October 04, 1999
New Offer In Compromise Applications Being Accepted
for Taxpayers Facing Economic Hardships
WASHINGTON - The Internal Revenue Service started
accepting applications Monday for a new type of Offer in Compromise plan designed to help
some taxpayers facing severe or unusual economic hardships. For the first time, the IRS
will be able to consider economic hardship factors in cases where taxpayers try to settle
unpaid tax debts through the Offer in Compromise program and where settlement would
promote effective tax administration.
This program creates a new way for the IRS to help some people trapped in
severe hardships, IRS Commissioner Charles O. Rossotti said. We have more
power to work with struggling taxpayers trying to settle their tax debt. The change
expands the Offer in Compromise program, which allows the IRS to negotiate a settlement
with people unable to pay their entire tax bill. Previously, the IRS could accept the
taxpayers Offer in Compromise only when there was doubt about whether the tax debt
could ever be collected or whether it was owed.
The IRS Restructuring and Reform Act approved last year by Congress and
President Clinton called for expanding the Offer in Compromise program as part of a new
set of taxpayer rights provisions.
The new category of Offer in Compromise can be used in cases where acceptance
of the offer would promote effective tax administration and would not undermine compliance
with the tax laws. Taxpayers may be eligible for this new provision if:
(1) Collection of the entire tax liability would create economic hardship, or
(2) Exceptional circumstances exist where collection of the entire tax liability would be
detrimental to voluntary compliance.
- To qualify, taxpayers must have a history of paying and filing their taxes.
- To apply for this new way of settling tax debts, taxpayers can obtain a copy of
Form 656-A through the IRS web site at http://www.irs.gov.
The new form can be found by going to the Forms and Pubs section and looking
under Forms and Instructions.
Applicants will also need to submit a copy of Form 656, the standard Offer in
Compromise application. Taxpayers applying for the new economic provision will be
considered first under one of the traditional Offer in Compromise options. If the taxpayer
is not eligible for a traditional Offer in Compromise, then the IRS will consider the
application under the new economic hardship guidelines.
With this new program, well be able to help some people we
couldnt help before, Rossotti said.
The IRS cautioned the new program is designed only for taxpayers entangled in
very severe circumstances. Its not designed to be a sweeping program for everyone
with financial problems, and it shouldnt be viewed as an invitation to avoid paying
What the new provision reflects is a commitment by the IRS to expand access to
the Offer in Compromise program. To help taxpayers, the IRS moved earlier this year to
create more straightforward rules, allow greater flexibility by key agency employees and
add new payment procedures for the Offer in Compromise program.
In the end, this helps all taxpayers, Rossotti said. Instead
of collecting nothing from people with an unpaid tax bill, were able to collect
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