Offer in Compromise

Internal Revenue Code Section 7122 gives the IRS authority to compromise a federal tax liability for less than the assessed amount. An accepted offer is a contract. You pay an agreed sum on agreed terms, the IRS writes off the balance, and both sides take on obligations that last five years.

It is not debt forgiveness in the loose sense. It is not a hardship program. It is not a negotiation in the ordinary sense either, because the number is largely determined by arithmetic before any human at the IRS forms an opinion about you.

Two people who both owe $80,000 can get completely different answers. One settles for $3,600. The other gets rejected and is told to set up a payment plan. Nothing about their tax debt is different. Everything about their balance sheet is.

Section 7122 authorizes a compromise on three grounds, and you have to pick one when you file.

Doubt as to Collectibility. The IRS doubts it can collect the full amount before the ten year collection statute expires, given your income, your allowable expenses and your assets. This is the ground that nearly every accepted offer rests on. If you are reading this page, this is almost certainly your ground.

Doubt as to Liability. There is a genuine dispute about whether the assessed amount is correct at all. This one uses a different form, Form 656-L, and it carries no application fee and no initial payment. If your argument is that the number is wrong rather than that you cannot pay it, you are in the wrong section of this page and you want 656-L. A classic example: a father and son with the same name and similar Social Security numbers, and the IRS assessed the wrong one.

A doubt as to liability offer goes on Form 656-L, not Form 656, and carries no fee and no payment. Form 656-L (Rev. 7-2026): "There is no application fee or payment required for a Doubt as to Liability offer. Don't send any payments with this offer." DATL offers go to the Brookhaven DATL Unit. 26 U.S.C. 7122(d)(3)(B)(ii) also relieves a liability only offer of the financial statement requirement. Do not file a DATL offer and a collectibility offer at the same time.

Effective Tax Administration. You could technically pay, but collecting would create genuine economic hardship or would be plainly inequitable on the specific facts. Rare, fact intensive, and usually built around serious illness or advanced age combined with an asset the IRS theoretically could reach but practically should not.

The acceptance rates are wildly different by ground, which tells you something about where the program actually works.

Pick the wrong ground and the offer gets returned before anyone reads your financial statement.

Everything comes down to one equation, set out in Internal Revenue Manual 5.8.5.

Reasonable Collection Potential = net realizable equity in assets + future income

Get either side wrong and the offer fails. Understate your allowable expenses and the future income component inflates and pushes your required offer past what you can pay. Mishandle the asset valuation and you either get rejected for offering too little or you volunteer money you never had to offer.

Side one: net realizable equity in assets

The IRS values what you own, applies a discount, subtracts what you owe against it, and totals the result. The discount is the part almost everyone gets backwards.

Quick sale value is roughly 80 percent of fair market value, and the discount applies to the gross value, not to your equity. That is a 20 percent haircut off the top, and the order of operations matters enormously.

Here is the correct math. A house with a fair market value of $100,000 and a $70,000 mortgage:

• •Quick sale value: $100,000 times 0.80 equals $80,000
• •Less the mortgage: $80,000 minus $70,000 equals $10,000 of net realizable equity

Run it the wrong way and you get $30,000 times 0.80, which is $24,000. That is a $14,000 error against you on a single asset, and it is the most common arithmetic mistake in this entire area, including on pages that ought to know better.

Asset by asset, this is how the IRS looks at it:

