The IRS will accept an OIC when the offered amount represents the most they can reasonably expect to collect from the taxpayer over a reasonable period, based on income, expenses, assets, and overall financial situation.

The three grounds are: Doubt as to Collectibility (the taxpayer owes the tax but cannot pay it in full due to limited resources), Doubt as to Liability (there is a legitimate dispute about whether the full tax is owed), and Effective Tax Administration (full payment would create economic hardship or would be unfair under exceptional circumstances, even if technically possible).

No. It is a selective program with a low acceptance rate. Most clients should first consider alternatives such as installment agreements, Currently Not Collectible status, or penalty abatement before pursuing an OIC.

We recommend using the IRS Offer in Compromise Pre-Qualifier Tool (available online or through the Individual Online Account). It provides a preliminary assessment of eligibility and an estimated offer amount, though it is only a starting point, and in the vast majority of situations a more thorough analysis by someone with lots of experience needs to be done.

All required tax returns must be filed, current-year estimated taxes (if applicable) must be paid, the taxpayer cannot be in an open bankruptcy case, and—for business owners with employees—federal tax deposits must be current for the current quarter and the prior two quarters.

For Doubt as to Collectibility or Effective Tax Administration, clients typically file Form 656 (Offer in Compromise) along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, supported by complete financial documentation.

Submission can be made online (for individuals via the Individual Online Account), by mail to the address listed in the Form 656-B Booklet, or in some cases by email. All required forms, documentation, the application fee, and initial payment must be included.

The non-refundable application fee is $205 per Form 656. An initial payment is also required (20% for lump-sum offers or the first monthly installment for periodic payment offers). Low-income taxpayers may qualify for waivers of both.

Lump-sum cash requires payment of the full offer amount in five or fewer payments within five months (with 20% due upfront). Periodic payment allows monthly installments over up to 24 months (with the first payment due at submission and continued payments during review). All payments are non-refundable.

The IRS calculates the taxpayer’s Reasonable Collection Potential (RCP)—net equity in assets plus future disposable monthly income (after allowable expenses) multiplied by an applicable number of months. The offer must generally equal or exceed this RCP.

The IRS usually suspends most collection activity (levies, garnishments) while the offer is under review, though interest and penalties continue to accrue. Additional information may be requested, and the process typically takes several months to over a year.

The taxpayer must file all future returns and pay taxes on time for five years (except for Doubt as to Liability offers). The IRS will retain any refunds during this period, and any federal tax lien remains until full compliance with the terms.

Clients receive a written explanation of the rejection. An appeal can be filed within 30 days using Form 13711 to the IRS Independent Office of Appeals. If not appealed, the offer can often be revised and resubmitted (though fees and payments are generally not refunded).

Rejections commonly stem from unfiled returns, open bankruptcy, an offer below RCP without sufficient justification, incomplete or inaccurate financial information, disallowed expenses, or failure to meet basic eligibility criteria.

The timeline varies widely but often ranges from 6 to 12 months or longer, depending on case complexity, IRS workload, and responsiveness to information requests. In rare cases where no decision is reached within two years (excluding appeals), the offer may be deemed accepted.

Yes. The offer can be withdrawn at any time before acceptance by sending written notification to the IRS. Withdrawing ends the review process, but any payments already submitted are applied to the tax debt.

The IRS retains any overpayments or refunds (including interest) from the date of acceptance through the end of the calendar year in which acceptance occurs, applying them toward the remaining liability.

While it is possible to prepare and submit an OIC without assistance, the process is detailed and mistakes frequently lead to rejection. Working with an experienced tax attorney or enrolled agent significantly improves the chances of a successful outcome.

1. Start by reviewing the current Form 656-B Booklet for complete instructions, run the Pre-Qualifier Tool, and confirm all filings and deposits are current. Explore all other resolution options first. If the debt feels overwhelming, contact us for a confidential consultation—we can evaluate your specific situation and guide you through the process toward the best possible resolution.