When a client comes to you carrying an IRS balance they cannot pay, the Offer in Compromise program is likely the first thing you will hear them mention. The OIC program, authorized under IRC Section 7122, allows eligible taxpayers to settle a federal tax liability for less than the full amount owed. For the right candidate, it is a legitimate resolution tool. For the wrong one, it is a costly dead end. And for a tax preparer who does not hold the right credentials, attempting to negotiate one on a client's behalf is a Circular 230 violation. Most clients who reach the OIC conversation have already worked through months of balance-due history and mounting collection pressure; understanding the IRS pre-levy collection notice sequence helps you place where the client sits in that escalation before you evaluate whether an offer is the right response.
This guide is written for authorized tax professionals, including enrolled agents, CPAs, and attorneys who have the credentials to handle OIC work, as well as PTIN-only preparers who need to understand where the line is and how to refer clients appropriately. It covers the three statutory grounds for an OIC under IRC Section 7122, the Reasonable Collection Potential calculation, Form 656 filing requirements, the application process and timeline, what happens after an offer is filed, and a clear explanation of when not to file at all.
All regulatory figures, fees, and acceptance statistics in this guide should be verified at IRS.gov before relying on them in client engagements. IRS processing times, application fees, and program terms are subject to change. This guide is informational and does not constitute legal or tax advice.
Who Can Represent a Client in OIC Proceedings: The Credential Requirement
PTIN-ONLY PREPARERS: THIS WORK IS OUTSIDE YOUR AUTHORIZATION
A non-credentialed preparer holding only a PTIN cannot represent a client in IRS Offer in Compromise proceedings. This is not a guideline or a best practice. It is an IRS rule under Circular 230. OIC matters are handled by IRS Collection and the Office of Appeals, both of which require full representation rights. Those rights belong only to enrolled agents (EAs), licensed CPAs in good standing with their state board, and licensed attorneys. If a client asks you to handle their OIC and you do not hold one of these credentials, the correct answer is a referral, not a filing. Attempting to file or negotiate an OIC without the required credentials exposes you to Circular 230 sanctions from the Office of Professional Responsibility.
The representation restriction is grounded in a specific piece of IRS logic. An OIC is not a return. It is a formal submission to IRS Collection, which has the authority to investigate the taxpayer's full financial picture and negotiate settlement terms. That investigation and negotiation process constitutes "practice before the IRS" under 31 CFR Section 10.2(a)(4). Non-credentialed preparers are not authorized to practice before the IRS in that sense.
The Annual Filing Season Program (AFSP) gives non-credentialed preparers a limited right to represent clients before examination and customer service, but only for returns they prepared. That limited right does not extend to OIC, which sits in the Collection function. Even AFSP participants cannot represent clients in OIC proceedings. See the representation rights overview for a full breakdown of which proceedings each credential authorizes.
Credentialed practitioners who can handle OIC work must attach a valid Form 2848 (Power of Attorney and Declaration of Representative) to any Form 656 they submit on behalf of a client. Form 2848 is the mechanism by which the IRS recognizes the practitioner's authority to act. Without it, IRS Collection has no basis to communicate with the practitioner regarding the client's matter.
The credential path for OIC practitioners
The most efficient credential path for a preparer who wants to take on OIC and other collection representation work is the Enrolled Agent designation. EAs receive their authorization directly from the IRS through the Special Enrollment Examination (SEE), and that authorization covers all matters before the IRS including examination, appeals, and collection, including OIC. The EA exam and credential guide for 2026 covers the exam structure, the PSI testing transition, fees, and how to apply. For preparers who handle a meaningful volume of clients with IRS balance issues, earning the EA is the single most effective way to expand into this category of work.
The Three OIC Grounds Under IRC Section 7122
IRC Section 7122 gives the Secretary of the Treasury authority to compromise any civil or criminal case arising under the internal revenue laws. Treasury Regulations under Section 7122 establish three distinct bases on which an offer may be submitted. The choice of basis controls the documentation required, the standard the IRS applies in reviewing the offer, and the taxpayer's realistic prospects of acceptance. The IRC 7122: OIC Statutory Framework guide covers the statutory and regulatory mechanics behind these three grounds, including the non-refundable payment requirements and the 24-month deemed acceptance rule.
