Navigating the complexities of tax resolution can be particularly challenging when dealing with married, separated, or divorced clients. As a tax professional, understanding the intricacies of IRS Form 656, the Offer in Compromise application, is essential for effectively guiding your clients through the resolution process. In this comprehensive article, we will delve into the nuances of IRS 656 and its implications for individuals in various marital situations, offering insights and best practices on how to optimize the OIC process for clients with diverse personal backgrounds. By becoming well-versed in the specifics of IRS 656, you can provide tailored solutions to your clients’ unique needs, further establishing your reputation as a knowledgeable and empathetic tax expert.
When you’re in business long enough you notice changes in filing status among some of your clients from year to year. Clients who were married last year might be separated or divorced the next time they file.
What About Offers in Compromise?
Let’s say the husband owes back taxes for some years, the wife owes back taxes for some years and they owe taxes in some years jointly. Do you need to submit one offer or two? Does marital status influence the number of forms and fees you’ll file on an offer in compromise?
The types of taxes you want to compromise will determine the number of Forms 656, application fees, and offer payments required. Offer payments must be sent with the offer unless payment is not required because the taxpayer qualifies for the Low-Income Certification. (Be sure to check the box in Section 1 of the Form 656.)
So let’s tackle our initial question: Only one Form 656 with one application fee and one offer payment is required if you are compromising either an individual tax liability or two taxpayers owing joint liabilities.
Divorced and separated couples would be included here. Married couples living apart would also be included if all liabilities are joint and they choose to file a joint offer together.
Now, if you’re compromising either a partnership or corporate liability, One Form 656 with one application fee and offer payment is all that’s required.
Will Two Forms Ever Be Necessary?
Two separate Forms 656 with two separate application fees and two offer payments will be necessary if:
- Two taxpayers have separate liabilities.
- Two taxpayers have joint liabilities and one or both also have separate liabilities.
- When the intent is to compromise both an individual and a business, two separate Forms 656—one for the business or corporation liabilities and one for the individual liabilities—are required.
- An individual is submitting offers to compromise both individual and corporate liabilities.
Keep This in Mind
With so many entrepreneurs running around, it will be important to remember that both business and individual sections should not be combined on one Form 656.
File two separate forms. Either section 1 (Individual Information) OR section 2 (Business Information) should be completed on each Form 656.
Are there any circumstances in which one offer form can be filed to compromise both business and personal taxes?
Yes. One form may be used if the business is a sole proprietorship linked to an SSN. If the business is not a sole proprietorship, linked to an SSN a separate offer, with application fee and offer payment is required.
Does all this seem complicated?
It can be. There’s a lot to remember, especially when you consider all the new tax law changes. As a member of IRS Solutions Software, we’ll help you understand which forms to file and when. We also place letters, forms, and emails at your fingertips so you’re never at a loss.
IRS Solutions is Ready to Help with the IRS 656 Form
IRS Solutions Software gives you the confidence to provide services you may have been uncomfortable with in the past. Another benefit of membership is the training you get on our monthly case study calls.
