You owe the IRS money, and you live thousands of miles from US soil. Every notice that lands in your inbox feels like a countdown. The IRS has a program that lets eligible taxpayers settle federal tax debt for less than the full amount owed. It’s called an Offer in Compromise, and US expats and foreign persons can qualify.
The catch is that the OIC process is already complex for domestic filers. Add foreign income, overseas accounts, and years of missed filings, and the paperwork multiplies. This guide covers eligibility, the step-by-step process, the pitfalls that derail international applications, and when professional help is no longer optional.
An Offer in Compromise is a formal agreement to settle a tax debt for less than the full balance. The IRS evaluates an offer in part by calculating your Reasonable Collection Potential (RCP), which generally considers the value of your assets and your ability to pay from future income.
The IRS recognizes three grounds for an offer. Doubt as to Collectibility is the most common: you cannot pay the full liability and the IRS is unlikely to collect it. Doubt as to Liability applies when the tax debt itself is genuinely disputed. Effective Tax Administration covers rare cases where full payment would create economic hardship or an unfair result.
Proving RCP abroad, with foreign income and assets in the mix, is a different challenge than a domestic filer faces.
For purposes of this article, ‘foreign person’ generally refers to a non-U.S. person, including a nonresident alien, who has a U.S. federal tax liability. US citizens and green card holders remain subject to worldwide income taxation no matter where they live, so the standard OIC rules apply, and there’s no separate expat category.
The IRS eligibility requirements apply the same way to everyone: file all tax returns you are legally required to file, have a bill for at least one liability included in the offer, stay current on estimated tax payments for the year, and, if you own a business, stay current on federal tax deposits. For expats, that filing requirement is often the first barrier. Many have years of unfiled tax returns tied to foreign income they didn’t realize was reportable. If the IRS cannot process the offer because required returns weren’t filed, it generally returns the application and applies any offer payment to the taxpayer’s balance.
The IRS OIC Pre-Qualifier Tool gives a rough sense of eligibility, but it does not account for international income complexity, foreign asset holdings, or treaty positions. Using it without professional guidance can produce a misleading result.
The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits (FTC) interact with the RCP calculation. The FEIE and FTC reduce your US tax liability. They don’t reduce what shows up on your OIC paperwork. Form 433-A (OIC), the financial disclosure form generally used for individual offers based on Doubt as to Collectibility or Effective Tax Administration, tells taxpayers to include household income considered nontaxable and income that may not appear on the tax return. Income excluded under the FEIE falls into that category.
A US citizen earning a strong salary in Switzerland or Australia still reports that full income on Form 433-A, even though most of it never showed up as taxable in the US, and the IRS’s RCP calculation reflects that fuller picture. That surprises expats who assumed years of low US tax meant a low offer. If you claimed the FEIE and later discovered you owe back taxes because of a disqualifying event or an incorrect filing, that original liability may itself be worth contesting before you build an OIC around it.
Not sure if an Offer in Compromise fits your situation? Explore Ayar Law’s full range of IRS tax debt relief options for expats and international taxpayers, from installment agreements to penalty abatement.
Beyond filing tax returns, expats with foreign accounts should also address informational reporting, including FBAR filings (FinCEN Form 114, required once aggregate foreign account value exceeds $10,000 at any point in the year) and Form 8938 under FATCA. These aren’t a formal condition of OIC eligibility the way tax return filing is, but delinquent foreign-account reporting can complicate the financial review, particularly once the IRS needs to verify foreign assets or income tied to the offer. Foreign asset disclosure and FBAR compliance are worth resolving as part of the overall strategy, whether before the OIC or alongside it, depending on your circumstances.
How prior-year returns get prepared, meaning the choice between FEIE and FTC, treaty elections, and filing status, directly affects the liability that ends up in the OIC.
1. Achieve tax filing compliance. File all required US tax returns before submitting the OIC. If you have delinquent international information returns, such as Forms 5471, 8621, or 8938, or delinquent FBARs, address those as part of your overall compliance strategy alongside the OIC. For someone with complex international holdings, reaching full tax return compliance alone can take weeks or months.
2. Calculate your Reasonable Collection Potential. A qualified tax professional assesses net asset value, including foreign real estate, foreign bank accounts, and retirement accounts held abroad, along with projected future income. The IRS has access to information about foreign financial assets through FATCA reporting and international information-sharing mechanisms, so you shouldn’t assume overseas assets are invisible.
3. Choose your offer structure. A lump-sum cash offer requires an initial payment equal to 20% of the offer amount, with the remaining balance paid in five or fewer payments within five months of acceptance. A periodic payment offer requires the first proposed installment with the application, followed by monthly payments while the IRS evaluates the offer, with a term of six to 24 months. If you’re wiring funds from a foreign account, build in time for currency conversion and international transfer delays.
4. File the appropriate OIC forms. For offers based on Doubt as to Collectibility or Effective Tax Administration, individuals typically submit Form 656 and Form 433-A (OIC), covering all global assets and income, including foreign accounts, foreign real property, and foreign retirement accounts, along with the $205 application fee, waived for low-income applicants. Doubt as to Liability offers use Form 656-L instead.