• •Real estate. Quick sale value is 80 percent of fair market value. Net realizable equity is that quick sale value minus the balance owed to lienholders with priority over the federal tax lien. A home worth $400,000 with a $250,000 mortgage has a quick sale value of $320,000 and net realizable equity of $70,000 for offer purposes. IRM 5.8.5.4.1 (rev. 04-08-2024) defines net realizable equity as "quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien, if applicable, and applicable exemption amounts." Expect a fight over value. The IRS will pull county property appraiser records and comparable sales. You will want an appraisal or at least defensible comparables. Zillow is not an appraisal and the IRS knows it.
• •Vehicles. Quick sale value is 80 percent of fair market value. Subtract the loan balance, then subtract the $3,450 per car exclusion for a vehicle used for work, the production of income, or the welfare of the family. Two cars for joint filers, one for a single filer. IRM 5.8.5.12 (rev. 09-24-2021).
• •Bank accounts and cash. Individual bank balances count in full, reduced by $1,000. IRM 5.8.5.7 (rev. 04-08-2024) directs the examiner to use the balance on Form 433-A (OIC) "reduced by $1,000." Business accounts on Form 433-B (OIC) get no reduction. Where a checking balance fluctuates or the excess over $1,000 is needed for allowable monthly expenses, the IRM directs that it not be included at all.
• •Retirement accounts. Form 433-A (OIC) values a retirement account at 80 percent of current market value less any loan balance. IRM 5.8.5.10 (rev. 04-08-2024) then reduces that by the tax consequences of liquidation and any early withdrawal penalty. An account has zero equity only where the plan cannot be borrowed on or liquidated until separation from employment and the taxpayer is not eligible to retire until after the future income period. An IRA does not qualify for that treatment.
• •Investment and brokerage accounts. Market value with adjustments for marketability.
• •Business interests. Case by case. If you own a business, expect the IRS to look through the entity. Shareholder loans, related party transactions and equity in business assets all count.
• •Everything else. Life insurance cash value, collectibles, jewelry above the personal property allowance, tools beyond what your trade requires. The personal property allowance is a real and useful exemption, and like the vehicle figure it changes, so verify the current amount rather than relying on a number you read somewhere.

Dissipated assets. If you spent or transferred something of real value after the liability arose, and the circumstances suggest you did it to keep the IRS from reaching it, the examiner can add that value back into the calculation. You end up offering against equity you no longer have. Cashing out a retirement account, quietly deeding property to a relative, spending an inheritance: those get noticed. This analysis is narrower than it used to be, but it is alive and it is unforgiving when it applies. IRM 5.8.5.18 (rev. 09-24-2021) requires a showing that the taxpayer "sold, transferred, encumbered or otherwise disposed of assets in an attempt to avoid the payment of the tax liability," and states that "If the tax liability did not exist prior to the transfer or the transfer occurred prior to the taxable event giving rise to the tax liability, generally, a taxpayer cannot be said to have dissipated the assets."

Side two: future income

Future income is not what you earn. It is what the IRS says is left after it decides what you are allowed to spend, multiplied by a number that depends entirely on how you structure the offer.

• •Lump sum cash offer: monthly disposable income times 12.
• •Periodic payment offer: monthly disposable income times 24.

Twelve versus twenty four. That is the whole difference, and it is why structure is a strategic decision rather than a preference. A taxpayer with $500 a month of disposable income carries $6,000 of future income on a lump sum offer and $12,000 on a periodic offer. Same person, same month, double the number.

Every dollar of monthly disposable income is worth twelve bucks in this calculation. Memorize that. It reframes the entire conversation about allowable expenses, because a $100 expense the examiner refuses to allow just cost you $1,200.

Worth knowing as history, because you will still find it published as current advice in places: before 2012 the multiplier was 48 months for a cash offer. The reduction to 12 is the reason offers settle for dramatically less today than they did before. If you encounter a page telling you to multiply by 48, or 60, or by the months remaining on your collection statute, that page is more than a decade out of date and following it will cause you to offer four or five times more than you need to.

What the IRS lets you spend

The IRS does not care what you actually spend. It applies its own schedules, and the gap between your real budget and the IRS schedule is where paper disposable income comes from in a household that genuinely feels broke.

National Standards cap food, clothing, housekeeping supplies, personal care and a miscellaneous allowance by family size. One national table, no geographic variation. If your family of four actually spends $2,500 a month on those categories and the table allows substantially less, the difference is disposable income as far as the IRS is concerned.

The standard is the starting point, not an absolute ceiling. IRM 5.8.5.22.1 (rev. 10-22-2010) provides that "If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow a deviation," on substantiation. 26 U.S.C. 7122(d)(2)(B) bars the IRS from using the schedules where doing so "would result in the taxpayer not having adequate means to provide for basic living expenses." Getting a deviation allowed is much of the work.

Local Standards cap housing and utilities, and separately transportation, by county. Every county in the country has its own figure. This is the line item that decides most cases in a high cost area. A Tampa family of four might be allowed somewhere in the low $2,000s per month for housing and utilities while actually carrying a $3,700 mortgage payment. On paper that household has roughly $1,500 a month of disposable income it cannot feel, and the formula charges it $18,000 on a lump sum offer.

