Who Qualifies for an Effective Tax Administration Offer in Compromise?

An Offer in Compromise, or OIC, is a deal with the IRS in which you pay less than the amount you owe in taxes. Most people qualify either because they cannot pay in full or because the amount owed is wrong. But there is a third path that many taxpayers never hear about: the Effective Tax Administration (ETA) Offer in Compromise. 

An ETA OIC focuses on fairness and hardship. It is designed for people who could technically pay, but doing so would cause serious harm or would not serve the public interest.

Key Takeaways

• Offer in Compromise is when you settle taxes for less than owed.
• Effective Tax Administration (ETA) applies when collecting the full debt would cause unfair hardship. 
• Option often used by elderly taxpayers, people with serious health conditions, caregivers, or others who would face extreme consequences if forced to pay in full. 
• An experienced tax attorney can help prepare the application and explain why the taxpayer qualifies.
• Acceptance rates are low, and the right help can make a big difference.

What Is an Effective Tax Administration Offer in Compromise?

The IRS can sometimes reduce your tax debt if making you pay in full would be unfair. This option isn’t about whether the tax amount is incorrect or whether you’re struggling financially. It’s about whether making you pay for everything would be unfair. The IRS often uses this option for people who are elderly, disabled, very sick, caring for others, or who would face serious harm if forced to pay in full.

Who Qualifies for an ETA Offer in Compromise?

People facing financial hardships often qualify for an ETA Offer in Compromise. For example, you could pay in full if you sold assets or used retirement funds, but doing that would cause economic devastation. 

Think about an elderly homeowner in Bellevue, WA, who lives on Social Security. Selling the home or draining a modest IRA could leave that person without housing security or medical stability. The IRS looks closely at necessary living expenses, current and future health needs, and the local cost of living in King County.

Public policy or equity cases also sometimes qualify for ETA Offers in Compromise. Full payment would be unfair when you consider the whole picture. For example, a veteran with a clean record who would become homeless if forced to pay, or a parent caring for a medically fragile child, where paying would interrupt life-sustaining treatment. These cases require a compelling, well-documented explanation for why the collection would be unjust.

Key Differences Between ETA OIC and Other OIC Types

Most people who apply for an Offer in Compromise do it for one of two reasons: either they cannot afford to pay what they owe, or they believe the IRS made a mistake in the amount. An Effective Tax Administration Offer in Compromise works differently. 

With an ETA, you admit that the tax is correct, and you might even have the money or assets to pay some or all of the tax bill. The problem is that paying in full (or paying the usual settlement based on your reasonable collection potential) would cause real harm to your life. It might mean losing your home, being unable to afford medical treatment, or creating another severe hardship. 

In these cases, the IRS considers fairness in addition to the numbers. An ETA is meant to help people who are stuck in that middle ground, where they do not qualify under the standard rules, but full payment would still be unreasonable or unjust.

However, an offer in compromise is not the only option. In some cases, you may be better off setting up payments. Learn more about the differences between OICs vs payment plans.

How to Pursue an ETA OIC

The IRS doesn’t make it easy to receive ETA offers. To give yourself the best chance, you’ll need to follow the process carefully and support your story with evidence. Here’s how it works in plain terms:

1. Make sure an ETA is the right fit. If you could technically pay by cashing out retirement funds or selling your home, but doing so would leave you without housing or medical care, this may be the right option.
2. Fill out the correct IRS forms. You’ll need Form 656, Offer in Compromise, and a financial disclosure form – 433-A(OIC) for individuals or 433-B(OIC) for businesses. On Form 656, check the box for “effective tax administration.”
3. Write a letter that explains your situation in everyday language. Share details about your health, age, disability, or caregiving responsibilities. Talk about the cost of living in your area and why paying in full would create serious harm.
4. Gather proof to back up your story. That might include medical records, doctor’s notes, bank statements, housing or rent costs, pharmacy receipts, or letters from professionals. The IRS wants hard evidence, not just your word.
5. Offer an amount you can realistically afford. Unlike a standard OIC, this isn’t only about math. You’re showing what you can pay without losing your basic needs. Explain how you picked the number. Be sure to include the application fee and first payment unless you qualify for the low-income waiver.
6. While the IRS reviews your case, stay current on all taxes and returns. If you fall behind, your application could be tossed out.
7. Stay fully compliant for the next five years. Missing filings or payments this time frame can cancel the deal.
8. Appeal if your ETA OIC is denied. Use the appeal to add more evidence or explain your case more clearly if your offer is rejected, but make sure you do so by the deadline.

