Form 656, a rewritten application for an offer-in-compromise (OIC) is now available for taxpayers. The form package is designed not only as an OIC application but also as guide to be used by taxpayers to determine if they may be eligible for an offer in compromise. While the IRS is encouraging offers, it is also warning taxpayers not to abuse them.

Key changes

The changes to the Form 656 package include new payment terms and offer submission rules: a processibility checklist; a new matrix to assist taxpayers in determining the number of Forms 656, application fee(s) and partial payments required; a checklist of items and documents that must be completed before submitting an OIC; a revised Section V (which defines the terms of the offer); and a new payment voucher.

Doubt as to liability

Revised Form 656 no longer contains a category for offers based on doubt as to liability. Instead, taxpayers must use Form 656-L. On this form, the taxpayer must indicate the amount that the taxpayer believes is the correct amount of the tax liability after credits and payments. The taxpayer also must attach a detailed statement and supporting documents explaining the reason(s) why the assessed tax is incorrect.

Lump sum offers

Lump sum cash offers are offers in which the offer amount is paid in five or fewer installments upon acceptance. Taxpayers must include 20 percent of the amount of the lump sum offered.
Failure to make regular payments while the offer is being considered will cause the offer to be treated as a withdrawal. The payments are treated as payments of tax and are not refundable.

Periodic payment offers

In addition to a lump sum cash offer, taxpayers may make a short term periodic payment offer or a deferred periodic payment offer. With either type of periodic payment offer, the first installment payment must accompany the application form.
Taxpayers may designate how the IRS should apply the payments. The new payment voucher includes a section in which taxpayers can make this designation.

Application fee

Applications must be accompanied by a $150 fee as well as the required initial payment. If the taxpayer fails to make the required payment with the application fee, the IRS may return the offer as ”not processable”. The application fee is not required for offers based solely upon doubt as to liability.

If you have any questions about the OIC application package or whether an offer in compromise is a payment option that you or your business should consider, don’t hesitate to give our office a call.

(IR-2007-50)