An IRS offer in compromise lump-sum cash offer lets you settle a federal tax debt for less than you owe by paying the agreed amount in five or fewer installments within five months after the IRS accepts your offer in writing. You apply on Form 656, send a $205 fee and 20% of your proposed offer with the application, and the IRS measures what you propose against a floor it calculates from your assets and income. Get the number right and stay compliant afterward, and the remaining balance goes away.
How the Five-Month Structure Works
“Cash” here refers to the timeline, not the form of payment. You are committing to clear the settlement in no more than five installments, all completed within five months of the acceptance date. That compressed schedule is what distinguishes this option from the periodic payment offer, which spreads payments over six to twenty-four months.1Internal Revenue Service. Offer in Compromise
The IRS prefers this route because it closes the file quickly, and in exchange it uses fewer months of your future income in the minimum-offer calculation. If you cannot cover the amount from savings, the agency openly suggests borrowing from a bank, friends, or family, or selling assets.2Internal Revenue Service. Form 656-B, Offer in Compromise Booklet
Miss a payment inside the five-month window and the deal can collapse. The IRS reinstates the original debt minus what you paid, and the penalties and interest come back with it.
What Your Offer Has to Be Worth
The IRS calculates a number called the Reasonable Collection Potential, and your offer generally has to meet or exceed it. RCP has two parts: the equity in what you own, plus a slice of your future income.3Internal Revenue Service. Topic No. 204, Offers in Compromise
Asset Equity
The IRS looks at bank accounts, real estate, vehicles, investments, and life insurance cash values. It generally values them at “quick sale value,” typically 80% of fair market value, on the theory that a rushed sale brings in less than a patient one. The percentage can move up or down depending on the asset and market conditions.4Internal Revenue Service. IRM 5.8.5 Financial Analysis
Retirement accounts get the same 80% starting point, but the reduction may be larger once early withdrawal penalties and income taxes are considered. Equity is the account value times 0.8, minus any outstanding loan against it.5Internal Revenue Service. Form 433-A (OIC) Collection Information Statement for Wage Earners and Self-Employed Individuals After quick sale values are set for each asset, secured debts (such as a mortgage against home equity) come off the top to leave net asset equity.
Future Income
Take your gross monthly income, subtract allowable living expenses from national and local standards for housing, food, transportation, and similar categories adjusted for family size, and what remains is your monthly disposable income. For a lump-sum cash offer, that figure is multiplied by 12 months, or the remaining time on the collection statute if that is shorter. A periodic payment offer uses a 24-month multiplier.6Internal Revenue Service. IRM 5.8.5 Financial Analysis – Section: 5.8.5.25 Calculation of Future Income
That is where lump-sum saves real money. Twelve months instead of twenty-four means a smaller minimum offer. If your disposable income is $500 a month, the difference alone is $6,000. Your minimum offer is net asset equity plus the future-income figure.
The Three Grounds and Why They Matter
Every offer has to fit one of three grounds, and you check the box on Form 656:
- Doubt as to collectibility, where your assets and income cannot cover the full debt before the collection statute runs out. Most lump-sum cash offers use this ground.
- Doubt as to liability, where there is a genuine dispute about whether you owe the tax or the amount.
- Effective tax administration, where you could technically pay in full but doing so would create serious economic hardship or would be plainly unfair in exceptional circumstances. The IRS uses this sparingly.
The RCP calculation above is how the IRS evaluates the doubt-as-to-collectibility offers that make up most lump-sum submissions.3Internal Revenue Service. Topic No. 204, Offers in Compromise
Who the IRS Will Even Consider
Certain preliminary conditions have to be met, or the application comes back unopened along with your fee and initial payment:
- Every federal tax return you were required to file has been filed.
- You are not in an open bankruptcy proceeding.
- If you run a business with employees, all required federal tax deposits for the current quarter are made.
- At least one tax period in the offer has an assessed liability, meaning the IRS has issued an official bill.
