An IRS balance you can’t pay is stressful, and the ads promising to settle it for “pennies on the dollar” make it worse. Before you pay anyone a fee, you can run the IRS’s own eligibility screen for free. This IRS offer in compromise pre-qualifier checklist shows you what that screen asks, what to have on hand, and what each answer means.
An offer in compromise (OIC) is an agreement to settle your tax debt for less than the full amount. The IRS only accepts one when it believes the offer is the most it can reasonably collect from you. A free pre-qualifier gives you a first read on that, in about 20 minutes, without sending anything to the IRS.
What the Pre-Qualifier Actually Decides
The IRS OIC Pre-Qualifier tool runs through six screens: Status, Basic Info, Assets, Income, Expenses and Proposal. At the end it shows a preliminary offer amount based on the numbers you typed in.
That number is a starting point, not a decision. The IRS says plainly that the tool “should only be used as a guide.” Its final decision rests on your full application and its own investigation of your finances.
Eligibility screen versus final acceptance
The tool checks two things. First, it confirms you meet the basic filing and payment rules. Second, it estimates your reasonable collection potential (RCP), which is the IRS term for what it thinks it could collect from your assets and future income.
Passing both is encouraging. It does not mean the IRS will accept your offer, because the examiner will check every figure against bank records, pay stubs and property values.
Why a preliminary offer number is only a guide
You choose the values you type in, and the tool can’t verify them. An examiner may value your car higher, disallow an expense, or find income you left out. Any of those changes raises the offer the IRS will accept.
The Four Eligibility Gates You Must Clear First
The Status screen opens with four yes-or-no questions. A “no” on any of them stops the process until you fix it. According to the IRS offer in compromise page, you must meet all of these:
- All required returns filed. Every federal return you’re legally required to file must be on record.
- Estimated payments made. If you owe quarterly estimates for the current year, they must be paid.
- No open bankruptcy. Debts in an open bankruptcy case are resolved inside that case, not through an offer.
- Employer deposits current. Self-employed people with employees must have made federal tax deposits for the current quarter and the two before it.
The Form 656-B booklet adds one more rule the tool doesn’t ask about. You must have received a bill for at least one of the tax debts in your offer.
- What happens: If the IRS finds a missing return, it keeps your initial payment and applies it to your debt.
- What you get back: Only the offer and the application fee are returned, and you can’t appeal that decision.
Who Should Not Use the Tool
The pre-qualifier is built for individuals and sole proprietors. By the IRS’s own description, it is not applicable if you are a partnership or corporation. It also doesn’t apply if you live in a U.S. territory or a foreign country, or if you’re military personnel using an APO or FPO address.
If that’s you, skip the tool and go straight to the Form 656-B booklet. Businesses use Form 433-B (OIC) for their financial statement instead of Form 433-A (OIC).
Your IRS Offer in Compromise Pre-Qualifier Checklist
The pre-qualifier needs far less than the full application. There’s no need for stapled statements yet. What you need is accurate numbers, so gather these before you open the tool.
| Tool screen | Have this ready |
|---|---|
| Status | Confirmation that every required return is filed, current-year estimated payments, and payroll deposit records if you have employees |
| Basic Info | Filing status, household members, and the total you owe (your IRS account transcript shows the current balance) |
| Assets | Bank balances, retirement account balances, home and vehicle market values, and loan payoff amounts |
| Income | Gross monthly household income from wages, self-employment, Social Security, pensions and any other source |
| Expenses | Monthly housing, utilities, car payments, health insurance, out-of-pocket medical costs, court-ordered payments and current tax payments |
| Proposal | A decision on lump sum or periodic payments, since this changes the calculation |
Use gross figures, not take-home pay. The IRS counts income before deductions, then allows certain expenses back.
Income records
Pull your last few pay stubs, or six to 12 months of business records if you’re self-employed. The Form 433-A (OIC) lets you average six to 12 months of business income and expenses. Using that same window in the tool keeps your preliminary number close to what the examiner will see.
Asset and equity figures
Look up a realistic current market value for each asset, then find what you still owe on it. The tool and the IRS forms work with your equity (value minus loans), not the sticker price.
How the Assets Screen Values What You Own
The IRS doesn’t count your assets at full market value. Form 433-A (OIC), revised April 2026, uses a quick sale value of 80% of current market value. It then subtracts any loan balance.
- Bank accounts: the form subtracts $1,000 from your combined cash and account balances.
- Retirement accounts: 401(k) and IRA balances count at 80% of current value, minus any plan loans.
- Vehicles: each car counts at 80% of value minus the loan, then the form subtracts $3,450 per vehicle (up to two on a joint offer).
- Real estate: 80% of market value, minus mortgages and other loans on the property.
The Form 656-B booklet adds a caveat. Those $1,000 bank and $3,450 vehicle allowances apply only to individuals, and only after the IRS decides you can’t pay the debt in full.
- The trap: Cashing out an IRA or 401(k) to fund an offer can create a new tax bill for that year.
- What the IRS says: The booklet tells you to contact the IRS or a tax advisor before using retirement savings this way.
How Income and Expenses Shape Your Offer
After the asset screens, the tool works out your remaining monthly income. That’s household income minus allowable living expenses. The IRS sets many of those allowances through its National and Local Standards, so your actual spending may be higher than what counts.
