Form 656

What Form 656 is, and which version to use

Form 656, Offer in Compromise, is the agreement you sign asking the IRS to accept less than the full amount you owe. The current Form 656 is Rev. 4-2026 (IRS.gov, 4-2026). The IRS publishes it three ways, and picking the right one matters:

Form 656 lets you ask for a compromise on one of three grounds, and you check only one:

• Doubt as to collectibility. You don’t have enough assets and income to pay in full. This is by far the most common route, and your offer must be at least the minimum calculated on Form 433-A (OIC) or 433-B (OIC).
• Effective tax administration, economic hardship. You could pay, but full payment would cause economic hardship. Only individuals qualify.
• Effective tax administration, public policy or equity. Exceptional circumstances make full collection unfair, such as a payroll service provider that stole your employees’ withheld taxes.

How the IRS arrives at the minimum offer, and whether an offer beats a payment plan for you, is covered in our offer in compromise guide. This page is about getting the paperwork right.

Before you file: eligibility checks and free tools

According to the 656-B booklet, the IRS will not consider an offer unless you have:

1. filed every tax return you are legally required to file;
2. received a bill for at least one of the balances in the offer;
3. made all required estimated tax payments for the current year; and
4. if you own a business with employees, made all required federal tax deposits for the current quarter and the two before it.

You also can’t file while you or your business is in an open bankruptcy, and the IRS asks you to resolve any open audit or innocent spouse claim first. An offer with a deactivated ITIN is not considered until the ITIN is renewed on Form W-7. If returns are missing, the IRS keeps any initial payment, applies it to your balance and returns the offer and fee, and you cannot appeal that decision.

The IRS generally will not accept an offer if you can pay in full through a payment plan, equity in your assets, or both. If that describes you, look at IRS payment plans or currently not collectible status instead.

The application fee and your payment options

Each Form 656 needs a non-refundable application fee of $205 for 2026, per IRS.gov, plus an initial payment. You choose one of two payment options in Section 4:

Example (assumed figures): a $12,000 lump-sum offer needs 20% with the application, which is $2,400, and the remaining $9,600 within five months of acceptance. The same $12,000 as a periodic offer over 24 months would be $500 a month, starting with the application.

• How to pay. Through the Electronic Federal Tax Payment System (EFTPS) or, for individuals, the Individual Online Account, even if you mail the application. Electronic payments must be made the same day you mail or file the offer; enter the 15-digit EFT numbers in Section 5. Otherwise, send a separate personal check, cashier’s check or money order for the fee and for the payment, payable to “United States Treasury,” attached to the front of Form 656. Don’t send cash.
• What you can’t use. A current or expected tax refund, money already paid, funds taken by a levy, or expected benefits from a capital or net operating loss. Drawing on an IRA or 401(k) can create a new tax bill.
• You won’t get it back. Payments are applied to your balance even if the offer is rejected, returned or withdrawn. You can designate which year and tax each payment applies to in Section 5; the fee can’t be designated.
• Missed periodic payments. If you miss a payment before you get a final decision letter, the IRS may return the offer, and you can’t appeal a return.

Joint and separate balances, or individual and business balances, need separate Forms 656, each with its own fee and payment. Our key figures page lists every current IRS fee.

Low-income certification: no fee and no payments

Individuals and sole proprietors can check the Low-Income Certification box on page 2 of Form 656. You qualify if your adjusted gross income from your most recently filed Form 1040, or your household’s gross monthly income from Form 433-A (OIC) times 12, is at or below the chart amount for your family size and state. The law sets the line at 250% (IRS.gov, 2026) of the federal poverty guidelines; the form prints the resulting dollar amounts.

Sizes 2-3 and 5-8, and the higher Alaska and Hawaii limits, are printed in the chart on page 2 of Form 656 in the 656-B booklet.

• What you skip: the application fee, the initial payment and any monthly payments while the offer is reviewed. Your first payment is due 30 calendar days after acceptance unless an amended offer sets another date.
• Don’t send money anyway. Voluntary payments are applied to your balance and not returned.
• Who can’t use it: businesses other than sole proprietorships, and offers filed for a deceased person’s estate.
• The IRS checks. Checking the box is a certification, and the IRS verifies it.

Form 656 section by section

This walkthrough follows Form 656 as printed in the 656-B booklet PDF. Complete the financial statement first, because Form 656 uses its result.

