What an OIC does
An accepted offer replaces collection of the included federal tax liabilities with the agreed offer terms. It does not erase the debt automatically, guarantee acceptance, or apply to state or local taxes. The IRS evaluates the completed application, financial information, legal basis, and ability to pay.
Three legal bases
- Doubt as to collectibility: the taxpayer's assets and income are less than the full liability.
- Effective tax administration: the liability is correct and collectible, but full collection would create economic hardship or would be unfair and inequitable because of exceptional circumstances.
- Doubt as to liability: there is a genuine dispute about the existence or correct amount of the tax.
Forms used
Form 656-B contains Form 656 and the Form 433-A (OIC) and Form 433-B (OIC) financial statements for collectibility and effective-tax-administration offers. Form 656-L is the separate product for doubt as to liability. Individual taxpayers may be able to file through an IRS Individual Online Account.
Payment options
A lump-sum offer includes a 20% initial payment and, if accepted, five or fewer remaining payments. A periodic-payment offer includes the first proposed installment and normally requires continued monthly payments during review. Qualifying individuals and sole proprietors using the Low-Income Certification do not send the ordinary fee or offer payments while the IRS considers the offer.
Return versus rejection
A rejection is a decision that a processable offer should not be accepted. It generally carries a 30-day right to request review by the IRS Independent Office of Appeals. A return means the IRS stopped processing the offer because a processability or continuing-compliance condition was not met; it generally has no appeal right.
Continuing obligations
While an offer is pending, the taxpayer must remain current with required filing, estimated-tax, payment, and federal-deposit obligations. If accepted, the ordinary Form 656 terms require continued filing and payment compliance for five years after acceptance.
Example
A taxpayer agrees that a federal income-tax balance is correct but cannot pay it through available assets, income, or a workable installment agreement. The taxpayer submits the current Form 656 package, financial statement, records, fee, and required initial payment. The IRS investigates and may accept, reject, or return the offer. The pre-qualifier result alone does not decide the case.