Taxpayers facing a significant tax bill they cannot afford to pay in full may be able to participate in the IRS Offer in Compromise (OIC) program. Form 656, also known as the Offer in Compromise Application, is the first step in asking the IRS to settle for less.
What is the Offer in Compromise Program?
The OIC program allows taxpayers who meet certain eligibility requirements to settle their tax liabilities for less than what they owe. When evaluating OIC applications, the IRS considers factors like the taxpayer’s income, expenses, asset equity, and ability to pay.
Who Is Eligible?
You can request an OIC for any of these three reasons:
- You contest the collectability of your tax debt, i.e., you do not dispute that you owe it, but you’re saying the IRS will likely never be able to collect it because you don’t have any assets.
- You contest your liability for the debt.
- It’s “effective tax administration” because of an exceptional circumstance such as extreme medical bills or other exceptional hardship.
For all three of these reasons, you must make a full financial disclosure. You must tell the IRS about all of your income and assets. Then, the agency will use your information to determine if you qualify for a settlement.
How to Request an OIC
Carefully fill out all sections of Form 656, providing accurate and detailed information. Key sections of the form include:
- Taxpayer Information: Provide personal details such as name, address, social security number, and taxpayer identification number.
- Representative Authorization: If applicable, authorize a representative to act on your behalf in OIC matters.
- Payment Terms: Select the desired payment option and provide details of your initial and subsequent payments.
- Financial Information: Disclose your income, expenses, assets, and liabilities to demonstrate your financial situation.
An OIC can be a lifeline for taxpayers who have had a bad year and cannot pay their tax bills. But navigating the OIC process can be complex, especially when you’ve never done it before. The tax professionals at Highland Tax Group can help. Contact us today.