Irs Form 656 – Fill Out and Use This PDF

What is an Offer?

An Offer in Compromise (offer) is an agreement between you (the taxpayer) and

the IRS that settles a tax debt for less than the full amount owed. The offer

program provides eligible taxpayers with a path toward paying off their tax debt.

The ultimate goal is a compromise that suits the best interest of both the taxpayer

and the IRS. Generally, you must

make an appropriate offer based on what the

IRS considers your true ability to

pay.

Submitting an application does not ensure that the IRS will accept your offer.

It begins a process of evaluation and verification by the IRS, taking into

consideration any special circumstances that may affect your ability to pay.

This booklet will lead you through a series of steps to help you calculate an

appropriate offer based on your assets, income, expenses, and future earning

potential. The application requires you to describe your financial situation in detail,

so before you begin, make sure you have the necessary information and

documentation.

Are You Eligible?

Before your offer can be considered, you must (1) file all tax returns you are legally

required to file, (2) have received a bill for at least one tax debt included on your

offer, (3) make all required estimated tax payments for the current year, and (4)

make all required federal tax deposits for the current quarter if you are a business

owner with employees. The IRS will immediately return your offer without further

consideration if you have not filed all legally required tax returns.

Note: If it is determined you have not filed all tax returns you are legally

required to file, the IRS will apply any initial payment you sent with your offer

to your tax debt and return both your offer and application fee to you. You

cannot appeal this decision.

Bankruptcy, Open Audit or

If you or your business is currently in an open bankruptcy proceeding, you are not

Innocent Spouse Claim

eligible to apply for an offer. Any resolution of your outstanding tax debts generally

must take place within the context of your bankruptcy proceeding.

If you are not sure of your bankruptcy status, contact the Centralized Insolvency

Operation at 800-973-0424. Be prepared to provide your bankruptcy case number

and/or Taxpayer Identification Number.

Resolve any open audit or outstanding innocent spouse claim issues before

you submit an offer.

Can You Pay in Full?

Generally, the IRS will not accept an offer if you can pay your tax debt in full

through an installment agreement or equity in assets.

Note: Adjustments or exclusions, which may be considered during the offer

investigation, such as allowance of $1,000 to a bank balance or $3,450 against the

value of a car, are only applied if you are an individual and after it is determined

that you cannot pay your tax debt in full.

Your Future Tax Refunds

The IRS will keep any refund, including interest, for tax periods extending through

the calendar year that the IRS accepts the offer. For example, the IRS accepts

your offer in 2020 and you file your 2020 Form 1040 on April 15, 2021 showing a

refund; the IRS will apply your refund to your tax debt. The refund is not

considered as a payment toward your offer.

Doubt as to Liability

If you have a legitimate doubt that you owe part or all of the tax debt, complete and

submit a Form 656-L, Offer in Compromise (Doubt as to Liability). To request a

Form 656-L, visit www.IRS.gov or a local IRS office or call toll-free 800-TAX-

FORM (800-829-3676).

Notice of Federal Tax Lien

A lien is a legal claim against all your current and future property. When you don’t

pay your first bill for taxes due, a lien is created by law and attaches to your

property. A Notice of Federal Tax Lien (NFTL) provides public notice to creditors.

The IRS files the NFTL to establish priority of the IRS claim versus the claims of

certain other creditors. The IRS may file a NFTL at any time. If the tax lien(s) has/

have not been released, the IRS may be entitled to any proceeds from the sale of

property subject to the lien(s). You may be entitled to file an appeal under the

Collection Appeals Program (CAP) before this occurs or request a Collection Due

Process hearing after this occurs.

Note: A Notice of Federal Tax Lien (NFTL) will not be filed on any individual shared

responsibility payment under the Affordable Care Act.

Trust Fund Taxes

If your business owes liabilities that include trust fund taxes, the IRS may hold

responsible individuals liable for the trust fund portion of the tax pursuant to

applicable law. Trust fund taxes are the money withheld from an employee's

wages, such as income tax, Social Security, and Medicare taxes. If the IRS enters

into a compromise with an employer for a portion of the trust fund tax liability, the

remainder of the trust fund taxes must be collected from the responsible parties.

You are not eligible for consideration of an offer unless the trust fund portion of the

tax is paid, or the IRS has made the Trust Fund Recovery Penalty determination(s)

on all potentially responsible individual(s). However, if you are submitting the offer

as a victim of payroll service provider fraud or failure, the trust fund recovery

penalty assessment discussed above is not required prior to submitting the offer.

Other Important Facts

Each and every taxpayer has a set of fundamental rights they should be aware of

when interacting with the IRS. Explore your rights and our obligations to protect

them. For more information on your rights as a taxpayer, go to http://www.irs.gov/

Taxpayer-Bill-of-Rights.

Penalties and interest will continue to accrue.

