Yes, through an Offer in Compromise under IRC § 7122. For most doubt-as-to-collectibility offers, the arithmetic drives the result, but the IRS can also accept offers on other statutory grounds, or accept less than that figure in special-circumstance cases. When it does apply, the arithmetic works as a formula rather than a negotiation.
Whether you qualify is therefore a math question about your assets and income, not how sympathetic your circumstances are. This page shows the formula, the current expense allowances that feed it, what an offer costs to file, and what you give up by making one.
It calculates your reasonable collection potential and compares it to your offer. RCP is the net realizable equity in your assets plus the income you could pay over a fixed number of months after allowable living expenses.
The number of months is a major part of the calculation, and it is smaller than people expect.
| Offer type | Payment terms | Months of future income counted |
|---|---|---|
| Lump sum offer | 20% down with the application, balance in 5 or fewer payments within 5 months of acceptance | 12 |
| Periodic payment | First installment with the application, then monthly, over 6 to 24 months | 24 |
If fewer than 12 or 24 months remain on the collection statute, the IRS uses the remaining months instead. That is the only circumstance in which the ten-year collection period enters the calculation. Stretching future income across the whole remaining statute is the formula for a partial payment installment agreement, not for an offer, and confusing the two produces a number several times too high.
A worked shape rather than a worked example, because the inputs vary too much. Take your equity in everything you own, and add either 12 or 24 times your monthly income after allowed expenses. That total is generally what a doubt-as-to-collectibility offer needs to reflect, absent special circumstances. Offer less and the arithmetic has to explain why.
Two adjustments help individuals at the margins. The IRS may reduce a bank balance by $1,000 and a car’s value by $3,450, but only after concluding you cannot pay in full from equity, an installment agreement, or both.
The IRS does not simply accept whatever you spend. It applies published Collection Financial Standards, and expenses above those standards generally do not reduce the amount the IRS expects you to pay.
These figures took effect June 29, 2026, and they change roughly annually.
| Expense | Monthly allowance |
|---|---|
| Out-of-pocket health care, per person under 65 | $90, in addition to health insurance premiums |
| Out-of-pocket health care, per person 65 and older | $163, in addition to health insurance premiums |
| Vehicle ownership cost, one car | $703 |
| Vehicle ownership cost, two cars | $1,406 |
| Vehicle operating cost, Detroit metro area, one car | $344 |
| Public transportation, no vehicle | $220 |
| Food, clothing and other items, one person | $867 |
| Food, clothing and other items, family of four | $2,176 |
Housing and utilities are set county by county rather than nationally, so a Wayne County allowance differs from a Kent County one. The current figures for every category are on the IRS Collection Financial Standards page.
Where your actual expense exceeds the standard, the argument is that the excess is necessary for your family’s health and welfare or for income production. That argument is made with documentation, and it is where most of the real work in an offer happens.
There are three, and they are set out in Treasury Regulation § 301.7122-1(b). Almost every accepted offer rests on the second.
| Ground | What it means |
|---|---|
| Doubt as to collectibility | Your assets and income are less than the full liability |
| Doubt as to liability | A genuine dispute exists about whether you owe the tax or how much |
| Effective tax administration | You could pay in full, but doing so would cause economic hardship, or exceptional circumstances make full collection inequitable. |
Two points about that table. Doubt as to liability does not exist where a final court decision established the liability, and no application fee is due for a doubt-as-to-liability offer, which the fee schedule states expressly. Our page on the doubt-as-to-liability offer covers that route.
The equity branch of effective tax administration is narrower than it reads. The regulation makes it available only where no other ground applies, and requires the taxpayer to show circumstances justifying compromise even though a similarly situated taxpayer paid in full.
$205, plus a down payment that depends on the offer type. Both are non-refundable, and both are applied to your tax liability if the offer fails.
| Item | Lump sum offer | Periodic payment offer |
|---|---|---|
| Application fee | $205 | $205 |
| Payment due with the application | 20% of the total offer | The first proposed monthly installment |
| Payments during IRS evaluation | None required | Continue monthly; missing one may be treated as withdrawal |
| Balance after acceptance | 5 or fewer payments within 5 months | Total term of 6 to 24 months |
| Refundable if rejected? | No, applied to the liability | No, applied to the liability |
You may specify which tax period the payments are applied to, which is worth doing deliberately rather than leaving it to the IRS. The application fee is applied to the offer amount if the offer is accepted. Form 656-B sets out the narrow circumstances in which it can be refunded instead, so check the current instructions before assuming either outcome.
If your adjusted gross income is at or below 250% of the federal poverty level, you owe nothing up front. IRC § 7122(c)(3) waives the application fee, the down payment, and the monthly payments during evaluation.
For 2026, the threshold in the 48 contiguous states is $39,900 for a household of one and $82,500 for a household of four, with roughly $14,200 added for each additional person. You may qualify based on the AGI from your most recently filed return or on your household gross monthly income multiplied by twelve. If you qualify, send no payment with the offer; payments sent anyway are generally not returned. The first payment is not due until 30 days after acceptance.
Entities other than sole proprietors do not qualify, and neither do offers filed for a deceased individual.
