How To File An IRS Offer In Compromise To Get Tax Relief

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Offer In Compromise

Settle Your IRS Debt

If you're facing financial hardship, an Offer in Compromise (OIC) can help reduce your tax debt.

This option allows you to settle your past tax debt for less than the full amount owed.

Keith CPA

The First Step In Settling Any Tax Liability Is To Determine Your Financial Situation And Assess The Ability To Pay.

You do not need a tax attorney to file an IRS offer.

By reviewing all of the options in relation to their individual situations, an experienced tax professional will help taxpayers avoid pitfalls, set up the best collection option with the IRS, and eventually save them a lot of grief and money. Forms used are Form 433-A OIC, 433-B OIC, and 656. The IRS also has a compromise pre qualifier.

If you do not have a economic hardship, installment payments may have to be set up to settle the taxes owed.

An IRS OIC Is A Proposal For Paying Tax Debt Based On The Amount Calculated As The Reasonable Collection Potential Or RCP. The Offer Cannot Be Unfair And Inequitable To Either Party. A settlement 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.

The IRS considers your unique set of facts and circumstances:

  • Ability To Pay
  • Monthly Income
  • Basic Living Expenses
  • Asset Equity

The IRS generally approves an offer when the amount offered represents the most we can expect to collect within a reasonable period of time.

The IRS Offer package is a long and comprehensive plan.

This Involves Disclosing To The IRS Every Aspect Of Your Finances. Therefore, It Is Best To Make Sure You Are A Successful Choice Before Applying For The Program.
An Unsuccessful OIC Will Only Expand The Statutes Of Your Debt Collections.

It Also Gives The IRS Any Bit Of Information They Need To Implement Against Your Collections.

If Your OIC Is Rejected By The IRS, They Now Know More About Your Financial Situation; Including Where Your Money Comes From, Where Your Bank Accounts Are, And What You Own.

If Your OIC Is Refused And The IRS Wants To Levy You, They Know Exactly Where To Go.

Keith CPA

Estimated Time to Complete 360 minutes

  • Application Fee USD 205

What Are Things Needed ?

  • Financial Records
  • Specific Instructions for Form 433 A OIC and Form 656

Recommended Tools To File Form 433 A OIC And Form 656

  • A Computer
  • Internet connection
  • Pdf program

How To File An IRS Offer In Compromise

Steps To Submit An Offer To The IRS

Verify Your Eligibility for an Offer in Compromise

The IRS will return any newly filed OIC application if you have not filed all required tax returns and have not made any required estimated tax payments. If you have unfiled tax returns, the IRS will require you to file those before they will consider your OIC application.

Additionally, if you have not made any required estimated tax payments, the IRS will also return your OIC application.

It’s important to ensure that you are in compliance with all tax filing and payment requirements before requesting an OIC.

 

IRS Tax Audit Representation

Submit your offer with Form 656, aka offer in compromise Form

You’ll find step-by-step instructions and all the forms for submitting an offer in the Booklet, Form 656-B PDF. Your completed offer package will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656 (s) Individual and business tax debt (corporation, LLC, Partnership) must be submitted on separate
  • Form 656: $205 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.
Keith CPA

Select payment option For Offer In Compromise

The amount of your initial payment will depend on the offer you make and the payment method you select:

  • Lump Sum Cash: You will need to provide an initial payment equal to 20 percent of the total offer amount when you submit your application. Once your offer is accepted, you will receive written confirmation. The remaining balance can be settled in five or fewer payments.

  • Periodic Payment: You must include your initial payment with your application. You will then continue to pay the remaining balance in monthly installments while the IRS reviews your offer. If your offer is accepted, you will keep making monthly payments until the total amount is fully paid.

If you qualify for the Low Income Certification guidelines, you are exempt from sending the application fee or the initial payment, and you will not be required to make monthly payments during the evaluation period.

Please refer to your Form 656 application package for further details.

Understand The IRS Offer In Compromise Process

While your offer is being evaluated

  • Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt)
  • A Notice of Federal Tax Lien may be filed
  • Other collection activities are suspended
  • The legal assessment and collection period is extended
  • Make all required payments associated with your offer
  • You are not required to make payments on an existing installment agreement

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 installment payments
  • Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt
  • Federal tax liens are not released 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

TheCPATaxProblemSolver can determine if an Offer in Compromise is right for you.

Retaining Our Tax Professionals Guarantees You Peace Of Mind

You can feel confident that you can:

  • Settle Your Tax Bill For LESS Than The IRS Claims You Owe! We Know All Updated OIC Administrative Procedures And Tax Laws.
  • We Have Considerable Weapons Including Special Circumstance Cases And Appeals.
  • We Know That A Prepared And Calculated Approach Is The Only Way To Maintain Our Excellent Track Record Of Consistent OIC Acceptance.
  • If You Qualify For The OIC Program, You Can Save Thousands Of Dollars In Taxes, Penalties, And Interest. Taxpayers Can Negotiate Settlements On All Types Of Taxes Including Most Payroll Taxes, Penalties, And Interest.
  • The OIC Program Provides Taxpayers Who Owe The IRS More Than They Could Ever Afford To Pay, The Opportunity To Pay A Smaller Amount As Full And Final Payment.
  • A Doubt As To Collectibility (DATC) Offer Is Negotiated On The Basis Of A Taxpayer’s Inability To Pay And Takes Into Account The Taxpayer’s Current Financial Position Including The Taxpayer’s Equity In Assets.
  • The OIC Program Also Allows Taxpayers That Do Not Agree That They Owe The Tax Or Feel That The Tax Has Been Incorrectly Calculated, An Opportunity To File A Doubt As To Liability (DATL) Offer And Have Their Tax Liabilities Reconsidered.

