Can I Get an Offer In Compromise (OIC) Approved With Retirement Account Balances?

The IRS does consider retirement accounts as assets when evaluating an Offer in Compromise, but there are some important nuances to understand. When the IRS evaluates an OIC, they look at your "reasonable collection potential" (RCP), which includes both your future income and your equity in assets. Retirement accounts are definitely included in this calculation, but the IRS also considers the potential early withdrawal penalties and taxes that would result from liquidating them. In your specific situation, since you have a Roth IRA that's been established for more than 5 years, you could withdraw your contributions (but not earnings) without penalty. The IRS is aware of this distinction and will likely expect you to at least consider using those contribution amounts toward your tax debt. That said, the IRS doesn't always demand complete liquidation of retirement assets, especially if that would create financial hardship or leave you with inadequate resources for retirement. They may be willing to work with you on a partial payment installment agreement instead.

I had a similar issue with an OIC and retirement accounts last year! After getting rejected twice on the pre-qualifier, I found this AI tool called taxr.ai (https://taxr.ai) that helped me understand exactly what assets the IRS considers "dissipated" versus what they expect you to liquidate. The tool analyzed my financial situation and helped me structure my OIC application in a way that protected most of my retirement savings. It explained that the IRS looks at your entire financial picture, not just single assets in isolation. What really helped was that taxr.ai pinpointed exactly which parts of my Roth I needed to address in my OIC application versus what I could reasonably protect. Really changed my understanding of how OICs work with retirement accounts and what documentation I needed to provide to make my case.

Just wanted to follow up - I tried that taxr.ai site that was mentioned here and it was surprisingly helpful for my situation. The tool analyzed my financial details and showed me exactly why my previous OIC attempt failed. The biggest revelation was that I didn't need to include my entire 401k as an available asset. The guidance helped me calculate the "quick sale value" that the IRS actually uses, which was significantly less than the full balance. Also learned that I needed to emphasize the early withdrawal penalties in my narrative. Just submitted my new OIC application with all these adjustments last month and got preliminary approval last week! Not fully finalized yet, but looking promising that I'll only need to use about 30% of my retirement funds instead of liquidating everything.

If you're getting stuck with the OIC process, another option is trying to actually TALK to someone at the IRS about your specific situation. I know, sounds impossible right? But I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 45 minutes when I was dealing with my own tax mess. I'd been calling for weeks getting nowhere, but this service somehow jumps the phone queue. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with explained that with retirement accounts, they look at the "quick sale value" which factors in penalties and taxes from early withdrawal - meaning they don't value your Roth at the full $16,800. They also told me about alternative payment options I hadn't considered that would let me keep my retirement intact.

I need to eat my words and apologize to Profile 17. After being completely stuck with my OIC application for months, I broke down and tried Claimyr out of desperation. I got connected to an IRS representative in about 35 minutes (compared to my previous attempts where I waited 2+ hours and got disconnected). The agent walked me through exactly how retirement accounts are treated in the OIC process and explained that I qualified for a special hardship consideration that the pre-qualifier tool doesn't account for. Turns out my situation qualified for consideration under financial hardship guidelines since I'm 58 and liquidating my retirement would cause long-term financial harm. The agent helped me understand what additional documentation I needed to provide with my OIC to make this case. Now I have a properly submitted OIC with an actual chance of approval - something I never would have accomplished without getting direct answers from the IRS.

Have you considered an Installment Agreement instead of an OIC? If your debt is going to be down to around $6,300 after your refund applies, you could potentially get a streamlined installment agreement without having to provide all your financial details. That way you keep your retirement intact and just make monthly payments. With a debt under $10,000 the approval process is much simpler and almost automatic. You'd just need to stay current on all future tax obligations while paying off the past debt.

Has anyone else here successfully gotten an OIC approved specifically with retirement assets being a factor? What documentation did you have to provide?

Looking at your situation, I think you have a decent shot at getting an OIC approved even with the Roth IRA. The key is understanding how the IRS calculates your "reasonable collection potential" with retirement accounts. Since your Roth has been established since 2013 (over 5 years), you can withdraw contributions penalty-free, but any earnings would face the 10% early withdrawal penalty plus taxes. The IRS typically calculates the "quick sale value" of retirement accounts by reducing the balance by estimated penalties and taxes - so your $16,800 might only be valued at around $12,000-14,000 for OIC purposes. With your remaining debt at ~$6,300 after the refund, and assuming they value your Roth conservatively, you might be able to offer something in the $8,000-10,000 range that addresses both your future income potential and a reasonable portion of your retirement assets without completely liquidating them. The narrative portion of your OIC application will be crucial - emphasize that completely depleting your only retirement savings would create long-term financial hardship and that you're offering a reasonable compromise that considers both your assets and future earning capacity. Document any penalties and tax consequences of early withdrawal to support your case.

