Settle Your Tax Debt with IRS Form 656
IRS Form 656, the Offer in Compromise (OIC) application, is your formal request to settle your federal tax debt for less than the full amount owed. If paying your taxes in full would cause severe financial hardship, this form is your pathway to a clean slate.
Fill Out Form 656 OnlineWhat Exactly is Form 656?
At its core, Form 656 is a negotiation document. When you submit this form, you are proposing a specific dollar amount you can afford to pay the IRS to wipe out your entire tax liability. The IRS evaluates your offer based on your ability to pay, income, expenses, and asset equity.
For example, if you owe $50,000 in back taxes but your financial breakdown shows you can only reasonably pay $12,000 over the next two years without facing destitution, you would use Form 656 to officially offer that $12,000 as a settlement.
Who Can File?
- Individuals or businesses unable to pay their tax debt in full.
- Taxpayers who would face severe economic hardship if forced to pay.
- Anyone who has filed all required tax returns for past years.
- Taxpayers who have made all required estimated tax payments for the current year.
Who Cannot File?
- Anyone currently in an open bankruptcy proceeding.
- Taxpayers who have not filed all past-due tax returns.
- Businesses that have not submitted required federal tax deposits.
- Individuals who can actually afford to pay their debt through an installment agreement.
Detailed Form Walkthrough
Section 1: Personal & Business Information
You will provide your full name, address, SSN or EIN. If you are filing jointly with a spouse, their information goes here too. You must specify whether this offer applies to individual tax debt, business debt, or both.
Section 2: Reason for Offer
You must check a box explaining why the IRS should accept your settlement. The most common is Doubt as to Collectibility (you simply don't have the assets/income to pay). Another is Effective Tax Administration (you have the money, but paying would cause exceptional economic hardship).
Section 3: Payment Terms
This is the critical negotiation phase. You must choose between a Lump Sum Cash Offer (payable in 5 or fewer installments within 5 months) or a Periodic Payment Offer (payable in 6 to 24 monthly installments). You will detail exactly how much you are offering and where the funds will come from.
Section 4: Signatures
By signing, you agree to comply with all tax laws for the next five years. Failing to file or pay taxes during this probationary period can revoke your accepted offer, reinstating your original debt.
Deadlines and Filing Rules
There is no specific annual deadline for Form 656; you file it when you are ready to negotiate your debt. However, you must be completely current on all tax filings before submitting. The IRS will return your application if you have missing returns. Always check with the Internal Revenue Service (IRS) for the current year's application fee amounts, as they are subject to change.
What to Have Ready Before Starting
- Exact tax years and forms you owe on
- Completed Form 433-A (OIC) or 433-B (OIC)
- Application fee payment method
- Initial offer payment amount
How to Fill Out Form 656 on AmendSign
Enter Info
Follow our guided prompts to input your personal details and offer amount safely.
Review
Double-check your payment terms and ensure your reasons for the offer are clear.
Sign
Apply your legally binding e-signature instantly from any device.
Download
Download your completed PDF to mail to the IRS alongside your Form 433.
Frequently Asked Questions
Yes, in most cases. You must include a non-refundable application fee (typically $205) and your initial offer payment. The initial payment amount depends on whether you chose a lump sum or periodic payment plan. If you meet Low-Income Certification guidelines, these fees may be waived.
Can I file Form 656 without Form 433-A or 433-B?▼No. Form 656 must be accompanied by Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms provide the detailed financial breakdown the IRS needs to prove you cannot afford to pay your full tax debt.
What happens while the IRS is reviewing my Form 656?▼While your Offer in Compromise is pending, the IRS suspends collection activities. This means they will generally not levy your bank accounts or garnish your wages. However, interest and penalties will continue to accrue on your tax debt during the review period.
What if my Offer in Compromise is rejected?▼If your offer is rejected, the IRS will explain why by mail. You have 30 days to appeal the decision using Form 13711. Any initial payments you made with the application will be applied to your tax debt; they are not refunded.
How long does it take for the IRS to process Form 656?▼The review process is thorough and can take anywhere from 6 to 12 months, or sometimes longer. If the IRS does not make a decision within exactly two years of the date they received your complete application, your offer is automatically accepted.