Form 656: Offers of Compromise

Preparing Form 656 and Supporting Documentation in Attempting an Offer of Compromise of IRS Back Tax Debt

An Offer for Compromise (OIC) is a tax settlement offer provided by the IRS to taxpayers, both individuals and businesses, who are unable to manage their tax debt. There are certain strict criteria that spell out eligibility to apply for the OIC and if you satisfy these criteria, you will need to fill out Form 656 and submit a host of supporting documents to be evaluated for an offer.

In Preparing the Form 656

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:

  • If your claim to an OIC 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 433A or 433B, you will also supply the details in the “Explanation of Circumstances.” You can also include additional bits of relevant information in attached sheets together with your social security and employer identification numbers.
  • Each person submitting the offer should provide social security numbers.
  • You will need to provide the names of both the persons if you are pursuing a joint offer for joint liabilities. When you owe a liability jointly and both you and your partner are submitting for an OIC, then do so on Form 656, just one shared form. Now you could owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If you are the sole submitter of 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 will have to supply the relevant information In each field on the form.
  • You need to give the EIN of all businesses, except corporate concerns, that you own, either in whole or in part.
  • When providing the total amount of your offer, you won’t include a sum that the Internal revenue service owes back to you or any of the amounts that you may have already paid in taxes.
  • All persons submitting the offer should apply their signature on the form and give a date. They will also give the names and titles of authorized corporate officers, trustees, Powers of Attorney, and executors wherever requested.
  • Ensure that you provide the name and when 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 talk about your case so that they might understand your scenario better. In that case, you have to mark the “Yes” box for the “Third Party Designee” field. Additionally, if you want your attorney, CPA, or an enrolled agent to represent your case, you will need to provide the Form 2848 and submit it along with your offer. to increase the chances of your offer being accepted by the IRS. Once you’ve gathered all the above-mentioned documents for submission, be sure you make electronic copies or photocopies for your personal records. In addition to these documents, you might also submit documents that support your claim for this genuine offer.

Keep Focused on the Details.

The application process for an Offer of compromise is a complicated process. Be sure to spend enough time completing Form 656 and provide all supporting documents to better your chances of gaining approval on the offer.

Redmond CPAAbout Redmond CPA
Redmond 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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  • Huddleston Tax Accountants / Huddleston Tax CPAs – Redmond, WA
    Certified Public Accountants Focused on Small Business
    8201 164th Ave NE Suite 200 / Redmond WA 98052
    425-483-6600

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve Tukwila, Auburn, Federal Way. We have a few meeting locations. If you are looking for a Redmond CPA firm, get in touch with us! Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.