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The Internal Revenue Service accepted about 5,500 offers in compromise during fiscal year 2025, marking a 57% decline from roughly 12,700 accepted offers in 2023. The plunge came even as more taxpayers sought relief from debts they could not afford to pay.

Taxpayers submitted approximately 38,800 offers in fiscal year 2025, an increase of 29% from 2023. The figures show rising demand colliding with a dramatic reduction in successful agreements.

The offer in compromise program allows taxpayers to settle federal tax debts for less than the full amount owed. The IRS describes the program as a legitimate option for people who cannot pay their debts or would suffer financial hardship by doing so.

“I’ve never seen a number that low,” said Nina Olson, executive director of the Center for Taxpayer Rights. “That’s terrible.”

Olson served as National Taxpayer Advocate at the IRS from 2001 through 2019. Experts said falling acceptances may place a particularly heavy burden on lower income households, which tend to depend more heavily on the program.

The financial value of accepted offers has also tumbled. Agreements accepted during fiscal year 2025 were worth $98.1 million, less than half the $214.5 million recorded in 2023.

“These numbers are alarming,” said Leslie Book, a Villanova University law professor and director of the school’s Tax Clinic. The clinic provides free legal representation to lower income people involved in tax disputes.

Book described the result as “crushing and stressful debt” for taxpayers seeking a “fresh start” through the program. However, he and other experts said the precise reason for the collapse in accepted offers remains unclear.

The IRS evaluates offers using a taxpayer’s reasonable collection potential, a measure that considers income, expenses and assets including homes, cars and bank accounts. It generally will not accept an offer when the debt can be paid through another method, such as an installment agreement.

Applicants must satisfy several requirements, including filing all required federal tax returns and making required estimated tax payments for the current year. They also cannot be involved in bankruptcy proceedings.

Taxpayers receiving an accepted offer must pay their taxes on time for the following five years. Failure to remain compliant can undo the agreement and restore the previous tax debt.

The average offer accepted in 2025 was about $18,000, according to federal data, although the average original debt was unclear. Keith Fogg, founder of the Tax Litigation Clinic at Harvard University, said interest can quickly turn an innocent tax mistake into a far larger obligation.

The review process is often manual and labor intensive because workers must examine each taxpayer’s particular financial circumstances. Staff members assess financial records, verify forms and review earlier tax compliance, while a complete investigation can take up to 24 months.

IRS staffing has fallen sharply since January 2025 amid Trump administration efforts to shrink the federal workforce. A Treasury Inspector General for Tax Administration report found that the workforce declined by about 31,000 employees, or 28%, from the beginning of 2025 to January 2026.

Tax examiners and revenue agents experienced reductions of about one third each, according to the report, which warned of “elevated operational risks.” Experts said the staffing cuts were likely at least partly responsible for the decline, although acceptances had already begun falling during the Biden era.

“There are no employees to do this kind of work,” Olson said. “There needs to be a human being looking at this,” she added.

IRS chief Frank Bisignano testified before Congress in March that he “feel[s] good about the number of employees [he] has right now” at the agency. He denied during an April appearance before the Senate Finance Committee that the IRS was understaffed.

The agency said the acceptance rate among cases that reached an acceptance or rejection determination remained stable in fiscal year 2026 compared with fiscal year 2025. About 53% of those cases were accepted in fiscal year 2026, compared with approximately 51% during the same portion of fiscal year 2025.

Applications containing errors or missing information may be returned without being accepted or rejected. Experts said a possible increase in defective submissions could mean fewer offers are reaching the decision stage, although the agency did not elaborate on the broader decline.

Emily Yaun, director of the Philip C. Cook Low Income Taxpayer Clinic at Georgia State University, said obtaining approval has become more difficult. She suggested the IRS may prefer keeping some taxpayers in currently not collectible status rather than accepting compromise offers.

That status temporarily delays collection when taxpayers cannot cover their debts alongside basic living expenses. However, the IRS may continue charging interest and penalties, garnish tax refunds and place liens on property.

Yaun also said Social Security age homeowners have recently been asked to obtain reverse mortgage denials before receiving offer approvals. In earlier years, the agency was generally satisfied with a denial for a home equity line of credit, but Yaun said it now seeks both.

The IRS declined to say whether staffing reductions contributed to lower acceptances or whether its criteria had changed. For struggling taxpayers facing mounting interest and penalties, the unexplained collapse has left a once available route toward financial recovery considerably harder to secure.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.