance back to life.
That compliance carrot is a key reason experts say the program can work for both sides. As Book put it, getting someone back on track can let the government collect money it might not otherwise, while offering a clean slate for the taxpayer.
Bottom line for regular filers: it is getting harder to strike a deal with the IRS even as more people try, reviews can take a long time, and staffing constraints may not help. If you are weighing options to clear a tax tab, know how the rules work, how long the process can last, and what staying compliant after a deal really means for your budget.
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