The Internal Revenue Service has experienced a significant drop in approved debt settlement agreements, according to federal data released recently. The agency accepted approximately 5,500 offers in compromise during fiscal year 2025, representing a steep 57% decline compared to the roughly 12,700 offers approved in 2023. Meanwhile, the number of taxpayers submitting compromise offers to the IRS surged 29% during the same timeframe, reaching around 38,800 applications. This means more people are seeking relief from tax obligations, but substantially fewer are obtaining approval.
Experts expressed concern about the implications of this trend, particularly for lower-income households that depend heavily on the offer in compromise program to resolve tax debts. Nina Olson, executive director of the Center for Taxpayer Rights and former National Taxpayer Advocate, characterized the acceptance numbers as historically low and problematic. Leslie Book, a Villanova University law professor who formerly directed the school’s Tax Clinic, described the trend as creating “crushing and stressful debt” for vulnerable populations seeking a financial fresh start. The financial value of approved offers also declined sharply, with 2025 acceptances totaling $98.1 million compared to $214.5 million in 2023.
The reasons for the reduced approval rate remain unclear, as the IRS declined to provide specific explanations. However, experts attributed the decline partly to workforce reductions at the IRS during the current administration. The diminished acceptance of compromise offers could affect federal tax revenue collection and place additional burden on struggling taxpayers. The average approved offer in 2025 settled approximately $18,000 in tax debt.
The offer in compromise program, which dates back to 1864 when Congress first authorized the IRS to compromise tax liabilities, allows taxpayers to settle obligations for less than the full amount owed when they cannot afford full payment or would face financial hardship. Approval depends on assessing a taxpayer’s “reasonable collection potential” based on income, expenses, and assets. Accepted offers require taxpayers to remain current on tax filings for five years, creating an incentive for long-term tax compliance and potentially generating revenue the government might not otherwise collect.
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