IRS 656-A Explained
What is IRS 656-A?
The IRS Form 656-A is a critical document used by individuals and businesses when applying for an offer in compromise with the Internal Revenue Service (IRS). This form lays the foundation for taxpayers who seek to settle their tax debt for less than the full amount owed. It is primarily utilized by taxpayers facing financial difficulties and is a vital step in the process of negotiating with the IRS for a more manageable tax payment solution.
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Purpose of IRS 656-A
The primary purpose of IRS 656-A is to facilitate the offer in compromise (OIC) process. This form captures the financial situation of the taxpayer, enabling the IRS to assess whether they qualify for an offer in compromise. By detailing their income, expenses, and assets, taxpayers can propose a settlement amount that they believe reflects their true ability to pay their tax liabilities. The IRS uses this information to determine if settling for less than the owed amount is an acceptable solution for both parties.
Where is IRS 656-A used and by whom?
The IRS 656-A is commonly used by a variety of taxpayer groups, including:
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1.Individuals: People who are unable to pay their tax debts due to financial hardships such as unemployment, medical expenses, or other unforeseen circumstances.
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2.Businesses: Companies facing financial distress that makes it impossible to meet their tax obligations. Small businesses often use this form when cash flow issues arise.
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3.Tax professionals: Certified public accountants (CPAs) and tax attorneys who assist clients in navigating the complexities of tax liabilities and offers in compromise.
Each group has specific scenarios where this form is applicable, such as when an individual's financial situation has significantly changed or when a business has encountered operational difficulties impacting revenue.
Step-by-step: how to fill out IRS 656-A
Filling out IRS 656-A requires attention to detail. Here’s a step-by-step guide to completing the form:
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1.Personal information: Start with your name, address, and taxpayer identification number (ITIN or SSN).
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2.Financial information: Provide details about your income, including wages, self-employment income, and other sources. Document your monthly expenses like housing, utilities, and necessary living costs.
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3.Assets and liabilities: List all assets, such as bank accounts, vehicles, and real estate, along with their respective values. Also, document any debts or liabilities you may have.
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4.Offer amount: Calculate and propose an offer amount based on your financial assessment. This should reflect what you can feasibly pay.
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5.Signature: Finally, ensure you sign and date the form before submission.
With pdfFiller, you can easily fill out this form online, saving time and ensuring accuracy by using features such as auto-fill and e-signing.
Who is required to complete IRS 656-A?
Individuals or entities obligated to complete IRS 656-A typically include those who owe tax debts they cannot pay in full. Specific circumstances that may require this form include:
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1.Individuals facing extreme financial hardship.
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2.Business owners experiencing cash flow issues.
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3.Taxpayers who have received a notice of payment due from the IRS.
Essentially, if you owe taxes and your financial situation makes repayment infeasible, you may need to complete this form as part of your offer in compromise application.
Information you need to complete IRS 656-A
Before filling out IRS 656-A, gather the following information:
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1.Your personal identification: Name, address, Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
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2.Income details: Comprehensive listing of all income sources and amounts.
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3.Monthly expenses: An itemized list of essential living expenses.
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4.Asset information: Values of bank accounts, properties, and other assets.
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5.Debt information: Total outstanding liabilities or debts.
This information is crucial for accurately portraying your financial position to the IRS.
How to submit IRS 656-A
Once you have completed IRS 656-A, you can submit it using various methods:
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1.Online: Use the IRS's online submission tools if available.
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2.Mail: Send the completed form to the appropriate IRS address specified in the form instructions.
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3.Fax: In some cases, faxing the form may be an option, particularly if you are working with a tax professional.
Be mindful of submission deadlines, as timely filing can significantly impact your offer's acceptance and the tax penalty situation. Check for any notifications from the IRS regarding deadlines for your specific case.
When to update or refile IRS 656-A
There may be circumstances that require you to update or refile IRS 656-A, including:
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1.Change in financial status: If your income or expenses significantly change, it’s vital to provide the IRS with the updated information.
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2.Address change: Notify the IRS if you move to a new residence.
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3.New assets or debts: Report any new financial developments that could influence your offer.
