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

Offers of Compromise

Booklet 656: Form 433A

Booklet 656 form 433b is needed for those business owners that have businesses that are any other entity than sole proprietorships. This form is used to calculate the minimum offer you can make the IRS when attempting an offer in compromise, unless you are able to provide evidence that would encourage the IRS to think otherwise.

How to compete the form

Section 1 is where you’ll provide an employer identification number, partners, officers, LLC members, major shareholders, and frequency of tax deposits.

Section 2: Next, the form asks for business asset details. This includes the company’s bank accounts, investment accounts, and notes receivable. Then it requests data on the business’s real estate, vehicles, and equipment. However, in reporting their value, the internal revenue service permits you to exclude your equity in any income producing assets.

Section 3: In section 3 you are to provide information regarding your business income, such as average gross monthly income (supported by corroborating documentation).

Section 4: This portion similarly requests your business expenses. This section seeks average gross monthly business expenses found in records from the recent six — twelve months. Yet, again, if you do provide a profit and loss report for this period, you can then relay an average expense amount derived through these data instead.

When calculating an offer

If you claim you’ll be able to pay off the offer amount within a period of 5 months, follow the procedure below to calculate.

[ 48 x Business income in excess of expenses] Total available assets

The formula below is for calculating the offer when you do not plan to satisfy payment within a period of 5 months.

[Business income in excess of expenses x 60] Total assets available

Regardless of

Section 6

Finally, Form 433-B requires certain miscellaneous information that it will consider in settling your tax debt. As an example, this section asks whether your company has ever filed for bankruptcy. This question is relevant because your business is ineligible to apply for an offer of compromise on its tax liability when in a bankruptcy proceeding. This sectionalso asks if this enterprise has other affiliations, asks if any related entities are indebted to your business, and asks if the business has been party to any litigation. Additionally, it asks whether the business has unloaded any assets in the last 10 years at a discounted rate.

Pay a visit to our guides at: Redmond CPA

Business Travel Tax Deductions

Tax Planning for Travel Expenses

It’s necessary to organize business trips so that you can maximize your write-off. Just like other costs of doing business, you are able to claim income tax deductions for business travel expenses that you personally incur in providing services to clients.

As a business owner, you might deduct only for your traveling expenses when the expenses can be defined as standard and required for servicing the clients. Expenses one may well consider extravagant adn lavish, will not be eligible for a write-off. Although not guaranteed, the below types of travel expenses are typically deductible:

  • Transportation costs incurred in travelling from your home to the customer site.
  • Gas or fuel and the various other motor vehicle expenses incurred while conducting business at a customer’s location.
  • Hotel and meal expenses.
  • Laundry and dry cleaning expenditures incurred during business travel.

There isn’t a rigid or concrete rule on when travel expense is business- vs personal-related. But one thing that is clear is that you cannot claim deductions ensued through the cost of your everyday trip from personal residence and your office building. Instead, the travel is defined as a personal expense.

Tax deductible travel expenses require that you travel more than a short distance from your main business location to service a customer. This will usually mean you’ll have to go outside the city in which you usually conduct business or, for smaller towns, you will have to leave the general surrounding area. In general, travel expenses are eligible for write-offs when you’ve travelled far on long enough that you’ll have to sleep the night.

However, you can’t stay away from your tax home for too long a length of time, or you might not qualify for the business travel expense tax deductions. You may write-off travel expenses in temporarily working away from your tax home. But, if you provide your services at the client location for an undetermined length of time, you may not be able to claim a travel expenses deduction. This usually means that you might stay at a client site and claim business travel expense tax deductions for no long er than 12 months. When you do realistically expect to work there for more than a year, however, you may no longer claim a deduction for any future expenses of travelling to that work location.Finally, successfully claiming the travel expense deduction requires recordkeeping. To support your deduction, you will need to keep all relevant receipts. And it is helpful to use a log, notebook, or other type of written record to monitor your expenses.

Additional info on travel expenses and deductions could be found at www.irs.gov (Travel, Entertainment, Gift and Car Expenses).

Tax Deductible Charity Donations for the Self-Employed

Tax Deductions Self-Employed and Charitable Donations

(Another piece to our Self Employed Tax Guide)

As a Self-Employed Small Business owner, giving is one of the better self marketing tools available as well as a great planned tax deduction if organized and also implemented properly. What better way to get your small business’s services and products in the front of the mind of a large audience and get the taxation benefits to boot! It could seem too easy to be real! Let’s look more closely at several of the various ways this can benefit your business.

