IRS 656 Explained

What is IRS 656?

IRS 656 is a form utilized by taxpayers who wish to propose an offer in compromise (OIC) to the Internal Revenue Service (IRS). This form allows individuals or businesses to settle their tax debts for less than the full amount owed. Using IRS 656, taxpayers can request the IRS to accept a lower payment based on their financial situation. This option can provide significant relief for those struggling to pay their tax liabilities.

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Purpose of IRS 656

The primary purpose of IRS 656 is to formalize a taxpayer's offer in compromise. It exists to help individuals and businesses that cannot afford to pay their full tax bill. By using this form, taxpayers can detail their financial circumstances, including income, expenses, and assets, enabling the IRS to evaluate their request and determine whether to accept the offer. This process not only relieves taxpayers from overwhelming debt but also allows the IRS to manage its resources more effectively by collecting at least some payment rather than none.

Where is IRS 656 used and by whom?

IRS 656 is used primarily by individuals and businesses facing financial difficulties regarding unpaid taxes. Here are some common scenarios:

1.

Individual taxpayers who are unemployed or have low income and cannot pay their tax bills.
2.

Self-employed individuals whose business incomes have dramatically decreased.
3.

Small business owners facing cash flow issues that hinder their ability to settle tax obligations.
4.

Individuals encountering unforeseen circumstances, such as medical emergencies, that affect their financial stability.

Each of these groups may find themselves in situations where submitting IRS 656 can provide essential financial relief.

Step-by-step: how to fill out IRS 656

Filling out IRS 656 requires careful attention to detail, as the IRS needs comprehensive information to evaluate your offer. Here is a step-by-step guide on completing the form:

1.

Start by downloading the IRS 656 form from the IRS website or utilizing pdfFiller to fill it out online.
2.

Provide your personal information, including your name, address, and Social Security number or Employer Identification Number (EIN).
3.

Indicate the type of tax debt you wish to settle, such as income tax or payroll tax.
4.

Detail your financial information, including income, expenses, and asset valuations. This step is crucial for the IRS to assess your OIC.
5.

Sign and date the form to certify that the information provided is accurate and complete.

Using pdfFiller simplifies this process by allowing you to fill out, edit, and sign the form electronically, streamlining your submission.

Who is required to complete IRS 656?

Individuals or entities that owe a tax debt and cannot pay the full amount are required to complete IRS 656 if they wish to propose an offer in compromise. Specifically, this form is necessary for:

1.

Individuals with outstanding tax liabilities looking for a settlement.
2.

Businesses that owe payroll taxes or other forms of tax debt.
3.

Taxpayers whose financial situations have changed significantly, impairing their ability to pay.

In essence, anyone seeking relief from tax obligations through an OIC should consider completing this form.

Information you need to complete IRS 656

Before starting the IRS 656 form, gather the following information to ensure accurate and complete submission:

1.

Your personal information, including Social Security number (SSN) or Employer Identification Number (EIN).
2.

Details of the tax debt you are settling, including type and amount owed.
3.

A breakdown of your income sources, such as salary, freelance earnings, or business income.
4.

A list of monthly expenses, including housing, utilities, food, health care, and any other debts.
5.

Information about your assets, such as bank account balances, property values, and investments.

Having this information ready will ensure a smoother application process and increase the likelihood of a successful offer in compromise.

How to submit IRS 656

The submission process for IRS 656 can vary, but typically you will have the following options:

1.

Mail the completed form to the address specified in the IRS instructions for IRS 656.
2.

Submit the form electronically, if permitted, through the IRS Online Offer in Compromise Application.
3.

Use authorized tax preparation software or platforms like pdfFiller to submit your documents.

Be sure to check the deadline for submission to ensure your offer is accepted within the appropriate timeframe.

When to update or refile IRS 656

There are specific scenarios when you might need to update or refile IRS 656:

1.

If there are significant changes to your financial situation, such as a new job or increased expenses, you may need to adjust your offer.
2.

Updates in your personal details, such as a change of address or marital status, should be reflected in the form.
3.

If the IRS denies your initial offer due to missing or incomplete information, you may need to refile with additional documentation.

