-Do you owe money to the IRS
are are unable to pay the full amount?
If so, you may be eligible to enter an agreement
to settle your tax debt.
It´s called an offer in compromise.
Hi. I´m Key from the IRS.
You don´t need to pay someone to submit an offer for you.
I´ll explain how to complete
an offer in compromise application right now.
But, first, it´s important to note
that not everyone qualifies for an offer.
Your first step should be to check out
our offer in compromise pre-qualifier tool,
available at IRS.gov.
Use the search term "Offer,"
or "offer in compromise" to access the tool.
Use the pre-qualifier tool first
to see if you are a possible offer candidate
and, importantly, get an idea
of what an acceptable offer amount may be.
If you feel you qualify,
the next step is to download
the most current Form 656-B Offer in Compromise booklet,
which can be found also online at IRS.gov.
The booklet contains the Form 656,
the Offer in Compromise application,
and two other important forms --
Forms 433-A (OIC) --
Collection Information Statement for Wage Earners
and Self-Employed Individuals.
And Form 433-B (OIC) --
Collection Information Statement for Businesses.
By completing these financial information statements first,
you´ll determine an acceptable offer amount
based on your assets, income, expenses,
and future earning potential.
Now you´ll be ready to complete
the Offer in Compromise application, Form 656.
A separate application is necessary
for each tax entity,
such as individual or corporate tax liabilities.
Before we go over how to complete Form 656,
one important note --
If you or your business
is currently in a bankruptcy proceeding,
you are not eligible to apply for an offer.
You will notice the first checked box
asks you whether you used the pre-qualifier tool.
Using the tool is recommended but not mandatory.
Section 1 on Form 656 asks for your individual information.
This section is only for those
who owe income tax for their jointly filed
or separate 1040 liabilities,
or as an individual held personally liable
for excise tax or trust fund recovery penalty.
It is also for businesses operating as a sole proprietor
and disregarded LLCs taxed as sole proprietors.
Do not complete this section for corporate,
partnership, LLP, or LLC liabilities.
Section 2 is specifically for that purpose.
Enter your first name, middle initial,
and last name.
Enter your Social Security number in the box on the right.
Do the same for your spouse.
If you do not owe taxes jointly with your spouse,
do not have a spouse,
or you´re spouse is not included in this compromise,
Always include your complete physical address.
And, in addition,
your mailing address, if different.
If you are self-employed
and have an employer identification number,
enter that as well.
Section 1 also calls for you to identify
the types of tax and periods you owe.
Form 1040 tax year.
This line is for individual
or personal income tax liabilities.
List each tax year owed.
The Trust Fund Recovery Penalty,
TFRP, tax is for those
who are individually liable
for withheld employment taxes.
If you have been assessed the penalty,
enter the periods on the next line,
I mentioned sole proprietor businesses, owners,
and disregarded LLCs earlier.
You´ll enter the types of taxes owed
by those kinds of businesses
on the next few lines.
Form 941, Employee Withholding Taxes,
are filed quarterly.
List each quarterly period owed.
Form 940, Unemployment Taxes, are filed annually.
List the tax years owed here.
Other federal tax or taxes identify any taxes
and periods not listed above.
Examples include Form 2290,
Highway Use Tax;
Form 706, Estate Tax;
or civil penalties.
The last part of Section 1 is the low-income certification,
which is for individuals and sole proprietors only.
Review the chart and determine
if you qualify for low-income certification
based on your family unit size
and total monthly household income.
If you meet this requirement, check the box.
You will not have to submit the application fee
or any payments while we consider your offer.
Let´s move on to Section 2, Business Information.
Complete this section if your offer is
for business tax debt only
and the business is a corporation,
partnership, LLC, or LLP.
Under the business name and address,
check off the following as applicable.
Form 1120, Income Tax Year.
List any corporate income tax years owed.
Form 941, Employers Quarterly Federal Tax Return.
Identify which quarterly periods this covers.
Form 940, Unemployment, or FUTA, taxes are file annually.
List the tax years owed.
Other federal tax or taxes include
any partnership or additional
corporate tax liability not listed above.
Section 3 covers the reason for your offer.
Check the box "Doubt as to Collectibility"
if you do not have enough money
to fully pay the amount you owe.
If you have the ability to fully satisfy your liability,
but because of exceptional circumstances,
full payment would either cause an economic hardship
or be unfair and inequitable,
you should check the box marked
You will need to describe your situation in Section 3
and attach appropriate documents to the offer
to substantiate your circumstances.
Next is Section 4, Payment Terms.
There are two payment options.
Select the one that´s best for you.
First is Lump Sum Cash.
Check this box if you will pay your offer in five
or fewer payments within five
or fewer months of acceptance.
