Form 656 (2020)

What Is a Form 656 IRS

Form 656, known as the Offer in Compromise (OIC), represents a program devised by the IRS for taxpayers who cannot fulfill their tax obligations in full. This form allows individuals and businesses to settle their tax debts for less than the full owed amount under certain circumstances. It is an essential tool for those facing significant tax liabilities, offering a pathway to financial recovery and compliance.

When to Use Form 656 Offer In Compromise

There are specific situations where the IRS Form 656 is applicable. These include:

• Doubt about Collectibility - When there's a genuine uncertainty that the tax owed can ever be fully collected, an offer in compromise may be accepted.
• Doubt as to Liability - This applies if there's a genuine dispute about the existence or amount of the correct tax debt under the law.
• Effective Tax Administration - Offers might be accepted if collecting the full tax would create an economic hardship or be unfair and inequitable because of exceptional circumstances.

How To Fill Out Instructions For Form 656

Before You Start

Before completing Form 656, ensure you've filed all required tax returns. The IRS won’t process an OIC if there are missing tax returns. Verify your eligibility for an OIC using the IRS's Pre-Qualifier tool on their website.

Step 1: Understand Your Options

The IRS may grant an Offer in Compromise for one of three reasons: Doubt as to Liability, Doubt as to Collectibility, or Effective Tax Administration. Determine which category fits your situation:

• Doubt as to Liability: You believe the tax assessed is incorrect.
• Doubt as to Collectibility: You cannot pay the full tax amount owed.
• Effective Tax Administration: Paying the full amount would cause economic hardship or be unfair and inequitable.

Step 2: Gather the Necessary Information

Before filling out the form, collect all necessary financial documentation. This includes but is not limited to:

• Bank statements
• Pay stubs
• Vehicle information
• Loan statements

Step 3: Completing Form

Section 1: Individual Information

Fill in your personal information, including name, Social Security Number (SSN), physical address, and contact details. If you’re submitting a joint offer, include your spouse’s details.

Section 2: Business Information

If applicable, provide the required information for your business, such as your employer identification number (EIN) and business contact information.

Section 3: Tax Periods and Amounts

List all tax periods and types for which you're submitting the offer. Be thorough to ensure all relevant debts are covered.

Section 4: Reason for the Offer

Select the reason for your offer based on the options discussed in Step 1. If you’re filing due to Doubt as to Collectibility or Effective Tax Administration, a detailed explanation might be necessary.

Section 5: Offer Terms

Carefully read and understand the offer terms. You must agree to these terms by signing the form, including proposing a payment option that suits your financial situation.

Step 4: Determine Your Offer Amount

Utilize the instructions and worksheets in Form 656 to calculate the minimum offer amount the IRS will accept. You can propose an initial payment and specify the terms for the remainder.

Step 5: Sign and Submit

Review your form for completeness and accuracy. Both you and your spouse (if filing jointly) must sign the form. Attach all required documentation, including Form 433-A (OIC) for individuals or 433-B (OIC) for businesses, and submit your package to the IRS.

When to File IRS Form 656 PDF

The timing for filing the IRS Form 656 pdf is crucial and should be considered carefully. Generally, you should file this form after you've exhausted all other payment options, such as installment agreements, or if those arrangements are not feasible given your financial situation. Importantly, you must be current with all filing requirements and cannot be in an open bankruptcy proceeding.

By understanding the specifics of Form 656, when and how it's applicable, and carefully following the instructions for Form 656, taxpayers can navigate their tax obligations more effectively. Whether addressing back taxes or negotiating a manageable settlement, Form 656 offers a pathway toward resolving tax issues and achieving financial stability.