Doubt as to Collectibility (DATC)
Doubt as to Collectibility is the most commonly filed OIC basis. It applies when the IRS is unlikely to collect the full amount of the tax liability before the Collection Statute Expiration Date (CSED). The CSED is the 10-year period the IRS has to collect a tax liability after assessment, established under IRC Section 6502. Verify current CSED rules at IRS.gov, as circumstances affecting the CSED (including prior OIC filings, which toll the CSED during review) can be complex.
A DATC offer requires the taxpayer to submit a Collection Information Statement (Form 433-A for individuals, Form 433-B for businesses) documenting income, expenses, assets, and liabilities. The IRS evaluates the offer against the taxpayer's Reasonable Collection Potential. The offer amount must generally equal or exceed the RCP for the IRS to accept it. If a taxpayer has significant assets or disposable income that would allow full collection before the CSED expires, a DATC offer is unlikely to succeed regardless of how the offer is framed.
Doubt as to Liability (DTAL)
Doubt as to Liability applies when the taxpayer disputes the underlying tax assessment. This basis is available when a legitimate dispute exists about whether the tax was correctly assessed, whether the taxpayer is actually liable for the amount assessed, or whether the correct amount was determined. DTAL is not available for assessed tax reported by the taxpayer on a return they filed. It is typically used when the assessment resulted from an audit determination the taxpayer disagrees with, a substitute for return filed by the IRS, or an assessment based on third-party information the taxpayer disputes. When the liability dispute stems from a substitute for return or a correspondence exam default, practitioners should evaluate whether IRS audit reconsideration is the faster path to correcting the underlying assessment before filing a DTAL offer.
A DTAL offer requires documentation establishing that the original assessment was incorrect. The taxpayer must submit evidence supporting a different liability figure, and the IRS will evaluate whether the documentation raises a genuine doubt about the correctness of the assessment. DTAL offers do not require a Collection Information Statement, because the dispute is about what is owed, not whether it can be collected.
Effective Tax Administration (ETA)
Effective Tax Administration is the narrowest of the three bases. It applies in exceptional circumstances where the liability is correct, collection in full is technically possible, and yet requiring full payment would either create economic hardship for the taxpayer or would be inequitable given the specific facts. ETA is not a general hardship provision. The IRS reserves it for situations where enforcing the tax in full would undermine the fair and equitable administration of the tax system.
Examples that may support ETA consideration include a taxpayer with significant assets that are not practically liquid (such as a home with equity that cannot be converted to cash without destroying the taxpayer's ability to maintain a basic standard of living), or situations where the taxpayer's current circumstances result from factors clearly beyond their control and full collection would be disproportionate. ETA offers require the same financial disclosure as DATC offers, plus a written explanation of the exceptional circumstances. They are accepted at a lower rate than DATC offers and require a stronger factual case.
Pre-Qualification and the Reasonable Collection Potential Calculation
Before drafting a Form 656, a qualified practitioner should run the client through the IRS OIC Pre-Qualifier tool at IRS.gov. The Pre-Qualifier walks through the basic eligibility questions (all required returns filed, not currently in bankruptcy) and produces an estimate of the minimum offer amount the IRS is likely to consider. The Pre-Qualifier result is not binding, but it gives both the practitioner and the client a realistic picture of whether an OIC is worth pursuing.
How the Reasonable Collection Potential is calculated
The RCP is the floor amount the IRS expects in any DATC offer. It has two components:
- Net realizable value of assets: Quick-sale value (typically 80 percent of fair market value) of all assets owned by the taxpayer, less any amounts the IRS would allow the taxpayer to retain (one vehicle up to the allowed equity amount, basic household furnishings, tools of the trade, etc.). This includes equity in real property, bank accounts, retirement accounts (with limited adjustments), business interests, and other assets. The IRS does not use full market value; it uses a discounted collection value reflecting what could actually be recovered in a forced sale.