An open bankruptcy is an absolute bar. Several other conditions will get an offer returned before anyone looks at the numbers.
If you can pay in full over time, an installment agreement is the realistic path rather than an offer. Our chapter on IRS payment plans covers those.
The IRS generally cannot levy. Under IRC § 6331(k)(1), no levy may be made while an offer is pending, for 30 days after a rejection, and while a timely appeal of that rejection is being considered. A continuous wage levy already in place before the offer, or a jeopardy levy, falls outside this protection.
Three details matter. Pendency starts when the IRS accepts the offer for processing, not when you mail it, and the IRS may levy until then. A good-faith revised offer submitted within 30 days of rejection extends the protection. And refund offsets follow a separate rule from the levy protection: for any tax period assessed before the IRS accepts your offer, the IRS will keep the refund and apply it to your liability.
The collection clock stops for the same period, through IRC § 6331(k)(3)(B) and § 6331(i)(5). That is the trade-off nobody mentions. An offer that fails has bought the government extra time to collect. If your collection statute is close to expiring, submitting an offer can be the worst available move, and our page on whether tax debt expires explains how to work out where you stand.
Form 656 also contains provisions affecting the assessment statute in certain circumstances, extending it by the period the offer is pending plus one additional year. That is separate from the suspension of the collection statute described above. Submitting an offer also immediately withdraws any pending installment agreement.
You have 30 days from the date on the rejection letter to appeal to the IRS Independent Office of Appeals, using Form 13711 or a written protest that meets the requirements stated in the rejection letter.
A rejection and a return are different things, and only one is appealable. An offer returned as non-processable, for failure to provide requested information, or as submitted solely to delay collection does not carry appeal rights. It can be cured and submitted again.
One procedural point is worth knowing because it occasionally wins. IRC § 7122(e)(1) requires an independent administrative review of a proposed rejection before the rejection is communicated to you. A rejection letter issued before that review is defective.
Section 7122 provides for administrative appeal to Appeals. It does not provide for judicial review of a rejected offer. Tax Court review is available only where the offer is considered as a collection alternative within a Collection Due Process determination under IRC § 6330. Our page on what to do if your offer is rejected covers the appeal in detail.
Five years of perfect compliance. File on time and pay on time for the five years following acceptance, or the offer defaults and the original liability comes back, less what you paid.
Two other terms surprise people. Liens are not released on acceptance; the IRS generally releases a federal tax lien only after the offer terms are fully satisfied, and it may file a lien while the offer is under consideration. Once an offer is accepted, you give up the right to challenge the underlying tax in court or through a refund claim.
There is also a deadline running against the IRS. Under IRC § 7122(f), an offer is deemed accepted if the IRS has not rejected it within 24 months of submission, excluding any period during which a liability in the offer is disputed in a judicial proceeding.
Less likely than the advertising suggests. In fiscal year 2025, the IRS received 38,797 offers and accepted 5,464, according to Table 4-1 of the IRS Data Book.
Treat that as a rough indication rather than your personal odds. It compares offers accepted in a year against offers received in the same year, and because an offer takes months to work, the accepted ones largely came from an earlier group. The rate also swings. The comparable figure for fiscal 2024 was materially higher.
The more useful way to think about it is that acceptance tracks the arithmetic. For a processable doubt-as-to-collectibility offer, the amount offered generally has to reflect the IRS’s calculated collection potential.
Yes, under a separate program created by Public Act 240 of 2014 and available since January 1, 2015. It is codified at MCL 205.23a, and it is not automatic just because the IRS accepted your federal offer.
| Issue | Michigan rule |
|---|---|
| Grounds | Doubt as to liability, doubt as to collectibility, or acceptance of a federal offer under IRC § 7122 for the same years |
| Federal-acceptance ground | Treasury may apply the same percentage compromised federally to the state liability, for income tax, corporate income tax, and withholding tax |
| Payment with the offer | $100 or 20% of the offer, whichever is greater, non-refundable |
| Eligibility | All returns filed, no open bankruptcy, the offer not submitted solely to delay collection, and (for a doubt-as-to-liability offer only) appeal rights already expired |
The form point is the one that costs people time. Since April 1, 2025, Michigan requires one of the four current forms, and Treasury states that submitting a previous version results in an ineligible submission. Any guidance still telling you to file “Form 5181” is out of date.
Two further Michigan quirks. For a doubt-as-to-liability offer on Form 5181L, your appeal rights must have already expired before you can submit, which is the opposite of the federal posture, so that offer is not a way to escape a live dispute. Doubt-as-to-collectibility and federal-acceptance offers carry no such requirement and can be filed before appeal rights expire. And a federal-acceptance offer on Form 5181F must arrive with your Form 656, your IRS acceptance letter, and IRS account transcripts for every accepted period, or it will be treated as ineligible.
Treasury’s current procedures are on the Michigan Offer in Compromise page, and our Michigan tax defense practice handles both tracks together.
An offer is worth filing when the facts support it and a costly mistake when they don’t. A full analysis should take place before the application, not after. Ayar Law handles federal and Michigan offers in compromise for clients nationwide.
Call (248) 262-3400 or request a case review. Bring your most recent return, a list of what you own, and any notices you have received.
