Form 656-B - Offer In Compromise Booklet Page 3
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32WHAT YOU NEED TO KNOW
What is an Offer?
An Offer in Compromise (offer) is an agreement between you (the taxpayer) and
the IRS that settles a tax debt for less than the full amount owed. The offer
program provides eligible taxpayers with a path toward paying off their tax debt
and getting a fresh start. The ultimate goal is a compromise that suits the best
interest of both the taxpayer and the IRS. To be considered, generally you must
make an appropriate offer based on what the IRS considers your true ability to
pay.
Submitting an application does not ensure that the IRS will accept your offer. It
begins a process of evaluation and verification by the IRS, taking into
consideration any special circumstances that might affect your ability to pay.
This booklet will lead you through a series of steps to help you calculate an
appropriate offer based on your assets, income, expenses, and future earning
potential. The application requires you to describe your financial situation in detail,
so before you begin, make sure you have the necessary information and
documentation.
Are You Eligible?
Before your offer can be considered, you must (1) file all tax returns you are legally
required to file, (2) have received a bill for at least one tax debt included on your
offer, (3) make all required estimated tax payments for the current year, and (4)
make all required federal tax deposits for the current quarter if you are a business
owner with employees. Your offer will be immediately returned without
consideration if you have not filed all tax returns you are legally required to file.
Note: If it is determined you have not filed all tax returns any initial payment
sent with your offer will be applied to your tax debt and your offer will be
returned along with your application fee.
Bankruptcy
If you or your business is currently in an open bankruptcy proceeding, you are not
eligible to apply for an offer. Any resolution of your outstanding tax debts generally
must take place within the context of your bankruptcy proceeding.
If you are not sure of your bankruptcy status, contact the Centralized Insolvency
Operation at 1-800-973-0424. Be prepared to provide your bankruptcy case
number and/or Taxpayer Identification Number.
Can You Pay in Full?
Generally, the IRS will not accept an offer if you can pay your tax debt in full or
through an installment agreement and/or equity in assets.
Note: Adjustments or exclusions, such as allowance of $1,000 to a bank
balance or $3,450 against the value of a car, are only applied after it is
determined that you cannot pay your tax debt in full.
Your Future Tax Refunds
The IRS will keep any refund, including interest, for tax periods extending through
the calendar year that the IRS accepts the offer. For example, if your offer is
accepted in 2016 and you file your 2016 Form 1040 on April 15, 2017 showing a
refund, IRS will apply your refund to your tax debt. The refund is not considered
as a payment toward your offer.
Doubt as to Liability
If you have a legitimate doubt that you owe part or all of the tax debt, complete and
submit a Form 656-L, Offer in Compromise (Doubt as to Liability). The Form
656-L is not included as part of this package. To request a Form 656-L, visit www.
irs.gov or a local IRS office or call toll-free 1-800-TAX-FORM (1-800-829-3676).
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