Learn About The IRS Form 656: Take Action Now 2025

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The Form 656 Booklet provides comprehensive guidance on the Offer in Compromise (OIC) program, which allows eligible taxpayers to settle their tax debts for less than the full amount owed. It outlines the application process, eligibility requirements, necessary forms (including Form 433-A and Form 433-B), payment options, and important information regarding taxpayer rights and responsibilities. The booklet emphasizes the importance of filing all required tax returns and making estimated payments before applying. It also includes resources for taxpayer assistance, such as the Taxpayer Advocate Service and Low Income Taxpayer Clinics.

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Gather your financial information, including income, expenses, and assets. This will help you calculate your offer amount accurately.
Fill out Form 433-A (OIC) if you are an individual wage earner or self-employed. Provide details about your income and expenses.
Complete Form 433-B (OIC) if your business is a corporation or partnership. Include business assets and liabilities.
Attach all required documentation as specified in the forms, ensuring you do not send original documents.
Fill out Form 656, indicating the tax years and type of tax you wish to compromise along with your offer amount.
Include your initial payment and the $205 application fee unless you qualify for Low-Income Certification.
Mail the completed application package to the appropriate IRS facility based on your state of residence.

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Who is eligible for IRS debt forgiveness?

Q: Who qualifies for IRS debt forgiveness? A: Eligibility is based on your income, expenses, assets, and the amount you owe. Generally, if you can prove youre unable to pay your full tax debt without financial hardship, you may qualify for partial or full forgiveness through an Offer in Compromise or other relief.

How much should I offer the IRS in an Offer in Compromise?

Figuring out the optimal amount to offer the IRS is not easy. It takes a lot of experience to know where the sweet spot lies for any given case. In general though, you can start off with an estimate of 1 year worth of your disposable income and add to that any valuable assets you can sell for additional cash.

What percentage will the IRS accept for an offer in compromise?

The IRS offers two repayment schedule options for an accepted offer in compromise: Five-month repayment period (often called a lump sum payment): You must submit an initial payment that equals 20 percent of your total offer at the time of the application.

How much will the IRS usually settle for?

The IRS often settles tax debts for far less than the full amount owed , in rare cases as little as 5% to 20% of the total balance when Reasonable Collection Potential (RCP) is very low. If youre struggling with back taxes, the IRS Offer in Compromise (OIC) program may be your path to relief.

What is IRS form 656?

Use Form 656 when applying for an offer in compromise (OIC), which is an agreement between you and the IRS that settles your tax liabilities for less than the full amount that you owe.

irs form 656

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What percentage of offers in compromise are accepted?

The fact is, though, that most people just dont qualify for an offer in compromise. Only a small percentage of people truly qualify for an offer in compromise in 2023, 40% of offers were accepted. Many more people never even made it to the application stage after running their numbers through the pre-qualifier tool.

What is the downside to offer in compromise for the IRS?

The hidden downsides include required tax compliance, loss of tax refunds, and intense financial scrutiny. As you consider your tax payment options, dont forget to consider the downsides of an offer in compromise. For more guidance regarding your unique tax situation, call Seattle Legal Services at 206-536-3152.

Does the IRS usually accept an Offer in Compromise?

We generally approve an offer in compromise when the amount you offer represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before you submit an offer in compromise.