Form 656 Booklet - Offer In Compromise Page 3
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28WHAT 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
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, gener-
ally you must make an appropriate offer based on what the IRS considers
your true ability to pay.
Submitting an offer 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. Generally, the IRS will not accept an offer if you can pay your tax debt
in full via an installment agreement or a lump sum.
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 you submit your offer, you must (1) file all tax returns you are legally
required to file, (2) make all estimated tax payments for the current year,
and (3) make all required federal tax deposits for the current quarter if you
are a business owner with employees.
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 1-800-913-9358. Be prepared to provide your
bankruptcy case number and/or Taxpayer Identification Number.
Doubt as to Liability
If you have a legitimate doubt that you owe part or all of the tax debt, you
will need to complete a Form 656-L Offer in Compromise (Doubt as to
Liability). The Form 656-L is not included as part of this package. To submit
a Doubt as to Liability offer, you may request a form by calling the toll free
number 1-800-829-1040, by visiting a local IRS office, or at
Other important facts
Penalties and interest will continue to accrue during the offer evaluation
process.
You cannot submit an offer that is only for a tax year or tax period that has
not been assessed.
The law requires the IRS to make certain information from accepted offers
available for public inspection and review. These public inspection files are
located in designated IRS Area Offices.
A Notice of Federal Tax Lien (lien) gives the IRS a legal claim to your
property as security for payment of your tax debt. Generally, if a lien is not
already filed, a lien will not be filed during the offer evaluation process. If a
lien was filed, it will normally not be released until the payment terms of the
accepted offer are satisfied, or the tax debt is paid in full, whichever comes
first.
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