The Irs form 656 is a document used to apply for an Offer in Compromise. This form can be used by individuals or businesses to request that the Internal Revenue Service (IRS) consider a reduction in the amount of taxes owed. The form must be completed correctly and accurately in order to be considered by the IRS. The Offer in Compromise program is often used as a way to reduce tax debt when other methods, such as payment plans, are not available or feasible. Completing the Irs form 656 correctly is critical, as any mistakes may delay or prevent your application from being approved. For more information on how to complete this form, consult an experienced tax professional.
If you would like first understand how much time you will need to fill in the irs form 656 and what number of pages it's got, here is some basic information that may be useful.
Question | Answer |
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Form Name | Irs Form 656 |
Form Length | 8 pages |
Fillable? | No |
Fillable fields | 0 |
Avg. time to fill out | 2 min |
Other names | form 656 a, 656, low income certification guidelines form 656, 656 form |
Form 656 Booklet |
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Offer in |
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Compromise |
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CONTENTS |
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■ What you need to know |
1 |
■ Paying for your offer |
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■ How to apply |
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■ Completing the application package |
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■ Important information |
6 |
■Removable Forms - Form
Collection Information Statement for Businesses; Form 656, Offer in |
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Compromise |
7 |
■ Application Checklist |
29 |
IRS contact information
If you want to see if you qualify for an offer in compromise before filling out the paperwork, you may use the Offer in Compromise
If you have questions regarding qualifications for an offer in compromise, please call our
Taxpayer resources
The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service that helps taxpayers and protects taxpayer rights. TAS helps taxpayers whose problems with the IRS are causing financial difficulties, who've tried but haven't been able to resolve their problems with the IRS or believe an IRS system or procedure isn't working as it should. The service is free. Your local advocate's number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at
WHAT YOU NEED TO KNOW
What is an Offer? |
An Offer in Compromise (offer) is an agreement between you (the taxpayer) and |
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the IRS that settles a tax debt for less than the full amount owed. The offer |
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program provides eligible taxpayers with a path toward paying off their tax debt. |
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The ultimate goal is a compromise that suits the best interest of both the taxpayer |
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and the IRS. Generally, you must |
make an appropriate offer based on what the |
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IRS considers your true ability to |
pay. |
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Submitting an application does not ensure that the IRS will accept your offer. |
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It begins a process of evaluation and verification by the IRS, taking into |
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consideration any special circumstances that may affect your ability to pay. |
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This booklet will lead you through a series of steps to help you calculate an |
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appropriate offer based on your assets, income, expenses, and future earning |
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potential. The application requires you to describe your financial situation in detail, |
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so before you begin, make sure you have the necessary information and |
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documentation. |
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Are You Eligible? |
Before your offer can be considered, you must (1) file all tax returns you are legally |
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required to file, (2) have received a bill for at least one tax debt included on your |
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offer, (3) make all required estimated tax payments for the current year, and (4) |
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make all required federal tax deposits for the current quarter if you are a business |
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owner with employees. The IRS will immediately return your offer without further |
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consideration if you have not filed all legally required tax returns. |
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Note: If it is determined you have not filed all tax returns you are legally |
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required to file, the IRS will apply any initial payment you sent with your offer |
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to your tax debt and return both your offer and application fee to you. You |
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cannot appeal this decision. |
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Bankruptcy, Open Audit or |
If you or your business is currently in an open bankruptcy proceeding, you are not |
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Innocent Spouse Claim |
eligible to apply for an offer. Any resolution of your outstanding tax debts generally |
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must take place within the context of your bankruptcy proceeding. |
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If you are not sure of your bankruptcy status, contact the Centralized Insolvency |
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Operation at |
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and/or Taxpayer Identification Number. |
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Resolve any open audit or outstanding innocent spouse claim issues before |
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you submit an offer. |
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Can You Pay in Full? |
Generally, the IRS will not accept an offer if you can pay your tax debt in full |
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through an installment agreement or equity in assets. |
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Note: Adjustments or exclusions, which may be considered during the offer |
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investigation, such as allowance of $1,000 to a bank balance or $3,450 against the |
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value of a car, are only applied if you are an individual and after it is determined |
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that you cannot pay your tax debt in full. |
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Your Future Tax Refunds |
The IRS will keep any refund, including interest, for tax periods extending through |
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the calendar year that the IRS accepts the offer. For example, the IRS accepts |
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your offer in 2020 and you file your 2020 Form 1040 on April 15, 2021 showing a |
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refund; the IRS will apply your refund to your tax debt. The refund is not |
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considered as a payment toward your offer. |
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Doubt as to Liability |
If you have a legitimate doubt that you owe part or all of the tax debt, complete and |
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submit a Form |
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Form |
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FORM |
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Note: Do not submit both an offer under Doubt as to Liability and an offer under Doubt as to Collectibility or Effective Tax Administration at the same time. You must resolve any doubt you owe part or all of the tax debt before submitting an offer based on your ability to pay.