Before spending time on the full application, run your numbers through the IRS Pre-Qualifier tool, which estimates eligibility from basic financial inputs.7Internal Revenue Service. Offer in Compromise Pre-Qualifier
Forms, Fees, and the 20% Down Payment
The application package uses Form 656 to state the offer, tax years, and ground for compromise. Individuals also file Form 433-A (OIC) reporting assets, income, and expenses. If the debt involves a corporation, partnership, or LLC, add Form 433-B (OIC).8Internal Revenue Service. Form 656 – Offer in Compromise
Include a $205 non-refundable application fee and an initial payment equal to 20% of the amount you are offering. Propose $10,000 and you send $2,000. That 20% goes toward your tax liability whether the offer is accepted or not. You do not get it back.1Internal Revenue Service. Offer in Compromise
Low-Income Certification
If your household income falls at or below the Low-Income Certification threshold in the Form 656 booklet, both the $205 fee and the 20% initial payment are waived. For 2026, a single filer in the 48 contiguous states qualifies at adjusted gross income of $37,650 or below, and a family of four qualifies at $78,000 or below. Alaska and Hawaii thresholds are higher. The chart in the booklet gives the exact figure for your family size and state.9Internal Revenue Service. Form 656-B, Offer in Compromise Booklet
After You Mail It In
The complete package goes to one of two IRS processing centers depending on your state: the Memphis COIC Unit or the Brookhaven COIC Unit in Holtsville, New York. The state-by-state routing list is in the Form 656 booklet.9Internal Revenue Service. Form 656-B, Offer in Compromise Booklet
The IRS first screens for completeness. If everything is there, you receive an acknowledgment letter with a case number. An examiner may follow up for documentation to verify what you reported.
Levies, Liens, and Refunds While You Wait
Federal law prohibits the IRS from levying your property or wages while a lump-sum cash offer is pending, and that protection continues for 30 days after any rejection and through a timely appeal.10Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint Levies already in place before you submitted the offer are treated differently. The IRS is not required to release them, though it will consider the circumstances and may remove a levy placed after the offer’s received date.11Internal Revenue Service. Offer in Compromise – Frequently Asked Questions
Federal tax liens stay put. The IRS may file a Notice of Federal Tax Lien while the offer is under review and will not release an existing lien until you have fully performed the accepted offer’s terms.1Internal Revenue Service. Offer in Compromise
The IRS keeps any refunds from overpayments through the year the offer is accepted, and you cannot apply them to next year’s estimated taxes. The only carve-out is when the offer rests solely on doubt as to liability. Meanwhile, keep filing returns and making estimated payments on time. An existing installment agreement is suspended during processing and reinstates at no charge if the offer is not accepted.11Internal Revenue Service. Offer in Compromise – Frequently Asked Questions
The Collection Clock Pauses
Filing an OIC suspends the 10-year statute the IRS has to collect. The clock is paused from the date the offer is pending through the date it is accepted, returned, withdrawn, or rejected, plus an additional 30 days after a rejection, plus the length of any appeal.12Taxpayer Advocate Service. Collection Statute Expiration Date (CSED) A rejected offer that took 18 months to work through has just added roughly 18 months to how long the agency can pursue you. If you are close to the end of your collection statute, weigh that carefully before filing.
The Five-Year Compliance Rule
Acceptance is not the finish. For five years afterward, you have to file every required return on time and pay every dollar of tax owed. This is a contract term of the settlement.9Internal Revenue Service. Form 656-B, Offer in Compromise Booklet
Fall behind during those five years and the IRS can default the offer. The original debt comes back, less what you paid, with penalties and interest restored. The agency can levy or sue for the reinstated balance.11Internal Revenue Service. Offer in Compromise – Frequently Asked Questions During the five years you also cannot get a new installment agreement or submit another offer in compromise. And any pre-acceptance tax liabilities not included in the original offer must be paid promptly.
If the IRS Rejects Your Offer
You have 30 days from the date on the rejection letter to appeal to the IRS Independent Office of Appeals. Miss the window and the right is gone.13Internal Revenue Service. Appeal Your Rejected Offer in Compromise (OIC)
File Form 13711, Request for Appeal of Offer in Compromise, or a signed letter with your identifying information, a copy of the rejection letter, the tax periods involved, and a point-by-point explanation of why you disagree with each item the IRS cited. Sign under penalties of perjury and mail it to the office that sent the rejection. The IRS does not publish a set turnaround for Appeals. The levy prohibition and statute tolling both continue while the appeal is pending.13Internal Revenue Service. Appeal Your Rejected Offer in Compromise (OIC)
One Thing to Know Before You Sign
Accepted offers are not private. The IRS must make Form 7249, the Offer Acceptance Report, available for public inspection for one year after acceptance, and the file includes your name, city, state, ZIP code, the liability amount, and the offer terms. Anyone can request it and the IRS responds within 15 business days.14Internal Revenue Service. Offer in Compromise Public Inspection File For most people this is nothing. For some professions or situations, it is worth knowing before you file.