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Tax Offer in Compromise Form

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Tax Offer in Compromise Form

This Tax Offer in Compromise (the Offer) is made and entered into as of Effective Date: by and between Offeror (Taxpayer) Name: Taxpayer SSN/EIN: Taxpayer Address: and Taxing Authority Name: Representative: .

Recitals

WHEREAS, the Taxpayer asserts liability for certain taxes, penalties and interest for the tax periods identified as: ; and

WHEREAS, the Taxing Authority has authority to compromise tax liabilities under applicable law and policy, and the parties desire to settle and compromise the identified liabilities pursuant to the terms and conditions set forth herein; and

WHEREAS, the Taxpayer has provided or will provide full financial disclosure and supporting documentation sufficient for the Taxing Authority to evaluate the Taxpayer’s ability to pay, and the Taxing Authority has considered such information in extending the Offer.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the parties hereby agree as follows:

1. Definitions

For purposes of this Offer, the following terms shall have the meanings set forth below. "Compromised Liability" means the aggregate tax, penalties, and interest specified in Section 2. "Effective Date" means the date first written above. "Default" means any failure by the Taxpayer to perform any payment or compliance obligation under this Offer without cure within the time permitted.

2. Offer and Compromised Liability

The Taxpayer offers to settle and compromise tax liabilities for the identified periods for the total Compromised Liability in the amount of $. The Compromised Liability shall include tax, statutory penalties and accrued interest as determined by the Taxing Authority as of the Effective Date.

3. Payment Terms

The payment method elected by the Taxpayer (select one):

If Lump Sum is elected, payment of $ shall be delivered in certified funds on or before .

If Installments are elected, the Taxpayer shall pay installments of $ each, at a frequency of , commencing on for a total of payments, subject to the Taxing Authority's written acceptance.

4. Financial Disclosure and Supporting Documentation

The Taxpayer shall furnish financial information and supporting documentation sufficient for the Taxing Authority to evaluate ability to pay. The Taxpayer represents that the information provided is true, complete, and accurate.

5. Representations and Warranties

The Taxpayer represents and warrants that: (a) all information provided to the Taxing Authority for purposes of evaluating this Offer is complete and accurate; (b) there are no other material undisclosed liabilities or assets that would materially affect ability to pay; and (c) the Taxpayer will not take actions designed to frustrate or evade the payment obligations under this Offer.

6. Effect of Acceptance

Upon the Taxing Authority's written acceptance of this Offer and full performance by the Taxpayer of the payment and compliance terms herein, the Compromised Liability shall be satisfied and released to the extent set forth in the acceptance. Acceptance will expressly state the liabilities released and any conditions or reservations.

7. Default

If the Taxpayer materially defaults under this Offer, the Taxing Authority may declare the Offer void ab initio, reinstate full liability without regard to payments made unless otherwise provided in writing, and pursue collection remedies permitted by law. The Taxpayer shall be provided written notice of default and a reasonable opportunity to cure where required by applicable policy.

8. Interest, Penalties and Administrative Charges

Unless expressly waived in writing, interest and statutory additions may continue to accrue on outstanding balances until paid in full as permitted by law. Any waiver of interest, penalties or charges shall be set forth in the written acceptance by the Taxing Authority.

9. Notices

All notices required or permitted under this Offer shall be in writing and delivered to the addresses below by certified mail, courier, or personal delivery and shall be effective upon receipt.

10. Amendments and Waiver

This Offer may be amended only by a written instrument executed by both parties. Failure by either party to insist upon strict performance of any provision shall not be construed as a waiver of any subsequent breach or right.

11. Governing Law

This Offer shall be governed by and construed in accordance with the laws and administrative procedures applicable to the Taxing Authority, without regard to conflict of laws principles.

12. Entire Agreement

This Offer and any written acceptance by the Taxing Authority constitute the entire agreement between the parties concerning the Compromised Liability and supersede all prior agreements, negotiations and understandings, whether oral or written.

13. Severability

If any provision of this Offer is held to be invalid, illegal or unenforceable, the remaining provisions shall remain in full force and effect and shall be construed so as to effectuate the parties' intent to the fullest extent permitted by law.

14. Taxpayer Certification

The Taxpayer certifies, under penalty of perjury, that the information provided in connection with this Offer is true, correct and complete to the best of the Taxpayer's knowledge, and that the Taxpayer understands that material misrepresentation or omission may constitute a felony or other offense under applicable criminal statutes and may render this Offer void.

The Taxpayer acknowledges that acceptance of this Offer by the Taxing Authority is subject to the Taxing Authority's review and written acceptance, and that this document is not binding on the Taxing Authority until such written acceptance is issued.