1
Notice of Federal Tax Lien |
A lien is a legal claim against all your current and future property. When you don’t |
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pay your first bill for taxes due, a lien is created by law and attaches to your |
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property. A Notice of Federal Tax Lien (NFTL) provides public notice to creditors. |
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The IRS files the NFTL to establish priority of the IRS claim versus the claims of |
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certain other creditors. The IRS may file a NFTL at any time. If the tax lien(s) has/ |
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have not been released, the IRS may be entitled to any proceeds from the sale of |
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property subject to the lien(s). You may be entitled to file an appeal under the |
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Collection Appeals Program (CAP) before this occurs or request a Collection Due |
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Process hearing after this occurs. |
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Note: A Notice of Federal Tax Lien (NFTL) will not be filed on any individual shared |
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responsibility payment under the Affordable Care Act. |
Trust Fund Taxes |
If your business owes liabilities that include trust fund taxes, the IRS may hold |
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responsible individuals liable for the trust fund portion of the tax pursuant to |
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applicable law. Trust fund taxes are the money withheld from an employee's |
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wages, such as income tax, Social Security, and Medicare taxes. If the IRS enters |
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into a compromise with an employer for a portion of the trust fund tax liability, the |
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remainder of the trust fund taxes must be collected from the responsible parties. |
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You are not eligible for consideration of an offer unless the trust fund portion of the |
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tax is paid, or the IRS has made the Trust Fund Recovery Penalty determination(s) |
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on all potentially responsible individual(s). However, if you are submitting the offer |
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as a victim of payroll service provider fraud or failure, the trust fund recovery |
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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 |
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when interacting with the IRS. Explore your rights and our obligations to protect |
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them. For more information on your rights as a taxpayer, go to http://www.irs.gov/ |
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Penalties and interest will continue to accrue. |
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After you submit your offer, you must continue to timely file and pay all required tax |
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returns, estimated tax payments, and federal tax payments for yourself and any |
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business in which you have an interest. Failure to meet your filing and payment |
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responsibilities during consideration of your offer will result in the IRS returning |
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your offer. If the IRS accepts your offer, you must continue to stay current with all |
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tax filing and payment obligations through the fifth year after your offer is accepted |
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(including any extensions). |
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Note: If you have filed your tax returns but you have not received a bill for at |
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least one tax debt included on your offer, your offer and application fee may |
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be returned and any initial payment sent with your offer will be applied to |
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your tax debt. To prevent the return of your offer, include a complete copy of |
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any tax return filed within 12 weeks of this offer submission. |
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The IRS can't process your offer if the IRS referred your case, or cases, involving |
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all of the liabilities identified in the offer to the Department of Justice. In addition, |
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the IRS cannot compromise any tax liability arising from a restitution amount |
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ordered by a court or a tax debt reduced to judgment. Furthermore, the IRS will not |
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compromise any IRC § 965 tax liability for which an election was made under IRC |
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§ 965(i). You cannot appeal this decision. |
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Note: Any offer containing a liability for which payment is being deferred under IRC |
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§ 965(h)(1) can only be processed for investigation if an acceleration of payment |
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under section 965(h)(3) and the regulations thereunder has occurred and no |
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portion of the liability to be compromised resulted from entering into a transfer |
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agreement under section 965(h)(3). |
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The law requires the IRS to make certain information from accepted offers |
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available for public inspection and review. Find instructions to request a public |
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inspection file at www.IRS.gov keyword "OIC". |
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The IRS may levy your assets up to the time the IRS official signs and |
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acknowledges your offer as pending. In addition, the IRS may keep any proceeds |
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received from the levy. If your assets are levied after your offer is submitted and |
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pending evaluation, immediately contact the IRS employee whose name and |
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phone number are listed on the levy. |
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If you currently have an approved installment agreement, you will not be required |
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to make your installment agreement payments while your offer is being |
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considered. If your offer is not accepted and you have not incurred any additional |
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tax debt, the IRS will reinstate your installment agreement. |
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PAYING FOR YOUR OFFER |