- Future income: Monthly disposable income (gross monthly income less IRS-allowed living expenses from the National and Local Standards) multiplied by a factor of 12 for a lump-sum cash offer (paid within 5 months of acceptance) or 24 for a periodic payment offer (paid in 6 to 24 monthly installments). The multiplier reflects the collection period the IRS foregoes by accepting the offer rather than pursuing installment collection.
RCP formula: (net realizable value of assets) + (monthly disposable income x 12 or 24) = minimum offer amount. If that number exceeds the outstanding tax balance, there is no practical basis for a DATC offer. The client either has enough assets and income to pay the balance in full, or to pay it through an installment agreement. See the installment agreement preparer guide for IA mechanics and when an IA is the more appropriate resolution path.
The accuracy of the RCP calculation depends entirely on the accuracy of the Form 433-A or 433-B. Practitioners must document every asset at its correct value. An offer submitted with an understated asset inventory will either be rejected when the IRS discovery process reveals the discrepancy, or will result in an offer acceptance that can later be voided if the IRS determines the financial disclosure was inaccurate.
For the complete practitioner RCP calculation workflow, including 80% quick-sale value methodology, 2026 Collection Financial Standards, lump-sum vs. periodic multiplier selection, and dissipated asset rules, see our Offer in Compromise: RCP Financial Analysis guide.
Form 656 OIC Preparer: Required Forms and Their Purpose
An OIC submission is a package of documents, not a single form. Each component serves a distinct purpose in the IRS review process. Credentialed practitioners submitting on behalf of a client use this set:
Form 656: Offer in Compromise (practitioner submission)
Form 656 is the offer itself. It identifies the taxpayer, states the tax periods at issue, identifies the OIC basis (DATC, DTAL, or ETA), specifies the offer amount and payment terms, and contains the taxpayer's signature under penalties of perjury. When a credentialed practitioner files on behalf of a client, Form 2848 must be attached. The IRS will not discuss the matter with the practitioner, or accept correspondence related to the OIC, without a valid Form 2848 on file authorizing that practitioner to act. Review the Form 2848 requirements and what designations authorize OIC representation at the Form 8821 vs. Form 2848 guide.
Form 656-B: OIC Booklet (individual taxpayer filing without a representative)
Form 656-B is the booklet version of Form 656 intended for individual taxpayers who are filing an OIC without professional representation. It contains Form 656, the Collection Information Statement instructions, and the Low Income Certification worksheet. Practitioners do not use Form 656-B; they use stand-alone Form 656 with Form 2848 attached. A PTIN-only preparer who cannot represent the client in the OIC proceeding should direct the client to Form 656-B if the client chooses to file without a qualified representative, but should document that referral and should not prepare the Form 656-B on the client's behalf in a way that implies representation.
Form 433-A: Collection Information Statement for Individuals
Form 433-A is the financial disclosure document for individual taxpayers, including sole proprietors. It documents bank accounts, investments, real property, vehicles, business assets, life insurance cash value, retirement accounts, monthly income from all sources, and monthly living expenses. Accuracy and completeness are non-negotiable. The IRS uses the 433-A to calculate the RCP, so completing it correctly is the basis of the entire RCP calculation, as detailed in our Form 433-A and 433-B Collection Information Statement Guide. Omissions discovered during IRS review can result in rejection and potential referral of the practitioner's conduct to the Office of Professional Responsibility.
Form 433-B: Collection Information Statement for Businesses
Form 433-B covers businesses, including partnerships, corporations, and LLCs taxed as entities. It documents business assets, accounts receivable, liabilities, monthly income, and expenses. When a client owns a business with outstanding trust fund taxes (941 liabilities), both Form 433-A and Form 433-B may be required, because the individual and the business are separate taxpayers with separate liabilities. The practitioner must analyze whether the trust fund recovery penalty (TFRP) has been or could be assessed against the individual before structuring the OIC.
Application fee and Low Income Certification
As of 2026, the OIC application fee is $205. Verify the current fee at IRS.gov before advising clients, as the IRS adjusts this fee periodically. The fee is submitted with Form 656. Taxpayers whose income is at or below 250 percent of the federal poverty guidelines may qualify for the Low Income Certification, which waives the application fee and the required initial payment. The certification is a checkbox and income declaration on Form 656; practitioners should confirm the client's qualification before filing. An incorrectly claimed Low Income Certification can complicate the review process.
