Before you apply for an offer in compromise

An offer is a documented request. Start by understanding the financial review and the application requirements.

Understand what an offer does

An offer in compromise is an agreement to resolve a tax debt for less than its full amount. The IRS considers the facts of the case, including ability to pay, assets, income and necessary expenses. A large balance by itself does not establish that an offer is appropriate. Neither does a low result from an online worksheet. The IRS makes the decision after reviewing the application and supporting information. IRS offer overview

Before concentrating on an offer, compare the cost and practicality of paying in full or using a payment plan. The purpose of the comparison is to understand the available route, including charges and paperwork. You do not need to hire a company to find the IRS's forms or read the application instructions.

Check the application requirements first

Read the current Form 656-B booklet before preparing figures. Required returns must be filed, current estimated payments must be made, and an open bankruptcy proceeding prevents this application route. Employer deposit requirements also apply where relevant. The booklet identifies additional issues, including open audits and disputes about whether the tax is owed, that should be resolved through the appropriate process. Form 656-B

If you disagree with the liability itself, say so when seeking help. The asset-and-income illustration on this site does not decide whether an assessment is correct. It is not a substitute for responding to a notice, preserving an appeal right or using the correct form for a liability dispute.

Understand the two parts of the worksheet

Form 433-A (OIC) brings together asset equity and future income. Assets do not all receive the same treatment. Cash, investments, retirement accounts, life-insurance cash value, real estate and vehicles have separate instructions. A loan reduces a particular asset only under the applicable rule. Exclusions also have conditions; they cannot automatically be used to turn a full-payment situation into an offer case. Form 433-A (OIC)

For the income part, the worksheet compares household income with allowable expenses. Self-employment requires net business figures with the form's adjustments. Shared household contributions and joint ownership need careful handling. Keep the figures traceable to pay records, statements and the expense documents you would provide with an actual application.

Compare expenses with the right rule

National living-expense amounts, out-of-pocket healthcare and local housing or transportation limits do not work identically. The normal local-standard treatment limits an expense to actual spending or the standard, whichever is lower. Necessary costs above a standard can require documents and an individual IRS decision. Entering a larger bill in an estimator does not approve that exception. IRS collection financial standards

Check for double counting. For example, do not enter net wages after payroll deductions and then deduct the same taxes again. Do not include insurance in both a combined housing figure and another expense line. A worksheet is most useful when you can explain where every figure came from.

Review payment choices and application costs

The future-income illustration uses the applicable 12-month or 24-month multiplier, depending on the offer payment option. Those multipliers are not interchangeable with the payment schedule. The current application fee is $205. A lump-sum application ordinarily includes 20 percent of the offer; the remaining accepted amount is paid within the form's permitted short schedule. Periodic offers ordinarily require an initial payment and continuing monthly payments while considered. Form 656-B payment instructions

Low-income certification can waive the fee and those payments during consideration. The form permits a test using the most recently filed return's AGI or current monthly household income multiplied by twelve, compared with its applicable table. Alaska and Hawaii have separate figures. Passing that test changes application-payment requirements, not the IRS's substantive decision about an offer.

A zero worksheet result is still only an illustration. The form requires an actual offer to be greater than zero and stated in whole dollars. It also requires a source for the money offered. Do not treat a displayed zero as permission to send a zero-dollar offer, or withdraw retirement funds without considering the resulting tax consequences. Form 656-B

Prepare for what follows an application

An offer can affect the time the IRS has to collect. Payments and fees also have rules about whether they are returned or applied to debt. Read these conditions before sending money or signing Form 656. If an offer is accepted, ongoing filing and payment obligations remain part of its terms. IRS offer process

When to get help

Questions you may have

Is this the same as asking for a payment plan?

No. A payment plan schedules payment of a balance; an offer asks the IRS to compromise it. Both have conditions, and the IRS may find full payment feasible. IRS offer overview

Does the low-income test determine the offer amount?

No. It addresses certain application fees and payments during consideration. Asset equity and future income are separate parts of Form 433-A (OIC).

Is my retirement account ignored?

Not automatically. Access, account value, loans and the form's treatment matter. A gross balance or an assumption that retirement funds are protected is insufficient for a complete worksheet. Form 433-A (OIC)

Can I file while in bankruptcy?

The IRS says an open bankruptcy proceeding prevents applying for an offer. Address the tax debt through the appropriate bankruptcy process with qualified advice. IRS offer requirements

Can I apply without a paid representative?

Yes. The IRS provides forms, instructions and online resources. Consider individual help when your facts or deadlines are complicated, and verify any representative's qualifications.