Standards effective June 29, 2026

• •National Standard, household of four: $2,176 per month, plus $90 per month per person under 65 for out of pocket health care.
• •Local Housing and Utilities, Hillsborough County, Florida, household of four: $2,861 per month.
• •Transportation ownership: $703 per month for one vehicle, $1,406 for two. Operating cost in the South region: $291 for one vehicle, $582 for two.

Other Necessary Expenses are not capped by a table but must be both necessary and reasonable: court ordered alimony and child support, child care needed for work, term life insurance premiums, mandatory retirement contributions, state and local tax payments, and a few others.

Out of pocket health care is part of the National Standards and is allowed up to the standard without substantiation. Documentation is required only to claim more than the standard.

Not allowed, in most cases:

• •College tuition you are paying for an adult child
• •Voluntary retirement contributions above any mandatory amount
• •Credit card payments
• •Loan payments on a second or third vehicle
• •Payments on assets the IRS has already counted as available equity

The national and local standard tables change. Never build an offer on a figure you remember. Pull the current tables from the IRS before you compute anything, and pull them again if the offer sits in review across a calendar year.

Four situations, same formula, four different outcomes. All figures are illustrative.

Look at the first row and the last row. The retiree with the larger debt settles for less than the price of a decent used transmission. The high earner with the smaller debt gets nothing, because the IRS can collect most of it and has ten years to do it.

That is the program. It is not a discount for asking. It is a mechanism for closing accounts the IRS cannot collect.

Here is a fuller version with the asset side broken out. A Tampa taxpayer owes $80,000.

Assets

• •Home: $350,000 x 0.80 equals $280,000, less the $300,000 mortgage. Equity: $0.
• •2018 Honda Accord: $14,000 x 0.80 equals $11,200, less the $3,000 loan, less the $3,450 exclusion. Equity: $4,750.
• •Checking account: $2,500 less the $1,000 individual bank allowance. Equity: $1,500.
• •Retirement IRA: $25,000 at 80 percent is $20,000, reduced further for tax and any early withdrawal penalty on liquidation. An IRA is accessible, so it is not a zero equity asset.

Total asset equity: roughly $26,250.

Income

• •Monthly net take home: $5,800
• •IRS allowable expenses after applying national standards, Tampa local standards, child care and health insurance: $5,450
• •Monthly disposable income: $350

Future income: $350 x 12 equals $4,200 lump sum, $350 x 24 equals $8,400 periodic.

RCP: roughly $30,450 lump sum, roughly $34,650 periodic.

The $1,000 cash and $3,450 vehicle allowances apply only to individuals, and only after the IRS determines the taxpayer cannot full pay from equity, an installment agreement, or a combination.

Notice what happened to the house. Under the correct order of operations, a property with $50,000 of apparent equity contributes nothing, because the quick sale value falls below the mortgage. Taxpayers who run the math the wrong way talk themselves out of filing on the strength of equity that does not exist for this purpose.

This is the part that decides more cases than any other, and almost nobody sees it coming.

The IRS has ten years from the date of assessment to collect. That deadline is the Collection Statute Expiration Date. The offer program exists because the IRS would rather have something now than nothing when the clock runs out.

So run this. You have $300 a month of disposable income. You owe $25,000. You have the full ten years left on the statute.

$300 times 120 months equals $36,000.

The IRS can collect $36,000 over the life of the statute and you only owe $25,000. There is no doubt as to collectibility. The answer is no, and it will be no no matter how the offer is written, who writes it, or what the radio ad said. You get a payment plan.

Now invert it. You owe $100,000. You have 18 months left on the statute and $200 a month of disposable income. The IRS can realistically collect $3,600 before the debt legally dies. The formula might print an RCP of $25,000 because of asset equity, but the practical collection potential is a fraction of that, and that gap is exactly what a competent advocate argues about.

Two consequences of the statute that change strategy:

• •Filing an offer suspends the clock for the entire time the offer is pending, plus 30 days, plus the duration of any appeal. If your debt is close to expiring, filing an offer can be the single worst thing you do, because you hand the IRS the months it needed. A CDP hearing, a bankruptcy filing, living outside the United States for six months or more, and a signed waiver all affect the clock too.
• •Small debts are usually bad candidates. Below roughly $25,000 the arithmetic rarely works, and realistically the analysis starts being interesting somewhere north of $50,000. Very recent debt is also a poor candidate, because the statute has nearly a decade to run.

Pull your account transcripts and find the assessment dates before you do anything else. If you do not know your CSED you do not know whether you have a case.

