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-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, enter "N/A." 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, listed quarterly.

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 "Exceptional Circumstances." 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 without consideration.

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 without consideration.

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 with employees, 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, 433-A (OIC), 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 and verification, 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.