Preparing Form 656 and Supporting Documentation in Attempting an Offer for Compromise of IRS Back Tax Debt
An Offer for Compromise (OIC) is a tax 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 determine eligibility to request the OIC. And if you satisfy these requirements, you will need to fill out Form 656 and submit a whole host of supporting documents to be considered for an offer.
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.
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 have to provide the names of both the parties if you are pursuing a joint offer for joint liabilities. When you owe a joint liability and both your partner and you are submitting for an OIC, then you’ll want to do so on Form 656, just one form. You might owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If you are submitting this offer solely 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’ll have to include the relevant information in every field on the Form 656.
- All persons submitting the offer should enter their social security numbers.
- You need to give the employer identification numbers 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 Offer of compromise is based on Effective Tax Administration, then apart from submitting a Form 433B or 433A, you also fill out the info in the “Explanation of Circumstances.” You can include supplementary relevant information in separate sheets along with your social security and employer identification numbers.
- When supplying the total amount of your offer, you don’t include a sum that the IRS owes you or any amount that you may have already paid in taxes.
- All persons submitting the offer should sign the 656 Form and give the date. They must supply as well the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors where requested.
- Be sure that you disclose the name and where possible, the address of the OIC preparer.
- You might want the IRS to contact a a friend, a family member, or any other acquaintance to discuss your case so that they may understand your state of affairs better. In that case, you’ll need to mark the “Yes” box in the “Third Party Designee” field. Additionally, if you would like a CPA, your attorney, or an enrolled agent to represent your case, you need to furnish the 2848 Form and submit it in addition to your offer. to improve the chances of your offer being accepted. Once you have gathered all the documents for submission, ensure that you make electronic copies or hard copies of each one for your personal records. Apart from these documents, you might also submit additional documents that you think will corroborate your claim for the offer.
Filing for the Offer of Compromise is complicated. Make sure to spend ample time on Form 656 and submit all supporting documents to increase your chances of success.