How to Make an Offer in Compromise

• 1). Compile all of your information regarding your outstanding tax bill. The easiest and best way to do this is to ask the IRS for a current bill, which it is required to provide.
  
  
• 2). Arrange a way to finance your settlement offer. If you are going to offer to pay $20,000 in taxes, you need to arrange a way to pay the $20,000, such as by taking out a home equity loan, selling off assets or using your savings.
  
  
• 3). Determine what type of payment type you will offer. The IRS typically accepts lump-sum payment offers and sometimes accepts installment offers. You need to figure out what you can handle, keeping in mind that the IRS is more likely to accept a lump sum. The term "lump sum" is slightly misleading, though, because the IRS will accept a lump-sum offer with five installment payments, as long as you can pay 20 percent of the offer up front.
  
  
• 4). Gather all the required documentation. Also gather any information that will help paint a picture of your financial situation, including all debts you owe, assets you own, money you have available, and employment and income records for the past few years, as well as your employment and income outlook for the upcoming few years. Verify that you have the most recent version of the IRS forms you need.
  
  
• 5). Fill out IRS Form 656, Offer in Compromise. Make sure you fill out all required information, even if it seems tedious or repetitive. Form 656 can be found at http://www.irs.gov/pub/irs-pdf/f656.pdf . You can call the IRS or search the IRS website (irs.gov) for the most recent form.
  
  
• 6). Pay the required filing fee and file your offer in compromise with the appropriate IRS office. Information about fees and which office you should deal with is at the IRS link in References.