Taxpayer Printed Name:

By (Signature):

Date:

Taxing Authority Printed Name:

By (Representative Signature):

Date:

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What the Tax Offer in Compromise Form Is and When It Applies

The Tax Offer in Compromise Form is the IRS form used by individual taxpayers and businesses to propose a settlement that resolves a tax liability for less than the full amount owed. It documents the offer amount, the taxpayer’s income, assets, expenses, and financial projections so the IRS can evaluate ability to pay. The form includes certification statements and requires supporting documentation such as bank statements and paystubs. Submission can trigger a collection hold while the offer is pending; acceptance results in a legally binding agreement under IRC rules and Treasury guidelines.

Why an Offer in Compromise May Be Appropriate

Use the Tax Offer in Compromise Form to resolve qualifying tax debts when full payment is unlikely. It can reduce total liability, stop certain collection actions while under review, and provide a structured path to close overdue accounts when supported by accurate financial disclosure.

Why an Offer in Compromise May Be Appropriate

Who Typically Prepares or Files an Offer in Compromise

Individuals, small-business owners, and authorized representatives commonly use this form when collection alternatives are limited and financial hardship is documented.

  • Low-income individuals with unpaid federal tax balances seeking settlement offers.
  • Small businesses unable to pay current tax liability but with stable expense records.
  • Enrolled agents or attorneys filing on behalf of clients with power of attorney.

Eligibility depends on IRS standards for doubt as to collectibility, effective tax administration, or doubt as to liability; professional review is recommended.

Representative Profiles Who File This Form

Taxpayer

Individual taxpayers who cannot pay their assessed federal tax and whose reasonable collection potential is less than the amount owed. Typically must provide comprehensive financial statements, income verification, and may need to propose periodic or lump-sum payments tied to ability to pay.

Representative

Enrolled agents, CPAs, or tax attorneys authorized via Form 2848 to submit offers and represent taxpayers. Must be listed on the power of attorney, understand IRS Offer in Compromise criteria, and supply supporting documentation to substantiate the client’s financial position.

Key Sections to Include in a Complete Offer in Compromise Package

Core sections of a professional Tax Offer in Compromise Form organize identification, financial details, offer calculations, certifications, supporting schedules, and submission instructions.

Identification

Provide taxpayer name, EIN/SSN, mailing and physical addresses, daytime phone, and contact email. Include representative details and Form 2848 information if a third party files on behalf of the taxpayer.

Financial Summary

Report current income sources, monthly expenses, assets (bank accounts, vehicles, real property), and liabilities. Accurate and complete figures are essential for IRS evaluation of reasonable collection potential.

Offer Calculation

State the offered lump-sum or installment amount and explain how it was determined. Include proposed payment schedule and whether payments are enclosed with the submission.

Supporting Schedules

Attach bank statements, pay stubs, profit-and-loss statements, balance sheets, and appraisal reports where applicable. The IRS requires documentation that substantiates numbers entered on the form.

Certifications

Signatures and declarations affirming that the information is true, penalties for false statements, and consent for the IRS to verify financial data via third-party records.

Submission Info

Complete payer identification, attach the required nonrefundable application fee or proof of low-income status, and follow IRS mailing or e-file instructions per Form 656 guidance.

Essential Information Fields Required on the Form

Taxpayer ID: SSN or EIN exactly as issued.
Income Details: Monthly and annual income totals.
Asset List: Current balances and asset descriptions.
Expense Breakdown: Recurring monthly obligations itemized.
Representative POA: Form 2848 attached if applicable.
Payment Terms: Offer amount, schedule, and method.

Primary Risks and Penalties to Watch For

Application Fee: Nonrefundable fee required.
Rejection Risk: IRS may reject incomplete offers.
Penalties: Outstanding penalties and interest remain.
Intentional Misstatement: Civil and criminal penalties possible.
Collection Resumption: Collections may resume if withdrawn.
Backup Withholding: Incorrect TIN triggers 24% rate.

Common Preparation Mistakes to Avoid

  • Incomplete financial documentation delays processing and increases likelihood of rejection; gather bank statements, pay stubs, and itemized expenses before submission.
  • Underreporting assets or income can lead to penalties, denial, or later collection actions; provide contemporaneous records to support reported values.
  • Failing to include proof of low-income status or requested payment leads to automatic return or dismissal of the offer by IRS.
  • Not updating offers after significant financial changes leaves taxpayers with an offer that misstates ability to pay, complicating negotiation.

Step-by-Step: Preparing and Submitting an Offer in Compromise

Follow these sequential steps to prepare, submit, and monitor an Offer in Compromise with accuracy and compliance.