How to File an Offer in Compromise for a Client: The Application Process
After the credentialed practitioner has completed the pre-qualification analysis, gathered the financial disclosure, determined the offer basis, and calculated the minimum offer amount, the filing process follows a defined sequence.
Confirm all required returns are filed
The IRS will not consider an OIC while unfiled returns exist. Before submitting, verify that the client has filed all required federal income tax returns and employment tax returns for all periods; pulling account transcripts is the fastest way to confirm filing status and gather the financial documentation behind the offer, as covered in our guide to IRS Transcripts for Tax Practitioners. A missing return is an automatic return-without-process. This is one of the most common reasons an offer is sent back without review. If unfiled returns exist, the first step is bringing the client into filing compliance, not preparing the OIC package.
Determine payment type and calculate the initial payment
The taxpayer must choose between two payment structures at the time of filing. For a lump-sum cash offer (paid within 5 months of acceptance), 20 percent of the offer amount is due with the application as a non-refundable initial payment. For a periodic payment offer (6 to 24 monthly installments), the first proposed installment payment is due with the application. Neither payment is refundable if the IRS rejects the offer, though the IRS will apply the payment to the outstanding balance. Clients who do not qualify for the Low Income Certification must send this payment with the Form 656 or the offer will be returned. Note that the initial payment is in addition to the $205 application fee (verify current fee at IRS.gov).
Assemble and submit the package
The complete submission package for a practitioner-filed DATC offer includes: Form 656 (signed by the taxpayer and the practitioner), Form 2848 (signed and properly completed for OIC representation), Form 433-A or 433-B (completed in full with supporting documentation), the $205 application fee check, and the initial payment check. Submit to the IRS address shown in the Form 656 instructions for the taxpayer's state of residence (verify current mailing addresses in the current Form 656 instructions at IRS.gov, as these addresses change). Keep a complete copy of the submission package in the client file, including proof of mailing.
Processing timeline
OIC processing typically takes 6 to 12 months from receipt to a final determination, though wait times vary depending on IRS staffing and caseload. Verify current processing times at IRS.gov before advising clients on expected timelines. During this period, the IRS generally suspends enforced collection action on the liability at issue, which means a processable pending OIC can stop an active levy on the covered liability; for the release mechanics, see our IRS levy and seizure representation guide. The IRS does not guarantee collection suspension, and other liabilities not covered by the offer remain subject to normal collection. Clients should not stop filing and paying current-year taxes while an OIC is pending; doing so will result in rejection.
What Happens After the OIC Is Filed
The period between filing and resolution is active, not passive. The IRS may request additional documentation, the CSED clock is tolled, and the practitioner must track deadlines and respond promptly to any IRS requests.
IRS review and documentation requests
After receipt, the IRS will assign the offer to a revenue officer or offer examiner who will review the financial disclosure, verify asset values through independent IRS records (wage and income transcripts, IDRS balance inquiries, real property records), and may request additional documentation. Common requests include updated bank statements, documentation of unusual expenses claimed on Form 433-A, verification of business income, or clarification of asset values. Responding to these requests promptly and completely is critical. Failure to respond will result in rejection or return of the offer.
CSED tolling during OIC review
From the date the IRS receives the OIC through 30 days after a rejection becomes final, the CSED is tolled. The IRS cannot collect the liability during that period, and the time does not count against the 10-year CSED. Under IRC Section 6502, the CSED runs for 10 years from assessment; verify the current rules and any applicable tolling periods for your client's specific situation at IRS.gov before advising on CSED strategy. The practical consequence for practitioners: do not file an OIC purely to toll the CSED or delay collection without a genuine basis for the offer. That strategy can backfire and may expose the practitioner to sanctions. For the full method of calculating the CSED and layering every tolling event, including how an OIC filing fits alongside CDP requests and bankruptcy, see the IRS collection statute expiration date (CSED): OIC tolling and CSED strategy guide.