After you submit your offer, you must continue to timely file and pay all required tax

returns, estimated tax payments, and federal tax payments for yourself and any

business in which you have an interest. Failure to meet your filing and payment

responsibilities during consideration of your offer will result in the IRS returning

your offer. If the IRS accepts your offer, you must continue to stay current with all

tax filing and payment obligations through the fifth year after your offer is accepted

(including any extensions).

Note: If you have filed your tax returns but you have not received a bill for at

least one tax debt included on your offer, your offer and application fee may

be returned and any initial payment sent with your offer will be applied to

your tax debt. To prevent the return of your offer, include a complete copy of

any tax return filed within 12 weeks of this offer submission.

The IRS can't process your offer if the IRS referred your case, or cases, involving

all of the liabilities identified in the offer to the Department of Justice. In addition,

the IRS cannot compromise any tax liability arising from a restitution amount

ordered by a court or a tax debt reduced to judgment. Furthermore, the IRS will not

compromise any IRC § 965 tax liability for which an election was made under IRC

§ 965(i). You cannot appeal this decision.

Note: Any offer containing a liability for which payment is being deferred under IRC

§ 965(h)(1) can only be processed for investigation if an acceleration of payment

under section 965(h)(3) and the regulations thereunder has occurred and no

portion of the liability to be compromised resulted from entering into a transfer

agreement under section 965(h)(3).

The law requires the IRS to make certain information from accepted offers

available for public inspection and review. Find instructions to request a public

inspection file at www.IRS.gov keyword "OIC".

The IRS may levy your assets up to the time the IRS official signs and

acknowledges your offer as pending. In addition, the IRS may keep any proceeds

received from the levy. If your assets are levied after your offer is submitted and

pending evaluation, immediately contact the IRS employee whose name and

phone number are listed on the levy.

If you currently have an approved installment agreement, you will not be required

to make your installment agreement payments while your offer is being

considered. If your offer is not accepted and you have not incurred any additional

tax debt, the IRS will reinstate your installment agreement.

PAYING FOR YOUR OFFER

Application Fee

Offers require a $205 application fee.

Exception: If you are an individual and meet the Low-Income Certification

guidelines, there is no requirement to send any money with your offer. You

are considered an individual if you are seeking compromise of a liability for which

you are personally responsible, including any liability you incurred as a sole

proprietor.

Payment Options

You must select a payment option and include the initial payment with your offer.

The amount of the initial payment and subsequent payments will depend on the

total amount of your offer and which of the following payment options you choose:

Lump Sum Cash: This option requires 20% of the total offer amount to be paid

with the offer and the remaining balance paid in 5 or fewer payments within 5 or

fewer months of the date your offer is accepted.

Periodic Payment: This option requires you to make the first payment with the

offer and the remaining balance paid in monthly payments within 6 to 24 months,

in accordance with your proposed offer terms.

Note: Under the periodic payment option, you must continue to make

monthly payments while the IRS is evaluating your offer. If you fail to make

these payments at any time prior to receiving a final decision letter, the IRS will

return your offer. You cannot appeal this decision. Total payments must equal the

total offer amount.

Reminder: The initial payment and monthly payments are not required if you meet

the Low-Income Certification guidelines.

Generally, payments made on an offer will not be returned. You may make a

deposit, as described in Form 656, Section 5, which may be returned if the offer is

not accepted. If the IRS accepts your offer, your payments made during the offer

process, including any money designated as a deposit, will be applied to your offer

amount.

If you do not have sufficient cash to pay for your offer, you may need to consider

borrowing money from a bank, friends, and/or family. Other options may include

borrowing against or selling other assets.

If you are an individual, use the OIC Pre-Qualifier tool located on our website

at http://irs.treasury.gov/oic_pre_qualifier/ to assist in determining a starting

point for your offer amount.

Note: You may not pay your offer amount with an expected or current tax

refund, money already paid, funds attached by any collection action, or

anticipated benefits from a capital or net operating loss. If you are planning to

use your retirement savings from an IRA or 401k plan, you may have future tax

debt as a result. Contact the IRS or your tax advisor before taking this action.

Application Process

The application must include:

• Form 656, Offer in Compromise

• Completed and signed Form 433-A (OIC), Collection Information Statement for

Wage Earners and Self-Employed Individuals, if applicable

• Completed and signed Form 433-B (OIC), Collection Information Statement for

Businesses, if applicable

• $205 application fee, unless you meet Low-Income Certification Guidelines

• Initial offer payment based on the payment option you choose, unless you

meet Low-Income Certification Guidelines

Note: Your offer(s) cannot be considered without the completed and signed

Form(s) 656, 433-A (OIC), 433-B (OIC) (if applicable), and supporting

documentation.

