Offers of Compromise Form 656

Preparing Form 656 and Supporting Documentation in Filing for an Offer for Compromise of Back Taxes

An Offer for Compromise (OIC) is a tax debt settlement offer from the IRS to taxpayers, both individuals and businesses, who are unable to pay their tax dues in full. There are certain strict criteria that determine eligibility to file for the OIC and if you do meet these requirements, you’ll need to fill out Form 656 and submit a number of supporting documents to be evaluated for the offer.

Preparing Form 656 OIC

You need to fill out a Form 656 to file for an OIC in two circumstances. In the Doubt as to Collectability situation, there exists a reasonable amount of doubt over your ability to pay the full amount of your claims within the specified period. In the Effective Tax Administration case, your contention for a tax settlement is that paying the full amount of the dues will create economic hardship for you.

Now that you know the circumstances in which you will need to prepare Form 656, here’s what you should remember when completing the form

• You will need to give the names of both the parties if you are pursuing a joint offer for joint liabilities. When you owe a joint liability and both you and your partner are submitting for an offer, then you will want to do so on Form 656, just one single 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 have 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 provide the relevant information in every field on the form.
• Each person submitting the offer should enter their social security numbers.
• You need to give the EIN of all businesses, except corporate concerns, that you own, either wholly or partly.
• If your claim to an Offer of 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 apart from submitting a Form 433B or 433A, you’ll also need to fill out the info in the “Explanation of Circumstances.” You can also include supplementary bits of relevant information on separate sheets along with your social security and employer identification numbers.
• When supplying the total amount of your offer, you cannot include a sum that the IRS owes to you or any amount that you’ve already paid in taxes.
• All persons submitting the offer should sign the 656 Form and provide the date. They must provide as well the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors wherever requested.
• You may want the IRS to contact a a friend, a family member, or any other acquaintance to discuss your case in order to understand your circumstance more fully. In that case, you’ll need to tick the “Yes” box in the “Third Party Designee” field. And, if you want your attorney, Certified public accountant, or an enrolled agent to represent your case, you will need to furnish the 2848 Form and submit it in addition to your offer.
• Ensure that you disclose the name and if possible, the address of the Offer in Compromise preparer to increase the chances of your offer being accepted by the IRS. And after you have gathered all the documents for submission, be sure that you make copies for your personal records. Apart from these documents, you might also submit additional documents that you think will corroborate your claim for this offer.

Applying for an Oic is a complicated process. Make sure to spend ample time over the Form 656 and provide the entire set of supporting documents to strengthen your chances of acceptance.

More of our OIC guide at:
Seattle Tax Debt Relief
Seattle Offer in Compromise