Goods and servicesThe worth of the contributions is generally at FMV, or Fair Market Value, and needs to be considerable in such. One example of this could be a donation of goods to a Good Will Store with a worth of at least $250. Your company has some excess sweaters in storage which you have obtained in bulk, though now it cannot be turned into profit by means of sales and a long enough period of time has went by and now the articles no longer have a market value as styling trends are concerned. These garmets can be given up as a charitable contribution to a Good Will Store, or other such store or employed by an Outreach service for people who are in need of articles of clothing so as to better their lives. Upon transfer of this charitable contribution the outreach service will offer you a receipt to confirm the receipt of items. The receipt should be fixed to the bill of goods to verify the purchase, and the accounting transaction which reduces your inventory and details the charitable donation.

Another example is services which you supply to the public. This is a way to perform community service and also get a tax deduction as well. The United Way and other such organizations frequently have events where low-income and indigent folks gather to receive, on a large scale, services which they can’t afford or for which they don’t access to. Your small business’s support would count as a charitable contribution at fair market value and the organization would give you a receipt indicating the value associated with these services for taxation purposes. For your purposes, this receipt as well as any of the supplies used could be considered deductions. Please note that these events have such a large gathering of people that by way of word of mouth and publicity your small business might possibly be seen by numerous persons. Donating scrap materials left over from manufacturing finished goods product is another relevant for instance. This may be unused fabric. Fair market value rules again apply. To assess the fair market value, think what an item might fetch in a quick sale.

Cash Contributions

In agreement with Irs polices, a receipt is needed for any individual charitable contribution more than $250 so as to claim the tax deduction. This form of contribution is common and is the easiest to maintain. One employed strategy is planned giving. This can be done monthly, quarterly, or annually depending upon your preference. As a business owner, this is a smart way to plan your annual charitable deduction and maintain your cash reserves, arriving a foreseeable end results. These are just a number of illustrations of how your small business may benefit the community, improve your public image, and acquire a tax break in addition. Please remember whenever possible, consult your tax accountant for guidelines on the Schedule C as limitations apply to this type of write-offs. References for this specifics can be found in PUB 526 and guidelines for disclosure in PUB 1771. Or just visit your small business tax accountant.

The 433-A

Preparing Form 433-A

When you initially put in your Offer in Compromise request, you will also submit form 433-A. This form is actually what the Irs will use in ascertaining whether or not you will qualify for an OIC. The 433-A form accounts for disposable income and equity in assets. If it is revealed that you would not be capable to repay your tax debt in full, you might be then able to go forward with the OIC process.

Sections 1 and 2: Personal Information and Employment Information

In Section 1, you are going to supply personal details about your family and yourself. If you are married, details pertaining to your partener will also need be disclosed.

In Section 2: you will write employer info for youself (and spouse). If you are self-employed and owner of your company, you’ll write “self” (and similarily for your partner) in Section 2, line 4a after that you are gonna indicate the period of time you’ve been self-employeed. Other information regarding your self-employment will be addressed in a different part of the form.

Other Financial Information: Section 3

This is where you will divulge information related to just about any legal or court proceedings or potential decreases-increases in income.

In line 6, show legal information surrounding every lawsuit, regardless of whether you are accused or accuser, list docket info on this line. Present data limited to proceedings which have been legally registered with the courts.

Line 8 requests that you provide findings apropos any scheduled increase or decline in paycheck. As a general rule, it is best not to record increases that are merely speculative. The Irs may look upon an expected increase when deciding on your offer amount, so you’ll want to be pretty secure of the increase if listing it. A few examples of befitting increases to list are, if you’ve obtained penned notice of a salary raise or a similar hardcopy notification of court awards.

Section 4: Personal Asset Information

Section 4 requests information regarding personal cash and the equity property that you own. This includes bank account details, credit card and owned property information, and life insurance policy information.

Line 11 is a prompt for the cash amount that you’ve on your person. Set down an average of what you’ll ordinarily have in hand, as the amount will usually deviate on a daily basis.

Lines 12a and 12b: Make use of these blanks to list any savings or checking accounts you own. Now if you have your name on more accounts than two accounts, give all additional accounts on an attached sheet of paper and attach it to your Form 433-A. You have to provide bank statements to the Irs for every one of the accounts which youown. In general, it’s advantageous to use the end balance indicated on the most up-to-date bank statement you attach with Form 433-A.You’ll want it so that the Internal Revenue Service can see the form entries fit with the details in the supporting documents.

