How to Make the Offer for the IRS Offer in Compromise

Writen by Sergio Melendez | Last updated 10/08/2025

You make the IRS an offer for your tax debt on IRS form 656, the official IRS Offer in Compromise for. 

You can make the IRS an offer to settle out your tax debt. But, crafting an effective offer is like assembling flat-pack furniture—it requires following the steps carefully and avoiding a few common blunders. Let’s break it all down so you can approach the process confidently.

TLDR | Key Takeaways

Check out the Ultimate Tax Debt Resolution Guide

• Propose a Realistic Offer: Base your settlement amount on financial data from Form 433-A (OIC) or 433-B (OIC).

• Select a Payment Option: Choose between a lump sum (20% upfront) or monthly payments during IRS review.

• Separate Forms for Different Debts: Submit separate Form 656 for joint, individual, and business tax debts.

• List Tax Types and Years: Include all applicable tax forms (e.g., 1040, 941) and corresponding years.

• Check for Low-Income Certification: Waive the $205 fee and initial payment if you qualify.

• Prepare Your Packet: Double-check Form 656, include payments and documents, and keep a copy for your records.

• Get Expert Guidance: View Semper Tax Relief’s Guide to submitting your OIC packet and supporting documents.

• Next Steps: Use the IRS Offer in Compromise Calculator to start your journey to tax relief.

1. Proposing Your Settlement Amount on Form 656

The amount you offer to settle your tax debts must be realistic and based on your financial information from Form 433-A (OIC) or 433-B (OIC). The IRS evaluates your offer based on:

• Your income and expenses.

• Equity in assets such as property, vehicles, or savings.

• Future earning potential.

Ensure your settlement amount represents the most the IRS could reasonably expect to collect. Lowball offers are likely to be rejected, unless you have no ability to pay. If that is the case, then you have to come up with an offer amount that is more than $0. 

2. Choosing the Right Payment Option

When completing Form 656, you must choose between:

• Lump Sum Cash Offer: Pay 20% of your proposed settlement upfront with your application, then pay the remainder in up to five installments within five months of acceptance. 

• Periodic Payment Offer: Begin making monthly payments with your application and continue while the IRS reviews your offer. If accepted, payments continue over an agreed timeframe, typically 6–24 months.

Tip: Select the payment option that aligns with your financial reality to increase the likelihood of acceptance.

3. If You and Your Spouse Owe Joint and Separate Tax Debts

If you and your spouse owe a combination of joint and separate tax debts, you must:

• Complete one Form 656 for joint debts (e.g., jointly filed Form 1040).

• Submit separate Forms 656 for any individual liabilities if you each owe separate tax debts.

This ensures the IRS can properly assess your financial obligations and allocate payments accordingly. When submitting the OIC to the IRS, you have to submit the 2 OIC packets & on each you would have to request the IRS relate the OICs to each other.

4. If You Owe Both Individual and Business Tax Debt

When you owe both personal and business tax liabilities, the IRS requires a separate Form 656 for each type of debt:

• Individual Tax Debt: Include personal income taxes (e.g., Form 1040) and any associated penalties.

• Business Tax Debt: List business-related tax obligations, such as payroll taxes (Forms 940, 941) or corporate income taxes (Forms 1120, 1120-S).

When filling out Form 656, you’ll specify the types of taxes and tax periods you’re including in your offer. Some examples:

• Individual Taxes: Form 1040 for personal income taxes.

• Business Taxes: Forms 940 (unemployment taxes), 941 (payroll taxes), or 1120 (corporate taxes).

• Partnerships or S-Corps: Forms 1065 or 1120-S.

• Civil Penalties: Penalties assessed for issues like failure to file or pay taxes.

Be precise when listing the tax types and years. For example:

• Tax Type: 1040

Tax Year(s): 2018, 2019, 2020

5. Application Fees and Low-Income Certification

Include the $205 application fee and your initial payment unless you qualify for a low-income waiver. If you meet the IRS low-income certification based on household size and income, you can skip these payments. To apply for the waiver, complete the low-income certification section on Form 656.

6. Submitting Your Form 656: Final Checklist

Before submitting Form 656, ensure you have an organized & completed Packet:

• Complete and sign all sections of the form.

• Include your $205 application fee (if applicable).

• Attach your initial payment based on your chosen payment plan (if required).

• Clearly outline tax types and periods for all liabilities.

• Submit separate Forms 656 for joint vs. separate debts or individual vs. business debts.

• Keep a copy of the entire packet for your records.

Mail your submission to the appropriate IRS address: 

If you reside in:

AZ, CA, CO, HI, ID, KY, MS, NM, NV, OK, OR, TN, TX, UT, WA

Mail your application to: Memphis IRS Center COIC Unit P.O. Box 30803, AMC Memphis, TN 38130-0803

If you reside in: 

AK, AL, AR, CT, DC, DE, FL, GA, IA, IL, IN, KS, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NY, OH, PA, PR, RI, SC, SD, VA, VT, WI, WV, WY, or a foreign address

Mail your application to Brookhaven IRS Center COIC Unit P.O. Box 9007 Holtsville, NY 11742-9007

Take the Next Step Toward Resolving Your Tax Debt

Filling out Form 656 correctly is crucial to successfully submitting an Offer in Compromise. If you’re unsure about the process or need help calculating your offer, consult a tax professional to avoid delays or rejections.

For a quick assessment of your potential eligibility and settlement amount, try our IRS Offer in Compromise Calculator.

Take control of your tax situation today—let’s put your resolution plan into motion!