Keeping your information up-to-date increases the chances of your offer being accepted by the IRS.

What happens if you don’t file IRS 656?

Failing to file IRS 656 when you cannot pay your tax debt can lead to several consequences:

1.

Ongoing accrual of interest and penalties on your unpaid tax obligations.
2.

Potential enforcement actions from the IRS, including wage garnishments or bank levies.
3.

Increased stress and financial burden as tax debts mount without a negotiation option.

By opting to submit IRS 656, you take a proactive step in managing your tax liabilities and averting more severe repercussions.

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Frequently Asked Questions About the IRS 656

What is the IRS 656 form and its purpose?

The IRS 656 form, also known as the Offer in Compromise form, is designed for taxpayers who wish to settle their tax debt for less than the total amount owed. By using the IRS 656, individuals can submit a formal request to the IRS that outlines their financial situation. This form is critical for those aiming to alleviate their tax burden through negotiation with the IRS.

Who is eligible to file an IRS 656 form?

Eligibility for the IRS 656 form is generally limited to taxpayers who owe taxes that they cannot realistically pay in full. This includes individuals experiencing financial hardships, including unemployment or other significant life changes. To qualify, taxpayers must also not have filed for bankruptcy protection and must meet specific IRS guidelines related to income and expenses.

How do I fill out the IRS 656 form?

Filling out the IRS 656 form involves providing detailed information about your financial situation, including income, expenses, assets, and debts. It's crucial to supply accurate and comprehensive data to improve the chances of your offer being accepted. The form also requires a signed declaration of your financial difficulties and may include supporting documents to validate your claims.

What is the processing time for an IRS 656 submission?

Once you submit the IRS 656 form, the processing time can vary significantly based on the specifics of your case and the current workload of the IRS. Typically, it can take anywhere from 30 to 180 days for the IRS to respond to your offer. Understanding this timeline is essential for effective tax planning and managing your financial future.

What happens after I submit the IRS 656 form?

After submitting the IRS 656 form, the IRS will conduct a thorough review of your financial information to determine if your offer is reasonable based on their criteria. You may be contacted for additional information or clarification during this review. If accepted, you will receive a formal agreement detailing the terms of the settled amount; if rejected, you will have options to appeal the decision.

Can I withdraw my IRS 656 offer after submission?

Yes, you can withdraw your IRS 656 offer at any time before the IRS officially accepts it. To do so, you must submit a written request to withdraw the offer, which can help prevent any complications. However, it's advisable to carefully consider your reasons for withdrawal, as this decision may affect future negotiations with the IRS.

Is there a fee associated with filing the IRS 656 form?

There is a nominal fee associated with filing the IRS 656 form, typically referred to as the application fee. This fee can be waived under certain circumstances, such as for low-income taxpayers. Understanding the fee structure and potential waivers is important for managing costs while trying to negotiate your tax debt.

What criteria does the IRS use to evaluate an IRS 656 offer?

The IRS evaluates an offer submitted via the IRS 656 based on the taxpayer's ability to pay, their income, expenses, and asset valuations. They employ a formula that balances what you can afford to pay compared to your total tax liability. Recognizing these criteria can help you present a compelling case when filling out the form and negotiating your tax settlement.

Can I appeal if my IRS 656 offer is rejected?

If your IRS 656 offer is rejected, you do have the right to appeal the decision. The appeal must typically be made within 30 days of receiving the rejection notice. Preparing a well-documented case that addresses the reasons for the rejection can improve your chances during the appeal process.

Where can I find help with my IRS 656 application?

If you need assistance with your IRS 656 application, consider reaching out to tax professionals or certified public accountants who specialize in tax negotiation. Many online resources and platforms, including pdfFiller, provide templates and guides to streamline your application. Taking the time to seek help can significantly improve your success with the IRS in addressing your tax debt.

Author:

by Iryna Marchuk

Lead Writer/Blogs Manager at airSlate

Disclaimer: This content is for informational purposes only. It is not legal or other professional advice. airSlate provides this material on an "as-is" basis and disclaims all representations, guarantees, or warranties, whether express, implied, or statutory, including but not limited to warranties of merchantability, fitness for a particular purpose, or accuracy.