An offer in compromise (OIC) is an agreement with the IRS to settle your tax debt for less than the full amount. It is a real program, and it does help some people. But it is narrower than many ads suggest. The IRS accepts an offer when it believes the amount you offer is about the most it could collect from you within a reasonable time. If you could pay in full through a payment plan, an offer is usually not the right tool.
This guide explains who qualifies, how the IRS sets the amount, the 2026 fees, and what happens after you apply.
Three reasons the IRS may accept an offer
Doubt as to collectibility. You do not have enough income and assets to pay the full debt. This is by far the most common type.
Effective tax administration. You could technically pay, but doing so would cause economic hardship, or there are exceptional circumstances that would make full payment unjust (Form 656-B).
Doubt as to liability. You have a real dispute about whether you owe the tax, or how much. This uses a different form, Form 656-L. Do not file it at the same time as an ability-to-pay offer. If your dispute is about an audit result, audit reconsideration may be a simpler route.
Who is eligible to apply
Before the IRS will consider your offer, Form 656-B says you must:
- File all required tax returns. If you have not, the IRS returns your offer and fee and keeps any payment you sent. You cannot appeal that.
- Have received a bill for at least one tax debt included in the offer.
- Make all required estimated tax payments for the current year.
- If you have employees, make all required federal tax deposits for the current quarter and the two quarters before it.
You also cannot apply while you are in an open bankruptcy case. Resolve any open audit or innocent spouse claim first. An offer with a deactivated ITIN will not be considered until the ITIN is reactivated.
How the IRS decides what to accept
The IRS looks at your reasonable collection potential: roughly, what it could collect from you. The offer forms build this from two parts.
- Equity in your assets. This is what your property is worth (cash, bank accounts, vehicles, real estate, retirement accounts and so on) minus what you owe on it. Form 656-B mentions some adjustments for individuals, such as $1,000 allowed for a bank balance and $3,450 against a car's value. These apply only after the IRS decides you cannot pay in full.
- Future remaining income. This is your monthly income minus allowable living expenses. If you will pay within five months, you multiply that monthly amount by 12. If you will pay over 6 to 24 months, you multiply it by 24 (Form 433-A (OIC), Rev. 4-2026).
Simplified example. Say the IRS agrees your assets have $3,000 of equity and you have $150 a month left after allowable expenses.
- Lump sum offer: $3,000 + ($150 × 12) = $4,800. You would send 20% ($960) with the application.
- Periodic payment offer: $3,000 + ($150 × 24) = $6,600, paid monthly over up to 24 months.
If you owed $40,000, an accepted offer of $4,800 would settle the debt. If your equity were $45,000, though, the IRS would expect you to pay in full, and the offer would likely be rejected. Real cases use many more lines and IRS expense standards.
What it costs in 2026
Application fee: $205 for each Form 656 (Form 656-B, Rev. 4-2026; IRS offer in compromise page, updated October 2026).
Payment options:
| Option | What you send with the offer | After acceptance |
|---|---|---|
| Lump sum | 20% of the offer amount | Pay the rest in 5 or fewer payments within 5 months |
| Periodic payment | The first monthly payment | Keep paying monthly, within 6 to 24 months total, including while the IRS reviews the offer |
Under the periodic option, if you stop paying while the offer is being reviewed, the IRS may return your offer, and you cannot appeal that. Payments you make are generally applied to your tax debt and not returned.
Low-income waiver. Individuals (including sole proprietors) who meet the Low-Income Certification guidelines pay no application fee and no payments while the offer is reviewed. You qualify if your adjusted gross income, or your household's gross monthly income times 12, is at or below the table amount for your family size. Some amounts from the April 2026 Form 656:
| Family size | 48 states, D.C. and 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 |
Add $14,200 for each extra person in the 48 states (Form 656-B lists Alaska and Hawaii amounts too). Businesses other than sole proprietors do not qualify.
You cannot pay your offer with an expected tax refund, money already paid, or funds the IRS took by levy.
How to apply
- Run the Pre-Qualifier. The IRS Offer in Compromise Pre-Qualifier tool (IRS.gov/OICtool) checks your eligibility and estimates an offer amount. It does not guarantee acceptance.
