Offer in Compromise Eligibility Checklist (Federal IRS)

Print this page and tick honestly. It separates the two layers applicants constantly confuse: Part A — the processability gates (fail one and the IRS returns your offer unexamined, keeping the fee and down payment) and Part B — the acceptance factors (the financial facts that decide whether the IRS can say yes). The reasoning behind the gates is explained on the qualification page; this page is the checklist itself.

General tax information, not tax or legal advice. Federal IRS programme only.

Part A — Processability gates (all must be YES)

• Every required tax return is filed (individual and business, all years with a filing requirement)
• I am not in an open bankruptcy case (offers cannot be processed during bankruptcy)
• My current-year tax payments are on track — withholding or estimated payments sufficient so this year will not end with a new balance
• (Employers) Federal tax deposits are current for the present quarter and the two quarters before it
• The tax periods I want to compromise are assessed and identified (not for a year not yet filed/assessed)
• I can pay the $205 fee + initial payment — or I pass the low-income certification test (fee page) and claim the waiver
• I can stay compliant during the 6–24-month review — file and pay everything on time while the IRS decides Any box unticked = fix it first. Filing the missing return or catching up deposits is almost always cheaper than a returned offer and a second $205 fee (the mistakes catalogue shows the cost of learning this the hard way).

Part B — Acceptance factors (the IRS’s real questions)

• My reasonable collection potential (asset equity + future income) is less than my total balance — computed, not guessed: calculator
• I could not full-pay through an installment agreement within the remaining collection period
• My income/expenses survive the IRS Collection Financial Standards — my claimed expenses are at or supportable against the standards
• My asset figures use quick-sale value (80%) and honest valuations I can document
• If I am claiming hardship/equity (effective tax administration): my special circumstances are documented (health, age, dependants, one-time events)
• If I dispute the tax itself (doubt as to liability): I can state the factual/legal basis for why the assessment is wrong Part B weaknesses do not return your offer — they get it rejected, which at least carries appeal rights (appeal guide).

Quick self-test (adapted from state self-tests for their own programmes)

State programmes ask screening questions that map cleanly onto the federal logic (Arizona DOR’s OIC self-test is the model): Is your income substantially from Social Security, disability, pension, or public assistance? Is your tax debt old (7+ years, so the collection period is short)? Have you had a significant income reduction? Several “yes” answers do not guarantee acceptance — but they are exactly the profile (low RCP, short remaining collection window, reduced capacity) that federal examiners accept on.

Frequently asked questions

Who is eligible? Anyone with an assessed federal tax liability who passes Part A’s gates — eligibility to file is broad; the real filter is Part B’s financial test (NY State’s programme page leads with the same “Who is eligible?” heading; the federal gates are listed above).

Do I receive Social Security income, Social Security disability, pension payments or public assistance? Arizona’s self-test asks this because fixed, modest income usually means low reasonable collection potential — federally it is evidence feeding the RCP computation and, for the waiver, the low-income test, not a separate eligibility category.

Is my tax debt older than seven years? Also from Arizona’s self-test; on the federal side, the relevant measure is the remaining collection statute (10 years from assessment). An older debt leaves the IRS less time to collect your future income — which lowers the realistic alternatives to accepting your offer.

Do I qualify for the low income certification? If household income is at or below 250% of the federal poverty level (Form 656’s chart), yes — fee and in-review payments are waived. Run the numbers on the fee page (IRS FAQ).

How do I know if an offer is right for me? If Part A is fully ticked and Part B computes in your favour, the offer is a rational filing; if Part B fails on the math, an installment agreement is the better instrument (IRS FAQ framing, operationalised in this checklist).

General tax information, not tax or legal advice. Sources: IRS Offer in Compromise eligibility and FAQ pages; Form 656-B pre-filing checklist; Arizona DOR OIC self-test (questions); NY State OIC programme page. Reviewed 2026-10-22.