The 24-month deemed-acceptance rule
Under IRC Section 7122(f), if the IRS does not reject an offer within 24 months of the date it is received, the offer is deemed accepted. This provision is a statutory backstop against indefinite IRS delay, not a common resolution path. The 24-month period is calculated from the date of IRS receipt, and any period during which a court proceeding is pending with respect to the offer is excluded from the calculation. In practice, nearly all OICs are resolved (accepted, rejected, or returned) well before the 24-month mark. Practitioners should nevertheless track the receipt date and calendar the 24-month mark as a monitoring checkpoint.
IRS OIC Acceptance Rate: What the Numbers Actually Mean
Based on recent IRS Data Book figures, the IRS has historically accepted approximately 30 to 40 percent of submitted Offers in Compromise. Verify the current acceptance rate in the most recent IRS Data Book at IRS.gov before citing this figure to clients, as the rate varies by year.
The headline figure requires context. The IRS Data Book counts all submitted offers, including those that are returned without processing due to missing documents, unfiled returns, or the taxpayer being in bankruptcy. Offers that are returned without review are counted in the denominator (total submitted) but are not considered "rejected" in the traditional sense. The true acceptance rate among offers that complete the review process is somewhat higher than the overall submission-to-acceptance ratio suggests.
For practitioners, the acceptance rate figure is less useful than the pre-qualification analysis. An OIC with an accurate financial disclosure, a calculated offer at or above the RCP, and a client who is fully current on all filing and payment obligations has a materially better outcome profile than the aggregate statistic. Clients who are sold on the OIC by settlement companies that advertise acceptance rates without doing a meaningful RCP analysis are those most likely to find themselves 6 to 12 months later with a rejected offer and a bill for professional fees.
When an OIC Is Accepted: Obligations the Taxpayer Must Meet
Acceptance of an OIC is not the end of the engagement. The taxpayer takes on a set of ongoing obligations that, if violated, will revive the original tax liability. Credentialed practitioners who handle OIC work must ensure clients understand these terms before signing Form 656. Verify current OIC acceptance terms in the Form 656 instructions at IRS.gov, as the specific conditions are subject to change.
- 5-year compliance requirement: For the five years following OIC acceptance (verify current terms in Form 656 instructions), the taxpayer must file all required federal tax returns on time and pay all federal taxes owed on time. This includes estimated tax payments for self-employed clients. A single missed filing or payment during the compliance period can void the accepted offer, reviving the original balance plus penalties and interest that accrued after acceptance. The compliance obligation is ongoing and the IRS actively monitors it.
- Refunds for the year of acceptance: Any federal tax refund due for the tax year in which the IRS accepts the offer will be applied to the outstanding tax liability rather than returned to the taxpayer. This is not a penalty; it is a condition of acceptance. Clients who expect a refund in the year of acceptance should be advised of this before the offer is filed.
- Federal tax lien release: After the IRS accepts the agreed offer amount as payment in full and the payment clears, federal tax liens filed against the taxpayer's property are released. The lien release does not happen at the moment of acceptance; it happens after the final payment clears and the IRS processes the release. Practitioners representing clients with active liens should advise them that lien release is a post-payment step, not an immediate consequence of the acceptance letter.
When Not to File an Offer in Compromise
Recommending an OIC when the facts do not support one is a disservice to the client, a waste of the $205 application fee (verify current fee at IRS.gov) and the non-refundable initial payment, and a potential Circular 230 competence issue for the practitioner. These are the clearest circumstances in which an OIC should not be filed:
- The client has unfiled required returns. The IRS will return the offer without review if required returns are not filed. There is no point submitting the package until the client is in filing compliance.
- The balance has not yet been formally assessed. If the liability originated from a CP2000 underreporter notice that the client has not yet responded to, or an audit that is still open, the correct first step is to resolve the underlying notice or examination before filing an OIC. An OIC filed on a proposed but unassessed liability will be returned. See the CP2000 notice preparer guide for the response workflow when a client's balance stems from an underreporter notice.
- The client's RCP exceeds the balance owed. If the taxpayer's net realizable assets plus future income stream at the applicable multiplier exceeds the outstanding liability, there is no mathematical basis for a DATC offer. The IRS will reject it. The more appropriate path is either a full-pay installment agreement or, if the taxpayer has assets but genuinely cannot liquidate them without hardship, a partial-pay installment agreement (PPIA).
