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Last reviewed: October 16, 2026
An IRS offer in compromise settles a tax debt for less than the full balance, but the IRS accepts roughly what it calculates it could collect anyway: your equity in assets at about 80% of market value, plus your monthly income after allowable expenses multiplied by 12 for a lump-sum offer or 24 for a periodic offer. You apply on Form 656 with a $205 application fee and either 20% of the offer (lump sum) or the first monthly payment (periodic); individuals who meet the low-income certification skip both. In FY2025 (October 2024 through September 2025) the IRS received 38,797 offers and accepted 5,464, so the math has to work before the paperwork does. This guide follows the April 2026 Form 656 Booklet and IRM 5.8.5 as revised April 23, 2026.
Key numbers for an offer in compromise (Form 656, Rev. April 2026):
| Item | Figure | Source |
|---|---|---|
| Application fee | $205 per Form 656, waived with Low-Income Certification | Form 656 Booklet |
| Low-Income Certification, one person | AGI (or monthly income × 12) of $39,900 or less in the 48 states and DC; $82,500 for a family of four | Form 656, Section 1 |
| Lump-sum offer | 20% of the offer with the application; the rest in 5 or fewer payments within 5 months of acceptance | IRC §7122(c)(1)(A); Form 656, Section 4 |
| Periodic payment offer | First payment with the application, then monthly, paid in full within 6 to 24 months | IRC §7122(c)(1)(B); Form 656, Section 4 |
| Minimum offer | Net equity in assets + monthly remaining income × 12 (lump sum) or × 24 (periodic) | Form 433-A (OIC), Section 8 |
| Asset value used | Market value × 0.8 minus loans; $1,000 off bank balances, $3,450 off a vehicle | Form 433-A (OIC), Section 3 |
| Deemed acceptance | Offer accepted by law if not rejected within 24 months | IRC §7122(f) |
| Compliance after acceptance | File and pay every return on time for 5 years | Form 656, Section 7(l) |
| FY2025 results | 38,797 offers received, 5,464 accepted, $98.1 million accepted | IRS Data Book, Table 4-1 |
Save this cheat sheet — key numbers in one image.
An offer in compromise (OIC) is an agreement under IRC §7122 in which the IRS accepts less than the full tax, penalties, and interest owed and releases the rest. Form 656, Offer in Compromise, is the application; Form 433-A (OIC) for individuals and Form 433-B (OIC) for businesses are the financial statements that justify the amount. The IRS considers three grounds, and Form 656 asks you to check only one:
| Ground | What you are saying | Form |
|---|---|---|
| Doubt as to collectibility | You cannot pay the full balance from your assets and income before the collection period ends | Form 656, Section 3 |
| Effective tax administration, economic hardship | You could pay, but paying would leave you unable to meet basic living expenses (individuals only) | Form 656, Section 3 |
| Effective tax administration, public policy or equity | You could pay, but exceptional circumstances make collection unfair, for example a payroll provider that stole your deposits | Form 656, Section 3 |
| Doubt as to liability | You do not believe you owe the tax | Form 656-L, with no fee and no deposit |
If the balance comes from an IRS adjustment you dispute, such as an underreporting notice, the Form 656 Booklet says to resolve that doubt first, through the notice process or Form 656-L; our CP2000 notice guide covers the response. Doubt as to collectibility is the ground built into the Form 433-A (OIC) math, and it has a precise test: the IRS compares your offer to its own estimate of what it could collect, called reasonable collection potential. If your offer matches or beats that number and you cannot pay in full, the offer is acceptable. If you can pay in full through equity plus an installment agreement, the Form 656 Booklet says the IRS generally will not accept an offer at all.
You can submit an offer only after four conditions are met, per the Form 656 Booklet (Rev. April 2026):
Open bankruptcy disqualifies you outright, and an open audit or innocent spouse claim must be resolved first. The IRS will not process an offer with a deactivated ITIN. A business that owes trust fund taxes (withheld income, Social Security, and Medicare tax) cannot get an offer considered until that portion is paid or the IRS has assessed the trust fund recovery penalty against the responsible people.
Unfiled returns stop an offer before it starts. If the IRS finds a missing return, it applies your initial payment to the debt and sends back only the offer and the application fee, with no right to appeal. Our back taxes guide covers getting six years of returns filed first.
Your minimum offer is the IRS's reasonable collection potential (RCP): the net realizable equity in your assets plus the future income it could collect. Form 433-A (OIC) walks you through both halves, and its Section 8 ends with one addition.
