Key Takeaway
Applying for an IRS Offer in Compromise involves four sequential steps: (1) verify threshold eligibility (filing compliance, no bankruptcy, application fee/deposit, current-year compliance); (2) calculate Reasonable Collection Potential using IRS Collection Financial Standards; (3) complete Form 656 (or 656-L) and the 433-A (OIC) or 433-B (OIC); and (4) submit with 20% deposit (lump sum) or initial monthly payment (periodic). The short version is that most OICs are rejected — about 40% to 50% are accepted. The difference between acceptance and rejection is usually the offer amount relative to RCP. Offers at or above the IRS-calculated RCP are accepted; offers below are rejected and the deposit is retained.1
Considering an OIC application? A 15-minute consultation is free.
The OIC application process is mechanical but demanding. Getting the threshold eligibility right, computing RCP accurately, and structuring the offer correctly drive the outcome. This chapter walks through the four application steps in sequence. For eligibility rules, see OIC Rules. For the overview, see What is OIC?.
Our firm has submitted hundreds of OICs. For the broader collection framework, see 5 Strategies to Resolve Tax Debt.
The Four Steps of OIC Application
Step 1Threshold Verification
Step 2RCP Calculation
Step 3Form Completion
Step 4Submission + Deposit
| Step | Deliverable | Typical Duration2 |
|---|---|---|
| Threshold Verification | Eligibility confirmation | 1 to 2 weeks |
| RCP Calculation | Offer amount determination | 2 to 4 weeks |
| Form Completion | Form 656 + 433-A/B (OIC) | 1 to 2 weeks |
| Submission + Deposit | Filed with 20% deposit and fee | Submission + 6 to 24 months review |
Quick Reference
Jump to the step: threshold verification, RCP calculation, form completion, or submission and deposit. For the OIC document lookup, see the OIC application document reference. To apply, a 15-minute consultation is free.
1. Threshold Verification: Eligibility Before RCP
Threshold verification confirms the taxpayer qualifies to have the IRS consider an offer. Four requirements: filing compliance (past 6 years), no active bankruptcy, application fee and deposit (or low-income certification), and current-year tax compliance.
If this is you: You want to confirm you can file an OIC before doing the substantive work. Check all four threshold items. Missing any one returns the offer without review.
Threshold Strategy
- Pull wage and income transcripts for past 6 years. Identify missing returns.
- File any missing returns. Including zero-tax returns.
- Confirm no active bankruptcy.
- Prepare $205 application fee (or low-income certification Form 656 Sec. 1).
- Verify current-year estimated tax / withholding.
2. RCP Calculation: The Core Number
Reasonable Collection Potential is the IRS’s calculation of how much could be collected from the taxpayer over the remaining CSED. Offers at or above RCP are accepted; offers below are rejected.
If this is you: You need to know what offer amount the IRS will accept. Run the RCP calculation honestly. Under RCP = NRE + future income × multiplier. Asset valuation errors produce RCP errors and rejected offers.
RCP formula:
- Net Realizable Equity (NRE): Quick-sale value (80% of FMV) minus encumbrances, summed across all assets.
- Future income component: Monthly disposable income × 12 (lump sum) or × 24 (periodic).
- Total RCP = NRE + future income component.
3. Form Completion: Form 656 + 433-A (OIC) or 433-B (OIC)
The OIC application requires Form 656 (Offer in Compromise) plus Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. Form 656-L replaces Form 656 for Doubt as to Liability offers.
If this is you: Complete forms carefully — errors or omissions cause offer returns. Form 433-A (OIC) is extensive (assets, liabilities, income, expenses); Form 656 specifies the offer amount and payment terms.
4. Submission and Deposit
Submit Form 656 + 433 + $205 application fee + 20% deposit (lump sum) or first monthly payment (periodic) to the IRS OIC unit. The offer then enters review — typically 6 to 24 months to final decision.
If this is you: Files ready. Submit by certified mail. The deposit is retained (nonrefundable) but applies against the offer if accepted. During review, collection is paused on the compromised balance.
About to file an OIC? The 20% deposit is nonrefundable. Getting the RCP math right before submission is the difference between acceptance and losing the deposit. Book a consultation for pre-filing review.
OIC Application Document Lookup
| Document | Purpose |
|---|---|
| Form 656 | Offer in Compromise (DATC / ETA / DATCSC) |
| Form 656-L | Offer in Compromise (Doubt as to Liability) |
| Form 656-B | OIC Booklet (instructions) |
| Form 433-A (OIC) | Individual CIS for OIC |
| Form 433-B (OIC) | Business CIS for OIC |
| Form 656-PPV | Periodic Payment Voucher |
| Form 13711 | OIC Rejection Appeal |
| Form 4506-T | Request for Transcript |
| Publication 594 | IRS Collection Process |
CSED and OIC Timing
- CSED tolls during OIC review. Plus 30 days for appeal.
- OIC review: 6 to 24 months.
- Rejection adds tolling without settlement.
- Accepted OIC carries 5-year compliance covenant.