Remaining monthly income is then multiplied based on how fast you’ll pay. Form 433-A (OIC) spells out the math:
- Lump sum (paid within five months): remaining monthly income times 12.
- Periodic payment (paid over six to 24 months): remaining monthly income times 24.
Your future income figure plus your net asset equity is roughly the minimum offer the IRS will consider. That’s why a lump sum offer often comes out lower: the multiplier is half as large.
Reading Your Preliminary Offer Number
The Proposal screen shows the result. Three outcomes are common, and each points to a different next step.
| Tool result | What it means | Next step |
|---|---|---|
| Not applicable | You’re a business entity, territory or foreign resident, or APO/FPO filer | Use the Form 656-B booklet directly |
| Preliminary offer amount | Your numbers suggest you can’t pay in full | Gather documents and prepare the full application |
| You can full pay | Your equity and income cover the balance | Look at a payment plan, or a hardship-based offer if paying would leave you unable to cover basic living costs |
When the tool says you can full pay
This result surprises many people. The IRS generally won’t accept an offer if you can pay through an installment agreement, your asset equity, or both.
Still, the tool notes that you may file an offer anyway and explain your situation. The booklet describes offers under “effective tax administration” when full payment would cause economic hardship or be unjust because of exceptional circumstances. Those cases depend heavily on documentation, so get professional help before filing one.
Awkward Answers and What They Mean
Some situations don’t fit the tool’s yes-or-no questions neatly. Here’s how to handle the common ones.
An unfiled return
Answer honestly and file the missing return before you apply. Our guide on filing back taxes yourself walks through getting old wage records from the IRS. Once the return is processed and assessed, run the pre-qualifier again.
An open audit or dispute
The booklet tells you to resolve any open audit or innocent spouse claim before submitting an offer. If you believe you don’t owe the tax at all, that’s a different kind of offer. It uses Form 656-L (Doubt as to Liability), and you can’t file it at the same time as an ability-to-pay offer.
A balance you haven’t been billed for
If you just filed and haven’t received a notice yet, wait for the bill. You need at least one billed debt in the offer for the IRS to consider it.
From Pre-Qualified to Filed
The full application is Form 656 plus Form 433-A (OIC) for individuals, with supporting documents. Individuals with an IRS online account can also submit through it. The Form 656-B offer booklet lists every attachment.
The application fee and first payment
Every offer needs a $205 application fee plus an initial payment, unless you’re an individual who meets the Low-Income Certification guidelines. If the IRS rejects your offer, it keeps the fee. A returned application (because you weren’t eligible) gets the fee sent back.
- Lump sum: pay 20% of your offer when you apply. If accepted, pay the rest in five or fewer payments within five months.
- Periodic payment: make the first payment with the offer, then keep paying monthly while the IRS reviews it. If accepted, finish paying within 6 to 24 months.
What happens while you wait
Once the IRS processes your application, it suspends most collection activity. It also extends the time it has to collect, and it may file a notice of federal tax lien.
Interest and penalties keep accruing during review. The IRS may also keep any tax refund for a return assessed before your offer is accepted. If the IRS doesn’t accept or reject your offer within two years of receiving it, it’s automatically accepted (time spent in an appeal doesn’t count).
Mistakes the Pre-Qualifier Cannot Catch
The tool trusts whatever you enter. These errors only show up when an examiner reviews your file:
- Leaving out household income: the IRS counts income from everyone who helps pay household costs, including non-taxable income.
- Expenses above the standards: actual rent or car costs above IRS allowances won’t count without a strong reason.
- Lowballing asset values: examiners check public records and recent sales, so guessing low just delays the process.
- Missing a deadline: if you don’t answer an IRS information request on time, your offer is returned with no appeal rights.
Acceptance also comes with a five-year commitment. You must file and pay all taxes on time for five years after acceptance, or the IRS can default the offer and reinstate the original debt, minus payments made.
Frequently Asked Questions
Is the offer in compromise pre-qualifier mandatory?
No. The IRS recommends it, but you can file Form 656 without running it. It’s free and anonymous, though, so it costs you nothing to check your numbers first.
Does running the pre-qualifier start collection action?
No. The tool doesn’t ask for your name or Social Security number, and nothing is sent to the IRS. It’s a calculator, not an application.
How much will the IRS accept for an offer in compromise?
Generally, the IRS wants at least your reasonable collection potential. That’s your net equity in assets plus remaining monthly income times 12 (lump sum) or 24 (periodic payments). Special circumstances can lower it, but they must be documented.
What if my offer is rejected?
You can appeal a rejection to the IRS Independent Office of Appeals, generally by filing Form 13711 within 30 days of the rejection letter. A returned offer is different and can’t be appealed. If penalties are a big part of your balance, a penalty abatement request may also help.
Can I use a tax refund to pay my offer?
No. The booklet says you can’t pay an offer with an expected or current refund, money already paid, or funds taken by a levy. Refunds the IRS keeps before acceptance go toward your tax debt instead.
Your Next Step
Run the pre-qualifier with honest numbers before you pay anyone to file an offer for you. If it shows a preliminary offer amount, gather the records in the checklist above and prepare Form 656. When it says you can full pay, a payment plan is usually the realistic route.
Still have unfiled years? Read our guide on how long you can go without filing and get compliant first. An offer can’t move forward until every required return is on record.
This article is general information based on IRS Form 656-B (Rev. 4-2026) and IRS.gov, not tax or legal advice for your situation.