Form 656 (OIC): Offer in Compromise

Form 656 (OIC) is generally used to make an offer to settle certain federal tax debts for less than the full amount owed when applicable requirements are met.

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Introduction

Form 656 (OIC), Offer in Compromise, is a federal tax form generally used by taxpayers who want to propose an offer to resolve certain federal tax liabilities for less than the full amount owed. The offer process generally involves providing information about the taxpayer’s financial situation and the proposed payment amount.

This guide provides general information about Form 656 (OIC), including who may use the form, the information commonly needed, and the basic process for completing it. The information is intended to provide a simple overview of Form 656 (OIC) and its general purpose.

What Is Form 656 (OIC)?

Form 656 (OIC) is generally used to make an offer to settle certain federal tax liabilities. An offer generally proposes that the taxpayer pay an amount that may be less than the total tax debt, subject to applicable requirements and review.

Form 656 (OIC) generally includes information about the taxpayer, the tax liabilities covered by the offer, the proposed payment amount, and the applicable payment terms. The specific requirements can depend on the taxpayer’s circumstances, financial information, tax liabilities, and type of offer.

Who Uses Form 656 (OIC)?

Form 656 (OIC) is generally used by taxpayers who have certain federal tax liabilities and want to propose an offer to resolve those liabilities. Individuals, businesses, and other taxpayers may use an offer in compromise when applicable.

Eligibility and acceptance can depend on factors such as the taxpayer’s financial circumstances, ability to pay, income, expenses, assets, liabilities, and compliance with applicable tax requirements. Not every taxpayer or tax liability will qualify for an offer in compromise.

What Information Is Needed?

The information needed to complete Form 656 (OIC) generally comes from the taxpayer’s tax records, financial records, income records, bank records, asset information, liability records, and other supporting documentation. Accurate financial information can help support the offer.

Common information includes:

Taxpayer name
Address
Social Security number or employer identification number
Tax periods involved
Type of tax liability
Total tax debt
Proposed offer amount
Payment terms
Income information
Employment or business information
Asset information
Bank and financial account information
Monthly living expenses
Other liabilities
Supporting financial and tax records

The specific information required may depend on the taxpayer, type of tax liability, financial circumstances, offer type, payment arrangement, and other applicable circumstances.

How to Fill Out/Complete Form 656 (OIC)

Form 656 (OIC) is generally completed by identifying the taxpayer, identifying the tax liabilities covered by the offer, providing the proposed offer amount and payment terms, completing applicable taxpayer information, and reviewing the offer before submission.

The basic process is to gather tax and financial records, identify the applicable tax liabilities, determine the proposed offer amount and payment terms, complete Form 656 (OIC), provide required supporting information, review the offer, and submit it according to the applicable requirements. Taxpayers should retain a copy of the completed offer and supporting records.

Section 1

Enter the taxpayer’s identifying information. This generally includes the taxpayer’s name, address, taxpayer identification number, and other applicable identifying information.

The information should generally agree with the taxpayer’s tax and financial records. Taxpayers should review the identifying information carefully before submitting the offer.

Section 2

Identify the tax liabilities included in the offer. This generally involves identifying the applicable tax type, tax periods, and other information associated with the federal tax debt.

The taxpayer should generally review tax account records and other applicable documentation to identify the liabilities being included. Only applicable tax liabilities should generally be included in the offer.

Section 3

Enter the proposed offer amount. This is the amount the taxpayer is proposing to pay to resolve the applicable tax liabilities under the offer.

The proposed amount should generally be based on the taxpayer’s applicable financial circumstances and the requirements associated with the offer. Taxpayers should maintain records supporting the financial information used to determine the proposed amount.

Section 4

Select or provide the applicable payment terms. This generally identifies how the taxpayer proposes to pay the accepted offer amount.

The taxpayer should review the applicable payment arrangement and make sure the proposed payment terms are consistent with the taxpayer’s financial circumstances. Applicable payment requirements should be considered before submitting the offer.

Section 5

Complete applicable business or individual taxpayer information. The information required may depend on whether the offer involves an individual taxpayer, business taxpayer, or other applicable taxpayer.

The taxpayer should provide accurate information about the applicable taxpayer and the tax liabilities included in the offer. Supporting tax and financial records should generally be retained.

