An Offer in Compromise (OIC) lets you settle your tax debt for less than the full amount — but only if you genuinely can’t pay it in full (now or through a plan) before the collection statute expires. Ignore the radio ads promising “pennies on the dollar”; the IRS approves OICs based on a strict formula, not slogans.
No fixed deadline, but: you must be filed and current (all required returns filed, current-year estimated payments/withholding in order) to be eligible, and you should not let collection escalate to a levy while you prepare — request a CDP hearing if an LT11 arrives.
Reality check before you apply
- The math: the IRS compares your offer to your “reasonable collection potential” — roughly your realizable asset equity plus future income. If the formula says you could pay more, it’s rejected.
- Forms: Form 656 (the offer) + Form 433-A(OIC) (individuals) financial statement, an application fee, and an initial payment (both may be waived for low-income taxpayers).
- Use the IRS Pre-Qualifier tool (irs.gov) first — it’s free and tells you if an OIC is realistic.
- Avoid “OIC mills” that charge thousands up front and file offers that don’t qualify. If you can’t pay, Currently Not Collectible or an installment agreement may fit better.
The cover letter (with Form 656 package)
[Your name]
[Address]
[City, State ZIP]
[Daytime phone]
[Date]
Internal Revenue Service
[Use the address in the Form 656-B booklet]
Re: Offer in Compromise (Form 656 and Form 433-A(OIC) enclosed)
Name: [Your name] SSN/ITIN: [xxx-xx-1234]
Tax period(s): [years] Total liability: $[amount]
To whom it may concern:
I am submitting an Offer in Compromise based on doubt as to collectibility. I
cannot pay the full balance now or through an installment agreement within the
collection period. My offer is $[amount], to be paid as [lump sum / periodic],
based on the financial information in the enclosed Form 433-A(OIC).
Enclosed: Form 656, Form 433-A(OIC) with supporting documents, the application
fee, and the required initial payment [or: a Low-Income Certification claiming a
fee/payment waiver]. All my required tax returns are filed and I am current on
this year's payments.
Please consider this offer. I can provide any additional documentation needed.
Sincerely,
[Signature]
[Printed name]
How to send it
Run the Pre-Qualifier first. Assemble the full Form 656-B booklet package (656 + 433-A(OIC) + fee + initial payment, or the low-income waiver), send certified mail, and keep a complete copy. Keep filing and paying current taxes during review — a new balance can void an accepted offer.
Notes. An OIC is the right tool only for genuine inability to pay; most people do better with a payment plan or CNC. Submitting an offer generally suspends levies while it’s pending and extends the collection statute. This is general information, not tax advice — a reputable CPA, enrolled agent, tax attorney, or Low Income Taxpayer Clinic can tell you honestly whether you qualify.