IRS Form 656: the offer in compromise, section by section.

Form 656-B sets four conditions: every required return filed, a bill received for at least one debt in the offer, current-year estimated tax payments made, and, for an employer, federal tax deposits made for the current quarter and the two before it. If a required return is unfiled, the IRS applies any initial payment to the debt and returns the offer and the fee, with no appeal.

The booklet also bars an offer during an open bankruptcy, asks that an open audit or innocent spouse claim be resolved first, and excludes periods referred to the Department of Justice, court-ordered restitution, and liabilities reduced to judgment. A business owing trust fund taxes must first pay the trust fund portion or have the IRS make its Trust Fund Recovery Penalty determinations, unless it is a victim of payroll service provider fraud or failure.

Individuals can screen first with the Individual Online Account or the Offer in Compromise Pre-Qualifier, which check eligibility and compute a preliminary offer amount; the booklet says the result does not ensure acceptance. The Pre-Qualifier does not apply to a partnership, a corporation, or a taxpayer in a U.S. territory, in a foreign country, or at an APO or FPO address. Form 656 calls the check recommended, not mandatory.

Treas. Reg. 301.7122-1(b) recognizes three grounds, and the ground decides the form. Doubt as to liability, a genuine dispute over the existence or amount of the tax, goes on Form 656-L (Rev. 7-2026). Under 26 U.S.C. 7122(d)(3)(B) it needs no financial statement, and the form requires no fee or payment.

Doubt as to collectibility, where assets and income are less than the full liability, goes on Form 656 at no less than the minimum computed on the Form 433-A (OIC) or Form 433-B (OIC), unless a hardship explanation is attached.

Effective tax administration is the path the booklet names for a taxpayer who could pay in full. The regulation allows it where full collection would cause economic hardship, a box Form 656 limits to individuals, and, when no other ground applies, where exceptional circumstances mean full collection would undermine public confidence that the tax laws are administered in a fair and equitable manner. The form's example is a payroll service provider that misappropriated withheld taxes. The regulation bars either kind where compromise would undermine compliance with the tax laws.

Official source: Form 656-B, Offer in Compromise booklet (Rev. 4-2026)
Official source: Form 656-L, Doubt as to Liability (Rev. 7-2026)
Official source: Offer in Compromise Pre-Qualifier
Official source: 26 U.S.C. 7122, compromises
Official source: Treas. Reg. 301.7122-1, compromises

Under 26 U.S.C. 6331(k)(1), no levy may be made while an offer is pending, and pending begins when the IRS accepts the offer for processing. Form 656 says the IRS may levy until an IRS official signs and acknowledges the offer as pending and may keep or release a continuous levy on wages or certain federal payments already served, and the regulation allows a levy when collection is in jeopardy. A lien may still be filed, and penalties and interest continue. A taxpayer with an approved installment agreement need not make those payments while the offer is considered, and the booklet says the IRS reinstates the agreement if the offer is not accepted and no new tax debt has arisen. Submitting the offer withdraws a pending installment agreement request, which Form 656 says is not automatically reinstated after the offer is closed. Under 26 U.S.C. 7122(f), an offer not rejected within 24 months of submission is deemed accepted, not counting any period the liability is in dispute in court; the offer in compromise page covers that rule.

A returned offer is closed without being accepted or rejected. The booklet states that a return cannot be appealed, and Treas. Reg. 301.7122-1(f)(5)(ii) says a return is not a rejection. The IRS FAQs describe a reconsideration request by phone within 30 days of the return letter's date, with listed exceptions.

A rejection must be in writing, follow an independent administrative review, and state the reasons and the right to appeal, under 26 U.S.C. 7122(e) and Treas. Reg. 301.7122-1(f). The appeal to the IRS Independent Office of Appeals is a written protest made as the rejection letter directs; Form 13711, Request for Appeal of Offer in Compromise, contains the required language. The regulation counts 30 days beginning the day after the date on the letter, and levy stays barred for 30 days after a rejection and during an appeal filed within them. The date printed on the letter controls.

The Form 656 Section 7 terms bind the taxpayer from submission, and several continue after acceptance. The IRS keeps refunds for tax assessed before acceptance, and they do not count toward the offer. The taxpayer agrees not to file an amended return for the offer years while the offer is pending or after it is accepted. The assessment period extends by the time the offer is pending, plus one year if it is rejected, returned, terminated, or withdrawn, and the statutory period for collecting the tax is suspended while it is pending, for 30 days after a rejection, and during an appeal. For five years from acceptance the taxpayer must file and pay on time and cannot request an installment agreement or another offer; a default leaves the original debt, less payments, owed with penalties and interest. The taxpayer's name, city, state, ZIP code, liability amount, and offer terms are open to public inspection for one year after acceptance.

Official source: 26 U.S.C. 6331(k), no levy while offers are pending
Official source: Treas. Reg. 301.7122-1(e), (f), and (g)
Official source: Form 13711, Request for Appeal of Offer in Compromise
Official source: IRM 5.8.7, return, withdrawal, and rejection
Official source: Offer in compromise public inspection file