What the Collection Information Statement is and why it matters

The Collection Information Statement—commonly filed as IRS Form 656‑B when submitting an Offer in Compromise (OIC)—is the financial backbone of an OIC package. It asks for a full snapshot of your financial life: every income source, recurring expense, asset, and debt. The IRS uses this information to compute your “ability to pay,” including reasonably collectible equity in assets and reasonably collectible income (RCI). A clear, accurate Form 656‑B improves your chances of a fair evaluation and helps you avoid unnecessary delays or outright denial (IRS: Offer in Compromise and Form 656‑B). (See IRS Form 656‑B: https://www.irs.gov/pub/irs-pdf/f656b.pdf and IRS Offer in Compromise page: https://www.irs.gov/individuals/offer-in-compromise).

This entry explains how the form is used, what to include, common pitfalls, realistic timelines and outcomes, alternatives, and practical tips from years of practice helping taxpayers prepare OIC packages.

Who must submit a Collection Information Statement

  • Individuals (and sole proprietors) submitting an Offer in Compromise usually complete Form 656‑B to document personal finances.
  • Businesses and partnerships may use alternate collection statements (for example, the Forms 433 series) depending on the IRS’s request. The IRS will tell you which financial statement it needs when you apply (IRS Form 656 instructions).

You must be current on all required tax filings before the IRS will evaluate an OIC. Also, tax liabilities must be legally collectible (i.e., not already released by bankruptcy or beyond the collection statute of limitations, which is generally 10 years from assessment). (See IRS: Offer in Compromise eligibility)

What information Form 656‑B collects

Form 656‑B is detailed. Expect to report:

  • Personal information: name, SSN/EIN, address, dependents, and contact details.
  • Income: wages, self‑employment income, pension, Social Security, unemployment, rental and investment income, and other receipts.
  • Monthly living expenses: housing, utilities, food, transportation, health care, child care, education, and other ordinary and necessary costs.
  • Monthly payments on secured and unsecured debts (loans, credit cards, medical debt).
  • Assets: bank accounts, retirement accounts, vehicles, real estate (with equity), business assets, and other valuable property.
  • Documentation: recent pay stubs, bank statements, brokerage statements, mortgage statements, medical bills, proof of public benefits, and tax returns.

The IRS expects supporting documentation for all entries. Incomplete or inconsistent statements commonly trigger requests for additional information and increase the risk of denial.

How the IRS evaluates your Collection Information Statement

The IRS evaluates two main values from your statement:

  1. Reasonably collectible equity in assets — the current fair market value of assets minus allowable encumbrances (mortgage, loans) and IRS equity allowances.
  2. Reasonably collectible income (RCI) — monthly disposable income after allowable living expenses and mandatory payments.

The IRS combines those figures to determine the total reasonably collectible amount. If that total is less than your tax liability, you may be a candidate for an accepted OIC. The IRS will either accept the offer, reject it, or submit a counteroffer.

For a plain description of the IRS calculations and common allowances, see our guide on how the IRS calculates payment amounts in OICs (internal link: How the IRS Calculates Your Payment Amount in Offers in Compromise: https://finhelp.io/glossary/how-the-irs-calculates-your-payment-amount-in-offers-in-compromise/).

Steps to prepare a strong Collection Information Statement (practical checklist)

  1. Download the correct forms: Form 656 (Offer) and Form 656‑B (Collection Information Statement) and the current instructions from the IRS (links above).
  2. Assemble documentation: last two pay stubs, last 3–6 months of bank statements, most recent tax return(s), proof of recurring expenses (leases, utilities, insurance), statements for retirement and brokerage accounts, and copies of outstanding bills.
  3. Accurately report all income and expenses. Do not omit casual income or side jobs—discrepancies between your return and your statement are red flags.
  4. Use realistic values for assets. Overstating expenses or understating assets can result in penalties or denial.
  5. Attach a cover letter that summarizes unusual circumstances (medical emergencies, job loss, natural disasters) with supporting documents.
  6. If you’re self‑employed or own a business, prepare a separate, organized profit‑and‑loss statement and be ready to explain seasonal swings.

For an in‑depth walkthrough of preparing the financial statement, see our internal how‑to: Preparing the Financial Statement for an Offer in Compromise (https://finhelp.io/glossary/preparing-the-financial-statement-for-offer-in-compromise-2/).