Section 6

Provide applicable financial information supporting the offer. This may include information about income, expenses, assets, liabilities, bank accounts, investments, and other financial matters.

The financial information should generally be complete and accurate. Taxpayers should use current financial records and maintain documentation supporting the amounts reported.

Section 7

Review the applicable offer terms and taxpayer requirements. An offer in compromise may involve specific conditions that apply before, during, or after the offer is submitted or accepted.

The taxpayer should review the applicable terms carefully and understand the responsibilities associated with submitting an offer. Information provided with the offer should generally be consistent with the taxpayer’s tax and financial records.

Section 8

Complete the applicable signature and authorization information. The taxpayer or an authorized person generally signs the offer when required.

The person signing the form should generally have the appropriate authority to submit the offer. The signature and date should be reviewed before the offer is submitted.

Final Review

Review Form 656 (OIC) after completing all applicable sections. Check the taxpayer information, tax liabilities, tax periods, proposed offer amount, payment terms, financial information, supporting records, taxpayer requirements, signature, and other applicable information.

A final review can help identify incorrect or incomplete information before the offer is submitted. Taxpayers should retain Form 656 (OIC), supporting financial records, tax records, payment records, and other documentation associated with the offer.

Common Mistakes

Common Form 656 (OIC) mistakes may include entering incorrect taxpayer information, identifying incorrect tax liabilities, or providing incomplete tax period information. Errors involving income, expenses, assets, liabilities, or other financial information can also affect the offer.

Other mistakes may include proposing an amount without adequate supporting financial information, providing incomplete payment information, failing to include applicable documentation, overlooking applicable requirements, providing inconsistent information, or submitting the offer without reviewing it. Comparing Form 656 (OIC) with the taxpayer’s tax, financial, and accounting records before submission can help identify potential errors.

Related IRS Forms

Taxpayers may encounter other federal tax forms when addressing tax liabilities, payment arrangements, financial information, and tax debt resolution. Different forms are generally used for different tax reporting and collection matters.

Common related forms include:

Form 433-A (OIC) for certain individual financial information associated with an offer in compromise
Form 433-B (OIC) for certain business financial information associated with an offer in compromise
Form 433-F for certain collection financial information
Form 9465 for requesting an installment payment arrangement
Form 1040 for individual federal income tax reporting
Form 1120 for certain corporate federal income tax reporting
Form 1065 for partnership federal income tax reporting
Form 8821 for authorizing the release of tax information to a designated person

The appropriate form depends on the taxpayer’s circumstances, type of tax liability, financial situation, and applicable tax debt resolution process.

Where to File or Submit

Form 656 (OIC) is generally submitted according to the applicable offer in compromise requirements. The appropriate submission process can depend on the taxpayer, type of tax liability, offer, payment terms, and other applicable circumstances.

Taxpayers should review the applicable submission requirements before submitting Form 656 (OIC). A copy of the completed offer, financial information, payment records, tax records, and supporting documentation should generally be retained for the taxpayer’s files.

Current IRS Form & Instructions

Taxpayers should use the applicable version of Form 656 (OIC) and its instructions when preparing an offer in compromise. Federal forms, requirements, and procedures can change, so the version used should correspond with the applicable request and circumstances.

Before submitting Form 656 (OIC), review the form and applicable instructions and confirm that the taxpayer information, tax liabilities, tax periods, proposed offer amount, payment terms, financial information, supporting records, and signatures are accurate. This can help reduce errors in the offer.

Important Information / Disclaimer

This Form 656 (OIC) guide is provided for general informational purposes only and is intended to provide a basic overview of Form 656 (OIC) and common information associated with an offer in compromise. This information is not tax, legal, accounting, or financial advice, and offer in compromise requirements can vary depending on the taxpayer, tax liabilities, financial circumstances, payment terms, and other applicable circumstances.

Taxpayers are responsible for determining their applicable filing, payment, financial disclosure, recordkeeping, and tax debt resolution requirements. The information on this page may not cover every situation, exception, or special rule that may apply. When appropriate, taxpayers should consider seeking assistance from a qualified tax professional, attorney, enrolled agent, certified public accountant, or other qualified advisor regarding their specific tax situation or Form 656 (OIC) requirements.