Assets (Box A). IRM 5.8.5.4.1 values assets at net realizable equity, which is quick sale value minus loans that rank ahead of the federal tax lien. Quick sale value is what you could get if forced to sell within about 90 days, and Form 433-A (OIC) builds it in at 80% of current market value for real estate, vehicles, retirement accounts, and valuables. The form then gives individuals a few allowances:
Income (Box F). Box D is your household's gross monthly income; Box E is allowable monthly expenses. For food, clothing, and out-of-pocket health costs you enter the IRS Collection Financial Standards amount even if you spend less; for housing, vehicles, insurance, and current taxes you enter actual costs, and the IRS generally limits housing and transportation to the local standards for your county. Private school tuition, charitable giving, and unsecured debt payments generally do not count. Box F, remaining monthly income, is Box D minus Box E and never goes below zero.
The multiplier. For a lump-sum offer you multiply Box F by 12; for a periodic offer, by 24. IRM 5.8.5.25 adds a limit: if fewer than 12 or 24 months remain on the 10-year collection statute for every debt in the offer, the IRS uses the months that are left.
Minimum offer = Box A + Box B (business assets of a sole proprietor) + Box F × 12 or × 24. The offer must be more than $0, and an offer below the calculated amount needs a written explanation of special circumstances.
Interactive
What is the least the IRS would accept?
Enter your figures from Form 433-A (OIC): net equity in assets after the IRS allowances (Box A plus Box B) and monthly income left after allowable expenses (Box F).
80% of market value minus loans, after the $1,000 bank and $3,450 vehicle allowances.
Box F: gross monthly household income minus allowable expenses (not below $0).
Minimum offer estimate
$15,850
$12,250 of equity + $300 × 12 months of remaining income.
Form 433-A (OIC) and Form 656 (Rev. April 2026). Assumes at least 12 or 24 months remain on the 10-year collection statute and that you cannot pay in full; the IRS recomputes expenses with its Collection Financial Standards and may value assets higher.
Estimate what your balance has grown toThe defaults are Elif's numbers from the worked example below: $12,250 of net equity and $300 a month left after allowable expenses produce a $15,850 lump-sum offer against a $62,000 balance.
The payment option changes both the minimum offer and the cash you send with the application.
| Lump-sum cash offer | Periodic payment offer | |
|---|---|---|
| Future income counted | Box F × 12 | Box F × 24 |
| Due with Form 656 | 20% of the offer amount | The first monthly payment |
| Rest of the offer | Up to 5 payments within 5 months after acceptance | Monthly, so the whole offer is paid within 24 months |
| While the IRS reviews the offer | Nothing more is due | Keep paying every month, or the offer is returned with no appeal |
| If the offer is rejected or returned | The 20% is kept and applied to the debt | Every payment made is kept and applied to the debt |
The lump sum is cheaper by 12 months of remaining income, which is why the 433-A (OIC) instructions note that paying over a shorter period produces a smaller minimum offer. The trade-off is cash: 20% up front, and the balance within five months of acceptance, usually from savings, family, or a loan. A periodic offer suits someone with steady income and no savings, but missing a monthly payment while the offer is pending ends it.
Neither payment can come from a tax refund, money already paid, funds the IRS seized, or anticipated benefits from a capital loss or net operating loss. The application fee and payments can be made through EFTPS or, for individuals, the IRS Individual Online Account, or by separate checks payable to "United States Treasury."
Elif is a single freelance graphic designer in Ohio. She owes $62,000 in tax, penalties, and interest for 2022 through 2024, all returns are filed, and she is paying 2026 estimated tax. She rents her apartment. Her Form 433-A (OIC) looks like this:
| Item | Calculation | Amount |
|---|---|---|
| Checking account | $3,500 − $1,000 allowance | $2,500 |
| Car | $14,000 × 0.8 − $6,000 loan − $3,450 allowance | $1,750 |
| IRA | $10,000 × 0.8 | $8,000 |
| Box A, net equity | $12,250 | |
| Box D, gross monthly household income | Average net business income | $5,200 |
| Box E, allowable monthly expenses | Standards and capped actual costs | $4,900 |
| Box F, remaining monthly income | $5,200 − $4,900 | $300 |
Can she pay in full? No. Her 2022 tax was assessed in April 2023, so its 10-year collection statute runs to April 2033, about 78 months from October 2026. $12,250 of equity plus $300 a month for 78 months is $35,650, well short of $62,000, and interest keeps growing the balance.
