Overview

Revoking an Offer in Compromise (OIC) means you formally withdraw a previously submitted settlement proposal before the IRS accepts it. Taxpayers choose this route when their finances change, when a better option is available, or when they decide not to pursue the offer. In my practice, clients most often revoke an OIC after a major change — for example, a new job, an inheritance, or when a negotiated payment plan becomes feasible.

This article explains when revocation is possible, the exact steps to withdraw an OIC, what happens next, and alternatives to revocation. It cites IRS guidance so you can follow the official process and keep records that protect your rights. (IRS guidance: Offer in Compromise — https://www.irs.gov/payments/offer-in-compromise; Form 656 instructions — https://www.irs.gov/forms-pubs/about-form-656)

When can you revoke your Offer in Compromise?

  • Before acceptance: You can withdraw (revoke) an OIC at any time while it is under IRS consideration but before the IRS formally accepts it. The IRS treats a written, signed notice of withdrawal as a revocation of the offer. (IRS: Offer in Compromise page.)
  • After acceptance: Once the IRS accepts and you execute the agreement, the OIC becomes a binding contract. You generally cannot simply revoke an accepted OIC. To change an accepted offer you must pursue limited remedies (for example, request a return of the offer under specific conditions or seek relief through appeals if there was procedural error). Defaulting on the agreement can lead to collection action and a loss of the accepted settlement.

Be cautious: ‘‘withdraw’’ and ‘‘revoke’’ are used interchangeably in practice, but the key is timing — before acceptance the taxpayer controls withdrawal.

Step-by-step: How to revoke a pending OIC

  1. Confirm the OIC status
  • Contact the IRS office handling your case or the Revenue Officer assigned to you. The OIC status could be “pending,” “returned,” “rejected,” or “accepted.” You can also use the IRS contact information on any correspondence you received.
  1. Prepare a signed, written revocation
  • Write a short letter that includes: your full name, Social Security number or EIN, tax periods involved, the date you originally filed the OIC (Form 656), a clear statement that you are withdrawing (revoking) the Offer in Compromise, and your signature and date.
  • Example sentence: “I hereby withdraw my Offer in Compromise (Form 656) submitted on [date] for tax year(s) [year(s)]. Please terminate IRS consideration of this offer.” Keep the letter concise and unambiguous.
  1. Send the revocation to the correct IRS address or contact person
  • Mail the signed original to the address or Revenue Officer listed on your OIC correspondence. If you have a telephone or email contact at the IRS case office, notify them too and indicate that a written revocation is on the way.
  • Use certified mail with return receipt or overnight delivery with tracking to create proof of submission. Keep copies of everything.
  1. Track IRS response
  • The IRS should acknowledge receipt and end consideration of the pending offer. If you made payments with the offer (lump-sum or periodic payments) ask how those payments will be handled and whether any balance will be refunded. Keep written confirmation.
  1. Follow-up actions
  • If you withdraw because you can now pay the liability, arrange a payment plan or other resolution immediately to avoid collection actions. If you withdraw to file a better offer later or to seek other remedies, document your next steps.

What happens to payments after revocation?

Payments submitted with an OIC may be treated differently depending on the offer type:

  • Periodic payment offers: The IRS typically holds the payments while considering the offer. If you withdraw before acceptance, the IRS generally will return any unused payments after applying any amounts to outstanding liabilities (interest and penalties continue to accrue).
  • Lump-sum offers: If you submitted a lump-sum offer amount and then revoke before acceptance, you must confirm whether the IRS will refund the funds or apply them to your tax debt.

Always ask the IRS in writing how they will apply or return payments and retain written acknowledgement.

Consequences and timing you should know

  • Collections may resume: Withdrawing an OIC ends the IRS’s special consideration of that offer. Normal collection activity — notices, liens, levies — can resume unless you have another arrangement in place (for example, an installment agreement).
  • Interest and penalties continue: The underlying tax liability remains unless resolved by another accepted agreement; interest and penalties keep accruing under the tax code.
  • Reapplying later: You can file a new OIC later, but you must meet eligibility requirements at that time. If a previous OIC was rejected for procedural or material reasons, reapplying requires addressing those issues.

Alternatives to revoking: consider these first

Common mistakes and how to avoid them

  • Failing to get proof: Don’t rely on phone calls alone. Always send a written, signed revocation and use tracked delivery.
  • Assuming revocation stops interest or collections: Unless you have another agreement, revoking will not stop accrual of interest or IRS collection activity.
  • Waiting too long: If your goal is to replace an OIC with another resolution (installment agreement, bankruptcy, or new offer), act quickly to avoid liens and levies.

Practical tips from practice

  • In my practice, I advise clients to prepare the alternative resolution first (for example, an approved or pre-arranged installment agreement) before revoking an OIC. That reduces the risk of immediate collection escalation.
  • Keep detailed records. Save the certified mail receipt, copies of the revocation letter, and any IRS replies. These documents matter if the IRS misapplies payments or continues collection erroneously.
  • Talk with a tax professional if your case involves complex issues like bankruptcy, pending litigation, business closure, or potential taxpayer hardship. Some scenarios require coordinated steps to protect assets.

Sample revocation letter (brief)

[Use your letterhead if you have one]

Date: [MM/DD/YYYY]

Internal Revenue Service
[Address shown on your OIC correspondence or assigned Revenue Officer]

Re: Withdrawal of Offer in Compromise — Tax Year(s) [YYYY]

Taxpayer: [Full name]
SSN/EIN: [XXX-XX-XXXX]
Offer filed on: [MM/DD/YYYY]

I hereby withdraw my Offer in Compromise (Form 656) submitted on the date shown above for the tax periods listed. Please terminate IRS consideration of this offer and confirm in writing how any payments will be handled.

Sincerely,

[Signature]
[Printed name]
[Contact phone/email]

Send by certified mail and retain your copy and return receipt.

Frequently asked questions

  • Can I revoke an OIC online? No. The IRS requires a signed, written notice to withdraw a pending OIC. Contact the IRS caseworker or the address on your OIC packet for submission details.
  • Will revoking an OIC hurt future offers? Not inherently. The IRS evaluates any new offer on current facts. However, repeated incomplete or insincere offers can affect credibility; present accurate financials if you reapply.
  • What if the IRS continues collection after I revoke? Provide your proof of revocation and request the IRS to stop collection. If the IRS does not correct the record, consider contacting the Taxpayer Advocate Service or filing an appeal.

Resources and authoritative guidance

Internal FinHelp resources (helpful links):

Disclaimer

This article is educational and reflects common IRS procedures as of 2025. It is not legal or tax advice for your specific situation. For guidance tailored to your facts, consult a qualified tax professional or attorney.