Offer in compromise: who qualifies, what it costs and how it works

An offer in compromise (OIC) may allow you to settle your tax debt for less than the full amount you owe if you cannot pay in full or doing so would cause financial hardship. The IRS considers your income, expenses and asset equity. It is one of several options, so see every option if you owe the IRS before you decide. Generally, the IRS will not accept an offer if you can pay your tax debt in full through a payment plan, equity in assets, or both. It suggests exploring other payment options before you apply.

On this page: who can apply, what it costs, how to apply, while the IRS reviews your offer, what you agree to, if the IRS says no, the 10-year limit.

Is an offer in compromise right for you?

The IRS may accept an offer for one of three reasons.

• Doubt as to liability. There is a genuine dispute about whether you owe the debt or how much. This kind of offer uses Form 656-L instead of Form 656 and the financial statements, and it has no application fee.
• Doubt as to collectibility. Your assets and income are less than the full amount of the tax debt.
• Effective tax administration. There is no doubt that the tax is owed and that the full amount could be collected, but requiring payment in full would create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

Who can apply

You must have filed all required returns and made required estimated payments, not be in an open bankruptcy, and (if you are an employer) have made recent tax deposits. Before the IRS can consider your offer, you must also have received a bill for at least one tax debt included in the offer. Resolve any open audit or outstanding innocent spouse claim before you submit an offer.

If the IRS finds that you have not filed all required returns, it applies any initial payment to your tax debt and returns only your offer and application fee. You cannot appeal that decision.

Before anything else, try the free IRS Offer in Compromise Pre-Qualifier. The IRS Pre-Qualifier tool gives a preliminary answer.

How the IRS decides how much to accept

In most cases the IRS will not accept an offer unless the amount offered is equal to or greater than your reasonable collection potential (RCP), which is how the IRS measures your ability to pay. The RCP includes what could be realized from your assets, such as real property, cars, bank accounts and other property, plus anticipated future income less certain amounts allowed for basic living expenses.

In general, the IRS does not count tuition for private schools, college expenses, charitable contributions or payments on other unsecured debt as part of the expense calculation.

Your offer amount must be equal to or greater than the amount calculated on Form 433-A (OIC) or Form 433-B (OIC). If special circumstances would keep you from paying that minimum because of economic hardship, you attach a detailed explanation to Form 656.

What it costs: the fee and your payments

• Application fee: $205. Every application needs the fee and a first payment unless you meet the IRS low-income qualifications, which only individuals can. The fee is not returned if the IRS rejects your offer. If your application is returned because you are not eligible, the IRS returns the fee, and your payments are applied to your tax debt.
• Penalties and interest keep adding up while the IRS considers your offer.
• The payments you send with an offer, such as the 20 percent payment or the monthly payments, are generally not refunded, even if the IRS rejects the offer or returns it. The IRS applies them to your tax debt, and you can say which tax debt it applies them to.

You choose one of two ways to pay an offer.

You may not pay your offer with an expected or current tax refund, money already paid, funds attached by a collection action, or anticipated benefits from a capital or net operating loss. If you plan to use retirement savings from an IRA or 401(k) plan, you may have future tax debt as a result, so the IRS says to contact it or your tax advisor before you do.

If your income is low

If you meet the low-income qualifications, you do not have to pay the application fee, the initial payment or periodic payments while the IRS reviews your offer. Only individuals can qualify. The low-income exception is for an individual (not a corporation, partnership or other entity) whose adjusted gross income for the most recent year available, or whose household's gross monthly income times 12, is at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services.

To claim low-income certification on Form 656, your adjusted gross income on your most recently filed return, or your household's gross monthly income times 12, must be equal to or less than the amount for your family size and where you live. The IRS verifies whether you qualify.

Low-income certification is for individuals and sole proprietors only. A business that is not a sole proprietor, or an offer for a deceased individual, does not qualify. Amounts are from Form 656 as revised in April 2026.

If you qualify for low-income certification and send no payments while the IRS considers your offer, your first payment is due 30 calendar days after the IRS accepts the offer, unless you agree to another date in an amended offer.