5. Wait through IRS review. With certain exceptions, the IRS usually suspends levy action while a processable OIC is pending, and the collection statute is extended. However, the IRS may still take other actions, including filing a federal tax lien.
6. Acceptance, rejection, or appeal. For most accepted offers, meaning those based on Doubt as to Collectibility or Effective Tax Administration, you must remain in compliance with filing and payment requirements for five years after acceptance. Accepted Doubt as to Liability offers are not subject to this monitoring period.
Miscalculating RCP on currency and valuation. Foreign real property needs a current appraisal converted at current exchange rates, not an outdated estimate.
Using a preparer without international experience. A domestic CPA or enrolled agent unfamiliar with FEIE and FTC interactions, FBAR compliance, and foreign asset valuation can submit an offer the IRS rejects on technical grounds that a specialist would have caught.
Installment Agreement. Allows you to pay the full debt over time in monthly payments. This works for expats with steady foreign income who can afford payments but need time, though interest and penalties keep accruing on the unpaid balance.
Currently Not Collectible Status. Suspends collection when you can show you cannot meet basic living expenses and pay the IRS. It provides breathing room for expats facing financial hardship abroad, but it does not reduce the debt, and the collection statute keeps running while you’re in this status.
Penalty Abatement. Reduces or eliminates penalties, not the underlying tax or interest, on grounds of reasonable cause or First-Time Abatement. Some expats may qualify for reasonable cause relief when the facts support it, including situations where they didn’t reasonably know about their US filing obligations while living abroad.
Offer in Compromise. Of these four options, this is the one that can permanently settle eligible tax, penalties, and interest for less than the full amount owed. It demands more documentation and a longer process than the alternatives, but for taxpayers who genuinely cannot pay in full, it can provide a lasting resolution.
The right path depends on your financial picture, compliance history, and goals.
In fiscal year 2025, taxpayers submitted 38,797 OICs, while the IRS reported 5,464 accepted offers, according to the IRS Data Book. A taxpayer with a simple domestic financial situation can sometimes file an OIC alone using IRS instructions. For expats and foreign persons, the stakes of doing it yourself run higher. A rejected application means a lost fee, lost time, and losing the collection protections that applied while the offer was pending.
An international tax attorney can be particularly valuable when you have years of unfiled returns across multiple countries, when foreign asset disclosure creates FBAR or FATCA exposure, when the underlying liability itself is disputed under Doubt as to Liability, or when a prior offer was rejected and needs an appeal or a new strategy. An attorney-client relationship can also carry confidentiality protections that a CPA or enrolled agent doesn’t, since the federally authorized tax practitioner privilege doesn’t cover criminal matters and is narrower than attorney-client privilege.
Ayar Law’s international tax attorneys work with expats and foreign persons from anywhere in the world, with remote consultations available. See Ayar Law’s guide to the Offer in Compromise program for a fuller picture of eligibility and the application process before you commit to a strategy.
Yes. Citizens and green card holders abroad remain subject to US taxation and can apply. The eligibility rules match domestic filers, but proving Reasonable Collection Potential gets more complex once foreign income, assets, and filing history enter the picture.
Yes. Form 433-A (OIC) instructs applicants to include household income considered nontaxable and income that may not appear on the tax return, which covers income excluded under the FEIE.
FBAR penalties typically aren’t liabilities that can be compromised through the standard OIC authority under IRC § 7122 because FBAR requirements arise under Title 31, not the Internal Revenue Code. Any FBAR penalties should be evaluated separately as part of your overall resolution strategy, and an attorney can advise on the current Form 433-A treatment for your specific situation.
Yes. Every legally required tax return needs to be filed first. An OIC submitted with outstanding returns gets returned without review and without a refund of the application fee.
A nonresident alien with a US tax debt, whether from US-source income, prior US residency, or another taxable connection, may be eligible. Eligibility depends on the nature of the liability, filing compliance, and financial circumstances, not a separate process built for foreign persons.
The IRS doesn’t publish an official average, and complex international cases with document requests across time zones can take longer than a straightforward domestic case. By law, an offer is deemed accepted if the IRS doesn’t reject it within 24 months of receiving it, excluding any period the liability is in dispute in a judicial proceeding.
Generally yes. With certain exceptions, submission suspends IRS levy action while the offer is under review, though the IRS may still file a lien or take other action, and new collection activity can start if you fall out of compliance during that period.
You have 30 days to appeal to the IRS Office of Appeals using Form 13711. Miss that window, or lose the appeal, and your remaining options are an installment agreement, Currently Not Collectible status, or penalty abatement. International mail delays make that 30-day deadline worth tracking closely.
An Offer in Compromise can be one of the strongest tools available to a US expat or foreign person carrying IRS tax debt, but only when it’s built on full compliance and an accurate RCP calculation. Ayar Law’s international tax attorneys work through the full picture: unfiled returns, foreign asset disclosure, FBAR exposure, and the financial calculations the IRS uses to evaluate an international OIC.
Ready to find out if you qualify? Contact Ayar Law at (248) 262-3400 or schedule an online consultation. Our international tax attorneys in Farmington Hills, MI help expats and foreign persons resolve US tax debt from anywhere in the world.
