How to Prepare Form 656

Preparing Form 656 and Supporting Documentation in Attempting an Offer of Compromise

An Offer of Compromise (OIC) is a back tax debt settlement offer from the IRS to taxpayers, either an individual or a business unable to pay their tax dues in full. There are certain strict criteria that determine who might be eligible to file for the OIC. If you do satisfy these requirements, you are required to complete Form 656 and submit a whole host of documents to be vetted for the 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.

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

  • You have to supply the names of both the parties if you are applying for a joint offer for joint liabilities. When you owe a liability jointly and both you and the other party are submitting 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 you are submitting this offer solely 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 provide the relevant information in every field in the form.
  • Each person submitting the offer should enter their social security numbers.
  • You will need to show the employer identification number (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 Offer of compromise is based on Effective Tax Administration, then on top of submitting a Form 433A or 433B, you’ll also fill out the information in the “Explanation of Circumstances” field. You could include supplementary bits of relevant information on separate sheets together with your social security and employer identification numbers.
  • When filling out the total amount of your offer, you won’t include a sum that the Internal revenue service owes you or any of the amounts that you have already paid in taxes.
  • All persons submitting the offer should sign the 656 Form and supply a date. They need also include the titles and names 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 some other acquaintance to discuss your case and understand your situation better. In that case, you will need to mark the “Yes” box for the “Third Party Designee” field. Additionally, if you’d like a CPA, your attorney, or an enrolled agent to represent your case, you will need to furnish the Form 2848 and submit it with your offer.
  • Ensure that you provide the name and where possible, the address of the OIC preparer to better the chances of your offer being accepted. And after you’ve compiled all the documents for submission, be sure that you make hard copies or electronic copies for your personal records. Additionally, you may also submit additional documents that you think will corroborate your claim for this genuine offer.

Focus on Detail

Applying for an Offer for Compromise is complicated. You will need to spend enough time on Form 656 and provide all supporting documents to improve your chances of success.

 

For more resources on seeking an offer in compromise tax debt solution, visit:

Seattle Business Valuation
Seattle Tax Debt Relief

Kirkland CPAAbout Kirkland CPA
Kirkland CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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