Form 656 (Rev. 4-2025) Offer in Compromise
Form 656-B (Offer in Compromise Booklet, April 2025 revision) is the required application package for individuals seeking to settle assessed federal tax liabilities for less than the full amount owed. The package includes Form 656, Form 433-A(OIC), and comprehensive instructions. Individual taxpayers cannot use standalone Form 656, which is intended for tax professional use only and requires the complete Form 656-B booklet package for proper submission.
The April 2025 revision emphasizes Individual Online Account (IOLA) eligibility pre-screening and provides updated guidance on individual shared responsibility payments (SRPs) under IRC Section 5000A. These payments remain excluded from lien and levy enforcement actions but are subject to refund offset procedures and continue to accrue interest until paid in full.
ELIGIBILITY AND PRE-FILING REQUIREMENTS
Pre-Qualification Steps
Confirm eligibility using the Pre-Qualifier tool at IRS.gov/OICtool or conduct an IOLA eligibility check before completing the application package. While not mandatory, the 2025 instructions strongly recommend this step to minimize processing delays and ensure the proper selection of forms. Individual taxpayers may also file completed offers directly through the Individual Online Account for streamlined processing.
Filing Categories and Package Requirements
Individual filers must complete the Form 656-B package, which includes Form 656 (Section 1 for personal tax debt), Form 433-A(OIC) for financial information, and all required supporting documentation. Business entities (corporations, partnerships, LLCs, or LLPs) must complete Section 2 of Form 656 and submit Form 433-B(OIC) for business financial statements. Individual and business tax debts require separate Form 656 submissions, each with its own $205 application fee and initial payment.
Low-Income Certification Guidelines
Verify Low-Income Certification eligibility based on 2025 thresholds listed in Form 656-B, Section 1. For a family of one in the contiguous United States, District of Columbia, or U.S. territories, the threshold is adjusted gross income or annualized household gross monthly income of $37,650 or less. Alaska residents qualify at $47,025 or less, and Hawaii residents at $43,275 or less.
Thresholds increase by specified amounts for each additional family member. Qualifying taxpayers are exempt from submitting the $205 application fee and from any initial or ongoing payments during the offer consideration process.
EXCLUDED LIABILITIES AND RESTRICTIONS
Exclude restitution-based assessments from your offer, as these amounts cannot be compromised or negotiated. The Internal Revenue Service will not process offers for liabilities that have already been referred to the U.S. Department of Justice. Tax periods for which an election under IRC Section 965(i) was made are excluded from compromise consideration.
Liabilities subject to payment deferral under IRC Section 965(h) can only be included if acceleration under Section 965(h)(3) has occurred and no portion of the liability derives from a transfer agreement under that section.
TAX PERIOD LISTING AND DOCUMENTATION
List all assessed tax periods in Section 1 (Form 1040 tax years, Trust Fund Recovery Penalty periods, Forms 941 and 940 quarterly/annual periods, excise taxes) or Section 2 (business entity years) using the format recommended in the instructions (for example, 12-31-2021). If space is insufficient, attach a continuation sheet titled "Attachment to Form 656 dated [date]," which must be signed and dated by the taxpayer. Include copies of any tax returns filed within 10 weeks of offer submission to prevent processing delays.
REASON FOR OFFER DECLARATION
Select one reason in Section 3 of Form 656.
Doubt as to Collectibility applies when insufficient assets and income exist to pay the full liability; calculate the minimum offer amount using Form 433-A(OIC) and/or Form 433-B(OIC), and attach a hardship explanation if exceptional circumstances prevent payment of the calculated minimum.
Effective Tax Administration (Economic Hardship) applies only to individuals with sufficient assets and income but facing extraordinary circumstances that would cause hardship if required to pay in full; attach a detailed explanation.
Effective Tax Administration (Public Policy or Equity) applies when sufficient assets and income exist, but collection would be inequitable due to exceptional circumstances unrelated to economic hardship; attach an explanation of the circumstances.