If You and Your Spouse Owe

If you and your spouse have joint tax debt(s) and you or your spouse are also

Joint and Separate Tax Debts

responsible for separate tax debt(s) (including Trust Fund Recovery Penalty), you

will each need to send in a separate Form 656. You will complete one Form 656

for yourself listing all your joint and any separate tax debts and your spouse will

complete one Form 656 listing all his or her joint tax debt(s) plus any separate tax

debt(s), for a total of two Forms 656.

If you and your spouse or ex-spouse have a joint tax debt and your spouse or ex-

spouse does not want to be part of the offer, you may submit a Form 656 to

compromise your responsibility for the joint tax debt.

Each Form 656 will require the $205 application fee and initial payment

unless you are an individual and meet the Low-Income Certification

guidelines.

If You Owe Individual and

If you have individual and business tax debt that you wish to compromise, you will

Business Tax Debt

need to send in two Forms 656. Complete one Form 656 for your individual tax

debts and one Form 656 for your business tax debts. Each Form 656 will require

the $205 application fee and initial payment.

Note: A business is defined as a corporation, partnership, or any business that is

operated as other than a sole-proprietorship. You may not compromise an

individual's share of a partnership debt. The partnership must submit its own offer

based on the partnership's and partners' ability to pay.

Step 4 – Attach Required

You will need to attach supporting documentation with Form(s) 433-A (OIC) and

Documentation

433-B (OIC). See a list of the documents required at the end of each form. Include

copies of all required attachments. Do not send original documents.

Section 1

Personal and Household Information

Last name

First name

Date of birth (mm/dd/yyyy)

Social Security Number

-

-

Marital status

Home physical address (street, city, state, ZIP code)

Do you

Unmarried

Married

Own your home

Rent

If married, date of marriage (mm/dd/yyyy)

Other (specify e.g., share rent, live with relative, etc.)

County of residence

Primary phone

Home mailing address (if different from above or post office box number)

(

)

-

Secondary phone

FAX number

(

)

-

(

)

-

Provide information about your spouse.

Spouse's last name

Spouse's first name

Date of birth (mm/dd/yyyy)

Social Security Number

-

-

Provide information for all other persons in the household or claimed as a dependent.

Name

Age

Relationship

Claimed as a dependent

Contributes to

on your Form 1040

household income

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Section 2

Employment Information for Wage Earners

Your employer’s name

Pay period

Weekly

Bi-weekly

Employer’s address (street, city, state, ZIP code)

Monthly

Other

Do you have an ownership interest in this

If yes, check the business interest that applies

business

Partner

Sole proprietor

Yes

No

Officer (complete Form 433-B (OIC))

Your occupation

How long with this employer

(years)

(months)

Spouse’s employer's name

Pay period

Weekly

Bi-weekly

Employer’s address (street, city, state, ZIP code)

Monthly

Other

Does your spouse have an ownership

If yes, check the business interest that applies

interest in this business

Partner

Sole proprietor

Yes

No

Officer (complete Form 433-B (OIC))

Spouse's occupation

How long with this employer

(years)

(months)

Catalog Number 55896Q

www.irs.gov

Form 433-A (OIC) (Rev. 4-2021)

Section 3

Personal Asset Information

Cash

Checking

Savings

Money Market Account/CD

Online Account

Stored Value Card

Bank name

Account number

(1a)

$

Checking

Savings

Money Market Account/CD

Online Account

Stored Value Card

Bank name

Account number

(1b)

$

Total of bank accounts from attachment

(1c)

$

Add lines (1a) through (1c) minus ($1,000) =

(1)

$

Investment account

Stocks

Bonds

Other

Name of Financial Institution

Account number

Current market value

Minus loan balance

$

X .8 = $

– $

=

(2a)

$

Investment account

Stocks

Bonds

Other

Name of Financial Institution

Account number

Current market value

Minus loan balance

$

X .8 = $

– $

=

(2b)

$

Virtual currency

Name of virtual currency

Email address used to

Location(s) of virtual

wallet, exchange or digital

set-up with the virtual

currency

Type of virtual currency

currency exchange (DCE)

currency exchange or DCE

Current market value in U.S. dollars as of today

$

X .8 = $

=

(2c)

$

Total investment accounts from attachment. [current market value minus loan balance(s)]

(2d)

$

Retirement account

401K

IRA

Other

Name of Financial Institution

Account number

Current market value

Minus loan balance

$

X .8 = $

– $

=

(3a)

$

Total of retirement accounts from attachment. [current market value X .8 minus loan balance(s)]

(3b)

$

Cash value of Life Insurance Policies

Name of Insurance Company

Policy number

Current cash value

Minus loan balance

$

– $

=

(4a)

$

Total cash value of life insurance policies from attachment

Minus loan balance(s)

$

– $

=

(4b)

$

Add lines (4a) through (4b) =

(4)

$

Catalog Number 55896Q

www.irs.gov

Form 433-A (OIC) (Rev. 4-2021)