IRS Form 656, also known as the Offer in Compromise, is used by taxpayers to request that the Internal Revenue Service (IRS) settle their tax debt for less than the total amount owed. This form is often used by taxpayers who cannot pay their entire tax liability and seek a way to reduce or eliminate their debt.

To qualify for an Offer in Compromise, the taxpayer must meet certain criteria set by the IRS. These criteria include:

• The taxpayer cannot pay the full amount of their tax liability in a reasonable amount of time
• The taxpayer’s assets and income are not sufficient to pay the full amount of their tax liability
• The taxpayer has a genuine doubt as to the amount of the liability or the ability to pay

To submit an Offer in Compromise, the taxpayer must complete Form 656 and provide detailed information about their financial situation, including their income, expenses, assets, and liabilities. The form also requires the taxpayer to submit a non-refundable application fee and an initial payment, known as a “reasonable collection potential” (RCP). The RCP is based on the taxpayer’s ability to pay and is used to cover the costs of processing the offer. Once Form 656 is submitted, the IRS will review the information provided and determine if the offer is reasonable based on the taxpayer’s ability to pay. The IRS will also consider the facts and circumstances of the case and the taxpayer’s compliance history.

Under the Internal Revenue Code section 7122, the IRS can compromise any civil or criminal case arising under the Internal Revenue laws. This means that the IRS has the discretion to accept or reject an Offer in Compromise based on the circumstances of the case and the taxpayer’s ability to pay.

Additionally, under the Internal Revenue Code section 6330, the taxpayer has the right to a hearing before the IRS can levy their wages, salary, other income, bank account, and other assets. The hearing allows the taxpayer to contest the proposed levy and provide additional information about their financial situation to the IRS.

Furthermore, under the Internal Revenue Code section 6103, the taxpayer has the right to request and receive an explanation of any information provided to the IRS. This means that taxpayers have the right to understand how the IRS determined the taxpayer’s ability to pay and how it was used to establish a payment plan or collection actions.

It is important to note that submitting an Offer in Compromise does not guarantee that the IRS will accept the offer. The IRS will only approve an Offer in Compromise if it is in the government’s best interest. Taxpayers must also remain current on their tax filings and payments while the IRS considers the offer.

In summary, IRS Form 656 is a form used by taxpayers to request that the IRS settle their tax debt for less than the full amount owed. To qualify for an Offer in Compromise, the taxpayer must meet certain criteria set by the IRS, including the inability to pay the total amount of their tax liability in a reasonable amount of time and lack of assets and income to pay the total amount of the liability. Taxpayers have the right to request an explanation of any information provided to the IRS, contest proposed levies, and request a hearing before the IRS can proceed with a levy on their wages, salary, other income, bank account, and other assets. Submitting an Offer in Compromise does not guarantee that the IRS will accept the offer, and taxpayers must remain current on their tax filings and payments while the offer is being considered.

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