If you’re struggling to pay off your tax debt to the IRS, you may be eligible for an offer in compromise (OIC), which allows you to settle your debt for less than the full amount owed. To take advantage of this program, you’ll need to fill out Form 656, providing details of your repayment offer. But before you start, you’ll need to determine if you’re eligible to file an OIC, and understand the requirements and responsibilities that come with it. In this article, we’ll guide you through the process of filing Form 656 and what you need to know to successfully submit an offer in compromise.

Eligibility for Filing an Offer in Compromise

Your ability to file an offer in compromise (OIC) depends on meeting certain requirements and avoiding specific situations that make you ineligible.

Meeting the Basic Requirements

To file an Offer in Compromise (OIC), you must meet certain requirements:

• You must have filed all required federal tax returns.
• You must have received an IRS bill for at least one tax debt.
• You must have submitted all required estimated taxes for the current year.

If you are a business owner with employees, you must also:

• Have made all required tax deposits for the current quarter.

Ensuring You’re Not Ineligible

The IRS has specific situations that disqualify you from filing an OIC, such as being in active bankruptcy proceedings, being audited by the IRS, having an innocent spouse claim, or being able to afford paying your tax liability in full. A crucial step in determining your eligibility is to use the IRS’s pre-qualifier tool, which calculates a basic offer amount based on your financial information. This tool helps you understand if you qualify for an OIC and provides a starting point for making an offer to pay off your tax debt.

The Offer in Compromise Process

Little do people know that the offer in compromise process can be a lengthy and complex procedure. However, understanding each step can increase your chances of getting your OIC approved.

Filling Out Form 656

An vital part of the OIC process is filling out Form 656, which includes the details of your repayment offer. You’ll need to provide personal and financial information, such as your income, expenses, assets, and liabilities. Make sure to fill out the form accurately and completely. Any errors or omissions can delay or even reject your application.

Proving You Can’t Pay the Full Amount

Filling out Form 433-A, Collection Information Statement, is a crucial step in the OIC process. This form helps the IRS determine your ability to pay your tax debt. It assesses your income, expenses, assets, and liabilities.

Amount of debt you owe is not the only factor the IRS considers when evaluating your OIC. They will also examine your income, expenses, and assets to see if you can pay the full amount. You’ll need to provide detailed financial information, including your income, expenses, and asset values, to prove that you cannot pay the full amount.

Payment Options and Responsibilities

If you’re considering filing an offer in compromise, it’s vital to understand the payment options and responsibilities involved.

Initial Payment and Application Fee

One of the first steps in the OIC process is making an initial payment and paying the application fee. You can make your offer amount or initial payment by mail using a check, money order, or cashier’s check made payable to the United States Treasury. Additionally, you’ll need to include a separate check or money order made payable to the United States Treasury for the application fee. Alternatively, you can pay online for free through the Electronic Federal Tax Payment System (EFTPS).

Ongoing Payment Responsibilities

With your offer in compromise, you’ll have ongoing payment responsibilities to ensure you fulfill your agreement with the IRS. If you’ve made a lump-sum offer, you’ll need to make any additional payments within five months of the IRS accepting your OIC. If you’ve requested periodic payments over 6-24 months, you’ll need to make payments while your offer is pending, with the first payment sent with IRS Form 656.

Plus, it’s crucial to note that if you’re a low-income filer, you may wait until your offer is accepted to begin making periodic payments to the Internal Revenue Service. Regardless of your payment plan, it’s vital to make all payments on time to avoid defaulting on your agreement and facing potential penalties and interest.

After Filing Your Offer in Compromise

Not surprisingly, your responsibilities don’t end once you’ve filed your Form 656. In fact, this is just the beginning of a new chapter in your tax compliance journey.

Compliance with Tax Laws

With the IRS scrutinizing every aspect of your financial life, it’s important to stay on top of your tax obligations. You must comply with all tax laws, including filing all required tax returns on time and paying any taxes due.

Payment Schedules and Requirements

With your offer in compromise accepted, you’ll need to adhere to a strict payment schedule. If you opted for a lump-sum payment, you’ll need to make payments within five months of the IRS accepting your offer.

A crucial aspect of payment schedules and requirements is making timely payments. Missing even a single payment can put you in default, and the IRS may cancel your payment arrangement. This means you’ll be liable for the full tax amount, including interest and penalties. To avoid this, ensure you make all payments on time and in full.

Final Words

With these considerations in mind, you’re now equipped to navigate the process of filing Form 656 and making an offer in compromise to the IRS. Remember to carefully review your eligibility, gather required documents, and submit your application with the necessary payments. Follow these steps and fulfill your responsibilities after filing. You may be able to settle your tax debt for less than what you owe. Take control of your tax situation today and start working towards a fresh financial start.

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