Dealing with tax debt can feel like an uphill battle, especially when your financial situation makes it impossible to pay off the full amount. The IRS understands this and provides a potential lifeline in the form of an Offer in Compromise (OIC). Specifically, the IRS Form 656-L is the document you’ll need to use if you’re seeking to compromise a tax liability stemming from a levy. This means the IRS has already taken action to seize your assets or garnish your wages. Understanding this form, its purpose, and how to complete it accurately is crucial for anyone hoping to navigate this process successfully. This comprehensive guide aims to provide you with a clear, relaxed explanation of the IRS Form 656-L printable, its eligibility requirements, and step-by-step instructions to help you craft a compelling offer to the IRS. Remember, seeking professional tax advice is always recommended, as each situation is unique and has its own set of circumstances.
Understanding IRS Form 656-L and When to Use It
Before diving into the specifics of the form, it’s important to understand what an Offer in Compromise is and when Form 656-L becomes relevant. An OIC is an agreement between you (the taxpayer) and the IRS that allows you to resolve your tax liability for a lower amount than what you originally owe. The IRS will generally accept an OIC when it doubts that you can pay your full tax liability or when there is doubt as to the validity of the assessment. Form 656-L comes into play specifically when the IRS has already initiated a levy against your wages, bank accounts, or other assets. This indicates a more serious stage in the collection process, highlighting the urgency of addressing your tax debt. Unlike the standard Form 656, which can be used to offer a compromise on any type of tax debt, Form 656-L is tailored for situations where a levy is already in place. Therefore, carefully assess your situation to determine which form is appropriate for your specific needs. Understanding this distinction is the first step towards potentially resolving your tax debt through an Offer in Compromise.
1. Eligibility Requirements for IRS Form 656-L
Not everyone is eligible to submit an Offer in Compromise using Form 656-L. The IRS has specific criteria that taxpayers must meet to be considered. Firstly, you must have filed all required tax returns. The IRS wants to ensure you’re up-to-date with your filing obligations before considering a compromise. Secondly, you must not be in an open bankruptcy proceeding. Bankruptcy has its own set of rules for dealing with debt, and an OIC cannot be pursued simultaneously. The most crucial factor, however, is demonstrating financial hardship. This means proving to the IRS that you are unable to pay your full tax liability due to your current income, expenses, and asset equity. You’ll need to provide detailed financial information, including bank statements, pay stubs, and asset valuations, to support your claim. The IRS will scrutinize this information carefully to determine if your offer is reasonable and reflects your true ability to pay. It is essential to be honest and transparent in your application, as any misrepresentation can lead to rejection of your offer and potential penalties. Meeting these eligibility requirements is a prerequisite for the IRS to even consider your offer.
Completing the IRS Form 656-L Printable
Once you’ve determined that you meet the eligibility requirements, the next step is to complete Form 656-L accurately and thoroughly. The form requires you to provide detailed information about your personal and financial situation. Start by carefully reviewing the instructions provided by the IRS. These instructions offer valuable guidance on how to answer each question and what supporting documentation to include. The form itself is divided into several sections, including your personal information (name, address, social security number), the type of tax you owe, the tax periods involved, and the amount you are offering to pay. The most critical section is the financial statement, where you’ll need to provide a comprehensive overview of your assets (real estate, vehicles, bank accounts), liabilities (loans, credit card debt), income (wages, self-employment income), and expenses (housing, utilities, food). Be prepared to provide documentation to support all the information you provide. For example, you’ll need to provide bank statements to verify your bank balances, pay stubs to verify your income, and appraisals to verify the value of your assets. Accuracy is paramount, as any errors or omissions can delay the processing of your offer or even lead to its rejection. Take your time, gather all the necessary information, and double-check your work before submitting the form.