Common Mistakes to Avoid When Applying for an ETA OIC

When people apply for an Effective Tax Administration Offer in Compromise, they often make mistakes that reduce their chances of acceptance. Avoid these common mistakes.

• Failing to back up their claims with proof. It’s not enough to simply say you’ll face hardship if you have to pay in full. The IRS wants to see evidence. That means you need to provide documents such as medical records, letters from doctors, proof of your housing and living expenses, or any other evidence that shows how paying the tax would cause real harm. Without this kind of documentation, the IRS is unlikely to take your case seriously.
• Choosing the wrong type of Offer in Compromise. There are three different kinds, each serving a distinct purpose. If you apply under “doubt as to collectibility” when your issue is really more about fairness, your case can get rejected right away. Likewise, if you leave out the effective tax administration option when that’s the one that truly fits your situation, you’re missing the chance to make the strongest argument. Taking the time to understand which category applies to you can make or break your application.
• Sending in incomplete forms or skipping the narrative letter entirely. Think of the narrative as your chance to tell your story. It’s where you explain to the IRS who you are, why your situation is different, and what would happen if you had to pay in full. Leaving this out is like showing up to court without saying a word in your own defense.
• Letting your tax compliance slide while your offer is being reviewed. Even if you’ve filed everything properly up until now, failing to file current returns or missing a payment while your OIC is pending can derail the whole process.
• Handling the process alone, even when their circumstances are complicated. If your case involves medical issues, caregiving, or other sensitive factors, having a tax attorney who knows how to frame the evidence can be the difference between approval and rejection.

Working with an experienced tax attorney can help you avoid all of these mistakes.

When to Seek Help from a Seattle Tax Attorney

Knowing when to bring in a tax attorney can be just as important as deciding to apply for an Offer in Compromise in the first place. If you’ve already tried a standard OIC and the IRS turned you down, but you know that paying in full would cause serious harm, that’s usually the moment to get professional help. An attorney can take a closer look at your situation and determine whether an Effective Tax Administration offer might provide an alternative path forward.

It’s also a good idea to reach out if you’re elderly, living with a disability, or caring for someone who depends on you. In these cases, protecting your housing, medical care, or basic stability is critical. A lawyer can help highlight those human factors in a way the IRS is more likely to recognize.

Sometimes people come in feeling that their situation is simply unfair, but don’t know how to put that into words that fit the IRS criteria. That’s exactly what an experienced tax attorney can do. They understand how to connect your story to the rules under IRC 7122 and the IRS manual, making sure your case isn’t dismissed just because it wasn’t presented clearly enough.

In short, if you’re concerned that your case doesn’t fit neatly into standard categories, or if the prospect of explaining your hardship to the IRS feels overwhelming, a Seattle tax attorney can provide the guidance you need. They can help you build the legal and financial narrative that shows why paying in full isn’t just tricky, it’s unjust.

Effective Tax Administration FAQ

What is an effective tax administration OIC?

It is an offer based on fairness and hardship under IRC 7122. You accept the tax as owed, but show that full collection would cause severe harm or would be against public policy.

Can I get an OIC if I technically have enough money to pay?

Possibly. If paying would cause you to lose housing, lose access to medical care, or face similar extreme outcomes, you can ask the IRS to compromise for effective tax administration reasons.

How hard is it to qualify for an ETA OIC?

It is challenging because you must prove exceptional circumstances with strong documentation. That said, many applicants succeed when they present a clear, well-supported case.

What documents do I need?

Medical records and letters, proof of disability or caregiving, housing and utility costs, bank and retirement statements, prescriptions and insurance records, and any other evidence that shows why full payment would cause harm.

Can the IRS reject my application even if I am facing medical issues?

Yes. The IRS needs detailed, credible evidence that connects your medical situation to the hardship. A short note is not enough. A thorough file improves your chances.

Get Help With IRS Tax Relief Forms

If you need help advocating for ETA OIC, reach out to our team today. At Seattle Legal Services, PLLC, we have years of experience guiding people through IRS and state tax challenges. Contact us now to schedule a consultation and take the first step toward relief.