Applying for an Offer in Compromise (OIC) with the IRS can seem like an overwhelming task, especially if you are not sure what paperwork is required. Filing the right forms is the first step to having your application reviewed and accepted. This guide explains the forms you need to prepare when requesting an OIC.
IRS Form 656
The most important form for an Offer in Compromise is Form 656, Offer in Compromise. This is where you make your request to settle your tax debt for less than the full amount owed. On this form, you list your identifying information, the amount you are offering, and your payment option.
Form 656 also requires you to explain why you are making the offer. Most taxpayers apply under “doubt as to collectibility,” which means they cannot afford to pay the full amount. Others apply under “effective tax administration,” which applies when paying in full would create unfair hardship.
Financial Forms: Form 433-A (OIC) and Form 433-B (OIC)
Along with Form 656, the IRS requires detailed financial information. This is done through the Collection Information Statement forms:
- Form 433-A (OIC): This is for individuals, including wage earners and self-employed taxpayers. It asks about income, expenses, assets, and debts.
- Form 433-B (OIC): This is for businesses. It covers business income, expenses, assets, accounts, and property.
These forms allow the IRS to calculate your Reasonable Collection Potential (RCP). That number represents what the IRS believes it can collect from you through your income and assets. Your offer must usually meet or exceed this amount to be accepted.
Application Fees and Initial Payment
When you file Form 656, you also need to send a nonrefundable application fee. In most cases, you also send an initial payment toward your offer. The amount depends on whether you choose a lump sum payment or periodic payments. If you qualify as a low-income applicant, you may not need to pay the fee or the initial payment.
Supporting Documents
In addition to the official IRS forms, you should include documents that support the information you list. These may include pay stubs, bank statements, mortgage statements, loan documents, or medical bills. Good documentation helps the IRS verify your situation and improves your chances of approval.
Final Thoughts
When filing for an Offer in Compromise, the required forms are Form 656 and either Form 433-A (OIC) or Form 433-B (OIC) depending on your situation. You must also include the application fee, an initial payment if required, and supporting documents. Filing these forms correctly is critical to having your offer accepted.
If you are unsure which forms apply to you or need help preparing them, contact the Law Office of Steven N. Klitzner. We can guide you through the process and make sure your application is complete and accurate.
Steven N. Klitzner, P.A. is a tax attorney based in Miami, Florida. He has been practicing tax law for over 40 years, and currently holds a 10.0 rating by Avvo. Mr. Klitzner was appointed to the IRS Service Advisory Council in 2021 and is... 
