En esta noticia
The Internal Revenue Service (IRS) offers an alternative for certain taxpayers who cannot afford to pay their full tax debt. Through Form 656, known as an Offer in Compromise, some people can reach an agreement with the agency and settle their debt by paying an amount lower than what was originally owed.
The IRS reviews each case individually and only approves the request when it determines that the taxpayer meets the requirements established by tax law.
What Form 656 is
Form 656 is the application through which a taxpayer proposes to the IRS settle their tax debt for an amount lower than the total owed. In practice, it works like a contract: the person offers to pay part of what is owed and the IRS decides whether to accept or reject that proposal.
For example, someone who owes 20,000 dollars could propose, with the appropriate justification, that 15,000 dollars be enough to cancel the entire obligation. The IRS reviews the offer and makes a decision.
IRS only accepts offers from these debtors
The agency does not accept just any proposal. In general, it approves an Offer in Compromise when the amount offered represents the most it expects to be able to collect within a reasonable period of time. There are three main reasons a taxpayer may qualify:
- Doubt as to collectability: when the person’s income and assets are not enough to cover the full debt.
- Economic hardship: when paying the full debt would cause serious financial harm.
- Doubt as to liability: when the taxpayer questions whether they really owe that tax (in that case, a variation is used, Form 656-L).
The IRS calculates what it calls the “reasonable collection potential” based on the person’s income, expenses, and asset value, and expects the offer to be equal to or greater than that calculation.
How long it takes and what happens in the meantime
The process is not quick. Review of an Offer in Compromise usually takes between 6 and 24 months from the time the IRS receives the complete package. During that period, collection actions are generally suspended.
One important note: the IRS has a legal deadline to respond. If it does not act on the offer within 24 months of receiving it, the offer is considered automatically accepted by law.