Keeping the IRS informed of your current financial situation will help maintain transparency and could affect the outcome of your offer in compromise.
What happens if you don’t file IRS 656-A?
Failing to file IRS 656-A, especially when you meet the criteria for an offer in compromise, can have several consequences:
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1.Accrual of penalties and interest on the unpaid tax debt, increasing the total liability.
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2.Possible collection actions from the IRS, including wage garnishment or bank levies.
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3.Loss of the opportunity to negotiate a settlement that could lessen your tax burden.
Ultimately, not filing IRS 656-A can lead to more severe financial implications and limit your options for resolving tax debts. It is crucial to take action if you find yourself in a tax delinquency situation.
Fill out IRS 656-A online
Get the latest version of the form and complete it in minutes.
Frequently Asked Questions About the IRS 656-A
What is the IRS 656-A form and why is it important?
The IRS 656-A form is a crucial document used for making an offer in compromise with the IRS. This form allows taxpayers to propose a settlement amount for their tax debts, making it essential for individuals looking to resolve their tax obligations without facing severe financial hardship. Knowing how to effectively fill out the IRS 656-A form can significantly impact your ability to achieve favorable tax relief.
Who is eligible to submit the IRS 656-A form?
Eligibility for the IRS 656-A form primarily depends on your outstanding tax liabilities and financial situation. Generally, individuals who owe back taxes and cannot afford to pay them in full are encouraged to submit this form. It is vital to evaluate your income, expenses, and overall financial status before applying with the IRS 656-A to ensure you meet the required criteria.
What information do I need to complete the IRS 656-A?
To effectively complete the IRS 656-A form, you'll need to gather specific financial information including your income, expenses, and assets. This data is crucial for the IRS to evaluate your offer and determine whether you qualify for an agreement. Proper completion of the IRS 656-A ensures that your proposal accurately reflects your financial situation, which is essential for a successful outcome.
How long does it take for the IRS to process the IRS 656-A?
Processing the IRS 656-A form can take several months, typically between 3 to 6 months. The duration can vary based on the complexity of your case and the IRS workload. During this waiting period, it is important to stay updated on any correspondence from the IRS concerning your offer submitted with the IRS 656-A.
Can I negotiate my tax debt using the IRS 656-A form?
Yes, the IRS 656-A form is specifically designed for negotiating tax debts through an offer in compromise. By submitting this form, you are proposing a lower amount than what you owe in taxes, which the IRS may accept if it deems the offer reasonable. It's crucial to provide a strong rationale for your request when using the IRS 656-A to facilitate this negotiation process.
What happens if the IRS rejects my IRS 656-A offer?
If the IRS rejects your IRS 656-A offer, you will receive a notice detailing the reasons for the rejection. You usually have the option to appeal the decision if you believe your circumstances warrant reconsideration. Understanding why your offer was rejected can help you make necessary adjustments and potentially submit a more effective IRS 656-A form in the future.
Is there a fee associated with submitting the IRS 656-A form?
Yes, there is typically a fee for submitting the IRS 656-A form, which is usually around $205. However, this fee may be waived under certain conditions, such as qualifying for a low-income status. Being aware of these fees is important to factor into your financial planning when considering submitting the IRS 656-A.
What should I do if my financial situation changes after submitting the IRS 656-A?
If your financial circumstances change after submitting the IRS 656-A form, it is important to inform the IRS as soon as possible. Changes such as increased income or unforeseen expenses can affect your offer and tax obligations. Keeping the IRS updated helps maintain transparency and can improve your chances of a favorable resolution.
Can I submit the IRS 656-A form online?
Currently, the IRS does not provide an option to submit the IRS 656-A form electronically, meaning it must be mailed in. However, you can use online resources to fill out the form more efficiently before printing and submitting it. Proper preparation when completing the IRS 656-A form can streamline the process and reduce potential errors.
Where can I find assistance in completing the IRS 656-A?
There are many resources available to assist you in completing the IRS 656-A form, such as tax professionals, IRS representatives, and online tax preparation services. Engaging an expert can provide you with specific guidance tailored to your unique situation. Utilizing available assistance ensures that your IRS 656-A submission is accurate and comprehensive, which may increase your chances of acceptance.
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