2. Required Documentation and Submission Process
Submitting a complete and well-documented Form 656-L is essential for increasing your chances of acceptance. In addition to the completed form, you’ll need to include several supporting documents to substantiate the information you’ve provided. This typically includes copies of your most recent tax returns, bank statements for the past several months, pay stubs or other proof of income, appraisals or market analyses for any assets you own, and documentation of your expenses. The specific documentation required may vary depending on your individual circumstances, so carefully review the instructions to ensure you’re including everything necessary. Once you’ve gathered all the required documentation, make a copy of everything for your records before submitting the original to the IRS. You can find the correct mailing address for submitting your Form 656-L on the IRS website or in the form instructions. It’s recommended to send your submission via certified mail with return receipt requested, so you have proof that the IRS received it. Be aware that there is a non-refundable application fee associated with submitting an Offer in Compromise. This fee is typically a few hundred dollars and must be paid at the time of submission. Failing to include the required documentation or the application fee will result in your offer being returned to you unprocessed. Therefore, meticulous preparation and attention to detail are crucial throughout the entire process.
What Happens After You Submit Your IRS Form 656-L Printable?
Submitting your Offer in Compromise is just the beginning of the process. After the IRS receives your Form 656-L and supporting documentation, they will review your offer to determine if it meets the basic eligibility requirements. If it does, they will assign your case to an IRS agent who will conduct a thorough investigation of your financial situation. This may involve contacting you for additional information or documentation, visiting your home or business, or contacting third parties to verify your assets and income. The IRS agent will use a formula to determine your reasonable collection potential (RCP), which is the amount the IRS believes it can collect from you based on your assets, income, and expenses. Your offer must be at least equal to your RCP for it to be seriously considered. The IRS agent will then make a recommendation to either accept or reject your offer. This recommendation is reviewed by a supervisor before a final decision is made. The entire process can take several months, or even a year or more, to complete. During this time, the IRS will generally suspend collection activities, such as levies and garnishments, but interest and penalties will continue to accrue on your outstanding tax debt. It’s important to be patient and responsive to any requests from the IRS during this process. Staying organized and maintaining clear communication with the IRS will help ensure that your offer is processed as efficiently as possible.
3. Managing Your Offer and Potential Outcomes
Throughout the Offer in Compromise process, it’s crucial to stay actively involved and manage your expectations. Keep copies of all documents you submit to the IRS and maintain a record of all communication you have with the IRS agent assigned to your case. Respond promptly to any requests for additional information and be prepared to answer any questions the agent may have about your financial situation. There are three potential outcomes to your Offer in Compromise: acceptance, rejection, or withdrawal. If your offer is accepted, you’ll be required to make the agreed-upon payments according to the terms of the agreement. Failure to do so will result in the reinstatement of your original tax liability. If your offer is rejected, you have the right to appeal the decision. The appeal process involves submitting a written protest to the IRS Appeals Office, where a different team of IRS employees will review your case. You can also withdraw your offer at any time during the process. However, the application fee is non-refundable, and any payments you’ve made towards your offer will be applied to your outstanding tax debt. It’s important to carefully weigh the pros and cons of each option before making a decision. If you’re unsure about how to proceed, seeking professional tax advice is always recommended. A qualified tax professional can help you understand your options, navigate the complexities of the Offer in Compromise process, and represent your interests before the IRS.
Seeking Professional Assistance with IRS Form 656-L Printable
Navigating the complexities of the Offer in Compromise process, particularly when dealing with an active levy, can be daunting. While this guide provides a comprehensive overview of IRS Form 656-L, it’s not a substitute for professional tax advice. Engaging a qualified tax professional, such as a Certified Public Accountant (CPA) or an Enrolled Agent (EA), can significantly increase your chances of a successful outcome. These professionals have extensive knowledge of tax law and experience in representing taxpayers before the IRS. They can help you assess your eligibility for an Offer in Compromise, prepare a compelling application, negotiate with the IRS on your behalf, and represent you in an appeal if necessary. Moreover, they can provide valuable guidance on how to manage your finances and avoid future tax problems. The cost of hiring a tax professional may seem like an added expense, but it can be a worthwhile investment in the long run. A skilled professional can potentially save you thousands of dollars by negotiating a favorable settlement with the IRS and preventing further penalties and interest from accruing. When choosing a tax professional, be sure to do your research and select someone who is experienced, reputable, and knowledgeable about Offer in Compromise cases. Don’t hesitate to ask for references and check their credentials before making a decision. Remember, seeking professional assistance is a proactive step towards resolving your tax debt and regaining financial peace of mind.