- Gather proof. Expect to need recent bank statements (three months for individuals), pay stubs, and statements for loans, retirement accounts and property.
- Apply online or by mail. Individuals can now submit an offer through their IRS Individual Online Account. Otherwise, mail Form 656 with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, the fee and the first payment to the IRS center in Memphis or Brookhaven listed in the Form 656-B checklist.
- Answer IRS requests on time. If you miss a deadline for more information, the IRS can return your offer without appeal rights.
While your offer is pending
- Collection mostly pauses. The IRS generally cannot levy while an offer is pending (Publication 594). The 10-year collection clock is paused during review, for 30 more days if the offer is rejected, and during any appeal.
- You do not need to keep paying an existing payment plan for the same balance, per the IRS offer page. You must keep making any periodic offer payments.
- The IRS may file a Notice of Federal Tax Lien. See federal tax liens.
- Refunds can still be kept. The IRS can apply refunds for returns assessed before your offer is accepted. They do not count toward your offer.
- The two-year rule. If the IRS does not accept or reject your offer within two years of receiving it (not counting time in an appeal), it is treated as accepted.
If your offer is accepted or rejected
If accepted, you must file and pay all taxes on time for the next five years. If you do not, the IRS may default the offer and bring back the original debt, minus what you paid. Some offer details go into a public file for one year after acceptance. The IRS releases federal tax liens only after the offer is fully paid.
If rejected, you can appeal to the IRS Independent Office of Appeals. Follow the deadline in the rejection letter. Your payments are applied to your balance.
What are the real odds?
According to the IRS Data Book, taxpayers submitted 38,797 offers in fiscal year 2025 and the IRS accepted 5,464 of them, worth about $98.1 million in total. Accepted offers and offers received in the same year are not always the same cases, so this is not an exact rate. But it shows that most offers do not end in a deal. Many people who apply could pay through a monthly plan, which the IRS will offer instead. Others leave out required returns or payments.
Be very careful with companies that advertise "pennies on the dollar" settlements or charge large upfront fees. The IRS forms and Pre-Qualifier are free. Low-income taxpayers can get free or low-cost help from a Low Income Taxpayer Clinic. See Taxpayer Advocate Service and clinics.
If an offer is not realistic for you, compare an IRS payment plan or Currently Not Collectible status. Our guide to what to do if you can't pay lays out all the options. An optional offer in compromise package is available on this site, but the IRS booklet contains every form and instruction you need.
Frequently asked questions
Can I apply for an offer in compromise if I'm on a payment plan?
Yes. The IRS says you do not need to keep making payments on an existing plan for the same balance while your offer is pending. If the offer is rejected, talk with the IRS about restarting the plan.
Do I get the $205 fee back if my offer is rejected?
Generally no. The fee is returned only if the IRS finds you were not eligible and returns the application, for example because you are in bankruptcy. If the IRS reviews and rejects the offer, it keeps the fee.
How long does the IRS take to decide?
It varies. The law treats an offer as accepted if the IRS has not decided within two years of receiving it, not counting time spent in an appeal.
Will an accepted offer remove the federal tax lien?
The IRS releases liens only after the accepted offer amount is paid in full.
Should I use a tax professional?
Offers involve detailed financial forms and judgment calls. A CPA, enrolled agent, tax attorney or Low Income Taxpayer Clinic can tell you whether you are likely to qualify before you pay the fee. See choosing a tax professional.
Sources
- Internal Revenue Service (IRS), "Offer in compromise". irs.gov
- IRS, Form 656-B, Offer in Compromise Booklet (Rev. 4-2026). irs.gov
- IRS, Topic no. 202, "Tax payment options". irs.gov
- IRS, Publication 594, "The IRS Collection Process" (Rev. 1-2026). irs.gov
- IRS, "Time IRS can collect tax". irs.gov
- IRS Data Book, Table 4-1, "Delinquent Collection Activities, Fiscal Years 2024 and 2025". irs.gov
IRSV.com is an independent guide and is not affiliated with the IRS. This page is general information, not tax or legal advice. Rules change; confirm details on IRS.gov or with a tax professional. Found an error? Tell us.
