Playbook
Offer in compromise from the practitioner’s side
Short answer
An offer in compromise settles a tax debt for less than the full amount when the IRS agrees the taxpayer cannot pay in full before the collection statute expires. The practitioner calculates reasonable collection potential from Form 433-A (OIC), submits Form 656 with the $205 fee and required payment, and keeps the client compliant during review.
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Who is a candidate?
- All required returns are filed and current-year estimated payments are made
- The taxpayer is not in an open bankruptcy
- Reasonable collection potential (equity in assets plus future disposable income) is less than the balance
What does the practitioner prepare?
| Item | Purpose |
|---|---|
| Form 656 | The offer itself, with the amount and payment option |
| Form 433-A (OIC) or 433-B (OIC) | Financial disclosure used to calculate collection potential |
| $205 application fee | Waived for low-income taxpayers who qualify |
| Initial payment | Lump sum: 20% of the offer. Periodic: first monthly payment |
| Supporting documents | Bank statements, pay records, asset values |
What should you tell the client about timing?
Offers take months. The collection statute is suspended while the offer is pending, which can extend how long the IRS has to collect if the offer fails. Factor that into the strategy when a CSED is close.
Questions practitioners ask
- Can I use the IRS Pre-Qualifier tool?
- Yes. It gives a quick read on eligibility. It is not a substitute for a full 433-A (OIC) analysis.
- What happens after an offer is accepted?
- The taxpayer must stay compliant with filing and payment for five years, or the IRS can reinstate the original balance.