The lump sum structure is almost always cheaper because of the multiplier. If you can raise the money, raise the money. Form 656 lets you state plainly that the funds will be borrowed from friends or family upon acceptance, and that is a perfectly ordinary answer.

There is no long term deferred offer. There is no offer payable over the remaining life of the collection statute. Those structures were eliminated and you will still find them described as current on plenty of websites.

• •Form 656, Offer in Compromise. The offer itself. You identify yourself, identify the exact liabilities and tax periods being compromised, state the ground, state the amount, state the payment terms, and sign. List every tax and every period you might owe. Leaving a period off means it survives the settlement.
• •Form 433-A (OIC), Collection Information Statement for Wage Earners and Self Employed Individuals. The financial disclosure. This is where offers live or die.
• •Form 433-B (OIC) for business entities. If you are filing for both a business and yourself, complete the business statement first.
• •Form 656-L for a doubt as to liability offer, with a detailed written explanation of why the tax is not owed. No fee, no deposit.
• •Form 13711, Request for Appeal of Offer in Compromise, if the offer is rejected.

One practical rule that prevents more returned offers than any other: fill in every block. If an item does not apply to you, write N/A. Blank fields read as an incomplete package, and an incomplete package gets returned without anyone evaluating the merits.

What goes in the envelope:

• •Every IRS notice and letter you have received
• •Proof that every required return is filed, and the returns themselves for anything recently filed
• •Three months of complete bank statements for every account, including accounts with small balances
• •Pay stubs, or profit and loss statements if you are self employed
• •Documentation of every asset value and every encumbrance
• •Documentation for every expense that is not covered by a standard, particularly medical costs and court ordered payments
• •Vehicle registrations, loan statements, life insurance statements, retirement account statements

A complete package typically runs 60 to 100 pages once the supporting documents are attached. It goes to the Centralized Offer in Compromise unit. Send it in a way that produces a delivery record.

• •Application fee: $205. Not refunded if your offer is processed, whether it is later accepted or rejected, but it is credited against your tax balance rather than lost. If the IRS returns your offer as not processable, for example because you have unfiled returns, the fee is refunded to you. One narrow exception: if your offer is accepted on effective tax administration or economic hardship grounds, you can request a refund of the fee.
• •Initial payment: 20 percent of the offer for a lump sum offer, or the first proposed monthly installment for a periodic offer. Also non refundable, but it is applied to your tax debt rather than lost outright.
• •Low income certification. If your household income is at or below 250 percent of the federal poverty guidelines for your family size, the fee is waived, the initial payment is waived, and the monthly payments during evaluation are waived. The qualifying income table is in the Form 656 booklet and it changes every year. Use the current booklet, not a figure from an article.
• •Doubt as to liability offers on Form 656-L carry no fee and no initial payment at all.

Verify the fee amount on the current Form 656 booklet before you write the check. It has changed before and it will change again.

1. Unfiled returns. Every required return has to be filed. Not most. All. This is the single most common reason offers never get evaluated, and it is the reason the first phase of most engagements is return preparation rather than settlement work.
2. An open bankruptcy case. You cannot submit an offer while a bankruptcy is pending. The bankruptcy court handles the tax debt in that proceeding.
3. Not current on estimated tax payments. If you are self employed, current year estimates have to be paid. There is a timing trap here: if you are submitting in December, it can be cleaner to wait until January so that the relevant year's compliance is unambiguous.
4. Not current on federal tax deposits. If you have employees, deposits for the current quarter and the two preceding quarters have to be current.
5. Another offer already pending. You cannot have two in the system at once.
6. The math does not work. If your RCP exceeds the liability, you are getting a payment plan. That is not a rejection of you. It is the correct answer.

Returned is not the same as rejected, and the difference is your appeal rights

This distinction matters more than almost anything else on this page.

Not every no is a rejection. IRM 5.8.7.1.6 (rev. 04-24-2025) draws the line precisely: a "Reject" is "a non-acceptance recommendation that includes appeal rights," and a "Return" is "a non-acceptance recommendation that does not include appeal rights." An offer returned for unfiled returns, missed estimated payments, missed federal tax deposits, or failure to respond to a document request carries no right of appeal. If the offer is returned as not processable, as with unfiled returns, the IRS refunds the application fee. If it is returned after it has been processed, the fee is credited against your tax balance rather than refunded. Either way, the TIPRA payment is applied to your balance. Only a rejection gets you Form 13711 and the Independent Office of Appeals.

