IRS Offer In Compromise Forms And Supporting Documentation
An IRS Offer in Compromise (OIC) is a program offered by the Internal Revenue Service (IRS) in the United States, designed to provide taxpayers facing financial hardship with a potential opportunity to settle their tax debt for less than the full amount owed. This program allows eligible taxpayers to negotiate a compromise with the IRS, offering to pay a reduced amount that is more in line with their financial circumstances. The primary objective of the OIC program is to help individuals and businesses who are unable to meet their tax obligations due to financial difficulties, and it provides a structured process for resolving tax debt issues while giving taxpayers a chance for a fresh financial start.
Understanding Tax Settlement: The Offer In Compromise
IRS Form 656
IRS Form 656, also known as 656-B, is a critical document when seeking an Offer in Compromise. It facilitates the formal application process, provides the IRS with the necessary information to assess your eligibility, and outlines the terms of your proposed offer. Accurate and complete information on this form, along with supporting documentation, is essential to increase your chances of a successful OIC application.
IRS Form 656-L
If you’re not sure if you owe all the taxes you’ve been told to pay, you should use IRS Form 656-L. This form is for situations where you genuinely think you don’t have to pay the full amount of taxes. When you apply for an Offer in Compromise like this, you don’t have to include the detailed 433 financial analysis forms. It’s a simpler way to request a tax debt reduction when you believe you don’t owe as much as the IRS says.
IRS Form 433-A (OIC)
IRS Form 433-A is a long eight-page paper called the “Collection Info Sheet” for people who earn wages or work for themselves. It asks for details about your money, things you own, debts, and what you spend. The IRS looks at this info to figure out how much money they think you can pay, which decides how much you should pay in your tax deal. If you’re a regular person with a job or you’re self-employed, like someone who runs their own business, you’ll need to fill out this form.
IRS Form 433-B (OIC)
If your company wants to ask the IRS to lower your tax bill, you have to fill out Form 433-B. This paper is called the Collection Information Sheet for Businesses, and it’s for businesses that are applying for a tax deal. Businesses like corporations, partnerships, and single-member LLCs that act like corporations should use this form. The IRS checks the details on this form to decide how much money your business can afford to pay. If you want to settle both your business and personal taxes, you have to fill out both Form 433-A (for personal taxes) and 433-B (for business taxes).
Other Important Documentation Required for an OIC
Most of the time, when you’re asking the IRS to lower your tax bill through an offer in compromise, you’ll need to back up your request with paperwork. When you complete those forms we talked about earlier, you’re giving the IRS a bunch of info about your money situation, and you should include documents to prove that what you’re saying is true. This way, you can show the IRS that you really can’t afford to pay the whole tax amount.
Here is a list of additional documents that are needed:
- Credit card statements
- Bank statements
- Car loan statements
- Statements from any other personal loans
- Investment statements
- Retirement account statements
- Health care bills
- Child care bills and receipts
- Proof of mortgage payments
- Documentation about housing expenses (leases, rental records, etc)
- Transportation costs
- Proof of other expenses (groceries, utility bills, etc)
- List of your assets and their values
- Appraisals of assets as necessary
- Copies of the required tax returns for the years related to the taxes owed
- Application fee
What If I Don’t Include the Right OIC Forms With my Application?
If you forget to send in the proper OIC forms and supporting documents when you apply, the IRS will send your application back. That means you have to go back to square one. If your OIC application is missing any of the extra papers it needs, the IRS will ask you for them. They usually give you about 14 days to send those documents. If you don’t, your application will also be sent back. So, to make sure the IRS takes a look at your application, it’s super important to get everything right the first time.
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