What This Letter Means

Letter 278C, Offer in Compromise: Forms Requested, is the IRS sending you the paperwork for an offer in compromise. It goes out when you told the IRS you plan to submit an offer, or when the IRS looked at your finances and decided you may qualify. It typically includes Form 656-B, the offer booklet, or tells you how to get it, and gives the address of the centralized offer unit where your package goes.

It is not an acceptance, and it is not a promise. Only an offer specialist or offer examiner can accept or reject an offer.

What an Offer Is

An offer in compromise settles a tax debt for less than the full amount. The IRS considers three grounds:

  • Doubt as to collectibility: you can't pay the full amount before the collection period runs out.
  • Doubt as to liability: there is a real question whether the tax is correct. This uses Form 656-L.
  • Effective tax administration: the tax is correct and collectible, but exceptional circumstances apply.

What a Complete Package Needs

  • Form 656.
  • Collection information statements: Form 433-A (OIC) for individuals and Form 433-B (OIC) for businesses, with the requested attachments.
  • The application fee, unless you qualify under the low-income certification on Form 656.
  • The required initial payment. A lump-sum offer requires 20 percent of the amount offered with the application, unless you meet the low-income exception.

An incomplete package can be returned, and you lose time.

What to Do

Run the numbers before you file. The IRS compares your offer to your reasonable collection potential, which is built from your equity in assets and your future income. An offer that's too low gets rejected. Keep filing returns and making current-year payments while the offer is pending. Keep a copy of everything you mail.

If you received Letter 278C and want a realistic read on whether an offer will work, call us at (813) 229-7100.