Tax Resolution Clarity
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Offer in Compromise (OIC)

An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. The IRS may accept an OIC if it represents the most they can expect to collect within a reasonable time.

Timeline

The IRS does not publish a processing time on its offer in compromise page

Cost

An application fee and an initial payment apply

How the IRS decides

The IRS states it generally approves an offer when the amount offered represents the most it can expect to collect within a reasonable period of time. It names the factors it considers: ability to pay, income, expenses and asset equity. It publishes a Pre-Qualifier tool for a preliminary view.

Key Takeaways

  • Settles the tax liability itself for less than the full amount, when the IRS accepts
  • Three published grounds: doubt as to collectibility, doubt as to liability, effective tax administration
  • The offer amount is worked out on Form 433-A (OIC) or 433-B (OIC) and submitted with Form 656
  • The IRS decides on your full financial position — no tool or calculator settles the outcome

Best For

  • Taxpayers who cannot pay their full tax liability
  • Those facing financial hardship
  • People with limited assets and income
  • Those with older tax debts approaching the collection statute

Requirements

  • 1
    All required tax returns must be filed
  • 2
    Not in an open bankruptcy proceeding
  • 3
    Must be current on estimated tax payments (if applicable)
  • 4
    Must make required payments while OIC is being considered
  • 5
    An application fee, which the IRS waives under its low-income certification. Current amount is on the IRS offer-in-compromise page.

How to Apply for Offer in Compromise (OIC)

1

Pre-Qualification

The IRS publishes a Pre-Qualifier tool for a preliminary view. Eligibility is decided by the IRS on your full financial position.

2

Gather Documents

Collect financial statements, bank records, pay stubs, and asset documentation.

3

Complete Forms

Fill out Form 656, Form 433-A (individuals) or 433-B (businesses), and supporting schedules.

4

Submit Application

Send your OIC package with the application fee and initial payment.

5

IRS Review

An IRS examiner reviews your financial situation and may request additional information.

6

Decision

IRS accepts, rejects, or returns your offer. You can appeal a rejection.

7

Payment & Compliance

Pay the accepted amount and remain compliant for 5 years.

Advantages

  • The IRS states it suspends other collection activities while it evaluates an offer.
  • Published grounds: Doubt as to Collectibility, and two Effective Tax Administration grounds.
  • The IRS publishes a low-income certification that removes the application fee and the initial payment.
  • It addresses the liability itself rather than only the penalties on it.

Disadvantages

  • The IRS states it may file a Notice of Federal Tax Lien while an offer is under consideration.
  • An application fee and an initial payment apply unless the low-income certification does.
  • Non-refundable payments and fees are applied to the tax liability.
  • The IRS decides, on your full financial position. No tool or page can tell you the outcome.

Frequently Asked Questions

How much will the IRS accept?
The IRS will generally accept an amount equal to or greater than your Reasonable Collection Potential (RCP) - the amount they believe they could collect from you through other means.
Can I make payments on an OIC?
Yes, and the payment schedule depends on the option. The IRS states a lump sum cash offer requires 20% of the total offer amount with the application, with the remaining balance paid in five or fewer payments within five or fewer months of acceptance. A periodic payment offer is submitted with an initial payment, and you continue paying monthly while the IRS considers the offer, with the balance paid within 6 to 24 months. Under the low-income certification the IRS states you do not send the application fee or the initial payment, and do not make the monthly payments while it reviews the offer.
Who is eligible to apply for an Offer in Compromise?
The IRS lists the requirements to apply: you have filed all required tax returns and made all required estimated payments; you are not in an open bankruptcy proceeding; you have a valid extension for a current-year return if you are applying for the current year; and, if you are an employer, you have made tax deposits for the current and past two quarters before you apply. Being eligible to apply is not the same as acceptance — the IRS decides the offer on your full financial position.
What are the three grounds for an Offer in Compromise?
Form 656 asks you to select one. Doubt as to collectibility means you do not have enough in assets and income to pay the full liability. Effective tax administration means you could pay in full, but doing so would cause economic hardship, or full collection would undermine confidence that the tax laws are applied fairly. Doubt as to liability means a genuine dispute over whether, or how much, tax is owed — and it is filed on the separate Form 656-L rather than Form 656.
What does an Offer in Compromise cost to file?
The IRS states there is a $205 non-refundable application fee, plus the required initial payment described above. Under its low-income certification the IRS states you do not have to send the application fee or the initial payment. Fees and payments the IRS keeps are applied to your tax liability. Confirm the current fee on the IRS offer in compromise page before you file.
What if my OIC is rejected?
The IRS states you may appeal a rejection within 30 days using Form 13711, Request for Appeal of Offer in Compromise. If you agree with the rejection, the IRS names other routes such as paying in full or requesting an installment agreement.
Do I need a professional to file an OIC?
While not required, the IRS decides on your full financial position. Tax attorneys, CPAs, and Enrolled Agents understand IRS procedures and can properly document your case.

