Apply for an IRS offer in compromise

Do not use an offer to dispute the wrong issue

If you agree that the tax is correct but cannot pay it, the usual bases are doubt as to collectibility or effective tax administration. If you genuinely dispute whether the tax is owed, the IRS uses a separate Form 656-L process. A state or local tax debt cannot be resolved through an IRS offer.

1. Check whether the IRS can consider an offer

Before the IRS will consider an offer in compromise, the taxpayer generally must have filed all required federal tax returns, made required estimated tax payments for the current year, and received a bill for at least one tax debt included in the offer. An employer must also be current with required federal tax deposits for the current quarter and the two preceding quarters.

A taxpayer in an open bankruptcy proceeding is not eligible. The IRS pre-qualifier and Individual Online Account eligibility check can help identify a possible route, but neither guarantees acceptance. The pre-qualifier is not designed for every situation, including certain U.S. territory, foreign-address, military APO/FPO, partnership, or corporate cases.

2. Choose the correct basis

Doubt as to collectibility: assets and income are less than the full federal tax liability.
Effective tax administration: the tax is legally owed and collectible, but full payment would create economic hardship or would be unfair and inequitable because of exceptional circumstances.
Doubt as to liability: there is a genuine dispute about whether the tax exists or the amount is correct. Use the separate current Form 656-L, not the ordinary Form 656 financial-package route.

Do not file Form 656-L simply because the balance is unaffordable. Conversely, do not use an ability-to-pay offer as a substitute for correcting an assessment that is legally wrong.

3. Use the current application products

For doubt as to collectibility or effective tax administration, use the current Form 656-B, Offer in Compromise Booklet, revision April 2026. It includes Form 656, Form 433-A (OIC) for wage earners and self-employed individuals, and Form 433-B (OIC) for businesses. The stand-alone Form 656 is intended for tax-professional use; individuals should work from the booklet or the official online process.

For doubt as to liability, use Form 656-L, revision July 2026. Confirm the revision on the official IRS form page immediately before filing because editions, payment channels, and addresses can change.

4. Gather financial information

Prepare current bank, investment, retirement, vehicle, real-estate, income, expense, debt, and household information requested by Form 433-A (OIC) or Form 433-B (OIC). Attach copies of the records listed in the form. Do not send original documents unless the IRS specifically requires them.

The IRS evaluates ability to pay using assets, income, expenses, and future earning potential. The amount produced by a pre-qualifier is preliminary. The IRS makes the decision from the completed application and its investigation.

Do not enter a Social Security number, ITIN, EIN, bank information, tax-return data, or account details on WhatDoIFile. Use sensitive data only in the official IRS account, official forms, or with an authorized representative.

5. Select a payment option

Lump-sum offer: include a nonrefundable payment equal to 20% of the offer amount. If accepted, pay the remaining offer amount in five or fewer payments within five or fewer months after acceptance.
Periodic-payment offer: include the first proposed monthly installment and continue the proposed monthly payments while the IRS considers the offer. The accepted offer must be paid within 24 months under the proposed terms.

The initial payment is separate from the application fee. Offer payments are generally nonrefundable and are applied to the tax liability even if the offer is rejected or returned. A taxpayer may designate in writing which included tax liability receives an offer payment before acceptance.

6. Check the fee and low-income certification

The current Form 656-B requires a $205 application fee for each Form 656, in addition to the required initial offer payment. If mailing checks, use separate payments for the fee and the initial offer payment.

An individual or sole proprietor who qualifies under the Low-Income Certification does not send the application fee, initial payment, or periodic payments while the offer is under review. Use the current income chart in Section 1 of Form 656; the applicable amount depends on family size and location. Corporations, partnerships, other entities, and offers filed for a deceased individual do not qualify for this certification.

A doubt-as-to-liability offer uses Form 656-L and does not require the ordinary OIC application fee.

7. Submit through the correct official route

Eligible individual taxpayers may prepare and file an offer through their IRS Individual Online Account. The online route can prepare the required forms, calculate a potential offer, accept required payments, and submit the offer electronically.

For a mailed application, use the current address table in Form 656-B. The correct centralized unit depends on residence and can differ for foreign addresses and Puerto Rico. Do not copy an address from an older guide. Businesses can make eligible OIC payments through a Business Tax Account, but the IRS says they must mail the Form 656 and Form 433-B (OIC).

Keep a complete copy, electronic payment confirmation, mailing proof, and every attachment. Do not mail a duplicate after filing online.

8. Stay current while the offer is pending

Continue filing required returns, paying current taxes, making estimated tax payments, and making required federal tax deposits. Failure to stay current or to provide requested information can cause the IRS to return the offer without appeal rights.

For a periodic-payment offer, continue the proposed monthly payments unless the Low-Income Certification applies. The IRS says payments under an existing installment agreement are not required while it evaluates a processable offer, but follow any case-specific letter and do not stop other current-tax obligations.

Penalties and interest continue to accrue while the IRS considers the offer. The IRS generally suspends other collection activity, but it may file a Notice of Federal Tax Lien, and a levy completed before the offer was filed is not automatically released.

9. Respond to the decision

If the IRS accepts the offer, pay according to the acceptance terms and remain compliant with filing and payment obligations for five years after acceptance. A default can restore the original liability, less payments made, plus applicable penalties and interest.

If the IRS rejects the offer, the rejection letter explains the reasons and gives 30 days from the letter date to request review by the IRS Independent Office of Appeals, generally using Form 13711 or a qualifying written protest sent to the office that issued the letter.

If the IRS returns the offer because it was not processable or because later requirements were not met, there is generally no appeal right. Read the return letter for any reconsideration or refiling instructions.

Get qualified help when needed

An offer can affect collection deadlines, liens, refunds, bankruptcy issues, jointly owed tax, trust fund liabilities, and future compliance. This page provides general federal procedure information and does not determine whether an offer is the best option or calculate an acceptable amount. Consider a credentialed tax professional or a Low Income Taxpayer Clinic when individual analysis is necessary, and avoid companies that promise guaranteed settlements.