Guide to Form 656

Applying for an Offer in Compromise: Preparing Form 656 and Supporting Documentation

An Offer in Compromise (OIC) is a back tax debt settlement offer from the Internal revenue service to taxpayers, both individuals and businesses, who are unable to manage their tax debt. There are certain strict criteria that spell out eligibility to file for the OIC and if you do satisfy these requirements, you will need to fill out Form 656 and submit a whole host of documents to be vetted for an OIC.

Preparing Form 656 (OIC)

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 will have to supply the names of both the parties if you are seeking a joint offer for joint liabilities. If you owe a joint liability and both your partner and you are submitting for an offer, then you’ll want to do so on Form 656, just one single form. Now you could 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 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 have to include the appropriate information In each field on the Form 656.

• You’ll need to give the EIN of all businesses, except corporate concerns, that you own, either wholly or partly.

• If your claim to an Offer for Compromise 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 on top of submitting a Form 433B or 433A, you also complete the information in the “Explanation of Circumstances.” You also you can include supplementary relevant information on attached sheets together with your social security and EIN.

• In providing the total amount of your offer, you cannot include a sum that the IRS owes to you or any of the amounts that you have already paid in taxes.

• All persons submitting the offer should sign the form and supply the date. They will also give the names and titles of authorized corporate officers, trustees, Powers of Attorney, and executors wherever requested.

• You might want the IRS to contact a a friend, a family member, or any other acquaintance to talk about your case so as to understand your situation better. In that case, you’ll need to mark the “Yes” box for the “Third Party Designee” field. Additionally, if you’d like an enrolled agent, your certified public accountant, or attorney to represent your case, you’ll have to complete the 2848 Form and submit it in addition to your offer.

• Ensure that you provide the name and when possible, the address of the person who may have prepared the OIC on your behalf. to better the chances of your offer being accepted by the IRS. And after you’ve gathered all the above-mentioned documents for submission, be sure you make electronic copies or photocopies of each one for your personal records. Additionally, you may also submit documents that support your claim for this genuine offer.

Keep Focused on Details

The application process for an Offer of compromise is complicated. Ensure that you spend enough time on Form 656 and provide the entire set of supporting documents to strengthen your chances of gaining approval on the offer.

For more guidance in seeking an Offer in Compromise to IRS back taxes, visit the tax libraries at:

Accountants and Tax Preparers in Bellevue
Accountants and Tax Preparers in Bellingham
Accountants and Tax Preparers in Bothell