IRS Approvals for Tax Debt Settlements Drop Sharply Even as Applications Rise

The Internal Revenue Service has been approving fewer requests from taxpayers seeking to settle outstanding tax debts for less than what they owe, even as the number of applications for such agreements has increased since 2023, according to a report by CNBC.

The arrangement, known as an "offer in compromise," allows eligible taxpayers to negotiate a reduced settlement with the IRS when they are unable to pay their full tax liability. According to the report, applications for the program have risen in recent years, but the share of requests approved by the agency has declined sharply.

A taxpayer advocate quoted by CNBC described the drop in approvals as unprecedented, saying, "I've never seen a number that low." The report did not specify the advocate's exact figures for approval rates in past versus recent years.

CNBC reported that tax experts are uncertain about the reasons behind the decline, noting that the trend has emerged despite growing taxpayer interest in the program as a way to resolve outstanding debts with the IRS.

The IRS has not publicly detailed the cause of the falling acceptance rate, according to the report. CNBC did not indicate whether the agency had responded to requests for comment on the matter.

The "offer in compromise" program has long been promoted as an option for taxpayers facing financial hardship who cannot realistically pay their full tax bill, though the IRS has historically applied strict criteria in evaluating such requests.