Lump-sum offer: $12,250 + $300 × 12 = $15,850. She sends $3,170 (20%) and the $205 fee with Form 656, and pays the remaining $12,680 within five months of acceptance. Her household income of $62,400 a year (Box D × 12) is above the $39,900 one-person low-income line, so neither payment is waived.
Periodic offer: $12,250 + $300 × 24 = $19,450, about $810 a month for 24 months, with the first payment sent with the application.
If the IRS accepts the lump-sum offer as calculated, $46,150 of the balance is forgiven. If the IRS revalues her car at $17,000 or trims her housing expense to the county standard, the minimum offer goes up, and the IRS will ask her to raise the offer rather than accept the lower number.
Most of Form 656 (Rev. April 2026) is terms you agree to. The sections you fill in:
| Section | What you enter | Watch for |
|---|---|---|
| Top of page 1 | Whether you used the OIC Pre-Qualifier or the Individual Online Account check | Optional, but the IRS recommends it |
| 1, Individual Information | Names, SSN or ITIN, address, and every tax period you owe (Form 1040 years, trust fund recovery penalty quarters, Forms 941 and 940); the Low-Income Certification box | List all periods; the IRS can add assessed periods you missed |
| 2, Business Information | The same for a corporation, partnership, or LLC | Fill in Section 1 or Section 2, never both |
| 3, Reason for Offer | Doubt as to collectibility, or one of the two effective tax administration grounds | Check one box; attach a hardship explanation for an offer below the calculated minimum |
| 4, Payment Terms | Lump sum (total, 20% initial payment, schedule of up to 5 payments) or periodic (monthly amount, payment day 1–28, number of months) | Whole dollars only; the total cannot exceed 24 months |
| 5, Designation of Payment | The tax period you want payments applied to, and EFTPS confirmation numbers | Undesignated money is applied in the government's best interest |
| 6, Source of Funds and Compliance | Where the money comes from; checkboxes confirming all returns filed and estimates and deposits paid | Include a copy of any return filed within 10 weeks of the offer |
| 7, Offer Terms | Terms (a) through (x) | Read them: they include the 5-year compliance promise and the refund rules |
| 8 and 9, Signatures | Taxpayer, spouse or corporate officer, and paid preparer | Attach Form 2848 if a representative will speak for you |
Individuals and businesses with debts of both kinds file two Forms 656, each with its own $205 fee and initial payment. Spouses with joint debt and one spouse's separate debt also file two. Mail the package to the Memphis IRS Center COIC Unit (P.O. Box 30803, AMC, Memphis, TN 38130-0803) if you live in AL, AZ, CA, CO, GA, HI, ID, KY, LA, MD, MS, ND, NM, NV, OK, OR, SD, TN, TX, UT, VA, or WA, and to the Brookhaven IRS Center COIC Unit (P.O. Box 9007, Holtsville, NY 11742-9007) from every other state, Puerto Rico, or abroad. Individuals can now prepare, pay for, and submit the whole offer through their IRS Individual Online Account instead.
Every Form 656 carries a $205 application fee, and IRC §7122(c)(2)(B) applies that fee against the tax being compromised. Individuals and sole proprietors skip the fee and all payments during the review if their adjusted gross income from the latest return, or their household's gross monthly income times 12, is at or below these amounts:
| Size of family unit | 48 states, DC, and US territories | Alaska | Hawaii |
|---|---|---|---|
| 1 | $39,900 | $49,875 | $45,900 |
| 2 | $54,100 | $67,625 | $62,225 |
| 3 | $68,300 | $85,375 | $78,550 |
| 4 | $82,500 | $103,125 | $94,875 |
| 5 | $96,700 | $120,875 | $111,200 |
| Each additional person | + $14,200 | + $17,750 | + $16,325 |
A low-income applicant still owes the offer amount; the first payment is due 30 days after acceptance. Corporations, partnerships, LLCs, and offers for a deceased person's estate never qualify for the waiver. Money a low-income applicant sends voluntarily is applied to the debt and not returned.
Yes. No law requires a representative for an offer in compromise, and every form is free on irs.gov. The IRS Offer in Compromise Pre-Qualifier and the Individual Online Account both check eligibility and compute a preliminary offer from the same Form 433-A (OIC) math. Low Income Taxpayer Clinics represent qualifying taxpayers for free or a small fee, and an enrolled agent or CPA makes sense when the facts are messy: a business with trust fund taxes, real estate with unclear value, or an effective tax administration claim that depends on a well-documented hardship story.