A returned offer may never have been processed. Unfiled returns, an open bankruptcy, a missing fee, a blank financial statement. The IRS sends it back, refunds the application fee, keeps the initial payment and applies it to your balance, and there are no appeal rights. You start over.

A rejected offer was evaluated on the merits and turned down. That you can appeal, and appeals is where a meaningful number of accepted offers actually get accepted.

Most of the horror stories involve returned offers, not rejected ones. A returned offer means the package was never good enough to be considered, which is entirely within your control.

Initial processing, roughly 30 to 60 days in our experience. The IRS confirms the package is complete, deposits the fee and initial payment, and assigns the case to an examiner. This is the stage where incomplete packages come back.

Examiner review, roughly four to nine months in our experience. The examiner verifies your financial statement against bank records, public records, credit reports, property records and employer reporting. Expect requests for additional documentation with short deadlines. Expect a negotiation over specific expense line items. It is normal for an offer to go through several revisions before it lands.

Total timeline to a first decision, in our experience: six to twelve months in the ordinary case. Complex cases, business offers and anything that goes to appeals run longer, and 18 to 24 months is not unusual.

Large offers get an extra layer. Above certain thresholds the offer goes to IRS Counsel for review, and Counsel can decline something the examiner was prepared to accept. That is a real procedural step, not a rumor.

The 24 month rule. Under Section 7122(f), if the IRS does not reject your offer within 24 months of the date it was received, the offer is deemed accepted. That is statutory protection against indefinite delay, and it is worth docketing the date.

Collection activity while the offer is pending. The IRS generally will not levy while an offer is pending, for 30 days after a rejection, or while a timely appeal of the rejection is being considered. A federal tax lien already on file stays on file, and the IRS will generally not release it until the offer terms are fully satisfied. Acceptance alone does not clear a lien, and anyone telling you otherwise is guessing.

The collection clock stops. While the offer is pending the IRS may not levy, and the collection statute is suspended. The suspension runs through the pendency of the offer, for 30 days after a rejection, and for the entire period a timely appeal is pending. 26 U.S.C. 6331(k)(1) bars levy "during the period that an offer-in-compromise ... is pending" and, if rejected, "during the 30 days thereafter (and, if an appeal of such rejection is filed within such 30 days, during the period that such appeal is pending)." 26 U.S.C. 6331(k)(3)(B), incorporating 6331(i)(5), then suspends the section 6502 period for the same span. Factor that in before you file.

A rejection is not the end of the case. It is frequently the middle of it.

1. Appeal on Form 13711 within 30 days. Thirty days from the date of the rejection letter, not from when you opened it. The appeal goes to the IRS Office of Appeals, where an officer reviews the case independently of the examiner who rejected it. Appeals has latitude the examiner does not, and a meaningful share of initially rejected offers are accepted there. In our experience, budget another six to twelve months.

2. Fix the number. A rejection letter usually tells you exactly where the examiner's math diverged from yours. Sometimes the right move is a revised offer at the number the IRS already told you it would take, supported properly this time.

3. Use the financials you already built. The same Form 433 that supported the offer supports a Partial Payment Installment Agreement, a Non-Simple Installment Agreement, or Currently Not Collectible status. The work is not wasted. If the offer will not work, one of those probably will, and the overview of IRS relief programs covers each one.

What the rejection costs you. The $205 application fee is not refunded, though it is credited against your tax balance rather than lost. The initial payment is applied to your tax debt, so it reduces the balance rather than evaporating, but it is not coming back to you, and that can leave you without the cash to structure a second attempt. That is the real price of filing an offer that was never going to work.

An accepted offer is a contract with a tail. For five years after acceptance you must:

• •File every required return on time, including extensions honored as extensions and not as excuses
• •Pay every tax liability in full as it comes due
• •Incur no new tax debt

Five years of clean compliance is the price of admission. Miss it and the IRS can terminate the offer, reinstate the entire original liability less what you paid, and add the new debt on top. People who default on accepted offers routinely end up in worse shape than if they had never filed, and the most common cause is not bad faith. It is a self employed taxpayer who never adjusted their estimated payments after the settlement closed.

If you are self employed and your offer is accepted, the very next conversation should be about quarterly estimates and withholding. Not next April. That week.

