You have probably heard the mainland ads promising to settle IRS debt for “pennies on the dollar.” An Offer in Compromise can settle a debt for less than the full balance—but only when the numbers and the taxpayer’s circumstances support it. The latest IRS updates change the paperwork and processing, not that basic qualification test.

What changed in 2026?

1. The IRS updated its allowable living-expense figures

The IRS uses national and local Collection Financial Standards when deciding how much of a taxpayer’s income is needed for basic living expenses. Revised standards apply to financial analyses performed on or after June 29, 2026.

The IRS also changed the inflation measure used to update those standards to the Personal Consumption Expenditures index. For a taxpayer, the important point is simpler: an OIC calculation prepared with outdated expense figures may produce the wrong result.

These standards are starting points, not automatic approval of every dollar a household actually spends. The IRS still reviews the taxpayer’s facts, supporting records and whether claimed expenses are necessary and reasonable.

2. Individuals can submit an offer electronically

The IRS now allows eligible individuals to submit an Offer in Compromise through an IRS Individual Online Account and make electronic payments. Paper filing remains available, and businesses or individuals unable to use an online account can follow the Form 656-B instructions.

Electronic filing may simplify delivery, but it does not reduce the financial disclosure required or change the IRS decision standards.

3. An older addendum form is gone

Form 14640, previously used as an addendum to Form 656, is obsolete. A taxpayer claiming special circumstances must now attach a separate written explanation and supporting documents.

This matters because “special circumstances” cannot be established by checking a box. The explanation should connect the taxpayer’s medical, family, age-related or other exceptional facts to the financial hardship or fairness issue being claimed.

4. Material changes may require an amended Form 656

If key details change while an offer is being processed—such as the taxpayer entity, identification number, payment terms, offer amount, legal basis or signature—the IRS may require an amended Form 656 rather than an informal attachment. Limited corrections may still qualify for simpler pen-and-ink treatment.

5. Money collected through an existing levy does not become an OIC payment

If the IRS receives money from a valid levy that was already in place, those proceeds cannot be counted as payments toward the promised offer amount. The money may reduce the outstanding tax balance, but the taxpayer must still satisfy the separate payment terms of the offer.

This is one reason an active levy needs immediate analysis. Filing an offer without understanding the levy, payment requirements and collection status can create an unpleasant cash-flow surprise.

What did not change?

Doubt as to liability The tax may be incorrect

There is a genuine dispute about whether the assessed liability exists or whether the amount is correct.

Doubt as to collectibility The IRS cannot reasonably collect it all

The taxpayer’s income and asset equity are less than the full liability. This is the basis used for many financially driven offers.

Effective tax administration Full collection would create exceptional harm

The tax may be correct and collectible, but full payment would create economic hardship or exceptional public-policy or equity concerns.

The IRS generally will not accept an offer when the debt can be paid through available assets, a lump-sum payment or installments over the remaining collection period. The IRS begins with income, allowable expenses and realizable asset equity to estimate what it could reasonably collect.

That is why the advertised size of the tax debt does not determine the settlement. Two people who owe the same amount can receive very different results because their income, expenses, assets, household obligations and remaining collection periods differ.

The basic eligibility rules still apply

Before the IRS will consider an offer, a taxpayer generally must:

Submitting an offer before correcting filing or payment compliance can result in the package being returned rather than evaluated on its merits.

What about the 24-month rule?

Federal law provides that an offer is deemed accepted if the IRS does not reject it within 24 months after submission. Time during which the tax liability is disputed in court is excluded from that calculation.

This rule is a backstop—not a sound case strategy and definitely not “wait two years and you’re pau.” Expect the IRS to investigate the offer, request information and make a decision under the normal qualification rules.

Why filing the lowest possible offer can backfire

National tax-relief advertising often begins with the desired settlement number. The IRS begins somewhere else: what it believes it can collect.

A defensible offer requires more than completing Form 656. It requires identifying all assets, applying the correct equity rules, separating allowable expenses from unsupported spending, calculating future disposable income and documenting any circumstances that justify a result outside the usual formula.

How Kōkua Tax approaches an OIC

We start by testing qualification before selling the program. That means calculating the likely IRS collection potential, reviewing the remaining collection period, checking current compliance and comparing the offer against every realistic alternative.

If an offer is supportable, we prepare the financial story and evidence so the submission reflects the taxpayer’s actual circumstances. If it is not supportable, we explain why and recommend the resolution that fits the facts—not the one that sounds best in an advertisement.

Learn more about IRS resolution options and Kōkua Tax’s local approach.

Official sources

General information only. This article is not legal or individualized tax advice. IRS procedures, forms and financial standards can change, and every offer depends on the taxpayer’s complete facts.

Before you pay someone to submit an offer, find out whether it fits.

Let’s talk story about the numbers first. Kōkua Tax provides honest, Hawaiʻi-based analysis and representation—without a mainland sales pitch or promises the facts cannot support.

Start with a free assessment