How to apply

1. Check that you qualify. Use the Pre-Qualifier, or the eligibility check in your IRS Individual Online Account, and read who can apply above.
2. Gather your records. You will need your tax returns, bank statements, income statements such as Forms W-2 and 1099, mortgage and credit account statements, retirement account statements and any other documents that show your financial condition. You will also need your household's monthly gross income and expenses. The household includes everyone who contributes to paying expenses such as rent or mortgage, utilities, insurance and groceries.
3. Fill out the forms. For an offer based on doubt as to collectibility or effective tax administration, individuals file Form 656, Offer in Compromise, with Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals. Businesses use Form 433-B (OIC). An offer based on doubt as to liability uses Form 656-L instead. Form 656 and the financial statements are in the Offer in Compromise Booklet, Form 656-B.
4. Attach your documents. The supporting documents are listed at the end of each financial statement form. Include copies of all required attachments, not originals.
5. Pay the fee and your first payment, unless you meet the low-income qualifications. You may pay the application fee and the first payment through the Electronic Federal Tax Payment System (EFTPS), and individuals can also pay through their Individual Online Account. If you cannot pay electronically, use a personal check, cashier's check or money order payable to the United States Treasury, with a separate payment for the fee and for each offer payment. If you meet the low-income qualifications, do not send any money with your application.
6. Submit the application. Individuals can submit an application for an offer in their IRS Individual Online Account. Businesses and individuals without an account can download the forms and step-by-step instructions in Form 656-B, the Offer in Compromise Booklet. If you do not apply online, mail the application package to the Centralized Offer in Compromise Unit at the Memphis or Brookhaven IRS Center, depending on the state where you live. The application checklist at the end of the booklet gives the address. Keep a copy of your application.
7. Answer the IRS on time. Reply promptly to any IRS request for more information, within the time given. If you do not reply in time, the IRS returns your offer without appeal rights.

What happens while the IRS reviews your offer

If the IRS confirms your eligibility and processes your application, you receive a notification, the IRS may ask for more information, it suspends most collection activities, it extends your collection period, and it may file a Notice of Federal Tax Lien.

• You must keep making all required offer payments while the IRS considers your offer. You do not need to make payments on an existing payment plan for the same balance due. If your offer is not accepted and you have not incurred any additional tax debt, the IRS reinstates an approved installment agreement that you had when you applied.
• While the IRS considers your offer, keep filing and paying on time: all required returns, estimated tax payments and federal tax payments, for you and for any business in which you have an interest. If you do not, the IRS may return your offer.
• The IRS may keep any tax refund, including interest, for a return it assessed before the date it accepts your offer, by applying the refund to your tax debt. A refund applied this way does not count as a payment toward your offer.
• The IRS may levy your assets up to the time an IRS official signs and acknowledges your offer as pending, and it may keep the proceeds of that levy. If your assets are levied after you submit an offer, contact the IRS right away at the phone number on the levy. See IRS wage garnishment and levies.
• While the IRS reviews an offer in compromise, the collection period is suspended. If the IRS rejects the offer, it is suspended another 30 days, and if you appeal the rejection, until the appeal concludes.
• Your application will be automatically approved if the IRS does not accept or reject it within two years. The two-year window begins when the IRS receives your application and does not include the time during an appeal.

What you agree to when you apply

Form 656 lists the terms you accept when you submit an offer. Read all of them before you sign. These stand out.

• Five years of compliance. If the IRS accepts your offer, you must file all tax returns and pay all taxes on time for five years, starting on the date it accepts the offer. Form 656 also says that during those five years you cannot request an installment agreement or another offer.
• Time limits. By applying, you agree to extend the time the IRS has to assess your tax debt by the time your offer is pending, plus one more year if the IRS rejects or returns the offer or you withdraw it. You can refuse that waiver or limit it, but the IRS may then decline to consider your offer.
• The periods are settled. Once the IRS accepts your offer in writing, you have no right to challenge the tax debt in court or by filing a refund claim or refund suit for the periods in the offer, even if the IRS later defaults or rescinds the offer.
• Default. If you do not meet all the terms of an accepted offer, the IRS may treat the offer as in default. When the IRS terminates an offer, the agreement is no longer in effect, and the IRS may collect the amounts originally owed, less payments made, plus interest and penalties.

