Check eligibility and the numbers
We review filing and payment compliance, assets, income and living expenses. We calculate what the IRS could collect before recommending an offer.
Asking the IRS to accept less than the full balance
An Offer in Compromise (Form 656) asks the IRS to settle for less than the full balance, and the IRS decides based on what it calculates it could collect.
How it works
Prepare the forms and payment
We prepare Form 656 and Form 433-A (OIC), or the forms required for your offer ground. We document the figures and include the required payment or low-income certification.
Respond until the IRS decides
We answer IRS requests and review its calculation and determination. If it rejects the offer, we discuss whether a Form 13711 appeal is appropriate.
Which sounds like you?
The three kinds of offer
Doubt as to Collectibility: you cannot pay the full balance within the collection period.
Doubt as to Liability: the tax assessed is wrong.
Effective Tax Administration: you could pay, but paying would cause economic hardship or be unfair in exceptional circumstances.
When an offer is not the right tool
Common reasons for rejection include an offer below the IRS calculation, missing returns or payments, and financial information that cannot be verified. The calculation is a starting point, not an automatic acceptance rule. We review the numbers and compliance before recommending submission.
Special circumstances or effective tax administration may support an offer below the calculated amount. An installment agreement or another collection option may be more appropriate when the numbers do not support an offer.
The legal basis and required records
IRC §7122(a) authorizes the Secretary to compromise a civil or criminal tax case before referral to the Department of Justice for prosecution or defense. The implementing regulation, 26 CFR §301.7122-1 (Treas. Reg. §301.7122-1), sets out the three grounds above.
An offer based on ability to pay
Doubt as to Collectibility applies when the full assessed tax may not be collected before the §6502 collection period expires. Treas. Reg. §301.7122-1(b)(2) and IRM 5.8.5 govern the financial calculation. An offer at or above that calculation may support acceptance, but the IRS reviews eligibility and the full facts.
- Form 656, using the current revision in the Form 656-B booklet.
- Form 433-A(OIC) for an individual or Form 433-B(OIC) for a business, reporting financial information.
- 3–12 months of supporting financial documentation.
- $205 application fee or low-income certification.
- 20% lump-sum deposit or the first periodic payment.
IRM 5.8.11 addresses special circumstances such as serious illness, dependent care or non-traditional income. These facts may support an offer below the calculation where full collection would be unfair; the amount alone is not the only consideration.
An offer disputing the tax
Doubt as to Liability under §301.7122-1(b)(1) disputes whether the tax is actually owed. It uses Form 656-L separately from Form 656 and does not require Form 433 financial substantiation. The evidence addresses the assessment rather than inability to pay.
- An audit assessment despite documented support or defenses not raised during the audit.
- A Substitute for Return, an IRS-prepared return under §6020(b), that overstates the tax.
- A Trust Fund Penalty assessment where responsibility or willfulness is disputed.
- An assessment barred by the §6501 statute of limitations.
- Identity theft involving fraudulent returns not attributable to the taxpayer.
An offer based on hardship or exceptional circumstances
Effective Tax Administration under §301.7122-1(b)(3) applies when the full balance could be collected, but collection would cause hardship or be inequitable. It uses Form 656 rather than a liability-dispute offer.
- Economic hardship under §301.7122-1(b)(3)(i) applies to individuals only; selling retirement assets or home equity may cause hardship despite limited income.
- Public policy or equity under §301.7122-1(b)(3)(ii) addresses exceptional facts such as serious illness, third-party fraud, natural disaster or erroneous IRS advice.
- Under §301.7122-1(b)(3)(iii), acceptance must not undermine voluntary compliance with the tax laws.
The cited case is Murphy v. Commissioner, 125 T.C. 301 (2005), aff'd 469 F.3d 27 (1st Cir. 2006).
What the IRS calculates it could collect
Reasonable Collection Potential (RCP) estimates what the IRS could collect during the remaining §6502 collection period. IRM 5.8.5 divides it into two components: net realizable equity in assets and future income.
Equity in assets
Net realizable equity (NRE) is the asset value remaining after the applicable deductions.
- Quick Sale Value (QSV), an estimated sale value, equals 80% of Fair Market Value.
- Subtract encumbrances, secured claims perfected before the federal tax lien filing.