The IRS may keep a refund on any return assessed before the date it accepts your offer, by offsetting it against the tax debt. Form 656-B (Rev. 4-2026) puts it this way: "The IRS may keep any tax refund, including interest, for a tax return assessed before the date the IRS accepts your offer by offsetting it against your tax debt, as applicable." The same applies to a refund from an amended return for a period ending before acceptance. The offset is not credited toward your offer amount. Timing therefore matters. A refund for a return assessed after acceptance is not swept by this rule.

In fiscal year 2025 the IRS received 38,797 offers and accepted 5,464, about 14.1 percent. IRS Data Book 2025, Table 4-1. The FY2024 figures were 33,591 received and 7,199 accepted, about 21.4 percent.

You will see higher numbers quoted, sometimes a third and sometimes 40 percent. Those generally come from earlier years, and the trend has not been friendly. Verify against the most recent Data Book before you repeat any figure, including this one.

Here is what those figures do not tell you. They count every offer the IRS received, including offers filed by people who never ran the formula, often through outfits paid thousands of dollars up front to file something. The statistics do not separate an offer that never had a chance from one built on the arithmetic. Running the formula before you file is what separates the two.

Which is the entire argument for doing the analysis before you file rather than after.

$2.2 million settled for $50,000

A gentleman in his seventies came in owing roughly $2.2 million, part payroll tax and several hundred thousand of income tax. We ran the formula. It produced an offer of $754.

The offer examiner called and said there was no way the IRS was taking that offer. Fair enough. We negotiated to $25,000. IRS Counsel reviewed it, because offers that size get Counsel review, and Counsel bounced it. We took it to Appeals and offered $50,000. It was accepted.

Fifty thousand against $2.2 million is roughly two cents on the dollar. The ads are not entirely lying. But notice how it happened: the formula produced the opening number, a human rejected it, Counsel rejected the compromise, and it took an appeal to close. Nobody filled out a form and mailed it in.

$140 million, a $1.5 million offer, and a no anyway

A federal appeals court covering Florida upheld the IRS turning down a settlement from a man who owed roughly $140 million. He offered $1.5 million, a thousand a month for about two years with a balloon at the end, and said he could not pay more.

He had built a software company in the 1990s, sold it for an enormous sum, then claimed losses through a partnership the Tax Court later found was a sham with no purpose except cutting his taxes. Decades of penalties and interest brought the balance to $140 million.

The IRS did two things. First, it ran his numbers and came back with a collection potential several times what he offered. That alone sinks the offer. Then it did something you rarely see: it rejected the offer on public policy grounds, reasoning that accepted offers become public record and that letting a man who built a sham to dodge taxes walk away for a fraction would make honest taxpayers less willing to pay. He lost in Tax Court. He lost on appeal. Both courts said the IRS was allowed to do exactly that.

Two lessons, and both apply at any dollar amount.

Your offer has to match the formula. The IRS does not settle based on what you feel you can afford or how good your story is. It settles on what it calculates it can collect.

How you got the debt matters. An offer can be mathematically perfect and still be refused if accepting it would look like a reward for gaming the system. The IRS manual says those rejections should be rare, and they are. The door exists anyway.

Now the reassuring half of that, and I mean it. If you are a plumber who fell behind, a nurse who got buried after a divorce, or a small business owner who could not make payroll and the taxes in the same month, the public policy door is not for you. It is for people who built schemes. An honest debt you genuinely cannot pay is precisely what this program was designed for.

After more than three decades of filing these, the offers that get accepted have three things in common. The debt is honest. The inability to pay is real. And the offer was built on the formula, not on hope.

• •Offering less than the RCP. The most common single error. People want the largest possible discount. The IRS wants its number. Offers meaningfully below RCP get rejected, and there is no prize for trying.
• •Treating the calculated number as a ceiling. It is the floor. Sometimes offering modestly above the calculated minimum, with clean documentation, moves a borderline case from maybe to yes. That is a judgment call and it is worth making deliberately.
• •Understating your own allowable expenses. Taxpayers routinely leave off expenses they were entitled to claim because they did not know the category existed. Every $100 of allowable expense you fail to claim adds $1,200 to your required offer on a lump sum.
• •Claiming expenses above the standards without support. Claiming $800 a month for food when the national standard allows substantially less, with nothing to justify it, damages your credibility on every other line.
• •Inconsistent disclosure. The examiner cross checks against bank records, property records, credit reports and employer filings. One unexplained deposit invites scrutiny of everything else.
• •Undervaluing assets. The IRS has comparable sales and vehicle valuation guides. Optimistic numbers get caught, and getting caught costs you the benefit of the doubt everywhere else.
• •Forgetting the quick sale discount entirely, or applying it backwards. Both directions cost money.
• •Going non compliant during review. Missing a return or an estimated payment while the offer is pending gets it returned. Stay current the whole time.
• •Improving your finances mid review. If you land better work while the offer is pending, the examiner can and will reject based on the changed circumstances. That is not unfair, it is the formula doing its job, but it should factor into timing.
• •Filing when you should not file at all. If your only income is Social Security disability and you own nothing the IRS can reach, an offer may accomplish nothing except handing the IRS a complete inventory of your life. Sometimes the right answer is Currently Not Collectible and silence.