Based on your situation, I think you have a solid case for an OIC approval even with the Roth IRA. The IRS doesn't automatically expect you to liquidate retirement accounts, especially when it would create genuine financial hardship. A few key points that could work in your favor: 1. Your debt will be relatively small ($6,300) after the refund applies 2. The IRS uses "quick sale value" for retirement accounts, which factors in early withdrawal penalties and taxes - so your $16,800 Roth might only be valued at around $12,000-13,000 for OIC purposes 3. Since this appears to be your only retirement savings, completely depleting it could qualify as creating future financial hardship I'd recommend emphasizing in your OIC narrative that liquidating your entire retirement account would leave you with no retirement security and force you to start over completely. You might consider offering an amount that reflects partial use of the retirement funds (maybe 40-50% of the quick sale value) combined with future income considerations. The fact that you've been consistently paying down this debt over the years and are current on other tax obligations should also work in your favor. Have you considered consulting with a tax professional who specializes in OICs? They might be able to help structure your application to maximize the chances of approval while protecting most of your retirement savings.

I went through a similar situation last year with an OIC and retirement accounts. The key thing that helped me was understanding that the IRS doesn't just look at the raw balance of your retirement accounts - they consider the "net realizable value" after penalties and taxes. For your Roth IRA situation, since it's been established since 2013, you can withdraw contributions without penalty, but any earnings would face early withdrawal penalties plus taxes if you're under 59½. The IRS typically factors this into their calculation, so your $16,800 balance might only be valued at around $13,000-14,000 for OIC purposes. Given that your remaining debt will be around $6,300 after your refund, you're actually in a pretty good position. The IRS generally looks for offers that equal your reasonable collection potential, which includes both your future income capacity and your net equity in assets. I'd recommend documenting the early withdrawal consequences thoroughly in your application - show the exact penalties and taxes that would apply, and emphasize in your narrative that completely liquidating your only retirement savings would create genuine long-term financial hardship. This isn't just about the immediate tax cost, but about your future financial security. The fact that you've been consistently chipping away at this debt over the years shows good faith, which the IRS does consider. You might be able to structure an offer around $8,000-9,000 that addresses both your asset equity and future income without completely wiping out your retirement savings.

I've been following this thread closely as someone who went through a similar OIC process with retirement accounts last year. One thing I haven't seen mentioned yet is the importance of timing your OIC application strategically. Since you're expecting a $6,500 refund that will automatically apply to your debt, I'd recommend waiting until that refund is processed and your balance is actually down to the $6,300 before submitting your OIC. The IRS evaluates your offer based on your financial situation at the time of application, so having the lower debt amount on record will work in your favor. Also, regarding the Roth IRA valuation - make sure to clearly distinguish between your contributions and earnings in your financial documentation. Since contributions can be withdrawn penalty-free after 5 years (which you meet), but earnings cannot without penalty before 59½, this affects how the IRS calculates your reasonable collection potential. If you contributed, say, $12,000 over the years and the account is now worth $16,800, they'll view the $12,000 in contributions differently than the $4,800 in earnings. The combination of your reduced debt balance and the penalty/tax considerations on your retirement account earnings should put you in a much stronger position for OIC approval than the pre-qualifier tool suggested.

I'm dealing with a very similar situation and this thread has been incredibly helpful! I have about $8,200 in tax debt from 2012-2014 and a traditional IRA worth around $19,500 that I've been terrified to touch. Reading through everyone's experiences, especially the points about "quick sale value" and how the IRS actually calculates retirement account equity, has completely changed my perspective. I was under the impression that having any retirement savings would automatically disqualify me from an OIC, but it sounds like that's not necessarily the case. The distinction between contributions and earnings in Roth accounts that Arjun mentioned is particularly relevant - I need to look into whether converting some of my traditional IRA to Roth might help with the penalty calculations, though I realize that could complicate things tax-wise. One thing I'm curious about - for those who successfully got OICs approved with retirement accounts, did you work with a tax professional or handle the application yourselves? I'm trying to decide if the complexity warrants professional help or if the process is manageable to DIY with the right preparation and documentation. Thanks to everyone sharing their experiences here - it's giving me hope that I might be able to resolve this debt without completely destroying my retirement savings!

I've been in a very similar position with tax debt and retirement accounts, and I want to share some key insights that might help you navigate this successfully. First, the IRS absolutely does consider retirement accounts in OIC evaluations, but not at face value. They use what's called "quick sale value" which factors in early withdrawal penalties, taxes, and other liquidation costs. For your Roth IRA established in 2013, you can withdraw contributions penalty-free, but earnings would face the 10% early withdrawal penalty plus taxes if you're under 59½. Given your debt will be around $6,300 after your refund applies, and assuming your $16,800 Roth might be valued at closer to $12,000-14,000 for OIC purposes (after considering penalties on earnings), you're actually in a much better position than the pre-qualifier suggested. The key to success will be your narrative. You need to clearly document: - Exact breakdown of contributions vs. earnings in your Roth - Specific penalties and taxes that would apply to early withdrawal - How liquidating your only retirement savings would create genuine long-term financial hardship - Your consistent payment history showing good faith effort Consider offering something in the $8,000-10,000 range that reflects partial use of your retirement assets while preserving your future financial security. The IRS looks for reasonable collection potential, not maximum extraction. Don't let the pre-qualifier discourage you - it's a basic tool that doesn't account for the nuances of retirement account valuations or hardship considerations that a full OIC application allows you to present.