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Application Fee |
Offers require a $205 application fee. |
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Exception: If you are an individual and meet the |
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guidelines, there is no requirement to send any money with your offer. You |
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are considered an individual if you are seeking compromise of a liability for which |
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you are personally responsible, including any liability you incurred as a sole |
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proprietor. |
Payment Options |
You must select a payment option and include the initial payment with your offer. |
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The amount of the initial payment and subsequent payments will depend on the |
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total amount of your offer and which of the following payment options you choose: |
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Lump Sum Cash: This option requires 20% of the total offer amount to be paid |
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with the offer and the remaining balance paid in 5 or fewer payments within 5 or |
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fewer months of the date your offer is accepted. |
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Periodic Payment: This option requires you to make the first payment with the |
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offer and the remaining balance paid in monthly payments within 6 to 24 months, |
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in accordance with your proposed offer terms. |
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Note: Under the periodic payment option, you must continue to make |
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monthly payments while the IRS is evaluating your offer. If you fail to make |
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these payments at any time prior to receiving a final decision letter, the IRS will |
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return your offer. You cannot appeal this decision. Total payments must equal the |
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total offer amount. |
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Reminder: The initial payment and monthly payments are not required if you meet |
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the |
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Generally, payments made on an offer will not be returned. You may make a |
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deposit, as described in Form 656, Section 5, which may be returned if the offer is |
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not accepted. If the IRS accepts your offer, your payments made during the offer |
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process, including any money designated as a deposit, will be applied to your offer |
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amount. |
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If you do not have sufficient cash to pay for your offer, you may need to consider |
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borrowing money from a bank, friends, and/or family. Other options may include |
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borrowing against or selling other assets. |
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If you are an individual, use the OIC |
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at http://irs.treasury.gov/oic_pre_qualifier/ to assist in determining a starting |
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point for your offer amount. |
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Note: You may not pay your offer amount with an expected or current tax |
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refund, money already paid, funds attached by any collection action, or |
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anticipated benefits from a capital or net operating loss. If you are planning to |
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use your retirement savings from an IRA or 401k plan, you may have future tax |
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debt as a result. Contact the IRS or your tax advisor before taking this action. |
3
HOW TO APPLY
Application Process |
The application must include: |
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• Form 656, Offer in Compromise |
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• Completed and signed Form |
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Wage Earners and |
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• Completed and signed Form |
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Businesses, if applicable |
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• $205 application fee, unless you meet |
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• Initial offer payment based on the payment option you choose, unless you |
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meet |
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Note: Your offer(s) cannot be considered without the completed and signed |
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Form(s) 656, |
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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 |
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will each need to send in a separate Form 656. You will complete one Form 656 |
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for yourself listing all your joint and any separate tax debts and your spouse will |
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complete one Form 656 listing all his or her joint tax debt(s) plus any separate tax |
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debt(s), for a total of two Forms 656. |
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If you and your spouse or |
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spouse does not want to be part of the offer, you may submit a Form 656 to |
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compromise your responsibility for the joint tax debt. |
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Each Form 656 will require the $205 application fee and initial payment |
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unless you are an individual and meet the |
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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 |
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debts and one Form 656 for your business tax debts. Each Form 656 will require |
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the $205 application fee and initial payment. |
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Note: A business is defined as a corporation, partnership, or any business that is |
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operated as other than a |
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individual's share of a partnership debt. The partnership must submit its own offer |
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based on the partnership's and partners' ability to pay. |
4
COMPLETING THE APPLICATION PACKAGE
Step 1 – Gather Your Information
Step 2 – Fill out Form
To calculate an offer amount, you will need to gather information about your financial situation, including cash, investments, available credit, assets, income, and debt.