The IRS publicly warns about Offer in Compromise mills, and the warning is earned. The pattern is always the same. A national outfit promises pennies on the dollar before seeing a single document, takes several thousand dollars up front, files an application that never had a chance, and goes quiet when it comes back. I have had more clients than I can count arrive after exactly that, out real money and further behind than when they started.

Nobody can tell you on a brief phone call that your settlement is guaranteed. Anyone who does is not making a mistake. They are selling.

Three warning signs, every time:

• •A specific outcome promised before anyone has looked at your financial information
• •A large fee demanded before any Reasonable Collection Potential analysis has been done
• •A vague answer to the question of which program they are actually applying for, and on which ground

If you are interviewing someone, ask these and listen to the answers:

• •How many offers have you filed in the last twelve months?
• •What share of them were accepted, and what happened to the ones that were not?
• •Will you run my Reasonable Collection Potential before you tell me whether to file?
• •Do you handle the case through to resolution, or do I get handed to staff once the package is mailed?
• •What is your recommendation if the math says an offer will not work?

That last question is the tell. Anyone who cannot describe a scenario in which they would advise you not to file has only one product to sell you. For more on what to look for and what representation reasonably costs, see choosing an Offer in Compromise attorney.

You can. The IRS publishes Form 656, the 433 forms, the instructions and a Pre-Qualifier tool, all free.

Here is the honest breakdown. If your situation is genuinely simple, if you rent, own an older car, have no retirement account, have every return filed and owe a modest amount, you can probably handle a doubt as to collectibility offer yourself. Read the Form 656 booklet cover to cover, use the current expense standards, fill in every block, and send it with a delivery record.

The Pre-Qualifier tool deserves a caution. It runs on simplified inputs and it regularly tells people they qualify when they do not, and occasionally the reverse. Treat it as a rough screen, never as an answer.

Where it stops being a do it yourself project:

• •You own real property, a business, or a retirement account of real size
• •Your income varies month to month
• •You have unfiled returns, or you are not certain what you have filed
• •Your debt includes payroll tax, which brings trust fund exposure with it
• •Your collection statute is close, which changes the whole strategy
• •Substituted returns were filed for you by the IRS, which means the assessed number is probably inflated and should be attacked before it is settled
• •An offer has already been rejected or returned once

One more thing before you file anything. Pull your account transcripts and confirm what the IRS actually thinks you owe. When the IRS files returns on a taxpayer's behalf it allows no deductions and no credits, so the starting number is often far higher than the real liability. Reducing a wrong assessment first, then settling the correct one, beats settling a number that was never right.

Three steps, in order, before anyone files anything.

1. Pull your account transcripts and find out what the IRS actually thinks you owe and when each liability was assessed. That gives you the number and the collection statute.
2. Confirm every required return is filed. If any are missing, that is the first project, not the second.
3. Run the formula. Net quick sale equity plus disposable income times 12. If that number is well below your balance, you have a case worth building. If it exceeds your balance, an offer is not your answer and you should be looking at a payment plan, Currently Not Collectible status, or the collection statute.

If you want to know whether you are a real candidate rather than a sales target, call. We will run the same math the IRS runs, and you will know before anything gets filed. If the answer is no, you will hear that too, along with what does work.

Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100 for a free consultation. Darrin Mish is a Tampa tax attorney admitted to The Florida Bar in October 1993 and has concentrated on federal tax controversy work for more than three decades. Credentials and bar admissions.

Related reading: IRS tax debt forgiveness programs, compared · how much the IRS usually settles for · running your own RCP calculation · payment plan versus Offer in Compromise · choosing an Offer in Compromise attorney · Currently Not Collectible status · IRS installment agreements · unfiled tax returns