Page 1 and Section 1: individual information

Say whether you used the Pre-Qualifier or online eligibility check (recommended, not required). Enter your name, SSN or ITIN, your spouse’s details for a joint offer, your addresses and your EIN if you have one. Then list every tax period you owe: Form 1040 years, Trust Fund Recovery Penalty quarters with the business name, Forms 941 and 940 periods for a sole proprietorship, and any other federal taxes. Legally separated or divorced spouses, and spouses who each also owe separate taxes, file separate offers.

Page 2: low-income certification and Section 2 (businesses)

Check one of the two low-income boxes only if you qualify (see above). Corporations, partnerships, LLCs and LLPs complete Section 2 instead of Section 1, attach Form 433-B (OIC), and always pay the fee and initial payment.

Section 3: reason for offer

Check exactly one box. For doubt as to collectibility, you are stating that you offered the minimum from Form 433-A (OIC) or 433-B (OIC). If special circumstances such as illness or age mean you can’t pay that minimum, offer what you can and attach a detailed explanation with documents. Both effective tax administration boxes also need a written explanation.

Section 4: payment terms

Check lump sum or periodic payment, enter a whole-dollar offer above zero, and fill in the payment schedule. For periodic offers, pick a payment day from the 1st to the 28th; the first payment counts as month 1.

Section 5: designation of payment and EFTPS

Optionally tell the IRS which tax year and tax to apply your payments to, and list the electronic payment numbers for any fee or payment you made online.

Section 6: source of funds and compliance

Say where the offer money will come from (savings, a loan from family, sale of an asset). Confirm that all returns are filed and attach a copy, marked as a copy, of any return filed within 10 weeks before the offer. Confirm your estimated payments and federal tax deposits.

Section 7: offer terms you are agreeing to

Read these before you sign. Among other things, you agree that:

• the IRS keeps refunds for periods before acceptance, and you can’t file an amended return for the offer years while the offer is pending or after acceptance;
• you will file and pay every tax on time for five years after acceptance, and during that time you can’t request an installment agreement or a new offer;
• if you default, the IRS can reinstate the original balance, less payments, with penalties and interest;
• the time the IRS has to assess tax is extended, and the collection statute is suspended while the offer is pending and for 30 days after a rejection;
• the IRS may file a Notice of Federal Tax Lien, and generally releases it within 45 days after your final offer payment is received and verified;
• your name, city, liability amount and offer terms go into a public inspection file for one year after acceptance; and
• you accept final determination letters through IRS Secure Messaging if you use it.

Sections 8 and 9: signatures and paid preparer

Sign and date; both spouses sign a joint offer, and an authorized officer signs for a business. A paid preparer completes Section 9. If you want someone to represent you during the investigation, attach a signed Form 2848 that lists every offer year and the current year; Form 8821 only lets a third party receive information, not represent you in a collection matter.

Form 656-L: when you dispute the tax itself

Form 656-L is for doubt as to liability: a genuine dispute about whether you owe the tax, or how much. It is not for people who agree they owe but can’t pay; the IRS says plainly, “don’t file a Form 656-L” in that case. You can’t have a Form 656-L and a Form 656 pending at the same time; if you send both, the IRS returns the Form 656 and keeps its payment.

Its built-in pre-qualifier sends you elsewhere first in most situations: amend the return for your own reporting errors, file an original return if the IRS prepared one for you, request audit reconsideration after an audit, answer a CP2000 notice about unreported income, or ask for penalty relief if only penalties are in dispute. A doubt-as-to-liability offer fits when those routes are closed, for example when you never received the audit notices because you moved.

• No fee and no payment. Don’t send money with Form 656-L.
• Offer what you believe you owe. A zero offer is returned without processing.
• Explain and prove it. Section 5 requires a written explanation of why the tax is wrong, with supporting documents; without them the offer is returned.
• Mail it separately to: Brookhaven Internal Revenue Service, DATL Unit, P.O. Box 9008, Stop 681-D, Holtsville, NY 11742-9008.

File online or by mail: where to send Form 656

Online (individuals). The 656-B booklet says your Individual Online Account lets you “prepare all necessary forms, calculate the potential amount to offer, make all required payments, and submit your offer electronically.” If you file online, do not also mail a paper copy. Businesses cannot file online; they can pay through their Business Tax Account but must mail Form 656 with Form 433-B (OIC).