You will also need to gather information about your household's gross monthly income and average expenses. The entire household includes all those in addition to yourself who contribute money to pay expenses relating to the household such as, rent, utilities, insurance, groceries, etc. This is necessary for the IRS to accurately evaluate your offer. The IRS may also use this to determine your share of the total household income and expenses.
In general, the IRS will not consider expenses for tuition for private schools, college expenses, charitable contributions, and other unsecured debt payments as part of the expense calculation.
Fill out Form
Step 3 – Fill out Form
Fill out Form
Step 4 – Attach Required |
You will need to attach supporting documentation with Form(s) |
Documentation |
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copies of all required attachments. Do not send original documents. |
Step 5 – Fill out Form 656, Offer in Compromise
Step 6 – Include Initial Payment and $205 Application Fee
Step 7 – Mail the Application Package
Fill out Form 656. The Form 656 identifies the tax years and type of tax you would like to compromise. It also identifies your offer amount and the payment terms.
Include a personal check, cashier's check, or money order for your initial payment based on the payment option you selected (20% of the offer amount for a lump sum cash offer or the first month's payment for a periodic payment offer). Generally, initial payments will not be returned but will be applied to your tax debt if your offer is not accepted.
Include a separate personal check, cashier's check, or money order for the application fee. Make both payments (in U.S. dollars) payable to the “United States Treasury”.
You may choose to make your initial offer payment and application fee through the Electronic Federal Tax Payment System (EFTPS).
Reminder: If you meet the
Make a copy of your application package and keep it for your records.
Mail the completed application package to the appropriate IRS facility. See page 29, Application Checklist, for details.
Note: If you are working with an IRS employee, let him or her know you are sending or have sent an offer to compromise your tax debt(s).
5
IMPORTANT INFORMATION
After You Mail Your Application: We will contact you after we receive and review your offer application. Promptly reply to any requests for additional information within the time frame specified. Failure to reply timely will result in the return of your offer without appeal rights.
If the IRS accepts your offer, you must continue to timely file all required tax returns and timely pay all estimated tax payments and federal tax payments that become due in the future. If you fail to timely file and timely pay any tax obligations that become due within the five years after your offer acceptance (including any extensions) your offer may be defaulted. If the IRS defaults your offer, you will be liable for the original tax debt, less payments made, and all accrued interest and penalties. An offer does not stop the accrual of interest and penalties. Please note that if your final payment is more than the agreed amount, the IRS will not return the money but will apply it to your tax debt.
In addition, the IRS may default your offer if you fail to promptly pay any tax debts assessed after acceptance of your offer for any tax years prior to acceptance that were not included in your original offer.
6
Form
(April 2021)
Department of the Treasury — Internal Revenue Service
Collection Information Statement for Wage Earners and
Use this form if you are
►An individual who owes income tax on a Form 1040, U.S. Individual Income Tax Return
►An individual with a personal liability for Excise Tax
►An individual responsible for a Trust Fund Recovery Penalty
►An individual who is
►An individual who is personally responsible for a partnership liability (only if the partnership is submitting an offer)
►An individual who is submitting an offer on behalf of the estate of a deceased person
Note: Include attachments if additional space is needed to respond completely to any question. This form should only be used with the Form 656, Offer in Compromise.