If the IRS accepts your offer

If the IRS accepts your offer, you must meet all the offer terms in Section 7 of Form 656 to keep it in force. The IRS will not release federal tax liens until your offer is paid in full, and some of your offer information will be available to the public in the public inspection file.

The IRS may file a Notice of Federal Tax Lien while it considers your offer, or for offers that will be paid over time. If it accepts the offer, the lien for the periods in the offer is generally released within 45 days after the IRS receives and verifies your final payment.

If the IRS rejects or returns your offer

If the IRS rejects your application, it does not return the application fee, it applies any payments to your balance due, and you can appeal the rejection to the IRS Independent Office of Appeals.

Mail your request to the office that sent the rejection letter. The IRS will not accept an appeal made more than 30 days after the date of that letter. Use Form 13711, Request for Appeal of Offer in Compromise, or write a letter with your name, address, taxpayer identification number and daytime phone number, a statement that you want to appeal to the IRS Independent Office of Appeals, a copy of the rejection letter, the tax periods involved, the specific items you disagree with and why, the facts that support your position, and your signature under penalties of perjury.

In some cases the IRS returns an offer instead of rejecting it, for example because you did not send necessary information, filed for bankruptcy, left out a required application fee or payment, had not filed required tax returns, or had not paid current tax liabilities. There is no right to appeal a returned offer, but once the problem is fixed you can submit the offer again.

Does the IRS forgive tax debt after 10 years?

There is a time limit on collection, but it is not a simple 10-year countdown.

The IRS generally has 10 years from the date your tax was assessed to collect the tax and any associated penalties and interest. This time period is called the Collection Statute Expiration Date (CSED). Your account can include several tax assessments, each with its own CSED.

Certain events suspend or extend the 10-year period, which delays the CSED. Examples include asking for a payment plan, filing an offer in compromise, requesting a Collection Due Process hearing, filing bankruptcy, and living outside the United States continuously for six months or more.

You can find a CSED on your account transcript, under Transactions. The date shown is generally the CSED plus any time the IRS added by law. Many events can change a CSED, so contact the IRS to verify the last day it can collect a tax debt for a specific tax period.

Other IRS options to compare first

The IRS says to explore other payment options before you apply for an offer. These are the main ones.

• IRS payment plans. A payment plan is an agreement with the IRS to pay the taxes you owe over a longer time. The IRS says to request one if you believe you will be able to pay in full within that extended time frame.
• Currently not collectible. If you cannot pay any of what you owe because paying would keep you from meeting basic living expenses, you can ask the IRS to delay collection. If it agrees, it may report your account as currently not collectible until your financial condition improves. It is covered on the payment plans page.
• IRS penalty abatement. You may qualify for penalty relief if you tried to comply with tax laws but were unable due to circumstances beyond your control.

Free help with an IRS balance

• Low Income Taxpayer Clinics: Low Income Taxpayer Clinics represent people in audits, appeals and collection disputes with the IRS, for free or a small fee. Clinics generally serve people with income at or below 250% of the federal poverty guidelines (for 2026, $39,900 for a single person in the 48 contiguous states and D.C.; Alaska and Hawaii have higher figures). Each clinic decides whether you qualify. Clinics are independent of the IRS. Find a clinic.
• Taxpayer Advocate Service: an independent organization within the IRS that may be able to help with a tax problem you have not been able to resolve with the IRS, and its service is free if you qualify. Contact TAS.

When a tax professional makes sense

You can apply on your own, starting with the IRS Pre-Qualifier. A tax professional (a CPA, enrolled agent, tax attorney or tax firm) can help if your finances are complicated, the IRS asks for more information, or your offer was turned down. During the collection process or an appeal, you can represent yourself or be represented by an attorney, a certified public accountant, an enrolled agent, an immediate family member, or any person enrolled to practice before the IRS. To have your representative contact the IRS for you, file Form 2848, Power of Attorney and Declaration of Representative. Ask about the fee up front, and ask how the professional will check that you qualify before you pay. Our guide to paid tax help explains how to choose.