What are your options if IRS dismisses your OIC?

If the IRS denies your Offer in Compromise, they learn about your financial situation, income sources, bank accounts, and assets.

Should your OIC be rejected and the IRS seeks to levy your accounts, they will know precisely where to target.

A professionally crafted Offer in Compromise maximizes your chance to settle for less.

Understanding the Offer in Compromise Program

An Offer in Compromise (OIC) is a type of agreement reached outside of court between a taxpayer and the IRS.

The purpose of an OIC is to negotiate a settlement for the taxpayer’s tax liabilities while temporarily suspending collection efforts.

The IRS may agree to settle federal tax debts for a reduced amount if valid justifications are provided.

Book A Discovery Call

Is tax debt hindering your progress? An Offer in Compromise (OIC) may help

IRS Offer in Compromise Form

The IRS Offer in Compromise (OIC) Form may help with tax debt.

What to expect from an OIC:

Settle for Less
You can resolve your tax debt for an amount that is less than what you owe. Although this is not an immediate fix, it is a valid, IRS-approved method for achieving financial relief.

Eliminate Penalties & Interest
Often, penalties and interest can be reduced or even completely removed, making it easier to settle your remaining balance.

Pause on Collections
The IRS will halt enforced collection actions, such as wage garnishments and bank levies, while your OIC is under review.

No Settlement Limit
There is no cap on the amount of debt that can be settled through an OIC—whether your debt is substantial or minor, relief is possible.

Finalized Settlement
Once your offer is accepted, it becomes final. The IRS will not reopen your case unless there are issues related to fraud or similar matters.

Low-Income Relief
If you qualify under specific criteria, application fees and initial payments may be waived. This program truly supports those who are in the greatest need.

Lien Removal
After completing the OIC, the IRS can remove existing tax liens, enabling you to access your assets.

A Practical Alternative
Compared to an Installment Agreement or Currently Not Collectible (CNC) status, the OIC offers a resolution path that frequently leads to lasting financial freedom.

Keep in mind that the objective is straightforward: to gather what can be collected promptly and at the least expense for both you and the government.

What amount should I propose as an offer in compromise to the IRS?

The amount you offer in an Offer in Compromise (OIC) is based on your Reasonable Collection Potential (RCP), which represents the total amount the IRS believes it can recover from you. The RCP is determined by calculating:

  1. Monthly Disposable Income (MDI) – Your remaining income after covering necessary living expenses, multiplied by a certain number of months:

    • 12 months if paying in a lump sum.
    • 24 months if paying through a short-term periodic payment plan.

  2. Equity in Assets – The quick sale value (typically 80% of fair market value) of your assets after subtracting any loans or exemptions.

Formula for RCP:

RCP = (MDI × 12 or 24) + Equity in Assets

Your offer amount must be at least equal to or greater than your RCP for the IRS to consider it. If your RCP is greater than your total tax liability, you likely won’t qualify for an OIC.

Formula for Determining an OIC Offer:

  1. (Monthly Disposable Income) × (12 or 24 months)
    • Use 12 months for a lump sum payment
    • Use 24 months for a short-term payment plan
  2. + Net Realizable Equity in Assets (including cash, investments, home equity, vehicles, etc.)
  3. = Minimum Offer Amount

Step-by-Step Calculation Process

  1. Calculate Monthly Disposable Income (MDI)
    • Start with your total household income
    • Subtract allowable expenses (such as housing, food, utilities, transportation, medical costs, etc.)
    • The leftover amount represents your monthly disposable income
  2. Multiply by 12 or 24 (depending on your payment method)
  3. Add Net Realizable Equity (NRE) in Assets
    • If you possess liquid assets, the IRS expects you to factor in some of their value.
    • For instance, if you have $10,000 in home equity and $5,000 in savings, the IRS anticipates a portion of this value.
  4. Your minimum offer should equal this total amount.

Example Offer Calculation

  • Income: $5,000/month
  • Expenses: $4,800/month
  • Disposable Income: $200/month
  • Net Realizable Equity in Assets: $5,000
  • Offer Calculation:
    • Lump sum: ($200 × 12) + $5,000 = $7,400
    • Installment plan: ($200 × 24) + $5,000 = $9,800

In this scenario, the minimum offer would be $7,400 if paid as a lump sum or $9,800 if paid over 24 months.

Strategies for Achieving the Lowest OIC Offer Possible

  • Increase allowable expenses (if valid) to lower disposable income.
  • Document financial hardships (such as serious illness or job loss).
  • Dispute IRS asset valuations if they overstate your equity.
  • Negotiate firmly—the IRS frequently accepts lower offers if they believe collection is unlikely.
Offer in Compromise Calculator

Offer in Compromise Calculator

Enter your values to calculate your minimum offer amount based on your Reasonable Collection Potential (RCP).