What Is IRS Form 656?
IRS Form 656 is the agreement form used in an Offer in Compromise (OIC) request. It sets out the terms under which the IRS may accept less than the full amount of federal tax owed to settle a tax debt.
Form 656 is not a stand-alone filing for most taxpayers. It is submitted as part of a complete Offer in Compromise package, typically using Form 656-B (Offer in Compromise Booklet), which includes instructions, eligibility guidance, and required supporting forms.
Important Clarification About Form 656
Form 656 is the core settlement agreement, but individuals requesting an Offer in Compromise generally do not submit this form by itself.
Most taxpayers apply for an Offer in Compromise using Form 656-B, which:
- Explains eligibility requirements
- Lists required documents and payments
- Includes Form 656 as part of the submission package
Form 656 is often prepared and submitted with professional assistance, along with required financial disclosures and payments.
What Is Form 656 Used For?
Form 656 is used to:
- Propose a settlement of unpaid federal tax debt
- Specify the offer amount and payment method
- Identify the tax periods included in the offer
- Certify compliance with IRS filing requirements
It represents the formal offer agreement, not a payment plan or installment request.
Who Uses Form 656?
Form 656 is used in Offer in Compromise submissions involving:
- Individual taxpayers
- Self-employed individuals
- Businesses with unpaid federal tax debt
While taxpayers request an Offer in Compromise, Form 656 itself is commonly completed as part of a professionally prepared OIC package.
When Should Form 656 Be Submitted?
Form 656 is submitted only after confirming eligibility for an Offer in Compromise and assembling the full application package, which generally includes:
- Completed financial disclosure forms
- Required application fee (unless waived)
- Initial offer payment (unless waived)
Submitting Form 656 without the required supporting materials will delay or prevent consideration of the offer.
IRS Notices Commonly Associated With Form 656
Form 656 is frequently used after receiving collection-related IRS notices, such as:
- CP14 / CP501 / CP503 – Balance due notices
- CP504 – Notice of Intent to Levy (state tax refund)
- LT11 / CP90 – Final Notice of Intent to Levy
An Offer in Compromise submission may pause certain collection actions while under review.
When NOT to Use Form 656
Form 656 should not be used if:
- You qualify for a standard installment agreement
- Required tax returns are unfiled
- You are seeking penalty relief only
- You can reasonably pay the full balance
Filing an Offer in Compromise when ineligible often results in rejection.
What Information Is Required on Form 656?
Form 656 generally includes:
- Taxpayer or business identifying information
- Tax periods covered by the offer
- Offer amount and payment option
- Certification statements
- Required signatures
It is typically submitted with Form 433-A (OIC) or Form 433-B (OIC).
Where and How Form 656 Is Filed
Form 656 is filed:
- As part of a complete Offer in Compromise package
- By mail to the appropriate IRS OIC processing unit
- With required fees, payments, and financial forms
Electronic filing is not generally available for Offer in Compromise submissions.
What Happens After Form 656 Is Submitted?
After submission:
- The IRS reviews the offer for completeness
- Financial information is evaluated
- Additional documentation may be requested
- The offer is accepted, rejected, or returned
Review timelines vary based on complexity and case load.
Related IRS Forms
Forms commonly associated with Form 656 include:
- Form 656-B – Offer in Compromise Booklet (instructions and submission package)
- Form 433-A (OIC) – Individual financial statement
- Form 433-B (OIC) – Business financial statement
- Form 656-L – Offer in Compromise (Doubt as to Liability)
- Form 843 – Penalty or interest abatement
Summary
IRS Form 656 is the agreement form used within an Offer in Compromise request to propose settling federal tax debt for less than the full amount owed. It is not a stand-alone filing and is typically submitted as part of the Offer in Compromise package using Form 656-B, along with required financial disclosures and payments.
Scope Note
This page explains the purpose and general use of IRS Form 656. It does not provide legal or tax advice.