A Deep Insight into Form 656
In the realm of tax relief solutions, many alternative routes are available to taxpayers who are struggling with a hefty tax debt that they are unable to pay in full. One of the most primary and effective solutions is an Offer in Compromise. It’s a program initiated by the IRS that allows taxpayers to settle their tax debt for a sum less than the full amount they owe. A pivotal component of an Offer in Compromise is Form 656, also known as the “Offer in Compromise Form.” This is where Brightside Tax Relief steps in to help you uncover every detail you need to understand Form 656.
Understanding What Form 656 Entails
Form 656 is the document utilized by taxpayers and their representatives to provide a detailed offer to the IRS, proposing a particular amount they can pay to settle their tax debt. It is the primary document used to negotiate your Offer in Compromise agreement with the IRS.
Primarily, Form 656 consists of three sections:
1. Section 1: It includes a compilation of your basic personal information, including your name, address, social security number, and other personal details.
2. Section 2: In this section, you’ll have to identify the type of tax and the tax years that you are looking to compromise.
3. Section 3: This is perhaps the most significant section that incorporates the Offer Amount. This comprises a detailed calculation of what you can offer to pay to the IRS.
How to Determine Your Offer Amount
Determining your Offer Amount on Form 656 is perhaps the most crucial aspect of proposing an Offer in Compromise. This amount is typically established based on your reasonable collection potential or RCP. The IRS considers your RCP as the amount that it can anticipate to collect from you over the remaining statutory period for collection.
To calculate your RCP, you must take into account:
– Your monthly disposable income.
– The net realizable value of your assets.
Your RCP should directly correspond to the Offer Amount that you state in Section 3 of Form 656. To be successful with your Offer in Compromise, this figure should be accurate and fair, corresponding to your financial condition.
Form 656-B: A Comprehensive Collection
The IRS also provides Form 656-B, which is a booklet that contains the Form 656 along with other forms such as Form 433-A (OIC) and Form 433-B (OIC). These forms are essentially detailed financial statements that are crucial to be filled out properly. The information from these forms is used to calculate the Offer Amount stated on your Form 656.
Form 656-B is an excellent tool for taxpayers who may not have a tax professional to guide them through the process. The instructions provided in the booklet can help taxpayers understand how to accurately calculate their RCP and determine a realistic Offer Amount. If you plan on completing Form 656 on your own, ensure to go through the booklet to avoid any potential errors.
Professional Assistance for Form 656
Even though it’s feasible to complete IRS Form 656 on your own, it’s a highly detailed process where any slight error could lead to an outright rejection of your Offer in Compromise by the IRS. Therefore, it is recommended to employ the service of a tax professional, such as Brightside Tax Relief who can ensure the process is done correctly and to improve the chances of success.
Understanding Form 656 Guidelines
There are particular guidelines to remember while submitting Form 656 from IRS. A couple of the pointers include:
– Form 656 should not be used to dispute the amount of tax debt stated by the IRS. If you believe the IRS is incorrect in the amount they say you owe, this should be resolved first before submitting an Offer in Compromise.
– While you have an Offer in Compromise under consideration, the IRS will halt all collection activity against you. However, the running of the 10-year statutory period for collection of tax will be extended.
Form 656 is a powerful tool in the hands of the taxpayer as it gives them the ability to propose a reduced settlement amount to pay off their tax debt to the IRS. To have a successful Offer in Compromise, it is crucial to understand every detail about Form 656. At Brightside Tax Relief, we are committed to helping taxpayers understand and properly navigate Form 656, ultimately working to reduce their tax burden and achieve financial freedom. As a nationwide tax relief company, we bring a wide range of experience and expertise to the table, making tax relief a simpler, more accessible process for everyone.