  • 01
    Gather Documents: Collect pay stubs, bank statements, and asset records.
  • 02
    Complete Form: Fill Form 656 and required schedules fully.
  • 03
    Attach Proof: Include supporting statements and appraisals.
  • 04
    Submit & Monitor: Mail or e-file and track IRS correspondence.

Where to File and What to Expect During IRS Review

This section explains where to file, how the IRS reviews offers, and what to expect during evaluation.

  • Where to File: Mail to the address listed on Form 656 instructions.
  • E-File Option: IRS allows online submission through authorized providers.
  • Review Process: IRS evaluates reasonable collection potential and documentation.
  • Notification: IRS sends written acceptance or rejection notice.

Configuring an Online Workflow for Offers in Compromise

Configure an online workflow to populate fields, collect signatures, and attach supporting schedules for efficient submission.

Field Configuration
Auto-fill Map account data to form fields.
Conditional Fields Show schedules based on checkbox answers.
Authentication Enable email or SMS code verification.
Attach Files Require PDF uploads for bank statements.

Digital Signing and Platform Considerations

Choose a platform that supports e-signature legality, document security, and integrations with accounting systems and workflows.

  • File Formats: Accepts PDF, DOCX, and HTML.
  • Integrations: Connects to NetSuite, Salesforce, and Box.
  • Security: TLS in transit and AES-256 at rest.

Timing, Deadlines, and Processing Expectations

Key filing dates and processing expectations for Offers in Compromise, including timelines for IRS review and correspondence.

Application Submission:

No single federal deadline; submit when unable to pay.

Processing Time:

IRS review often takes 6–12 months on average.

Collection Hold:

Submittal may place a temporary hold on certain collections.

Response Window:

Expect written IRS notice of acceptance, rejection, or counteroffer.

Appeal Rights:

Rejected offers have appeal options through Collection Appeals Program.

Key Milestones in the Offer Lifecycle

Sequential milestones from preparation through final agreement outline what to expect and when during the offer lifecycle.

01

Prepare Financial Package

Assemble documentation and complete Form 656 accurately.

02

Submit Offer

Mail or e-file with fee or low-income waiver.

03

IRS Evaluation

IRS examines financial disclosure and may request more documents.

04

Final Decision

IRS issues acceptance, rejection, or counteroffer and next steps.

eSignature Vendor Pricing and Feature Comparison for Managing Offer Documents

Comparison of eSignature vendor pricing and feature availability relevant to filing and managing Tax Offer in Compromise documents.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial Yes, 7-day trial Varies by vendor Varies by vendor Varies by vendor Varies by vendor
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No
Envelope Cap No cap 100 envelopes/user/year Varies Varies Varies

Real-World Examples of Offers in Compromise

Two brief examples illustrate how Offers in Compromise resolve tax liabilities in different circumstances for taxpayers.

Example: Individual Hardship

A single parent with limited income and minimal assets fell behind on payroll tax obligations and could not pay in full.

  • Offered lump-sum based on realistic living expenses.
  • IRS accepted after verifying bank statements and pay stubs, applying the doubt-as-to-collectibility standard; the agreement halted collection while payments were made and recorded, providing closure and protecting the taxpayer from levies.

Example: Small Business

A small business with seasonal revenue proposed an installment offer after demonstrating cash flow shortages and projected recovery over two years.

  • Combined partial upfront payment with scheduled installments.
  • The IRS counteroffered with modified terms; after negotiation and submission of audited financials, the parties agreed to a reduced balance paid over 18 months, allowing the business to avoid lien enforcement and continue operations.

Practical Tips to Improve Submission Quality and Review Outcomes

Practical tips improve accuracy, timeliness, and likelihood of IRS acceptance for an Offer in Compromise submission.

Complete Accurate Financials
Prepare contemporaneous, reconciled bank statements and profit-and-loss reports; double-check calculations on Form 656 and schedules. Consistent documentation reduces information requests and demonstrates good faith to IRS examiners.
Document Low-Income Claim
If using Form 656-L, ensure all criteria are met and attach required proofs. A valid low-income certification waives the application fee and can speed processing.
Respond Quickly to Requests
If IRS requests additional documentation, respond promptly with complete records. Delays can result in dismissal or withdrawal of the offer and resumption of collection activity.
Use Conditional Payments Carefully
Do not submit partial payments without clear terms; state whether payments are part of the offer or separate; ambiguous payments can be rejected or misapplied.

Frequently Asked Questions About the Tax Offer in Compromise Form

Frequently asked questions about eligibility, submission, timing, and documentation for the Tax Offer in Compromise Form.


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