How it works
An Offer in Compromise is filed on Form 656 with a collection information statement (Form 433-A or 433-B, OIC version) and an application fee. The IRS accepts an offer for doubt as to collectibility when the amount offered equals or exceeds your reasonable collection potential: net realizable equity in assets plus future disposable income over 12 or 24 months. You must be current on all filings and estimated payments, and an accepted offer requires five years of compliance afterward.
Why it matters
Most offers fail because the number is below the IRS calculation, not because the program is closed. The arithmetic should be run before applying, and a firm that promises acceptance before seeing your finances is selling something it does not control.
Example
A taxpayer owes 180,000 dollars, has 15,000 dollars of equity, and 400 dollars of monthly disposable income under IRS standards. Reasonable collection potential for a lump sum offer is roughly 15,000 plus 400 times 12, or 19,800 dollars. An offer at that level has a real chance; an offer of 5,000 dollars does not.
Related: reasonable collection potential, Form 656, partial payment installment agreement. Read more: tax debt resolution.