This option requires 20% of the total offer amount
to be paid with the offer application.
Enter the total offer amount.
Next, enter 20% of the offer amount
and the remaining balance.
Enter amounts and the dates after acceptance
when the offer will be paid.
For example, if you are offering $5,000 to be paid
within 30 days of acceptance,
enter $1,000 as the 20% amount
and $4,000 as the balance.
On the amount of the payment,
enter $4,000 on the line
"Payable Within One Month After Acceptance."
If you qualify for low-income certification,
enter zero on the 20% line
and enter the full amount
of your offer on the Balance Due line.
Then enter amount of your payment or payments
and in which months the remaining payments
will be made after acceptance of the offer.
The other payment term option is the periodic payment.
Check this option if you will pay your offer
in monthly installments from 6 to 24 months.
You are required to make
the first payment with your application
unless you meet the requirements for low-income certification.
Enter the total amount of your offer.
Fill in the payment term information,
note that your total offer amount
must equal the total of all monthly payments,
including the first and the last payments.
The total number of months,
including the first payment, may not exceed 24.
Your first payment is considered month one.
Your final payment must be
within 24 months of acceptance.
It´s important to note that if you select this option,
you must continue to make these payments
while the offer is under consideration
unless you meet the requirements for low-income certification.
Failure to do so will cause your offer to be returned
without further consideration,
so avoid this common error.
Now, let´s move on to Section 5,
designation of down payment and deposit.
Here you have an option
to designate your initial payment
to a particular tax period.
If designated, any payment above the required initial amount
may be treated as a deposit.
If you are making an additional payment,
indicate this by checking the box
and filling in the deposit amount.
Note, do not designate the application fee
or initial payment as a deposit.
Doing so will result in the return of your offer
Section 6 is the source of funds.
Here you will tell us how you will pay the amount offered.
The offer payment and offer application
fees should be two separate checks
both made payable to United States Treasury.
Avoid this common error -- Do not send cash.
And do not include the two checks
with any other tax payments
as this may delay processing of your application.
There are two more areas in this section to check off.
The first is Filing Requirements.
Please, before you submit an offer,
be sure that you have filed all required tax returns.
If you have, check the top box.
If you were not required to file for any tax years,
also check the second box and list the years
you were not required to file.
This section is important
because if you haven´t filed all required returns,
we will return your offer application
Now, let´s look at the Tax Payment Requirements section.
Check all the boxes that apply to your situation.
First, check the box indicating that you´ve made
all your estimated tax payments
for the current year
or the box indicating that you´re not required
to make estimated tax payments this year.
Finally, and this applies mostly to businesses
check the box indicating
that you´ve made all required tax deposits
for the current quarter,
or that you are not required
to make tax deposits this quarter.
Section 7 is the offer terms.
It´s vital that you be sure to review
the terms and conditions
to which you are agreeing before you sign Form 656.
An offer in compromise is an agreement
between you and the government to settle a tax debt
for less than the amount you are legally obligated to pay.
If you do not comply with all of the terms of the agreement,
the offer could be returned and the IRS
will attempt to collect the taxes you owe.
Section 8 is the signatures block.
Each person submitting the offer must sign the application
and enter the date they signed it.
For a joint offer,
both parties must sign
and enter the date they sign in this section.
For an offer from a corporation,
place the name of the corporation
on the first signature line
and then the name, title,
and signature of the authorized officer
on the second signature line.
Section 9 is for paid preparer use only.
Some people use a tax professional
to prepare and submit their offer in compromise.
If you use a tax professional for your offer,
be sure Section 9 of your application is completed.
And if you would like them to represent you
during the offer investigation,
be sure your application
includes a valid signed Form 2848, Power of Attorney
and Declaration of Representative,
or Form 8821,
Tax Information Authorization,
if one is not already on file.
After you´ve completed the application form,
take a look at our helpful checklist
on the next page of the Form 656-B package.
This will ensure you´re including
all of the necessary information
with your application.
Information you send supporting financial statements
should be copies, not originals.
So don´t make the error of sending
your original supporting documents.
They will not be returned.
Mail the signed original Forms 656,
and/or 433-B (OIC),
and other related financial documents
to the appropriate IRS
processing office for your state.
As mailing addresses are subject
to change over time,
we suggest you check
the current Form 656-B on IRS.gov
or call 1-800-829-1040
to get the most current mailing addresses.
Finally, submitting your Offer in Compromise application
begins a process of IRS evaluation
taking into consideration any special circumstances
that might affect your ability to pay.
It does not ensure that the IRS
will accept your offer.
For more information on the process
and application procedures,
please go to IRS.gov and type in
"How to file an offer in compromise"
in the search field.
Thank you for watching.