Taxpayers could settle federal tax debt with an Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

Ability to pay
Asset equity

We generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before you submit an offer in compromise. The Offer in Compromise program is not for everyone. Be sure to check the qualifications of any tax professional you hire to help you file an offer.

Who Is Eligible
Confirm you’re eligible and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

You’re eligible to apply for an Offer in Compromise if you:

Filed all required tax returns and made all required estimated payments
Aren’t in an open bankruptcy proceeding
Have a valid extension for a current year return (if applying for the current year)
Are an employer and made tax deposits for the current and past 2 quarters before you apply

If You Apply and Are Not Eligible
If you apply for an Offer in Compromise and we can’t process your offer, we’ll:

Return your application and offer application fee
Apply any offer payment you included to your balance due

Submit Your Application
Find forms to submit an application and step-by-step instructions in Form 656-B, Offer in Compromise BookletPDF.

Complete an application package:

Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms
Form 656(s) – you must submit individual and business tax debt (Corporation/ LLC/ Partnership) on separate Forms 656
$205 application fee (non-refundable)
Initial payment (non-refundable) for each Form 656.

Select a Payment Option
Your initial payment varies based on your offer and the payment option you choose:

Lump Sum: Submit an initial payment of 20% of the total offer amount with your application. If we accept your offer, you’ll receive written confirmation. You must pay any remaining balance due on the offer in five or fewer payments.
Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If IRS accepts your offer, continue to pay monthly until it is paid in full.

If You Meet the Low Income Certification Guidelines
You don’t have to:

Send the application fee or the initial payment
Make monthly installments while we review your offer.

For details, see Form 656-B, Offer in Compromise BookletPDF.

Understand the Process
While IRS evaluates your offer:

Your non-refundable payments and fees are applied to the tax liability (you may designate payments to a specific tax year and tax debt)
IRS may file a Notice of Federal Tax Lien
IRS suspends other collection activities
Your legal assessment and collection period is extended
You make all required payments per your offer
You don’t have to make payments on an existing installment agreement
Your offer is automatically accepted if the IRS doesn’t make a determination within two years of the IRS receipt date (This does not include any Appeal period.)

If Your Offer Is Accepted

You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments
IRS doesn’t release federal tax liens until your offer terms are satisfied
Certain offer information is available for public review by requesting a copy of a public inspection file.

If Your Offer Is Rejected

You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711PDF.
The IRS Independent Office of Appeals offers additional assistance on appealing your rejected offer.