OIC Application Outcomes
| Outcome | Approximate Rate |
|---|---|
| Accepted (at or above RCP) | ~40% to 50% |
| Rejected (below RCP) | Most rejections |
| Returned (threshold failure) | Requires cure and resubmission |
| Default within 5-year covenant | Reinstates full liability |
OIC Application Escalation
Submission to Initial Review
IRS processable review: 30 to 60 days. Substantive review: 3 to 12 months.
Review to Decision
Acceptance, rejection, or negotiated counter-offer. IRS may request additional documentation.
Decision to Appeal or Alternative
Rejected offers can be appealed via Form 13711 within 30 days. Alternative resolutions available if OIC is not viable.
The First 48 Hours of OIC Application
- Pull all transcripts.
- Verify threshold eligibility.
- Calculate RCP honestly.
- Structure offer at or above RCP.
- Complete Form 656 + 433-A (OIC) or 433-B (OIC).
- Prepare 20% deposit or first monthly payment.
- Submit by certified mail.
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Brotman Law has been recognized by Inc. Magazine as one of California’s fastest-growing law firms. We have submitted hundreds of OICs with documented RCP analysis. Our office is based in San Diego.
The ROI Question
Pre-filing RCP analysis is the single highest-ROI OIC move. A correctly-scoped offer that gets accepted saves six figures relative to full payment.
Trying to Settle Your IRS Tax Debt?
The Offer in Compromise process is well-defined, but the calculation — particularly Reasonable Collection Potential — requires getting the financial disclosure right. An offer built on the correct number has a real chance. One built on an incomplete or inflated RCP gets rejected. If you’re considering an OIC, preparation matters as much as the filing.
Discuss My Offer in Compromise → Or call: (619) 378-3138
When to Engage an Attorney for OIC Application
- Balance over $50,000.
- Complex assets. Business, real estate, retirement.
- Self-employment income.
- Multi-entity / aggregation.
- Prior rejected OIC.
- DATL (doubt as to liability) offer.
Any of the above apply?
A 15-minute consultation is free. We run RCP and scope the offer.
Guide Chapters
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Frequently Asked Questions
How do I apply for an IRS Offer in Compromise?
File Form 656 + Form 433-A (OIC) or 433-B (OIC) with $205 application fee and 20% deposit. Must have filed all returns for prior 6 years, no active bankruptcy, and current-year compliance. Submit to the OIC unit at the address in Form 656-B.
What is the OIC application fee?
$205 at submission, non-refundable. Waived for taxpayers at or below 250% of federal poverty guidelines using Form 656 low-income certification.
How much is the OIC deposit?
20% of the offer amount for lump-sum offers. For periodic payment offers, the deposit is the first monthly installment. Both are non-refundable — applied against offer if accepted, kept by IRS if rejected.
How long does OIC review take?
6 to 24 months typically. Initial processability review: 30 to 60 days. Substantive review: 3 to 12 months. Complex cases run longer. During review, collection is paused on the compromised balance.
What is the best offer amount for OIC?
At or above Reasonable Collection Potential. Below-RCP offers are rejected and the deposit kept. RCP = Net Realizable Equity + future income × 12 (lump sum) or × 24 (periodic). Pre-filing RCP calculation is essential.
Can I file an OIC myself?
Yes, using Form 656-B (OIC Booklet) as a guide. Self-represented OICs for simple financial situations can succeed. Complex cases — business income, multiple assets, DATL, large balances — benefit materially from professional preparation.
What happens if my OIC is accepted?
Pay the offer amount per the elected terms (lump sum within 5 months or periodic over 6-24 months). Maintain 5-year post-acceptance compliance — timely filing and payment of future returns. Any default reinstates the full original liability. Accepted offers close the tax debt otherwise.
What happens if my OIC is rejected?
Options: appeal via Form 13711 within 30 days, submit a new offer with revised terms, or pursue alternatives (IA, PPIA, CNC). The 20% deposit is retained and applied against the balance.
Is the OIC deposit refundable?
No. The deposit is non-refundable regardless of outcome. Accepted offers: deposit applies against the offer amount. Rejected offers: deposit kept and applied against the outstanding balance.
How do I choose between lump-sum and periodic OIC?
Lump-sum uses the 12-month future income multiplier (lower RCP); paid within 5 months after acceptance. Periodic uses the 24-month multiplier (higher RCP) but spreads payment over up to 24 months. Lump-sum produces lower RCP but requires more upfront cash.
Can I settle business tax with OIC?
Yes. Form 656 + Form 433-B (OIC) for business entities. Trust fund recovery penalties can be compromised under OIC. Complex business valuations and going-concern analysis may apply.
What is Doubt as to Liability OIC?
An OIC under Form 656-L disputing the amount of tax itself rather than ability to pay. No financial disclosure required. Used when audit or assessment is contested but the window for audit reconsideration or refund suit does not fit. Less common than DATC.
Does OIC stop IRS collection?
Yes — active OIC review pauses levy enforcement on the compromised balance. Interest continues to accrue. CSED tolls during OIC. Once the OIC is accepted or rejected, the pause ends.
Next Steps in This Guide
If you are preparing to file an OIC, a 15-minute consultation is free.
- OIC application procedure: Form 656-B OIC Booklet.
- Timing drawn from Brotman Law practice and IRS published processing times.
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