- Subtract statutory exemptions under IRC §6334.
The review covers cash, investments, retirement accounts, vehicles, real estate, business assets, life insurance cash value and accounts receivable.
Future income
The future income component (FIC) is monthly disposable income, the amount remaining after allowable expenses, multiplied by the payment-structure factor.
- Lump-sum offer: multiply monthly disposable income by 12 months.
- Periodic-payment offer: multiply it by 24 months.
The periodic structure may be used when a lump-sum payment is not feasible; its multiplier produces a higher calculation for the same positive monthly income.
RCP = Net Realizable Equity (NRE) + Future Income Component (FIC).
At $500/month of disposable income, the future-income component is $6,000 for lump-sum payment and $12,000 for periodic payment, a $6,000 difference. At $400/month, it is $4,800 or $9,600, a $4,800 difference. Asset equity is the same in both structures.
The proposed offer generally equals or exceeds RCP, subject to special circumstances or effective tax administration. For $50,000 of debt and $5,000 of RCP, an offer near $5,000 would be 10 cents on the dollar; $40,000 of RCP points to a different offer amount. These are illustrations, not predicted IRS decisions.
Four threshold rules
These requirements must be addressed before the IRS reviews the merits of an offer.
- Required returns filed: unfiled returns required during the prior 6 years can cause the offer to be returned without review; wage and income transcripts help identify missing records.
- No open bankruptcy: the bankruptcy court handles debt resolution during an active proceeding; an offer may be considered after discharge or dismissal.
- Fee and initial payment: the application fee is $205 (2026 figure, non-refundable); a lump-sum offer includes 20%, and a periodic offer includes the first proposed monthly installment.
- Current tax payments: check W-4 withholding and current-year estimated payments before submission.
Low-income certification applies when household adjusted gross income is at or below 250% of the federal poverty guidelines for family size and state. It waives the $205 fee, the 20% lump-sum deposit or first periodic installment, and monthly payments during review. The IRS also considers whether current compliance can continue after acceptance.
What happens after submission
The existing planning estimate is 6–12 months from submission to a decision, not a promised completion date. Actual timing depends on the records, IRS requests and the case.
Initial processing: 4–8 weeks
The IRS checks completeness, the fee or deposit or low-income certification, and threshold eligibility. A processable offer enters the Automated Offer in Compromise (AOIC) system and is assigned to an Offer Examiner. An offer that cannot be processed is returned without review; under the Form 656 Booklet rules, payments the IRS retains are applied to the tax balance rather than refunded.
Financial review: 3–9 months
The examiner reviews Form 433-A(OIC), income records, bank deposits and asset values. The Collection Financial Standards set the allowable living expenses used in the review. IRC §6331(k)(1) generally prohibits levy on the periods covered while the offer is pending.
The IRS may still file a Notice of Federal Tax Lien to protect its claim, and levies already in place may continue. A timely Form 13711 appeal extends applicable levy protection through Appeals consideration.
The IRS determination
- If accepted, pay under the elected structure: lump-sum within 5 months or periodic payments over 6–24 months.
- If rejected, request Appeals review on Form 13711 within 30 days of the rejection Letter.
- If returned for threshold failures, the existing fee rules apply; correct the problem before resubmitting, with fees forfeited as described in the offer terms.
After acceptance: 5-year compliance
Section 7 of Form 656 requires timely returns, timely tax payments including estimated tax, and no new federal tax debt for 5 years following acceptance. Default can reinstate the full original liability plus accrued interest and penalties from the original assessment date. Offer payments are credited against the reinstated balance.
A later offer may be appropriate after an income decrease, asset reduction, corrected financial calculation or other material change. The collection statute expiration date (CSED) is the deadline for IRS collection, and time passing may change the analysis. A recent rejection may instead call for a Form 13711 appeal within 30 days.
The 24-month rule
IRC §7122(f) provides for deemed acceptance if the IRS does not reject an offer within the statutory period. This is a legal rule, not a strategy or an assurance of acceptance.
"Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer."
The page's cited procedural guidance is IRM 8.23.1; the dates and procedural status need case-specific review.
- The 24-month calculation runs from submission through the applicable IRS disposition: acceptance, rejection, return or withdrawal.
