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Home > Notices > Offer in Compromise

Offer in Compromise

  • Doubt As to Liability (DATL)

  • Doubt As to Collectability (DATC)

  • Effective Tax Administration (ETA)

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Station Overview

If you can’t pay your tax debt in full, or if paying it all will create a financial hardship for you, an offer in compromise (OIC) may be an option. An OIC (also known as an offer) is an agreement between you and the IRS, where the IRS agrees to accept less than the full amount you owe to settle the debt.

This notice or letter may include additional topics that have not yet been covered here. Please check back frequently for updates.

The IRS may accept an OIC based on one of the following reasons:

  • Doubt As to Liability: You can file an OIC as doubt as to liability using Form 656-L when you believe you do not owe the tax or you do not believe the amount is correct.
  • Doubt As to Collectability (DACT): You can file an OIC as doubt as to collectability, which means that you do not have enough income or assets to pay your tax balance in full.
  • Effective Tax Administration: You can file an OIC as effective tax administration, which means you can pay all your balance due but it would create an economic hardship on you or would be unfair or inequitable, considering public policy.

How did I get here?

Before the IRS will consider an offer, you must have filed all tax returns and made all required estimated tax payments for the current year. Individual taxpayers in an open bankruptcy proceeding aren’t eligible to enter into an OIC. You can use the IRS Offer in Compromise Pre-Qualifier Tool to see if you are eligible to make an offer. You can also follow the instructions in Form 656-B Booklet, Offer in Compromise , to prepare and file the offer.

What does this letter or notice mean to me?

You have a balance on your tax account, so the IRS sent you a notice or letter. If the IRS still did not hear from you, they sent you a Notice of Federal Tax Lien or notice of proposed levy, letting you know how much you owe, when it’s due, how to pay and that you have the right to appeal this action. If the IRS does not hear from you, it will continue with its collection process.

For example, if you have a tax debt, the IRS can issue a levy, which is a legal seizure of your property or assets. It is different from a lien — while a lien makes a claim to your assets as security for a tax debt, the levy takes your property (such as funds from a bank account, Social Security benefits, wages, your car, or your home). For specifics, see Levies and Liens.

What are my next steps?

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Is it from the IRS?

The first thing to do is to check the return address to be sure it’s from the Internal Revenue Service and not another agency. If it is, the notice will have instructions on how to respond. If you want more details about your tax account, you can order a transcript.

If you can’t pay the full amount by that date, you may wish to consider an OIC.

Note: You can’t submit an offer if your debt has been established by a final court decision or judgment about the tax or the amount.

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Payment Options

There are two kinds of payment options for an offer — you must select one of them and include payment with your offer. The amount of the first and following payments will depend on the total amount you offer and which payment option you choose.

  • Lump Sum Offer: Generally, you’ll be required to pay 20 percent of the total amount you’re offering when you submit the offer. You’ll need to pay the rest in five or fewer payments, within five or fewer months of the date the IRS accepts the offer.
  • Periodic Payment Offer: Generally, you’ll make the first payment when you submit the offer and the rest within the following 24 months, according to the terms of your offer.

NOTE: If you are currently in an open bankruptcy proceeding, you’re not eligible to apply for an offer. Any balances that are not resolved within the context of your bankruptcy proceedings can be addressed after your bankruptcy is discharged or dismissed.

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If you owe the amount and it is correct, you can:

  • First, review all the other options that might be available to you. Some of these will have lower fees and can be easier and faster to obtain.
  • Before submitting an application, use the IRS Offer in Compromise Pre-Qualifier Tool to see if you may be eligible to make an offer. This tool is only a guide. You can still discuss questions you have about filing an offer by contacting the IRS.
  • If you decide to submit an offer, you’ll need to give the IRS complete financial information. Make a list of your income, expenses, assets and any debts owed against those assets. Follow the instructions in Form 656-B Booklet, Offer in Compromise, to prepare and file your offer.

Note: Submitting an offer doesn’t guarantee the IRS will accept your offer. It starts the process of evaluating your situation, your ability to pay, and the amount you’re offering. You can submit an offer on taxes owed individually and for your business.

You’ll have to pay an application fee of $186 and make offer payments (based on the method you choose) with your offer submission, unless you meet certain low-income guidelines, which are in the Form 656-B Booklet

After the IRS notifies you it has accepted your offer and you pay the reduced amount you’ve agreed to, your entire tax debt is resolved if you fulfill the terms of the offer agreement. For further details regarding the offer process, see Offer in Compromise.

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If you disagree with the notice

Call the IRS at the toll-free number on the top right corner of your notice. Please have your paperwork (such as cancelled checks, amended return, etc.) ready when you call. See also Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree.

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If you wish to appeal this proposed levy action or lien filing

You’ll have until the date shown on the notice to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. This deadline cannot be extended for any reason. If your request for a CDP hearing isn’t timely, you can request an Equivalent Hearing within one year from the date of the CDP notice, but you can’t go to court if you disagree with Appeals’ decision. See Publication 1660, Collection Appeal Rights, for a full explanation of the CDP process and the Equivalent Hearing process.

If the IRS has already issued a CDP notice for that particular tax debt, then you can still request a hearing with the IRS Independent Office of Appeals (Appeals)either before or after the IRS levies your property or files a lien. You will need to request a conference through the Collection Appeals Program (CAP), but unlike a CDP hearing, you may not seek review of Appeals’ determination in the U.S. Tax Court. See Publication 1660, Collection Appeal Rights, for a full explanation of the CAP.

You can also informally ask an IRS manager to review your case — you can ask the employee listed on your notice. IRS employees are required to give you their manager’s name and phone number. For specifics, see Levies and Liens.

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If you still need help

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit dev.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

Related Letters and Notices

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Offer in Compromise

  • Doubt As to Liability (DATL)
  • Doubt As to Collectability (DATC)
  • Effective Tax Administration (ETA)
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