Here’s what HIVE AI had to say about “Offer in compromise qualification criteria and procedures”:

Offer in Compromise (OIC): Who Qualifies and How to Apply

What an Offer in Compromise is

An OIC is a binding agreement with the IRS to settle your tax liabilities for less than the full amount owed. The IRS generally will not accept an OIC if you can fully pay through an installment agreement or other means, and most accepted offers require at least your reasonable collection potential (RCP). RCP equals net realizable equity in assets plus a measure of future disposable income, allowing for basic living expenses under national and local standards. 1 2

Statutory bases for acceptance

Doubt as to liability: You dispute whether you owe the tax or the correct amount; financials aren’t required for this basis. File Form 656-L. 2 3
Doubt as to collectibility: You can’t pay in full; IRS evaluates assets and future income after allowing basic living expenses. 2
Effective tax administration (ETA): Full payment is possible, but collecting it would create economic hardship or be unfair/inequitable under the facts and circumstances. 2

Core eligibility prerequisites

You must be in filing and payment compliance before IRS will consider your offer: all required returns filed, you’ve received a bill for at least one debt in the offer, current-year estimated tax payments made, and if you have employees, current and past two quarters of federal tax deposits paid. Taxpayers in bankruptcy are ineligible until proceedings conclude. 1 3 4

What you must submit

Use Form 656 for collectibility/ETA offers; use Form 656-L for doubt as to liability. Offers must be written, signed under penalty of perjury, use the prescribed form, and include all requested information. Financial statements (Form 433 series) are required unless it’s solely doubt as to liability. 5 2 6 7

Payments, fees, and low-income exceptions

If you propose periodic payments, you must include the first installment with the offer and continue making proposed installments while it’s being evaluated; missing an installment during review can be treated as a withdrawal. You may designate application of these payments. User fees and initial payments are waived for qualifying low‑income taxpayers (AGI ≤ 250% of the poverty level). The Secretary can waive payments by regulation. 8

When an offer is “pending,” returns, and appeal rights

An offer becomes pending when the IRS accepts it for processing; IRS may return an offer as nonprocessable if it lacks information, appears solely to delay collection, or you don’t respond to information requests timely. A returned offer is treated as pending only for the period it was in process. 2
No IRS levy while a processable OIC is pending, for 30 days after rejection, and during any timely appeal of the rejection. An offer is pending only once accepted for processing. 9
IRS must provide independent administrative review before communicating a rejection and allow appeal to the IRS Office of Appeals. 10

Processing timelines and deemed acceptance

An OIC is deemed accepted if not rejected within 24 months after submission, excluding any period when the liability is in judicial dispute. 11

How the IRS evaluates financial ability to pay

The IRS allows for “basic living expenses” when determining ability to pay, guided by national and local standards; it will consider nonliable spouse income in limited ways per regulation. Case development follows IRM/Revenue Procedure guidance on processability and financial analysis. 2 12

Practical filing steps

Use the OIC Pre‑Qualifier to gauge eligibility and estimate a preliminary offer; then prepare Form 656-B package with Form 433 financials as applicable. 1
Submit on Form 656, signed under penalty of perjury, listing all liabilities, legal basis (collectibility/ETA or liability), total offer amount, and payment terms; use the latest form version. 5
Include required application fee and initial payment unless you qualify for the low‑income waiver; if proposing periodic payments, include the first installment and keep paying on schedule during review. 8

Common reasons for returns or rejections

Ineligible or unprocessable: in bankruptcy, not all returns filed, missing current estimates/FTDs, missing required forms or data, or offer appears solely to delay collection. 4 2
Offer amount below RCP without special circumstances; or you can fully pay via installment agreement/asset liquidation. 1
Frivolous submissions can be treated as not filed and may trigger penalties. 10

What happens to money sent with an offer

Amounts tendered with an OIC are held in a deposit fund and are either applied upon acceptance or refunded upon rejection. 13

Protect yourself from bad actors

Beware of “OIC mills” promising pennies-on-the-dollar results and charging high fees. Use the IRS Pre‑Qualifier and official forms; many taxpayers can pursue OIC directly or consider alternatives like installment agreements or currently not collectible status. 14 3

Key procedural checkpoints and rights

Submission and consideration rules: Offers must follow prescribed form and manner; IRS can request more info or return unprocessable offers; DOJ-referred cases are generally ineligible. 2 5
Independent review and appeal rights if rejected; don’t miss the appeal window. 10
Levy protection during pending/appeal periods; ensure your offer is accepted for processing to trigger protection. 9

Actionable next steps

Use the IRS Offer in Compromise Pre‑Qualifier, then prepare Form 656-B with Form 433-A(OIC)/433-B(OIC) as applicable; include the application fee and initial payment unless you’re low‑income. 1
If your case is doubt as to liability only, file Form 656‑L and omit financials. 3
Aim to offer at least your RCP unless ETA factors support less; document hardship thoroughly and align expenses with IRS standards. 1 2

If you want, I can estimate your reasonable collection potential and draft the payment terms to maximize acceptance odds.

Sources

1 – IRS.gov Tax Topics📄 Summarize
2 – Treasury Regulation 301.7122-1📄 Summarize
3 – IRS – Publication 594 The IRS Collection Process📄 Summarize
4 – REG–108934–16📄 Summarize
5 – Rev. Proc. 2003-71📄 Summarize
6 – Treasury Regulation 601.203📄 Summarize
7 – IRS – Form 656 Offer in Compromise📄 Summarize
8 – IRC § 7122(c)📄 Summarize
9 – IRC § 6331(k)📄 Summarize
10 – CCA-201024054📄 Summarize
11 – IRC § 7122(f)📄 Summarize
12 – IRS IRM 5.8.5 Financial Analysis📄 Summarize
13 – IRC § 7809(b)📄 Summarize
14 – IRS Newsroom – IR-2023-63📄 Summarize

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Offer in compromise qualification criteria and procedures