Quick Overview of IRS Offer in Compromise: Form 656

If you’re desperate to resolve your tax debt and start fresh, the IRS offer in compromise may be your best bet. This program makes it possible to settle your debt for significantly less than you actually owe.

First, you’ll need to navigate the various types of OICs, as well as the time-consuming, detail-oriented application process. Keep the following considerations in mind as you proceed:

Versions of IRS Form 656

Before you dive into Form 656, you’ll need to determine which version of the form you plan to complete. If you dispute the validity of the taxes you owe, proceed with Form 656-L. This involves a doubt as to liability, so it centers around a “written statement explaining why the tax debt or portion of the tax debt is incorrect.”

If you believe the assessed taxes are legitimate but are simply unable to pay (commonly referred to as a doubt as to collectability), you’ll need to complete Form 656-B. This may be accompanied by a collection information statement: Form 433-A for individuals or Form 433-B for businesses.

What Should Your Application Include?

The application process will depend somewhat on whether you use Form 656-L or Form 656-B. If you suspect a doubt as to liability, you will not need to submit a fee. With Form 656-B, however, a $205 application fee is required unless you qualify for Low-Income Certification. Don’t forget to designate how you intend to pay for your application.

Regardless of which form you submit, you’ll need photocopies of supporting documentation. What form this documentation takes will depend on whether you make an offer based on doubt as to liability or doubt as to collectability. Either way, Form 2848 will be necessary if you’re represented by a third party.

Your chances of OIC acceptance are better if you work with a trusted tax professional. At the Highland Tax Group, we are intimately familiar with IRS Form 656 and everything else related to the offer in compromise program. Look to us for guidance as you seek a solution to your tax debt.