Is OIC Right For You?

Read what the IRS publishes about each program. Eligibility is determined by the IRS on your full circumstances.

Try the OIC calculatorTake the Quiz

Other Options

Payment Plan

Taxpayers with steady income who can afford monthly payments

CNC Status

Taxpayers experiencing severe financial hardship

Penalty Relief

Situations where the same return type was filed on time for the prior three years and no penalty was assessed in that window — the timely compliance history the IRS tests for administrative relief

Pay in Full

Taxpayers who have the funds available now and want to stop interest and penalties from growing further

Short-Term Plan

Taxpayers who can pay the full balance within 180 days and want to avoid any setup fee

Guaranteed IA

Individuals whose income tax liability, excluding penalties and interest, is small enough to meet the published limit

Simple Payment Plan

Individual, out-of-business sole-proprietor, or non-trust-fund business taxpayers whose balance is at or below the published threshold

Full-Disclosure IA

Balances above the Simple Payment Plan's aggregate threshold

Appeals / CDP

Someone who disagrees with a specific IRS collection action — a lien filing, a levy, or a rejected/modified/terminated installment agreement

Innocent Spouse

A joint filer who did not know about, and had no reason to know about, errors the other spouse made on a joint return

Injured Spouse

A joint filer whose share of a joint refund was applied to the other spouse's separate debt — back taxes, child support, federal student loans, or other debts subject to offset

Bankruptcy

Understanding, in general terms, what the Bankruptcy Code says determines whether an income tax debt can be discharged

Details

Timeline

The IRS does not publish a processing time on its offer in compromise page. It states that an offer is automatically accepted if it does not make a determination within two years of the IRS receipt date, not counting any appeal period.

Costs

An application fee and an initial payment apply. The IRS states that under its low-income certification you do not have to send either. For a lump sum offer the IRS states the initial payment is 20% of the total offer amount; for periodic payment offers you continue paying monthly while it considers the offer. Current fee amounts are on the IRS offer in compromise page.

How the IRS decides

The IRS states it generally approves an offer when the amount offered represents the most it can expect to collect within a reasonable period of time. It names the factors it considers: ability to pay, income, expenses and asset equity. It publishes a Pre-Qualifier tool for a preliminary view.

Related

Form 656

The official IRS application form for submitting an Offer in Compromise.

Form 433-A/433-B

IRS financial disclosure forms used to evaluate your ability to pay tax debts.

Doubt as to Collectibility

The offer in compromise basis for someone whose assets and income are not enough to pay the full liability. It is one of several bases, and the IRS decides which applies.

Doubt as to Liability

The offer in compromise route for disputing that you owe the tax at all. It uses a different form from every other basis — Form 656-L, not Form 656.

Effective Tax Administration (ETA)

An offer in compromise basis for someone who could pay in full but where doing so would cause hardship or would be inequitable. It comes in two forms.

Reasonable Collection Potential (RCP)

The IRS's assessment of what it could collect from you. It drives what an offer in compromise needs to be worth — but the IRS decides it, and no calculator settles it.

Currently Not Collectible (CNC)

An IRS status granted when a taxpayer cannot afford to pay their tax debt without causing financial hardship.

Offer in Compromise vs. Installment Agreement

Comparison

Fresh Start vs. Offer in Compromise

Comparison

Doubt as to Liability vs. Doubt as to Collectibility

Comparison

Bankruptcy Discharge vs. Offer in Compromise

Comparison

Offer in Compromise vs. Penalty Abatement

Comparison

Sources

Last reviewed 2026-09-02. Sourced to primary IRS materials and editorially reviewed. Not reviewed by a tax professional. Not tax advice. Report a correction.