- Reopening after a rejection within 24 months does not restart the deemed-acceptance clock.
- Taxpayer-requested extensions or holds may affect the clock and require review of the applicable rules.
- Deemed acceptance is rare in practice; the IRS tracks pending offers.
Fees and engagement
- Notice Review
- $97
- Case Analysis
- Case Analysis: $497
- OIC resolution work
- Fixed by work type and amount owed
- Representation (Form 2848)
- $1,000
Case Analysis is $497 regardless of balance owed, tax years, complexity or urgency. The $97 Notice Review is credited toward the $497 Case Analysis. Phase 2 work is priced in the published ranges on our IRS fee page, or quoted in writing after the Case Analysis. Fixed fees, confirmed in writing before work begins. Not a guarantee of any IRS outcome. We never charge a percentage of tax saved.
Free — Free Notice Decoder / free path. The free decoder explains your notice from its type and date. No documents are uploaded at the free step. $97 — Notice Review. Send us your IRS notice along with your own transcripts. We tell you what the notice is, what it means, and what the issues appear to be at a high level. This is information, not tax advice. $497 — Case Analysis. We pull your transcripts, analyze your whole situation, and give you a written do-it-yourself plan. $1,000 — Representation. Power of attorney (Form 2848) and we represent you before the IRS. Flat $1,000. The $97 Notice Review is credited toward the $497 Case Analysis. Fixed fees, confirmed in writing before work begins. Not a guarantee of any IRS outcome. We never charge a percentage of tax saved.
The engagement letter controls the work; no specific outcome or timeline is guaranteed. Acceptance depends on the financial facts, the RCP calculation and IRS discretion. Texas CPAs are bound by the rules of the Texas State Board of Public Accountancy.
Common questions
Will the IRS accept less than the full balance on a $50,000 tax debt?
The IRS decides the amount from your Reasonable Collection Potential (RCP), its calculation of what it could collect.
For $50,000 of debt, an RCP of $5,000 may support an offer near $5,000, while an RCP of $40,000 points to an offer near $40,000.
These examples are not promises of acceptance.
What is the difference between RCP and the offer amount?
RCP is the IRS's measure of what it could collect from you.
An offer is generally expected to equal or exceed RCP, but the IRS may accept less when special circumstances or effective tax administration apply (Treas.
Reg. §301.7122-1(b)(3); IRM 5.8.11).
The offer amount is what you propose to pay.
Lump-sum OIC (12-month future income multiplier) produces a lower RCP than periodic-payment OIC (24-month multiplier).
Net Realizable Equity is the same in both structures.
I can't afford the $205 fee or the 20% down payment. Can I still file an OIC?
Yes — through Low-Income Certification.
If your household adjusted gross income is at or below 250% of the federal poverty guidelines for your family size and state, the $205 application fee, the 20% lump-sum down payment, and all monthly payments during review are waived.
Can the IRS collect from me while my OIC is being reviewed?
IRC §6331(k)(1) prohibits IRS levy during OIC pendency.
However, the IRS can still file a Notice of Federal Tax Lien, and pre-OIC pending levies may continue.
The §6331(k)(1) protection ends if the OIC is rejected and no timely Form 13711 appeal is filed.
I had an OIC rejected before. Can I file another one?
Yes.
There is no statutory waiting period after a prior rejection.
A new submission is appropriate when financial circumstances have materially changed, significant time has passed shortening the CSED, or the prior rejection was due to a correctable threshold failure.
If the prior rejection was recent, Form 13711 Appeals within 30 days may be more efficient.
What is the 5-year compliance covenant and what happens if I default?
Per Section 7 of Form 656, accepted OICs carry a 5-year post-acceptance compliance covenant requiring timely filing of all returns, timely payment of all taxes, and no new tax debt.
Default reinstates the full original liability plus accrued interest from the original assessment date.
About the author
Ebot Mbi, CPA, EA · Texas CPA #127163 · IRS Enrolled Agent, federally licensed by the U.S. Department of the Treasury to practice before the IRS.
The practice focuses on federal tax resolution, including offer preparation, IRS Appeals representation and collection matters. ebotCPA is located at 4425 W Airport Fwy, Ste 595, Irving, TX 75062.