Offers in Compromise

According to IR-2007-50, the IRS has issued a revised application for an offer in compromise (OIC) (Form 656). An OIC is an agreement between a taxpayer and the Service that resolves a tax liability. Under certain circumstances, the IRS has the authority to settle Federal tax liabilities by accepting less than full payment.

The Form 656 package was last revised in 2004 to help taxpayers correctly and completely prepare an OIC and reduce its chances of being returned for omissions. The new form retains the taxpayer burden-reduction features, while adding significant changes as a result of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). These changes include:

• New payment terms and submission rules;
• A new matrix to assist in determining the number of Forms 656, $150 application fee(s) and TIPRA payments to submit to the Service, depending on the number of individuals submitting the offer and the types of liabilities being compromised;
• A checklist, redesigned as a result of the TIPRA, to help taxpayers determine if they are eligible to file an OIC before they invest time in form preparation;
• Revised Section V, defining the contractual terms of the offer;
• OIC Application Fee and Payment Worksheet, to determine eligibility for claiming exception to payment of the $150 application fee and the mandatory offer payments imposed by the TIPRA;
• Form 656-PPV, Periodic Payment Voucher, a removable form designed to be used to remit the required TIPRA payments to the IRS while the offer is under investigation; and
• Form 656-A, renamed Income Certification for Offer in Compromise Application Fee and Payment.