For lines 13a — 13d: you’ll report owned investements such as bonds, stocks, and retirement accounts. Also, lay claim to 401k accounts even if you are not fully vested in the accounts.

Lines 14a and 14b: List any credit cards that you do have with available credit on each.

Lines 15a through 15g: Life insurance policies with a money value are recorded on line number 15. However, never include any term life policy info. The IRS is exclusively interested in whole life coverages you have got. Whole life policies have cash dollar worth and you may have the capacity to borrow cash against the value, whereas term life policies have no cash value or borrowing options.

In line 16 you are to report every and any assets that you have transferred, given or sold to an individual or even business for under the full value within the past decade. The IRS makes use of this data in order to evaluate whether you’ve ditched assets in the recent past to protect against having liquid equity available, that you could’ve used to pay debt. The Internal Revenue Service asks for this data to determine if you’ve eliminated assets not too long ago to stay clear of owning liquid equity accessible to pay your debt.

Line 17a — 17c: you are asked to relay any possessed real estate. If you do not own real estate, list the address where you are living, and deliver the name and address of your landlord. In lines 18a through 18c: give any transportation assets you have. This record should include, vehicles such as motorcycles and watercrafts and campers and trialers. If any of theses assets are attached by a loan, you’ll need to reveal those notes in the section. Look online for a resource to provide fair market values.

For lines 19a and 19b, provide the type and expected liquidation value of personal effects. This would include: home furnishings, household goods, charms and jewlrey and memorabilia. You are not to provide the original purchase price as the current pricing. The price that you should provide will instead correlate with a pricing you might set in a yard sale. The IRS allows a personal exemption in the amount of $7,900 for personal effects in the category.

Monthly Income and Expense Statement

This statement is positioned on page 4 of Form 433-A. Within this section, you will have to provide your regular monthly income and expenditures from all sources. If you’re a sole proprietor, you must finish pages number 5 and 6 of the 433-A prior to finishing the income statement on page 4.

Income: this is the section where you’ll establish your gross earnings. Gross wages are your earnings before deductions. For those collecting rental income or self-employed, you’ll report net income. Net income is revenue you recieve minus operating expenses. Use the guide beneath the statement to help with calculations.

Expenses: In the expense segment, report your ordinary monthly expenditures. Comprise of taxes and other deductions taken out of your paycheck in the expense section. For quite a few categories, the IRS has collection standards, these are common amounts the IRS permits for expenses including food, housing, transportation and out-of-pocket health care costs. For an Offer in Compromise, the IRS typically solely permits the standard amounts for these categories. Collection standards can be discovered within the irs.gov web site.

Self-Employment: Pages 5 & 6

For those self-employed, you are going to give similar information with regard to each of your work activities that you report for yourself as an individual. That includes business assets data, this includes instruments, accounts receivable and revenue streams info. You need to similarly recount the number of staff you’ve got and your businesses frequency of payroll. Submitting Form 433-A

Remember to secure supporting docs to the form 433-A. Typical docs consist of recent bank statements and paystubs, recent billing statements for expenses, and monthly statements and payoff balance information on loans.

Want to hear more of the Offer In Compromise Guide, have a look at the guide:Accountants and Tax Preparers in Bellingham

Requesting an Installment Agreement after rejection of Offer In Compromise

Rejection from the Irs on an Offer in compromise application could posture you with a bit of nervousness, however do not fret — you have still got the choice of fulfilling payment of your full balance in payment installments.

The Internal Revenue Service grants a few installment agreement options for instance full-payment installment plans or partial-payment installment plans . Full-payment plans might be the streamlined installment agreement, the guaranteed installment agreement, and the financially verified installment agreement. The payment option you are eligible for is dependent on financial details you supply to the Internal Revenue Service, but each monthly repayments for each different options are calculated a little differently than Offer in compromise settlement amounts.

In this write-up, we will examine these repayment plans and assist you identify which settlement option is most appropriate for you.

The Guaranteed Installment Agreement

The guaranteed installment agreement option is available only if your tax debt is under $10,000 and installments will pay in full your full Irs owed balance in 3 years or 36 months. The Internal Revenue Service is mandated to consent to this type of plan if you meet the requirements.

Streamlined Installment Agreement

The streamlined installment agreement option is is an option of repaying the IRS if your owed balance does not exceed $25,000 and you promise to full-pay your full debt in the period of 5 years. This full balance takes into consideration your principal tax liability, plus penalty accruals and interest for each tax year you have a balance.

