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Your Step-by-Step Checklist for Applying for an Offer in Compromise (OIC)

Dealing with tax debt can feel overwhelming, but an Offer in Compromise is a proven path to relief for many—settling what you owe for less than the full amount. At Omni Tax Help, we’ve guided thousands through this exact process with clear, personalized support. This checklist breaks down the process into simple, actionable steps based on the IRS Form 656 guidelines. Remember, eligibility isn’t guaranteed, but starting here puts you in control. If any step raises questions, our experts are here to help—reach out for a free consultation at 800-707-8065.

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Step Action Details & Tips
1. Check Your Eligibility
Confirm, you meet basic requirements.
File all required tax returns. – Received a bill for at least one tax debt in your offer. – Made all current-year estimated tax payments. – If a business owner with employees made federal tax deposits for the current quarter and two prior quarters. Tip: Use the free IRS OIC Pre-Qualifier tool at IRS.gov/OIC to get instant feedback on your situation. No open bankruptcy, audits, innocent spouse claims, or deactivated ITINs allowed—resolve those first.
2. Assess If You Can Pay in Full
Determine if an OIC is right for you.
The IRS won’t accept if you can fully pay via an installment agreement or asset equity. – Gather your financial snapshot: income, expenses, assets, debts. Tip: If doubt exists about owing the full amount (doubt as to liability), use Form 656-L instead—don’t mix with other OIC types.
3. Calculate Your Offer Amount
Base it on your ability to pay.
Use household income/expenses (exclude private school tuition, charity, unsecured debts). – Factor in cash, investments, assets, and future earning potential. Tip: Tools like the OIC Pre-Qualifier or Individual Online Account (IOLA) can help estimate. Avoid using expected refunds or retirement funds without advice— they may create new tax issues.
4. Gather Required Forms
Prepare the core documents.
Form 656 (Offer in Compromise)—one per debt type (e.g., separate for joint/separate or individual/business). – Form 433-A (OIC) if wage earner, self-employed, or sole proprietor. – Form 433-B (OIC) if business (corporation, partnership, LLC). Tip: If married, filing separately, both spouses need their own forms. For joint/separate debts, submit two Forms 656 total.
5. Attach Supporting Documents
Include proof for your forms.
Copies (not originals) of: pay stubs (last 3 months), bank statements (3 months), asset valuations, business financials, etc.—see form instructions for full list. Tip: This helps the IRS verify your situation accurately; missing items can delay or return your offer.
6. Handle Payments and Fee
Select and submit based on your option.
$205 application fee (waived for low-income individuals). – Initial payment: 20% of offer for lump sum (balance in ≤5 payments over 5 months) or first month’s for periodic (monthly over 6-24 months, continue during review). Tip: Low-income? No payments needed upfront—certify on Form 656. Pay via check/money order to “United States Treasury” or electronically. If borrowing funds, consult us to avoid pitfalls.
7. Review and Submit
Double-check everything.
Make a copy for your records. – Mail to the IRS address on page 29 of Form 656 (or file via IOLA if individual). – Notify any IRS contact you’re working with. Tip: If you have an existing installment agreement, payments pause during review.
8. Stay Compliant During Review
Keep up with obligations.
File/pay all taxes on time (returns, estimates, deposits). – Respond promptly to IRS requests (within specified timeframe). – Penalties/interest accrue until acceptance. Tip: IRS may offset refunds or levy assets pre-acceptance—contact them immediately if levied.
9. Understand Next Steps
Know what happens after submission.
IRS reviews (may take months); appeal rejections but not returns. – If accepted: Stay current for 5 years or risk default (full debt revives minus payments). – Public inspection file required for accepted offers. Tip: No DOJ referral, court restitution, or §965 liabilities can be compromised. For hardship, contact the Taxpayer Advocate Service (877-777-4778) or a Low-Income Taxpayer Clinic.

You’re taking a smart, proactive step—many clients tell us this checklist alone eases the stress. Once submitted, the IRS process can feel like a wait, but our team at Omni Tax Help can handle negotiations, paperwork, and follow-ups to maximize your chances of a favorable outcome. Let’s make this a fresh start; contact us today to review your specific needs.

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This information is current as of October 09, 2025. IRS guidelines are subject to change; please verify with official IRS sources for the latest updates.