If the IRS has sent you a tax bill that you cannot afford to pay, you may have heard about Form 656, Offer in Compromise – a tax relief option designed to help people exactly in your position.
Despite its “unforgiving” reputation, the IRS actually offers a wide range of tax relief options to taxpayers who find themselves in financial difficulties, and the Offer in Compromise (OIC) is one of its most generous.
If you can prove that you simply do not have the income, assets, or other means to pay your tax debt, the IRS may agree to reduce the debt to an amount that you can afford to pay.
However, it will only do so if it is clear it will not be able to recoup the full amount of debt owed, which means you will need to provide a lot of information, in a lot of detail.
This is all done using IRS Form 656-B, Offer in Compromise.
Given the quantity and level of detail needed, it will come as no surprise that submitting an OIC is one of the most complicated tax relief options. For this reason, getting professional help when submitting an Offer in Compromise application is highly recommended.
Here at Tax Relief Helpers, we have a team of experienced tax resolution experts who can guide you through the entire process, and secure the best outcome to your tax debt woes.
However, if you want to understand more about Form 656 and how to apply for an Offer in Compromise, keep reading. We’ll explain all the basics that you’ll need to know before submitting an offer.
What is IRS Form 656, Offer in Compromise
Form 656 is the official document you need for submitting an Offer in Compromise request with the IRS.
An Offer in Compromise is a good option for people facing tax debt that they legitimately cannot afford to pay, or if doing so will put them into extreme financial hardship.
If the IRS agrees to your request, it will essentially be “compromising” and agreeing to reduce your tax liability to an amount you can realistically pay. It will only agree to this when it’s clear it won’t be able to get more money from you by pursuing other means, which means it is in both parties’ best interests.
When submitting your OIC, you must propose the new reduced debt amount you’re offering to pay, and provide clear details of your financial situation so the IRS can review your ability to pay and judge whether your offer is fair. This is all done using Form 656 alongside specific additional forms and documents.
Calculating how much to offer is a complex process, but one with clearly defined parameters and calculations. You can read more about how to calculate your offer in compromise here.
Who uses Form 656?
The Offer in Compromise tax relief option is available to both individuals and businesses.
You can request an OIC for any of the following 3 reasons, which must be stated on your Form 656:
- Doubt as to Collectibility: This means you simply do not have enough assets, income, or other means by which to pay your debt.
- Effective Tax Administration: This means you may have enough assets and income to pay your debt, but special circumstances prove that doing so would cause severe economic hardship.
- Doubt as to Liability: This means that you don’t think the tax debt is accurate, and are disputing whether you owe all or part of the tax debt.
The first two are the most common reasons for submitting an OIC, and generally the most suitable. If you doubt the accuracy of your tax liability, it is often easier to resolve this in another way. A tax professional will be able to review your situation and recommend your best options, but alternatives might include filing an amended tax return, requesting innocent spouse relief, or seeking penalty abatement.
Other Offer in Compromise requirements
In addition to proving that you do not have enough assets, income, or other means by which the IRS could recover the full debt that you owe, there are other eligibility criteria you must also meet.
For your OIC offer to be considered by the IRS, you must:
- Be up to date on all tax filings and other tax payments
- Have received a bill for at least one tax debt included on your offer
- Make all required estimated payments for the current tax year
- Not have an open bankruptcy proceeding, audit, or innocent spouse claim
If you are unsure, there is an online Offer in Compromise Pre-Qualifier tool on the IRS website you can use to check your eligibility. However, this can still be quite confusing, so it’s usually best to check with a tax professional who will be able to give you accurate advice and recommendations based on your exact circumstances.
What is the difference between Form 656 and Form 656-B?
Form 656-B is the full Offer in Compromise booklet. This includes detailed instructions on how to submit an OIC, as well as the individual forms that you will need to submit as part of your application.
The removable forms included within Form 656-B (booklet) are:
- Form 656
- Form 433-A (for individuals)
- Form 433-B (for businesses)
Form 656 is the main document you complete when submitting your offer. This is where you state all your personal information, details of your tax debt, the reason you are submitting an offer, and the offer itself.
Forms 433-A and 433-B are used to calculate your Offer in Compromise amount and explain any other notable circumstances that need to be taken into account.
How to file Form 656
You can either file your Form 656 Offer in Compromise with the IRS directly, or use a specialist tax resolution firm to help you.
While it’s possible to do it yourself, it is highly recommended to get professional help. Offers in Compromise are one of the hardest tax relief options to get approved – partly because the application process is highly complex, and partly because the qualifying requirements are extremely strict. A professional tax relief firm will be able to check if it is your best option before going ahead, and complete the paperwork on your behalf to help your offer get accepted – saving you a lot of time, stress, and money in the long run.
If you do decide to submit the offer yourself, you’ll need to provide detailed information about all your personal and business finances, including your income sources, assets, and liabilities. You’ll also need to submit an explanation for why you’re submitting the offer.
The OIC application packet you send must then include all of the following:
- Completed and signed Form 656
- Completed and signed Form 433-A or 433-B (as applicable)
- Supporting documentation (copies, not originals) to back up all the information and claims you make on the above forms.
- $205 application fee (unless you meet the low-income qualification)
- Your initial payment for your proposed OIC (unless you meet the low-income qualification)
Once ready, the full package needs to be mailed to the IRS. There is no option for submitting an Offer in Compromise electronically. Where to send it will depend on where you live, and you can find the address on page 29 of IRS Form 656-B.
Instructions for completing your Form 656 Offer in Compromise
Detailed instructions on how to complete your Offer in Compromise application, as well as the additional forms you will need, are all included in the Form 656 Booklet.
You can download Form 656-B directly from the IRS website.
However, although detailed instructions are provided, most people still struggle to accurately complete an OIC, which usually leads to the offer being rejected.
For this reason, it’s best to work with a professional tax relief company like Tax Relief Helpers.
Rather than try to battle your way through the complexities of Form 656, you can sign a much simpler Form 2848 to grant us IRS Power of Attorney, and then leave everything in our hands. We will complete Form 656-B for you, collate all the necessary documentation, and handle all communication and negotiation with the IRS on your behalf – both guaranteeing you the best possible chance of success in your application, and removing the burden of dealing with your unresolved tax debt from your shoulders.
Getting help with your Offer in Compromise Form 656
The Offer in Compromise Form 656 is a notoriously difficult application to put together, and one of the hardest forms of tax relief to get approved.
Tax debt is stressful enough, so don’t try and deal with it alone.
Contact Tax Relief Helpers for a free and confidential consultation, where our expert team will review your case in detail, talk you through your options, and advise you on the best way to move forward.
If an Offer in Compromise is your best option, we can take the entire process off your plate. We’ll carefully and accurately complete all forms, and only submit an OIC that we know will be accepted – taking all the stress and uncertainty out of the equation.
Alternatively, if another tax relief option – such as Installment Agreement Payment Plans – is better suited to your case, we’ll advise you of this and hold your hand through that process instead.