Section 1 |
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Personal and Household Information |
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Last name |
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First name |
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Date of birth (mm/dd/yyyy) |
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Social Security Number |
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Marital status |
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Home physical address (street, city, state, ZIP code) |
Do you |
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Unmarried |
Married |
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Own your home |
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Rent |
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If married, date of marriage (mm/dd/yyyy) |
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Other (specify e.g., share rent, live with relative, etc.) |
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County of residence |
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Primary phone |
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Home mailing address (if different from above or post office box number) |
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FAX number |
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Provide information about your spouse. |
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Social Security Number |
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Provide information for all other persons in the household or claimed as a dependent. |
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on your Form 1040 |
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household income |
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Section 2 |
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Employment Information for Wage Earners |
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Complete this section if you or your spouse are wage earners and receive a Form
Your employer’s name |
Pay period |
Weekly |
Employer’s address (street, city, state, ZIP code) |
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Monthly |
Other |
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Do you have an ownership interest in this |
If yes, check the business interest that applies |
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business |
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Partner |
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Officer (complete Form |
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Does your spouse have an ownership |
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interest in this business |
Partner |
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Officer (complete Form |
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Catalog Number 55896Q |
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www.irs.gov |
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Page 2
Section 3 |
Personal Asset Information |
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Use the most current statement for each type of account, such as checking, savings, money market and online accounts, stored value cards (such as a payroll card from an employer), investment, retirement accounts (IRAs, Keogh, 401(k) plans, stocks, bonds, mutual funds, certificates of deposit) and virtual currency (such as Bitcoin, Ripple, Ethereum, etc.), life insurance policies that have a cash value, and safe deposit boxes. Asset value is subject to adjustment by IRS based on individual circumstances. Enter the total amount available for each of the following (if additional space is needed include attachments).
Round to the nearest dollar. Do not enter a negative number. If any line item is a negative number, enter "0".
Cash and Investments (domestic and foreign)
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Cash |
Checking |
Savings |
Money Market Account/CD |
Online Account |
Stored Value Card |
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Bank name |
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Account number |
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(1b) |
$ |
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Total of bank accounts from attachment |
(1c) |
$ |
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Add lines (1a) through (1c) minus ($1,000) = |
(1) |
$ |
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Investment account |
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Stocks |
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Bonds |
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Other |
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Name of Financial Institution |
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Account number |
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Current market value |
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Minus loan balance |
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$ |
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X .8 = $ |
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– $ |
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= |
(2a) |
$ |
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Investment account |
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Stocks |
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Bonds |
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Other |
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Name of Financial Institution |
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Account number |
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Current market value |
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Minus loan balance |
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$ |
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X .8 = $ |
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– $ |
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= |
(2b) |
$ |
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Virtual currency |
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Name of virtual currency |
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Email address used to |
Location(s) of virtual |
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wallet, exchange or digital |
currency |
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Type of virtual currency |
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currency exchange (DCE) |
currency exchange or DCE |
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Current market value in U.S. dollars as of today |
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$ |
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X .8 = $ |
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= |
(2c) |
$ |
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Total investment accounts from attachment. [current market value minus loan balance(s)] |
(2d) |
$ |
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Add lines (2a) through (2d) =
(2) $
Retirement account |
401K |
IRA |
Other |
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Name of Financial Institution |
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Account number |
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Current market value |
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Minus loan balance |
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$ |
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X .8 = $ |
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– $ |
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= |
(3a) |
$ |
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Total of retirement accounts from attachment. [current market value X .8 minus loan balance(s)] |
(3b) |
$ |
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Add lines (3a) through (3b) =
(3) $
Note: Your reduction from current market value may be greater than 20% due to potential tax consequences/withdrawal penalties.
Cash value of Life Insurance Policies |
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Name of Insurance Company |
Policy number |
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Current cash value |
Minus loan balance |
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$ |
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– $ |
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= |
(4a) |
$ |
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Total cash value of life insurance policies from attachment |
Minus loan balance(s) |
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$ |
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– $ |
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= |
(4b) |
$ |
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Add lines (4a) through (4b) = |
(4) |
$ |
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Catalog Number 55896Q |
www.irs.gov |
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Form |