The IRS will not read your offer until your business clears four gates. Miss one, and the file comes back unopened.
That is the reality behind the Business Offer in Compromise requirements. Before the IRS calculates what your company can afford to pay, it checks whether your business is even eligible to ask. This is a threshold test, not a negotiation. Pass it, and your offer gets reviewed on the merits. Fail it, and you lose the application fee and the months you waited.
What Are the Business Offer in Compromise Requirements?
An Offer in Compromise lets a business settle its federal tax debt for less than the full amount owed. But the IRS will only evaluate that settlement if four conditions are already true on the day you file.
- All required business tax returns are filed.
- Federal tax deposits are current for the present quarter and the two before it.
- The business is not in an open bankruptcy proceeding.
- The offer amount meets or exceeds what the IRS calls Reasonable Collection Potential.
Miss any one of these, and the IRS returns your application without reviewing it. The $205 fee comes back to you — but any offer payment you sent gets applied straight to your existing balance, not refunded. Your problem comes back too, now with less time on the clock.
Filing and Deposit Compliance Comes First
The IRS checks compliance before it checks anything else. Every required return has to be filed, from corporate income tax to payroll filings.
There is no partial credit for filing most of them.
For businesses with employees, the payroll deposit rule catches more offers than any other single item. Your federal tax deposits must be current for the current quarter and the two quarters immediately before it. A business that is behind on deposits looks, to the IRS, like a business that is still creating new debt while asking to settle old debt.
The IRS does not settle old liabilities for a business that is creating new ones.
Where Does Your Business Stand?
Self-diagnose before you spend the application fee.
Lower Risk
Returns are filed, deposits are current, and there is no bankruptcy on record. Your business likely meets the baseline Business Offer in Compromise requirements and can move to calculating an offer amount.
Moderate Risk
One or two items are behind — a late return, a missed deposit. This is fixable, but filing today gets your offer returned. Fix the gap first.
Higher Risk
Multiple unfiled returns, missed payroll deposits, or an open bankruptcy case. An offer filed from this position will not survive the first review. Call before you file anything.
What Not to Do Before You File
- Do not file Form 656 before every required return is on record with the IRS.
- Do not submit an offer while payroll deposits are behind for the business.
- Do not guess at your Reasonable Collection Potential — an offer below it gets rejected outright.
- Do not claim expenses the IRS does not allow under the Collection Financial Standards.
- Do not assume a rejected offer stops collection — the statute clock can extend instead.
Meeting the Business Offer in Compromise Requirements Is Only Step One
Passing the threshold test gets your offer read. It does not get it accepted. Once the file clears the four gates, the IRS turns to Reasonable Collection Potential — a formula built from your business assets plus your future income, generally projected over 12 or 24 months depending on the payment option you choose.
Offer below that number, and the IRS rejects it even though you met every filing and deposit rule. This is where most businesses need a second set of eyes. Enrolled Agents at Simple Finances® build the 433-B financial statement the way the IRS expects to see it, so the offer amount survives review instead of bouncing back.
What It Costs to Apply
- A $205 application fee, due with Form 656. There is no low-income waiver for business offers.
- An initial payment: 20% of the offer for a lump-sum plan, or the first installment for a periodic payment plan.
- Continued periodic payments while the IRS reviews the offer, if you choose that payment option.
Review can take months, and interest keeps accruing on the underlying balance while the IRS decides. That is the real cost of getting the Business Offer in Compromise requirements wrong the first time — not just the fee, but the time.
Do You Meet the Business Offer in Compromise Requirements?
Most businesses do not know where they stand until someone pulls the transcripts and checks all four items line by line. That is the fastest way to find out whether you file now or fix something first.
Complete the two-minute Tax Resolution screening, or schedule an IRS Resolution Discovery Call directly. Simple Finances® reviews your filing status, deposit history, and collection potential, then tells you exactly what stands between your business and a real offer.
Schedule an IRS Resolution Discovery Call
Simple Finances™ reviews every submission and contacts qualified businesses directly to walk through next steps.
