Preparing Form 656

Preparing Form 656 and Supporting Documentation in Seeking an Offer for Compromise

An Offer for Compromise (OIC) is a back tax debt settlement offer provided by the Internal revenue service to taxpayers, either an individual or a business unable to pay their tax dues in full. There are certain strict criteria that determine eligibility to request the OIC and if you meet these requirements, you will need to complete Form 656 and submit a number of documents to be evaluated for the offer.

Preparing 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:

• All persons submitting the offer should enter their social security numbers.

• You need to supply the names of both the persons if you are pursuing a joint offer for joint liabilities. If you jointly owe a liability and both your partner and you are submitting for an offer, then do so on Form 656, just one form. Now you might owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If, only you are submitting 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 need to supply the relevant information In each field of the form.

• You’ll need to give the employer identification number (EIN) of all businesses, except corporate concerns, that you own, either in part or in whole.

• If your claim to an offer 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 in addition to submitting a Form 433B or 433A, you will also supply the details in the “Explanation of Circumstances.” You also you can include additional bits of relevant information in attached sheets along with your employer identification and social security numbers.

• In filling out the total amount of your offer, you won’t include a sum that the Internal revenue service owes to you or any amount that you may have already paid in taxes.

• All persons submitting the offer should sign the Form 656 and give the date. They will also give the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors where requested.

• Ensure that you mention the name and when possible, the address of the OIC preparer.

• You might want the IRS to get in touch with a family member, a friend, or any other acquaintance to discuss your case so that they might understand your state of affairs more fully. In that case, you will have to mark the “Yes” box in the “Third Party Designee” field. And, if you would like a CPA, your attorney, or an enrolled agent to represent your case, you need to furnish the 2848 Form and submit it along with your offer. to better the chances of your offer being accepted. And after you’ve gathered all the aforementioned documents for submission, ensure that you make hard copies or electronic copies of each one for your personal records. Apart from these documents, you may also submit additional documents that corroborate your claim for this genuine offer.

Focus on the Details

Filing for the Offer in compromise is complicated. You will want to spend ample time on Form 656 and submit all supporting documents to improve your chances of your offer being accepted.

For more of the Offer of Compromise Guide:
Seattle Business Valuation
Seattle Tax Debt Relief
Seattle Offer in Compromise

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.