What a representative cannot do is change the formula. Companies that advertise settling debts for "pennies on the dollar" are what the IRS calls OIC mills, and they are on the IRS's 2026 Dirty Dozen list of tax scams. Our IRS Fresh Start Program guide explains why the "program" those firms sell is just the standard menu of payment options.
Once an IRS official signs the offer as pending, several rules change at once:
The IRS can accept, reject, or return the offer. A rejection can be appealed by written request within 30 days of the letter; a returned offer (for missing returns, missed periodic payments, or ignored information requests) cannot. If the IRS has not rejected the offer within 24 months of receiving it, IRC §7122(f) treats it as accepted.
Acceptance comes with conditions written into Form 656, Section 7:
The five-year promise is the part people underestimate. A freelancer who settles in 2026 and then skips 2027 estimated payments on Form 1040-ES has created exactly the new balance that defaults the agreement.
Fewer every year, even as applications rise. IRS Data Book figures:
| Fiscal year | Offers received | Offers accepted | Amount accepted |
|---|---|---|---|
| 2023 | 30,163 | 12,711 | $214.5 million |
| 2024 | 33,591 | 7,199 | $163.4 million |
| 2025 | 38,797 | 5,464 | $98.1 million |
The FY2025 average accepted offer works out to about $17,962. Accepted and received counts come from different cohorts (an offer received in one year may be decided in the next), so the ratio is a rough guide, not an acceptance rate. The direction is clear, though: the IRS accepted 57% fewer offers in FY2025 than in FY2023 while receiving 29% more.
IRC §6502 gives the IRS 10 years from assessment to collect a tax, the collection statute expiration date (CSED). It shapes an offer in three ways. First, the full-pay test only looks at what you could pay before the CSED, so an old debt with three years left is far easier to compromise than a new one. Second, IRM 5.8.5.25 shrinks the 12- or 24-month multiplier when fewer months remain. Third, a pending offer suspends the CSED, so an offer that drags on and is rejected leaves you with more time on the clock than before. Your IRS account transcript shows each assessment date; add 10 years and any suspension periods to estimate the CSED for each year you owe.
An accepted offer only holds if the next five years of returns and estimated payments land on time, and that is a bookkeeping problem before it is a tax problem. Jupid is an AI accountant in WhatsApp and iMessage that connects to your bank accounts and categorizes every transaction automatically at 95.9% accuracy, so income and deductible expenses are current every month instead of reconstructed in April. Ask "what is my profit so far this quarter?" in chat and get the answer from your live books. Jupid does not prepare or negotiate offers in compromise with the IRS. Try Jupid
If you use Claude, ChatGPT, or another AI agent to prepare an offer in compromise, our open-source Form 656 skill builds the draft from your own numbers. It first checks eligibility: every return filed, a bill received, current estimated payments, no open bankruptcy. It then fills Form 433-A (OIC) line by line with the 80% quick-sale factor and the $1,000, $3,450, and $11,980 allowances, takes allowable expenses from the IRS Collection Financial Standards tables instead of guessing, tests whether you could pay in full before the collection deadline, and fills Form 656 with lump-sum or periodic terms. Review the draft before you sign and file.
→ jupid-tax/jupid-skills on GitHub – forms/form-656/SKILL.md
For Claude Code, clone the repo and run cp -r jupid-skills/forms/form-656 ~/.claude/skills/. For the Anthropic SDK, load SKILL.md into the system prompt and the references/ files on demand. For browser-automation runtimes, filing.md covers the e-file or paper-file workflow.
This guide is for general educational purposes and does not constitute tax, legal, or accounting advice. It follows the Form 656 Booklet (Rev. April 2026), Form 656-L (Rev. July 2026), and IRM 5.8.5 as posted on irs.gov when last reviewed on October 6, 2026; allowance amounts and the low-income table change with each revision. The worked example is illustrative, and the IRS recalculates allowable expenses and asset values during its investigation. For advice specific to your situation, consult a qualified tax professional or a Low Income Taxpayer Clinic.
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Fintech CEO with 10+ years building accounting and financial technology products. Previously co-founded and scaled an AI-powered accounting platform to $30M revenue and 100K+ business users, achieving 30,000 customers per accountant through automation — recognized by CNBC as a top fintech company. Holds a Master's in Management Information Systems. At Jupid, he leads the development of AI-native bookkeeping, tax, and compliance tools designed for freelancers and small business owners.
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