IRS Form 656-B: how to settle your IRS tax debt for less without harming your credit
Sometimes, for a variety of reasons, taxpayers find themselves in a situation in which they are unable to fully pay all of their required taxes.
This results in back taxes, which must be taken care of as soon as possible in order to avoid having to pay any penalties. Fortunately, the tax code provides an option called an Offer in Compromise. This means both individuals and businesses can enter into an agreement with the IRS to pay less than their original tax debt.
Upon approval, the applicants will be required to make a lump sum payment or they may be assigned a short term payment plan in order to settle their outstanding balance with the IRS.
If completed properly, an Offer in Compromise will not be reflected on your credit report. Since the tax debt is considered to be settled in full, the IRS will withdraw any liens once you’ve fulfilled the conditions of the offer.
If you qualify for the Offer in Compromise program, you may be able to save thousands of dollars in taxes, penalties and interest.
What is IRS Form 656-B?
In order to request an Offer in Compromise from the IRS, you must fill out and submit IRS Form 656-B. This is a booklet that includes Form 656, Form 433-A (OIC) for individuals, and Form 433-B (OIC) for businesses.
The taxpayer should include the following information: personal and business information, information about tax periods, reasons for the offer, low-income certification, payment terms, designation of down payment and deposit, source of funds and offer terms.
In order to complete your application, you must pay a $186 non-refundable application fee as well as an initial payment toward your tax debt. The amount of your payment may vary. You have the option of paying either:
- 20% of the initial offer amount with your application, with the offer amount to be paid in full once the IRS accepts your offer.
- an initial monthly payment, which you continue to pay each month while the IRS considers your application – as well as after the IRS accepts your offer. Generally, the payment period is from 6 to 24 months or when the CSEDs expire – whichever comes first.
What documents do I need to include with IRS Form 656-B?
The forms 433-A and B, as part of the Offer in Compromise, are included in the IRS Form 656-B booklet and should also be completed by the taxpayer. These forms will ask you for the following information: personal and business information, employment information for wage earners or businesses, information about personal and business assets, information about business assets and expenses, information about monthly household (business) income and expenses and minimum offer amounts.
If you meet the Low Income Certification guidelines of the IRS, you will not need to pay the $186 application fee or make an initial monthly payment until the IRS accepts your offer.
After the IRS accepts your offer, you must begin making payments toward your adjusted tax debt balance.