PAYMENT OPTIONS AND TERMS
Lump Sum Payment Structure
Select Lump Sum in Section 4 if paying the offer in five or fewer payments within five months from the acceptance date. Enclose 20% of the offer amount as an initial payment (waived for Low-Income Certification), with the remaining balance payable in one payment or up to five installments within the five months. Continue making monthly payments while the offer is pending, unless you are qualified under Low-Income Certification. For Low-Income filers, the first payment is due 30 calendar days after acceptance unless another date is agreed to in an amended offer agreement.
Periodic Payment Structure
Select 'Periodic Payment' if you plan to pay the offer amount over six to 24 months. Include the first monthly payment with the offer submission, unless the applicant is qualified under Low-Income Certification. Subsequent payments are due on the same day of each month for the duration specified by the taxpayer. The final payment date must be stated in the offer terms.
Continue making monthly payments throughout the consideration period; failure to make these payments will result in the offer being returned without appeal rights.
PAYMENT SUBMISSION AND DESIGNATION
Enclose separate checks payable to "United States Treasury" for the $205 application fee (if applicable) and the first payment when filing by mail. Do not combine the application fee with other tax payments to avoid processing delays. Alternative payment methods include Electronic Federal Tax Payment System (EFTPS) or Individual Online Account, with payments made on the same date the offer is mailed or filed.
Designate the specific tax year and tax type in Section 5 for payments submitted with the offer, but do not designate the application fee or any post-acceptance payments.
TAX COMPLIANCE CERTIFICATION
Certify in Section 6 that you have filed all required tax returns within 10 weeks of offer submission, or specify years for which filing was not required. Confirm that all required estimated tax payments for the current tax year have been made, or state exemption status.
Confirm that all required federal tax deposits for the current quarter and the two preceding quarters have been made (for employers) or state exemption. File or electronically submit any outstanding tax returns to the appropriate processing office before mailing the offer package.
OFFER TERMS AND CONDITIONS ACKNOWLEDGMENT
Acknowledge in Section 7 that the Internal Revenue Service may amend Section 1 or Section 2 if assessed tax debt was omitted or if new assessments occur before acceptance. The 24-month deemed acceptance period under IRC Section 7122(f) begins when the offer is received at the correct centralized offer in compromise unit; the period does not begin until the proper facility gets a complete, processable offer.
Payments and application fees are voluntarily submitted and will not be returned, even if the offer is withdrawn, rejected, or returned. However, the application fee may be returned if the offer is denied due to processing issues.
Amended Return Restrictions
Agree not to file amended returns for tax years listed on Form 656 after offer acceptance or while the offer remains pending with the Service. Any amended return filed for tax years with ending dates before approval will result in a refund offset against the outstanding liability. Refunds received before acceptance must be returned to the Internal Revenue Service within 30 days of acceptance.
The Internal Revenue Service retains all refunds, including interest, for taxes assessed before the offer acceptance date. Systemic offset of overpayments continues in accordance with IRC Section 6402(a) before acceptance.
STATUTE OF LIMITATIONS WAIVER
Confirm the waiver of time limits in Section 7(p) to extend the assessment period. The statute of limitations for assessment extends to the current deadline plus the time the offer is pending, plus one additional year if the offer is rejected, returned, terminated, or withdrawn.
The collection statute is suspended during offer pendency, for 30 days after rejection, and during Appeals Office review. You have the right not to waive the statutory period or to limit the waiver to specific periods or issues; however, the Internal Revenue Service may not consider the offer if you refuse to waive or provide only a limited waiver.
Installment Agreement Status
Pending installment agreements are automatically withdrawn upon offer submission and will not be reinstated after offer closure. If the offer is rejected and no additional tax debt has been incurred, the Internal Revenue Service may reinstate the previous installment agreement upon request. Accepted offers require strict compliance with all tax filing and payment obligations for a period of five years following acceptance to avoid default.
INDIVIDUAL SHARED RESPONSIBILITY PAYMENT TREATMENT
If the offer includes shared responsibility payment amounts under IRC Section 5000A for failure to maintain minimum essential health coverage, these amounts are not subject to penalties (except bad check penalties) or to lien and levy enforcement actions. Interest continues to accrue on the shared responsibility payment balance until paid in full.
The Internal Revenue Service may apply federal tax refunds to shared responsibility payment amounts through offset procedures. An accepted offer will not be defaulted solely due to the assessment of an individual shared responsibility payment during the five-year compliance period.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