- The client is in a current installment agreement that is performing. If the client is already in an installment agreement that is sustainable and compliant, disrupting it to file an OIC introduces risk without a clear benefit. OIC processing suspends the IA, but a rejected or returned OIC leaves the client back where they started, having paid the application fee and initial payment. Unless the client's financial circumstances have materially changed since the IA was established, the IA is typically the lower-risk path.
- The taxpayer is currently in bankruptcy. Form 656 asks whether the taxpayer is in bankruptcy. The IRS will not process an OIC while a bankruptcy proceeding is active. If a client is in or contemplating bankruptcy, the resolution strategy should be determined in coordination with a bankruptcy attorney, not through an OIC filing.
- The CSED is close to expiring. If only a short period remains on the CSED, allowing the statute to expire may produce a better outcome for the client than filing an OIC, which would toll the CSED and extend the IRS's collection window. This is a fact-specific analysis that requires verifying the exact CSED date and any prior tolling periods. An incorrect CSED calculation can lead to poor advice in either direction.
When the client has recently received a Final Notice of Intent to Levy or a Notice of Federal Tax Lien filing, the time-sensitive appeal path may take priority over an OIC; the IRS Collection Due Process (CDP) hearing guide explains the 30-day window and how an OIC can be proposed as a collection alternative within the hearing. For the statutory basis of that collection-alternative right and how an OIC rejection is reviewed, see our IRC 6330 and 6320: CDP Statutory Framework covering collection alternative rights and the Tooke v. Commissioner abuse-of-discretion analysis.
Because most of these situations turn on whether CNC, an installment agreement, a PPIA, or an OIC produces the best outcome, weigh them side by side rather than in isolation. Our collection alternatives decision framework maps each option against the CSED window and the Collection Financial Standards.
How PTIN-Only Preparers Should Handle OIC Referrals
A PTIN-only preparer who identifies a client with a potential OIC situation has two obligations: refer the client to a qualified practitioner, and document that referral in the engagement file. The referral itself protects the client; the documentation protects the preparer. See the tax preparer liability guide for how proper referral documentation limits your exposure when a client's tax situation goes beyond your credential level. See the IRS representation rights comparison guide for a complete breakdown of which credentials grant OIC filing and representation authority.
Finding a qualified EA or tax resolution specialist
The two most reliable directories for finding credentialed practitioners who handle OIC and collection representation work are:
- National Association of Enrolled Agents (NAEA): The NAEA member directory at naea.org allows searches by zip code. EA members have unlimited representation rights before the IRS, including Collection and Appeals. Many EAs specialize in tax resolution work.
- National Association of Tax Professionals (NATP): The NATP directory at natptax.com includes members with various credentials. Filter for EAs or CPAs when referring for OIC work specifically.
- The IRS also maintains a searchable directory of credentialed preparers at irs.gov/taxpros. Searching for enrolled agents in the client's area gives a starting list of practitioners with verified OIC representation authority.
What to communicate to the receiving practitioner
When making a warm referral, give the receiving practitioner enough context to evaluate the case quickly. The minimum useful information: the tax years and approximate balance at issue, whether the balance is income tax, employment tax, or other liability, whether a levy or lien is currently active, whether the client has filed all required returns, and a general sense of the client's asset and income situation. Do not share the client's actual return data without written consent under IRC Section 7216. See the IRC Section 7216 client data privacy guide for what requires written consent before disclosure.
How to document the referral in your engagement file
Document the following in the client's engagement file at the time of referral: the date you identified the OIC issue, the specific reason you determined the matter was outside your credential level (OIC requires full representation rights you do not hold), the date and method of the referral communication to the client, the name of the practitioner or directory you referred the client to, and any written acknowledgment from the client that they received the referral and understood why you could not handle the matter. A brief written note in your practice management system or a dated email to the client documenting the referral satisfies this standard. The goal is a clear record showing you identified the boundary, communicated it to the client, and directed them to someone qualified to help.