By mail. Send the package to the Centralized Offer in Compromise (COIC) unit for your state, as listed on the booklet’s application checklist:

The address matters: the 2 years (IRS.gov, 2026) period after which an undecided offer is treated as accepted only starts when the correct site receives it. Keep a full copy of what you send, and if you are already working with an IRS employee, tell them you have filed an offer.

What happens after you file

• Acknowledgment. If the IRS can’t process the offer, it tells you in writing; if it can, it sends a letter with an estimated contact date and may ask for more information. Reply by the deadline, or the offer is returned without appeal rights.
• Collection mostly pauses. The IRS may levy up to the moment an IRS official signs the offer as pending, then suspends other collection while it is considered. You don’t have to make payments on an existing installment agreement during that time; if the offer isn’t accepted and you owe nothing new, the IRS reinstates the agreement. A plan that was only pending is withdrawn and not reinstated.
• Costs keep running. Penalties and interest continue to accrue, and refunds for earlier periods are offset against your balance.
• Stay compliant. File and pay every current tax on time, including estimated payments, or the offer can be returned.
• Deemed acceptance. If the IRS makes no decision within 2 years of receiving the offer (not counting any appeal period), it is accepted by law.
• Rejected. You can appeal within 30 days (IRS.gov, 2026) on Form 13711 (see what comes after a decision). A returned offer, for example for missing returns or missed payments, has no appeal.
• Accepted. Pay on schedule and stay compliant for five years. Liens are released once the offer terms are met.

Common Form 656 mistakes

1. Using an old booklet. Check that the booklet and every form in it show Rev. 4-2026 at the bottom.
2. Filing with a return missing, or before you have a bill for any balance in the offer. The IRS keeps the payment and returns the offer.
3. Offering less than the Form 433-A (OIC) minimum without an explanation and documents in Section 3.
4. Combining payments. The fee and the initial payment must be separate, and must not be mixed with other tax payments.
5. One Form 656 for individual and business balances, or for spouses who must file separately.
6. Missing a periodic payment or an IRS deadline for documents while the offer is pending.
7. Sending payments with a low-income or 656-L offer. They are kept and applied to the balance.
8. Mailing to the wrong unit, or mailing a paper copy after filing online.
9. Trusting “pennies on the dollar” promises. The IRS decides based on your numbers, not on who files the form; see what is real and what is a sales pitch.

How to file an offer in compromise with Form 656, step by step

1. Check eligibility first. Use the OIC Pre-Qualifier or your IRS Individual Online Account. Confirm every required return is filed, you have received a bill for at least one of the balances, and this year’s estimated payments (and, for employers, federal tax deposits) are current.
2. Get the current booklet. Download Form 656-B from IRS.gov. It contains Form 656 and Forms 433-A (OIC) and 433-B (OIC). Use doubt-as-to-liability Form 656-L only if you dispute the tax itself.
3. Complete the financial statement. Fill out Form 433-A (OIC) for yourself, and Form 433-B (OIC) for a corporation, partnership or LLC. Its Section 8 calculates your minimum offer.
4. Complete Form 656. List every tax year and type you owe, check one reason for the offer, choose lump sum or periodic payment, and enter an offer at least equal to the minimum from the financial statement, or explain special circumstances.
5. Check the low-income certification. If your adjusted gross income, or household gross monthly income times 12, is at or below the chart amount for your family size, check the box and send no fee or payments.
6. Attach documents and payments. Attach copies (not originals) of the documents listed at the end of Form 433-A (OIC), the application fee and the initial payment, each paid separately through EFTPS, your online account, or a separate check to the United States Treasury.
7. Sign and submit. Sign every form. Individuals can submit in their Individual Online Account; otherwise mail the package to the Memphis or Brookhaven COIC unit for your state and keep a copy.
8. Keep up while the IRS reviews it. Answer IRS requests by their deadline, make every periodic payment, and file and pay all current taxes, or the offer can be returned without appeal rights.

Frequently asked questions

Keep reading in the Fresh Start hub

• Offer in compromise under Fresh StartHow the IRS calculates what it will accept.
• Form 433-A and 433-A (OIC)The financial statement that sets your minimum offer.
• Offer in compromise estimatorEstimate your reasonable collection potential.
• Fresh Start forms libraryEvery IRS form used under Fresh Start.
• How to apply for Fresh Start reliefWhere an offer fits in the five steps.