656 Offer of Compromise

Filing an Offer for Compromise: Preparing Form 656 and Supporting Documentation

An Offer of Compromise (OIC) is a debt settlement offer from the Internal revenue service to taxpayers, either an individual or a business unable to pay their tax dues in full. There are certain strict criteria that spell out who will be eligible to file for the OIC. If you meet these requirements, you are required to fill out Form 656 and submit a number of documents to be considered for an OIC.

Preparing the Form 656

There are two circumstances in which you’ll meet the requirements to file Form 656. In the first, you’re making a case that paying the full amount of owed taxes will create economic hardship. In the second, you are make the case that there is doubt as to collectiblity.

If you meet the above criteria, here are some considerations for when you begin to complete the Form 656:

• All persons submitting the offer should enter their social security numbers.

• You’ll need to give the names of both the persons in the case of a joint offer for joint liabilities. If you owe a joint liability and both you and the other party are submitting for an offer, then you will want to do so on Form 656, just one form. You may owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If, only you are submitting this form, then you will need to list all liabilities on one of Form 656. In case both of you want to submit this application, then you have to include all tax liabilities on your Form 656 and the other person must show only the joint tax liability on their Form 656.

• You will need to include the appropriate information In each field on the Form 656.

• You will need to show the EIN of all businesses, except corporate concerns, that you own, either in whole or in part.

• If your claim to an OIC is based on a Doubt as to Collectability, you need to also furnish a completed Form 433A if you are an individual taxpayer and Form 433B if you are a business taxpayer.

• If your claim to an OIC is based on Effective Tax Administration, then apart from submitting a Form 433A or 433B, you will also need to fill out the information in the “Explanation of Circumstances” field. You may include additional bits of relevant information on separate sheets along with your employer identification and social security numbers.

• In filling out the total amount of your offer, you cannot include a sum that the Internal revenue service owes back to you or any amount that you have already paid in taxes.

• All persons submitting the offer should apply their signature on the 656 Form and supply a date. They need provide as well the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors when requested.

• Be sure that you mention the name and when possible, the address of the Offer in Compromise preparer.

• You may want the IRS to contact a family member, a friend, or some other acquaintance to discuss your case in order to understand your state of affairs better. In that case, you will need to tick the “Yes” box in the “Third Party Designee” field. Also, if you would like a CPA, your attorney, or an enrolled agent to represent your case, you’ll have to finish the Form 2848 and submit it together with your offer. to improve the chances of your offer being accepted by the IRS. After you have compiled all the documents for submission, ensure that you make electronic copies or hard copies for your records. In addition to these documents, you might also submit documents that support your claim for the offer.

Focus on Detail

The application process for an Offer for compromise is a complicated process. Ensure that you spend enough time completing Form 656 and provide all supporting documents to strengthen your chances of your offer being accepted.

To see addition resources on seeking an offer in compromise, visit the tax library at:

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