Preparing Form 656 & Supporting Documents

Preparing Form 656 and Supporting Documentation in Pursuing an Offer of Compromise of IRS Back Tax Debt

An Offer for Compromise (OIC) is a tax settlement offer from the Internal revenue service to taxpayers, both individuals and businesses, who are unable to manage tax debt. There are certain strict criteria that determine eligibility to apply for the OIC. And if you fulfill these requirements, you’ll need to complete Form 656 and submit a whole host of supporting documents to be considered for the offer.

In Preparing the Form 656

There are two circumstances in which you’ll meet the requirements to file Form 656. In the first, you’re making a case that paying the full amount of owed taxes will create economic hardship. In the second, you are make the case that there is doubt as to collectiblity.

If you meet the above criteria, here are some considerations for when you begin to complete the Form 656:

• All persons submitting the offer should enter their social security numbers.

• You’ll have to supply the names of both the persons if you are seeking a joint offer for joint liabilities. If you owe a liability jointly and both your partner and you are submitting for an OIC, then do so on Form 656, just one form. Now you could owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If you are submitting this offer solely this form, then you will have to list all liabilities on one of Form 656. In case both of you want to submit this application, then you have to include all tax liabilities on your Form 656 and the other person must show only the joint tax liability on their Form 656.

• You will need to provide the relevant information In each field of the form.

• You’ll need to provide the employer identification number (EIN) of all businesses, except corporate concerns, that you own, either wholly or partly.

• If your claim to an Offer for Compromise is based on a Doubt as to Collectability, you need to also furnish a completed Form 433A if you are an individual taxpayer and Form 433B if you are a business taxpayer.

• If your claim to an OIC is based on Effective Tax Administration, then apart from submitting a Form 433B or 433A, you will also complete the info in the “Explanation of Circumstances.” You can also include supplementary corroborating information on separate sheets together with your EIN and social security numbers.

• In providing the total amount of your offer, you don’t include a sum that the IRS owes back to you or any amount that you may have already paid in taxes.

• All persons submitting the offer should sign the 656 Form and provide a date. They will also give the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors where requested.

• Ensure that you disclose the name and if it is possible, the address of the Offer in Compromise preparer.

• You might want the IRS to contact a family member, a friend, or some other acquaintance to go over your case so as to understand your situation more fully. In that case, you will have to tick the “Yes” box for the “Third Party Designee” field. Also, if you’d like a CPA, your attorney, or an enrolled agent to represent your case, you have to finish the Form 2848 and submit it together with your offer. to better the chances of your offer being accepted. After you have compiled all the above-mentioned documents for submission, be sure that you make duplicates of each one for your personal records. Additionally, you might also submit documents that corroborate your claim for this offer.

Attention to Detail

Applying for an Offer in Compromise is complicated. Be sure to spend ample time with Form 656 and provide all supporting documents to strengthen your chances of your offer being accepted.

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Burien CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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  • Huddleston Tax CPAs / Huddleston Tax CPAs – Burien
    Certified Public Accountants Focused on Small Business
    14900 Interurban Avenue S, Suite 271 / Tukwila, WA 98168

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve: Tukwila, SeaTac, Renton. We have a few meeting locations. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.