Do you owe the IRS more than you can pay? Learn when it settles for less and what it costs.
IRS Offer in Compromise: The Eligibility Rules, the $205 Fee and the First Payment
Learn the three things the IRS checks before anything else: whether you could pay in full through a plan or your assets, the $205 fee with its 20% first payment, and the income table (for one person, $39,900) that waives both.
By the end you will know: the pay-in-full test and the arithmetic on Form 433-A (OIC); what happens after you apply, and the two-year rule; how many offers the IRS accepted in 2025: 5,464 of 38,797 received.
Quick answer
An offer in compromise settles federal tax debt for less than the full balance, but the IRS generally will not accept one if you could pay in full through a payment plan or the equity in your assets. Applying costs a $205 fee plus a first payment (20% of a lump-sum offer, or the first monthly payment of a periodic offer), both waived for individuals under the Form 656 income table, such as $39,900 for a household of one. In fiscal year 2025 the IRS received 38,797 offers and accepted 5,464, worth $98.1 million (IRS Data Book and Form 656-B, April 2026 revision, read October 14, 2026).
Free tool
The pay-in-full test decides most offers, so use this free tool to see what a payment plan or an offer would cost you: a plan can cost $0 to $178 to set up, plus interest and the reduced penalty.
By the Legal Cost by State Editorial Team·Last updated and source-checked October 14, 2026
What to do next
1
Find the notice number and the respond-by date, and confirm every return is filed
A missing required return sends the offer back without appeal rights, with the first payment applied to the debt, so the filing check comes before the arithmetic.
2
Run the free IRS Pre-Qualifier with the figures from your last return
It applies the test the IRS applies, whether the balance could be paid in full through a plan or your assets, and computes a preliminary offer.
3
Choose the payment shape before Form 656
Lump sum means 20% with the application and the rest in 5 or fewer payments within 5 months of acceptance; periodic means monthly from the application, paid in full within 6 to 24 months.
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Can I apply? Four things the IRS checks first
The IRS checks these before the amount you offer; miss one and the application comes back.
Every required return is filed
A missing return sends the offer and the fee back, and that decision cannot be appealed.
You have a bill for at least one of the debts
Wait until you have a bill for at least one included debt (Form 656-B).
Current-year estimated payments are made
So are federal tax deposits for the current quarter and the two before it, if you are an employer.
You are not in an open bankruptcy
A tax debt in an open bankruptcy is generally resolved inside that case; an open audit or innocent spouse claim should be resolved first.
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Learn the Form 433-A (OIC) arithmetic and the two other grounds for an offer.
Most offers are judged on doubt as to collectibility: whether the IRS could collect the full balance within the collection period. Form 433-A (OIC), April 2026 revision, turns that into arithmetic: your remaining monthly income (income minus allowable expenses) is multiplied by 12 if you will pay the offer in 5 or fewer payments within 5 months, or by 24 if you will pay over 6 to 24 months, and the result is added to your equity in assets. That sum is the minimum offer the form produces.
Allowable expenses come from the IRS Collection Financial Standards, effective June 29, 2026: national amounts for food, clothing and out-of-pocket health care, allowed in full, and local caps for housing, utilities and transportation, where you are allowed the lesser of what you spend and the cap. The booklet also notes allowances such as $1,000 of a bank balance and $3,450 against the value of a car, applied only after the IRS finds you cannot pay in full.
Two other grounds exist. Doubt as to liability, filed on Form 656-L, is for a debt you believe you do not owe. Effective tax administration is for a debt you could pay where paying would cause economic hardship or be unjust in exceptional circumstances.
Learn the $205 fee, the first payment for each offer type and the costs that keep running.
Application fee: $205
Required with every Form 656 unless an individual meets the low-income certification. It is returned if the IRS finds you ineligible to apply, and kept if the offer is processed and rejected.
Lump-sum offer: 20% now
Pay 20% of the offer amount with the application, and the rest in 5 or fewer payments within 5 months of acceptance. The 20% rule is in 26 U.S.C. 7122(c).
Periodic offer: monthly from day one
Keep paying monthly while the IRS reviews it; missing a payment during review can get the offer returned.
Costs that keep running
Penalties and interest continue while the offer is considered, and the IRS may keep refunds on returns assessed before acceptance. Payments made on an offer are generally not returned.
Learn the Form 656 low-income lines by household size, with the Alaska and Hawaii figures.
If you are an individual whose adjusted gross income, or gross monthly household income times 12, is at or under this Form 656 table, you pay no fee and make no payments while the offer is reviewed. Your first payment is then due 30 days after acceptance. Businesses other than sole proprietors do not qualify.
Household of 1
$39,900 in the 48 contiguous states, D.C. and U.S. territories; $49,875 in Alaska; $45,900 in Hawaii.
Household of 2
$54,100; $67,625 in Alaska; $62,225 in Hawaii.
Household of 4
$82,500; $103,125 in Alaska; $94,875 in Hawaii.
Each additional person
Add $14,200; $17,750 in Alaska; $16,325 in Hawaii. The full table runs to households of 8 on page 2 of Form 656.
Learn what happens in review, the two-year rule, and what acceptance or rejection brings.
1
Eligibility check
If you are not eligible, the IRS returns the application and the fee and applies any payment to the debt.
2
Collection mostly pauses
The IRS suspends most collection, extends the collection period and may file a lien notice; payments on an existing plan for the same balance stop.
3
A decision, or acceptance by default
An offer the IRS has not accepted or rejected within two years of receiving it is treated as accepted (26 U.S.C. 7122(f)); the IRS says the two years do not count time spent in an appeal.
4
If accepted
File and pay on time through the fifth year after acceptance or the offer can be defaulted. Liens are released only when the offer is paid in full, and some offer information becomes public.
5
If rejected
The fee is kept, payments are applied to the balance, and you can appeal to the IRS Independent Office of Appeals.
Learn the IRS counts of offers received and accepted in 2024 and 2025.
IRS Data Book Table 4-1 counts offers received and accepted each fiscal year: 33,591 received and 7,199 accepted (worth $163.4 million) in 2024, and 38,797 received and 5,464 accepted (worth $98.1 million) in 2025. Dividing $98.1 million by 5,464 gives about $17,960 per accepted offer in 2025, our arithmetic and an average across very different cases. Offers accepted in a year can have been received the year before, so accepted divided by received is not a true acceptance rate.
The IRS 2026 Dirty Dozen list warns that "OIC mills" overpromise and charge high fees to people who do not qualify.
$205 plus a first payment, both waived for individuals under the Form 656 income table. Any fee a preparer or representative charges is separate.
There is no fixed floor beyond more than $0. An offer below the form's minimum needs special circumstances explained on Form 656.
The IRS publishes no standard time. By law an offer not rejected within 24 months is treated as accepted, not counting time the liability is disputed in court.
The IRS publishes counts, not a rate; offers decided in a later year than they were filed keep the two counts from dividing into a clean percentage.
No. Form 656-B says you are not required to make installment agreement payments while the offer is considered, and the plan is reinstated if the offer is not accepted and you have no new debt.
It may, for returns assessed before acceptance, and those refunds do not count toward the offer.
No. The tax debt is generally resolved within the bankruptcy case.
Yes, with Form 433-B (OIC), the $205 fee and the first payment, and no low-income waiver unless it is a sole proprietor. A business with unpaid trust fund taxes generally must pay that portion or have the Trust Fund Recovery Penalty determined first.
Information on this page reflects laws and published figures as of October 14, 2026. This is general information, not legal advice, and not a prediction for any matter. Rules and fees change; check the court or agency page linked for each figure.
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