Offer in compromise qualifications
Before the IRS will consider your offer, you need to meet a few baseline requirements:
- You’ve filed all required tax returns and made all required estimated payments.
- You’re not in an open bankruptcy proceeding.
- If you’re applying for the current year, you have a valid extension on file.
- If you’re an employer, you’ve made tax deposits for the current and past two quarters.
You can check your eligibility and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool before you apply.
How the IRS decides how much to accept
Your RCP adds up the equity in what you own—cash, vehicles, real estate, retirement accounts—plus your future income after allowed monthly expenses. Your offer has to equal or beat that number.
Say you have $3,000 in equity in a car and $150 a month in disposable income over the next 12 months. $150 × 12 = $1,800. Add that to the $3,000 in asset equity, and your RCP comes to $4,800, which represents roughly the minimum you’d need to offer.
What it costs to apply
Applying costs a $205 application fee, plus an initial payment. How much you pay upfront depends on the type of payment setup you opt for:
- If you choose a lump-sum offer, you’ll submit 20% of your total offer upfront, then pay any remaining balance in five or fewer payments if accepted.
- If you choose a periodic payment offer, you’ll pay your initial amount, then keep paying monthly while the IRS reviews your case.
If you meet the low-income certification guidelines, you skip both the fee and the initial payment entirely.
Note: Payments are nonrefundable.
How to apply for an OIC
- Complete the financial disclosure forms: Fill out Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, along with the required financial documentation.
- Complete Form 656: Use separate forms for individual and business tax debt.
- Submit your application: Mail your completed forms, financial documentation, and any required payment to the address in the Form 656 booklet, or file online through your IRS Individual Online Account.
- Wait for the IRS to review your offer: Once submitted, the IRS suspends other collection activity while it reviews your offer, though it may still file a tax lien to protect its interest.
What to do if your OIC is rejected
If the IRS rejects your offer, you can appeal within 30 days using Form 13711.
Note: Watch out for so-called “OIC mills”, which are firms that promise pennies-on-the-dollar settlements and charge upfront fees to people who don’t qualify.