Regulated Claims Flagged for Verification
The following figures and citations should be independently verified before relying on them in client engagements: (1) PTIN-only preparer restriction: firm, based on IRS Circular 230 (31 CFR Part 10) and the definition of "practice before the IRS" in Section 10.2(a)(4); verify at IRS.gov. (2) OIC application fee: $205 as of 2026; verify current fee at IRS.gov before advising clients. (3) OIC acceptance rate: approximately 30 to 40 percent based on recent IRS Data Book figures; verify current rate in the most recent IRS Data Book at IRS.gov. (4) CSED: 10-year collection period under IRC Section 6502; verify current rules, tolling periods, and CSED calculation at IRS.gov. (5) Deemed-acceptance rule: IRC Section 7122(f); 24 months from IRS receipt; verify current statutory text at IRS.gov. (6) 5-year compliance requirement: standard OIC acceptance terms; verify current terms in Form 656 instructions at IRS.gov. (7) Processing timeline: typically 6 to 12 months; verify current IRS processing times at IRS.gov. This guide is informational and does not constitute legal or tax advice.
Before pursuing an OIC, practitioners should confirm whether penalty abatement is available to reduce the underlying balance. The IRS penalty abatement practitioner guide covers AEP and first-time abatement eligibility, Form 843 mechanics, and reasonable cause standards.
Frequently Asked Questions
Can a PTIN-only tax preparer file an Offer in Compromise for a client?
No. A non-credentialed preparer holding only a PTIN cannot represent a client in IRS Offer in Compromise proceedings. OIC matters fall under IRS Collection and the Office of Appeals, where full representation rights under Circular 230 are required. Those rights belong only to enrolled agents, CPAs in good standing with their state board, and licensed attorneys. PTIN-only preparers must refer OIC clients to a qualified practitioner and must not file or negotiate an OIC on a client's behalf. Verify the current representation rules under Circular 230 at IRS.gov.
What are the three grounds for an Offer in Compromise under IRC Section 7122?
IRC Section 7122 authorizes OIC submissions on three grounds: (1) Doubt as to Collectibility (DATC): the IRS is unlikely to collect the full liability before the CSED expires, making it the most commonly filed basis; (2) Doubt as to Liability (DTAL): the taxpayer disputes the underlying assessment and has documentation showing it was incorrect; and (3) Effective Tax Administration (ETA): the liability is correct and technically collectible, but requiring full payment would create economic hardship or would otherwise be inequitable under exceptional circumstances. Verify current OIC grounds and regulatory guidance at IRS.gov.
What is the IRS OIC acceptance rate?
Based on recent IRS Data Book figures, the IRS has historically accepted approximately 30 to 40 percent of submitted Offers in Compromise. This aggregate figure includes offers returned without processing due to missing documents or unfiled returns, which lowers the headline percentage. The acceptance rate among offers that complete the review process is somewhat higher. Verify current acceptance statistics in the most recent IRS Data Book at IRS.gov before citing this figure to clients.
What forms are required to file an Offer in Compromise for a client?
A credentialed practitioner filing an OIC on behalf of a client must submit: Form 656 (the offer itself, signed by the taxpayer), Form 2848 (Power of Attorney authorizing the practitioner to represent the client in this matter), Form 433-A (Collection Information Statement for individual taxpayers) or Form 433-B (for businesses), the $205 application fee (verify current fee at IRS.gov), and the initial payment (20 percent of the offer amount for a lump-sum offer, or the first periodic payment for a periodic payment offer). Taxpayers whose income is at or below 250 percent of the federal poverty guidelines may qualify for a fee and payment waiver via the Low Income Certification on Form 656.
What is the 24-month deemed-acceptance rule under IRC Section 7122(f)?
Under IRC Section 7122(f), if the IRS does not reject an Offer in Compromise within 24 months of the date it was received, the offer is deemed accepted by operation of law. Any period during which a court proceeding is pending with respect to the offer is excluded from the 24-month calculation. In practice, most OICs are resolved well before the 24-month mark. Practitioners should nevertheless calendar the receipt date and the 24-month deadline as monitoring checkpoints. Verify the current text and application of IRC Section 7122(f) at IRS.gov.