Determining Your Monthly Payment

In order to figure out the minimum amount the Internal Revenue Service will concent to each month, divide the total amount owed, including the interests and penalities, by 50. The result is going to be the base amount you must pay. The left-over 10 months of the 60-month payment plan is set aside for interest. If you do not have sufficient disposable monthly income to support a 5-year payment plan, you might meet the criteria for a partial payment plan in lieu.

Installment Agreement Partial Payment Plans

A partial pay installment agreement plan is a plan that will allow you to pay only what you can manage to pay on a per month basis, even if the amount is below what the Internal Revenue Service normally accepts on an installment agreement. You must make payments for the remainder of the period in which the Irs can by law collect debt, which might be for a period longer than 60 months. And when the collection statute of limitations expires, any remaining balance is then written off by the Irs. The plan is a partial pay installment agreement as you will never pay the full of the debt balance that you owe.

Collection Statute of Limitations

You or your power of Attorney may contact the IRS and request the Collection Statue Expiration Date (CSED) for each balance-due period. A statute for collection exists in each tax year you have a tax debt balance. The statute begins when you file your tax return, or upon the date in which a principal tax balance is assessed, whichever is the more recent. The statue will usually end within 10 years, however, there are certain instances when a collection statute can extend passed 10 years.

Determining Payments

Your partial payment installment agreement is determined by your disposable income on a monthly basis, which is the money left each month after your expenses are paid. Calculate your disposable monthly income by the number of months you have remaining on your collection statute in order to calculate the full dollar amount you will have to pay the Irs over a period of time. For example, if your disposable income is one hundred dollars and the amount of time left on your collection statute is two years, you will have to pay $2,400 in total toward your tax liability. The remainder is not collectable by the Internal Revenue Service. Though, you have to make payments in installments and you can’t offer the full amount in a single lump sum payment.

Financially Verified Installment Agreement

The financially verified or “Non-Streamlined” installment agreement is assessible if your balance due is over $25,000 or when the repayment period exceeds 5 years or 60 months. This agreement needs to be negotiated with the Internal Revenue Service. Full financial disclosures must be furnished to the Irs. Your monthly payment amount is determined by your full-picture financial situation, and the Internal Revenue Service could likely require you liquidate assets so as to reduce the balance.

Rules Applicable to all Installment Agreement Plans

Whatever the type of repayment you request, a few base rules apply for retaining and obtaining an installment contract.

Offer In Compromise Rejection Period

Generally, you will have to wait at the least a period of sixty days from the date marked on your OIC rejection letter to be able to request an installment agreement option. During this sixty-day period, your file is coded as an “Offer” case in the Irs system to allow for your legal right to repeal the rejected OIC. Internal Revenue Service officers are unable to pull your case out of this status to mark it as an installment agreement.

Staying Current and Compliant

When you are on an installment contract, then you must remain compliant and up to date with the payment arrangements and future tax commitments. Meaning that while you’re bound by the installment agreement, then you will have to meet all installment pay dates in full and on time, file all future tax returns according to the schedule, and pay all new balances on time and in full.

Failure to comply with these stipulations will cause your payment plan to default and open you up to additional IRS collection measures.

Change in Financial Circumstance

If your financial circumstances change and this change dissallows you from making your scheduled installments. Request a corresponding adjustment to your monthly installment payment.

If this change to your finances is expected to endure over a months time, you may proceed. Such examples of qualifying financial changes are: divorce, a reduction in income, loss of income, the addition of a dependent, or an increase in regular living expenses. The Internal Revenue Service requires documentation of this change in your financial statements.

A full-pay installment agreement might convert to a a partial payment plan if changes to your finances warrant such a change. Installment agreements are generally much less effortless to arrange with the Irs and incur less paper work than an Offer In Compromise process. This installment agreement option is a fix to your Offer In Compromise rejection.

Experience the Offer In Compromise Guide at Yakima CPA

Offer in Compromise Guide

We’ve just started work at an offer in compromise (or OIC) guidebook. While it’s only at its very beginning, we are working at finishing it seriously. So please take a glance at the Huddleston Tax Library and return regularly, as we will update the Offer in Compromise Guide frequently. This OIC Guide will go over OIC issues such as:

• Basis for offer and doubt as to collectability.

• Selecting a tax professional to handle your offer in compromise.

• IRS acceptance of offer in compromise as pending.

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