Read time: 3 to 5 mins.
Offers-in-Compromise (Form 656)
Infomercial: “We’ll make your IRS problems disappear for pennies on the dollar! Call today to find your local douchebag!”
My reaction at 2:47AM Friday, April 30, 2010: What the hell?
This is your textbook fish-and-bait car salesman commercial that gets you in the door, so that they can con you out of your hard earned money. They overpromise and under-deliver.
A taxpayer that has been assessed a tax liability is not a bargaining position to demand tax abatement for “pennies on the dollar.” (Abatement: The IRS forgives a portion of your tax liability, interest or penalties) Would your credit card company offer you a 99% discount on your balance? The IRS is a business like any other credit card company. They are in the business of collecting debt and they’re awesome at their job.
An offer-in-compromise (“the program”) is initiated by filing tax form 656. Generally, you qualify for this program if the IRS (1) made a mistake in their audit process, (2) they took too long to assess your tax liability after your audit, or (3) you under financial hardship. The program is not meant to help people who decided to stiff Uncle Sam for a few tax years.
You must illustrate to the IRS that you have a financial hardship that precludes you from paying the assessed tax liability with interest and penalties in full. Tax form 656 is a detailed form that requires the delinquent taxpayer to disclose a variety of details about their financial and personal life.
The IRS applies a formula that determines your ability to pay the tax liability. According to the formula, the IRS will determine if any part of the tax liability qualifies for abatement.
The Lesson of the Day?
Please don’t believe the infomercials.
Conclusion:
You’re not getting off easy from the IRS.