Updated: Jun 11
You may use the Offer in Compromise Pre-Qualifier tool to confirm your eligibility and prepare a preliminary proposal. Forms to Use When submitting an OIC based on doubt as to collectibility or effective tax administration, taxpayers must use the most current version of Form 656, Offer in Compromise, and also submit Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC), Collection Information Statement for Businesses. A taxpayer submitting an OIC based on doubt as to liability must file a Form 656-L.pdf, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433-A (OIC) and/or Form 433-B (OIC). Form 656 and referenced collection information statements are available in the Offer in Compromise Booklet, Form 656-B.pdf. Application Fee In general, a taxpayer must submit an application fee for the amount stated on Form 656. Don't combine this fee with any other tax payments. However, there are two exceptions to this requirement:
First, no application fee is required if the OIC is based on doubt as to liability.
Second, the fee isn't required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception. This exception applies if the taxpayer's total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. Section 1 of Form 656 contains the Low-Income Certification guidelines to assist taxpayers in determining whether they qualify for the low-income exception. A taxpayer who claims the low-income exception must complete section 1 of Form 656 and check the certification box.
Lump-Sum Cash Offer - Taxpayers may choose to pay the offer amount in a lump sum or in installment payments. A "lump sum cash offer" is defined as an offer payable in 5 or fewer installments within 5 or fewer months after the offer is accepted. If a taxpayer submits a lump sum cash offer, the taxpayer must include with Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the application fee. The 20 percent payment is generally nonrefundable, meaning it won't be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. Instead, the 20 percent payment will be applied to the taxpayer's tax liability. The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent payment.
Periodic Payment Offer - An offer is called a "periodic payment offer" under the tax law if it's payable in 6 or more monthly installments and within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with Form 656. This payment is required in addition to the application fee. This amount is generally non-refundable, just like the 20 percent payment required for a lump sum cash offer. Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. These amounts are also nonrefundable. These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied. Upon acceptance of an OIC, the taxpayer may no longer designate offer payments to any tax liability specifically covered in the offer agreement.
Suspension of Collection Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is pending, for 30 days immediately following the IRS’s rejection of an OIC, and for the period in which a timely appealed rejection is being considered by the IRS Office of Appeals.
Offer Terms If the IRS accepts the taxpayer's offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer doesn't abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. For doubt as to collectibility and effective tax administration OICs, the terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for 5 years from the date of acceptance of the OIC. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed (less payments made), plus interest and penalties. Additionally, any refunds due within the calendar year in which the offer is accepted will be applied to the tax debt.
Right to Appeal If the IRS rejects an OIC, the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter.
Return of an Offer In some cases, an OIC is returned to the taxpayer rather than rejected, because the taxpayer didn't submit necessary information, filed for bankruptcy, failed to include a required application fee or non-refundable payment with the offer, hasn't filed required tax returns*, or hasn't paid current tax liabilities at the time the IRS is considering the offer. A returned offer is different from a rejection because there's no right to appeal when the IRS returns the offer. However, once current, the offer may be submitted again.
*Note: OIC applications received on or after March 27, 2017, are returned without consideration if taxpayers haven't filed all required tax returns. Any application fee included with the OIC is returned and any required initial payment submitted with the OIC is applied to outstanding tax debt. This policy doesn't apply to current year tax returns if there is a valid extension on file.
Additional Information Step-by-step instructions and all the forms for submitting an OIC are in the Offer in Compromise Booklet, Form 656-B.pdf. You may use the Offer in Compromise Pre-Qualifier tool to confirm your eligibility and prepare a preliminary proposal. Additional information about the OIC program is available in Publication 594.pdf, The IRS Collection Process, and an Offer in Compromise.