Definition & Meaning
Form 656, known in its 2015 iteration as the " form," is utilized by taxpayers in the United States to submit an Offer in Compromise (OIC) to the Internal Revenue Service (IRS). An OIC is a proposal to settle one's tax debt for less than the full amount owed, typically used in cases of financial hardship or doubt about the collectibility of the tax debt. The form acts as an agreement between the taxpayer and the IRS, outlining the terms of the settlement. Proper use of the form can relieve taxpayers from overwhelming financial liabilities, allowing them to make manageable payments toward their debt.
How to Use the Form
To effectively use the form, taxpayers need to understand the contexts in which it is applicable. Primarily, the form is used in situations where paying the full tax liability would cause financial hardship or where the taxpayer can prove that the tax debt is unlikely to be collectable. Using the form involves compiling detailed financial documentation to support the OIC request, including income statements, asset declarations, and liabilities. After completing the form, it is submitted alongside a non-refundable application fee and an initial bid for the settlement offer. If the IRS accepts the proposal, the taxpayer must fulfill the terms laid out in the agreement, which might include installment payments or lump-sum settlements.
Steps to Complete the Form
- Gather Financial Information:
- Collect all relevant financial documentation, including proof of income, expenses, assets, and liabilities.
- Review IRS Instructions:
- Carefully examine the step-by-step instructions provided by the IRS to avoid common mistakes.
- Fill Out Personal Information:
- Complete sections relating to personal details such as name, Social Security Number, and address.
- Determine Offer Amount:
- Calculate a reasonable offer amount based on your financial situation and present this in the application.
- Attach Necessary Documentation:
- Include required financial documents and the application fee.
- Submit the Form:
- Send the form and accompanying materials to the appropriate IRS office based on your location.
Completing the form accurately is crucial, as errors or omissions can result in delays or rejections.
Key Elements of the Form
The form consists of several critical components that require careful attention:
- Varying Payment Plans: Taxpayers can choose between lump-sum payments or periodic installments.
- Financial Disclosure: Detailed financial information must be disclosed to verify the taxpayer's inability to pay the full amount.
- Proof of Hardship: Supporting evidence that paying the full tax liability would create undue hardship.
- Legal Agreement: The form serves as a legal bid to settle the debt under specific terms approved by the IRS.
Understanding these elements ensures correct form completion and increases the likelihood of acceptance.
Important Terms Related to the Form
Familiarity with specific terms is essential when navigating the form:
- Offer in Compromise (OIC): A negotiated agreement to settle tax liabilities for less than the due amount.
- Doubt as to Collectibility: The IRS may accept an offer if the taxpayer's financial situation indicates that full debt recovery is unlikely.
- Financial Hardship: A condition where paying the full tax liability would lead to severe financial distress.
Comprehending these terms aids in accurately interpreting the form's requirements.
IRS Guidelines
The IRS sets forth strict guidelines for using Form 656, specifically regarding eligibility and documentation:
- Eligibility Requirements: Not all taxpayers qualify for an OIC. Candidates must demonstrate either doubt as to collectibility or economic hardship.
- Complete Transparency: Taxpayers must fully disclose all financial assets and liabilities.
- Timely Payments: Approved offers require strict adherence to payment schedules to remain valid.
- Processing Time: IRS evaluation periods can vary, typically taking several months. Constant communication with the IRS during this period is essential.
Following these guidelines is vital to achieve a successful submission.
Penalties for Non-Compliance
Failure to comply with the terms outlined in the form can lead to significant repercussions:
- Withdrawal of Offer: Non-compliance with the agreed terms can result in the withdrawal of the accepted offer.
- Restoration of Debt: The full amount of the original tax liability may be reinstated, excluding any payments already made.
- Additional Penalties: Accrual of interest and potential penalties due to non-payment.
These consequences underline the importance of adhering strictly to the agreement terms.
Eligibility Criteria
To qualify for submitting Form 656, certain criteria must be met:
- Valid Tax Filings: Ensure all previous tax filings are current.
- No Bankruptcy Proceedings: A taxpayer cannot be undergoing active bankruptcy processes.
- Proof of Need: Establish with thorough documentation that paying in full would result in financial turmoil or is unfeasible.
- Compliance with Future Tax Obligations: Agree to stay compliant with tax payments and filing for the duration of the offer.
Understanding these criteria is critical for determining eligibility and preparing a successful application.