Common mistakes and how to avoid them

  • Missing or inconsistent documentation: double‑check that bank statements, pay stubs, and tax returns line up.
  • Using outdated expense standards: use actual expenses supported by receipts or statements; the IRS publishes national and local allowances in certain cases.
  • Forgetting to update the IRS about changes: if your financial condition changes while your OIC is pending, notify the IRS promptly.
  • Applying without being current on tax returns: the IRS will not process an OIC package that doesn’t include required filings.

In my practice, the most common reasons for denial are incomplete documentation and failure to substantiate claimed necessary expenses.

Timeline and what to expect

Processing time can vary. Typical timeframes:

  • Initial IRS review: several weeks to a few months.
  • Full evaluation: often 6–12 months depending on complexity and workload.
  • Requests for additional information: may add several weeks per request.

While an OIC is pending, the IRS generally suspends most collection activities tied to the tax debt under consideration, but some actions may continue in limited situations. Always confirm the exact protections in writing with the IRS so you know which collection actions are paused. (See IRS: Offer in Compromise for specifics.)

Outcomes: accept, reject, or counteroffer

  • Acceptance: You’ll receive a written confirmation and instructions for payment. Acceptance typically results in the remaining tax liability being legally resolved once the agreed payments are made.
  • Rejection: The IRS will explain reasons for denial. You can appeal the decision through the Collection Appeals Program or pursue alternatives such as installment agreements, penalty abatements, or bankruptcy in limited situations. See our guide on next steps after denial (internal link: Next Steps After an Offer in Compromise Denial: Appeals and Alternatives: https://finhelp.io/glossary/next-steps-after-an-offer-in-compromise-denial-appeals-and-alternatives/).
  • Counteroffer: The IRS may propose a different settlement amount or payment schedule.

Alternatives to an OIC

If an OIC isn’t a fit, consider:

  • Installment Agreement (monthly payments).
  • Currently Not Collectible status (temporary suspension of collection due to hardship).
  • Penalty abatement requests.
  • Bankruptcy, which has complex interactions with federal tax debts — consult a tax attorney. See our explainer on when bankruptcy affects Offers in Compromise for more detail.

Fees and payment options

Most applicants must include the nonrefundable application fee unless they qualify for a low‑income waiver. The fee and exact payment conditions can change, so check the IRS Offer in Compromise instructions for the current amount and waiver qualifications (IRS: Offer in Compromise instructions).

The OIC program accepts two general payment options:

  • Lump‑sum cash offer (shorter timeline to complete payments).
  • Periodic payment offer (payments made while the IRS considers the offer and after acceptance until the agreed balance is paid).

Frequently asked practical questions

  • Will submitting Form 656‑B stop wage garnishments? Generally, the IRS pauses most collection while processing a properly submitted OIC, but wage levies or other actions may require separate confirmation—don’t assume all levies stop automatically.
  • Can I reapply after a denial? Yes; you can appeal or reapply if your financial situation changes or you can remedy issues that caused denial.
  • Does an OIC remove tax liens? Acceptance does not automatically remove a tax lien. The IRS generally files a Certificate of Release of Federal Tax Lien only after the offer terms are satisfied. In some cases the IRS may subordinate or withdraw a lien, but that’s a separate request.

Professional tips from practice

  • Be precise and conservative with numbers—overstatement of living expenses or understatement of assets undermines credibility.
  • Include a clear narrative and documentation for nonrecurring hardships (job loss, medical crises) and how those affect your ability to pay.
  • If a third‑party prepares your application, keep copies of everything and review the submission before signing.

Final notes and disclaimer

This article explains the role of the Offer in Compromise Collection Information Statement and practical steps to prepare it. It is educational and not individualized legal or tax advice. For case‑specific guidance, consult a qualified tax professional or attorney who can review your full financial picture and the most current IRS guidance (IRS Offer in Compromise: https://www.irs.gov/individuals/offer-in-compromise and Form 656‑B: https://www.irs.gov/pub/irs-pdf/f656b.pdf).

Authoritative sources

Internal resources

(Article updated with best practices current through 2025. Always confirm fee amounts, forms, and program details on the IRS website before filing.)