To: Melaney Partner – Chief, Payroll and Practitioner Liaison
From: Laurie Conner Jarrett, President NSTP Board of Directors
Date: December 4, 2006
Subject: Form 656 “Draft”
The National Society of Tax Professionals, NSTP, is a 6,000+ member organization representing the Tax Professional community. Many of our members are also Certified Public Accountants, Enrolled Agents and Attorneys who regularly represent taxpayers in the filing of Offers in Compromise to settle their tax obligations.
Our members, responding to your request to review the proposed Form 656, offer not only their vast experience in assisting taxpayers to become compliant but their practical experience in handling cases involving “offers”.
Comments from our members came in two forms:
1. Actual critique of the Form 656 and
2. Critique of the OIC program.
Form 656, proposed:
I read the new 41 page Offer booklet. It obviously explains in great detail the changes in the law. At first, I thought it was unclear about the time required to pay the Lump Sum Cash offer but the instructions do explain that. Obviously the new law and procedures make it easier for the IRS to weed out poorly prepared Offers. On page 3 of the booklet it says the success of the program also depends on the Service making “prompt and reasonable decisions”. I have no idea what they mean by this. The only suggestion I would make is on page 8, where they say they may file a lien on compromised liabilities. This is confusing. They mean they may file a lien while the compromise is pending not on compromised liabilities. On page 17 they need a space after the word “address” and the word “on”.
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I believe the IRS should indicate somewhere in the instructions, that regardless of the information put in the Form 656/433 worksheets and forms, they are going to substitute the “national standards”. I also believe they should include or use Form 433F as this is the form they fill in if you call Practitioner Priority Service to work the case.
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In connection with a Lump Sum Cash offer, the new Form 656 instructions on page 1 are vague. It’s clear that a Lump Sum Cash offer is a proposal to pay through five or fewer payments, but within what period of time? If it’s longer than 6 months, does the offer fall under the definition of a Short Term Periodic Payment offer or a Deferred Periodic Payment offer?
Confusion arises from two causes; (1) no specified time period for making the five or fewer payments defined as a Lump Sun Cash offer, and (2) the definitions of a Short Term Periodic payment offer and a Deferred Periodic payment offer. In other words, the new Form 656 instructions can be interpreted to imply that Lump Sum Cash offer is a proposal to pay through five or fewer payments within six months of the acceptance date, simply because a proposal to pay over a longer term is covered by the definitions of a Short Term Periodic payment offer and a Deferred Periodic payment offer.
The Lump Sum Cash offer definition is expanded, but hardly clarified on page 8. In connection with a Lump Sum Cash offer the 48 month calculation period for computing Value of Future Income is said to be applicable to proposals to pay the offered amount in full within 5 months (the 48 month calculation period has been applicable to offers to pay an amount within 90 days of acceptance). The 60 moth (or the remaining months to collection statute of expiration, if fewer than 60) calculation period for Value of Future Income is said to be applicable to proposals to pay the offered amount on terms exceeding 5 months (this has been applicable to proposals to pay the offered amount between 6 and 24 months of acceptance). Note: These instructions do not specify the starting point for the 5 months (the OIC submission date or acceptance date?) and imply that a Lump Sum Cash offer can be a proposal to pay over terms exceeding 5 months.
The Short Term Periodic payment offer definition is expanded and clarified on page 8, i.e., this type of offer is a proposal to pay the offered amount within 24 months of the IRS’s receipt of the offer.
The proposed new Form 656, Section IV, implies no time limit for making the five or fewer payments which define a Lump Sum Cash offer, as the fill-in-the-blanks format calls for $_____ to be paid within _____ months of acceptance. There are lines for five payments of $_____ to be paid within _____ months of acceptance. Counting the 20% payment required with the OIC, the form has space for SIX payments, five to be paid post acceptance. There should be four lines for four payments of $_____ to be paid within _____ months of acceptance, as the first of the five would be the 20% one.
The proposed new form 656 implies that all payments on a Lump Sum Cash offer, with the exception of the 20%, can be deferred until after acceptance, apparently for years, e.g., a proposal for annual payments. Not so for a Short Term Periodic payment offer and a Deferred Periodic payment offer. The proposed new form 656 implies that payments must be monthly and begin with the OIC submission. The form allows for no other Short Term Periodic or Deferred Periodic payment offer terms. At the end of Section IV the word “deposit” is used to refer to the payment remitted with the offer. It is not a deposit anymore.
The new form 656 instructions, page 4, can be interpreted to mean, the IRS has changed its definition of “in compliance” for a taxpayer who is an employer. The compliance requirement had been timely and adequate FTDs for: (1) the past two quarters, (2) the current quarter and (3) while the OIC is pending. These new instructions imply that FTD compliance is required for the current quarter and while the OIC is pending (no mention of the past two quarters).
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Page 1 & 8: Lump sum offer 0 do they intend that these 5 payments be made within 6 months of acceptance? Page 8 says “more than 5 months” but no outside time limit. Is the intent here for Taxpayer’s who can make sporadic payments but not monthly as in the Short Term Periodic offer?
Page 5: Have they removed the requirement for businesses to have 2 perfect quarters before they are eligible for a payroll tax offer?
Page 6: Are they reserving the right to ask for financial information on non-related parties i.e. roommates? Also, if tax returns have been submitted to IRS but no assessment has yet been made are we to hold the offer and wait until we get the first bill?
Page 11: 13b calls the calculation when the Taxpayer will pay in more than 5 months but less than 2 years (i.e. short-term deferred payment offer) – no mention of cash offer which will be paid in more than 5 months.
Page 12: No way anyone could “attach to the upper left corner of Form 656….”Form 433A + 3 months financial info could never be stapled to the upper left hand corner of Form 656!
Page 13: “the taxpayer should insert their name…replace “their name” with “the preparer’s name.” Also “if you want to allow IRS to discuss” needs to add clarification between “discussing” and “representing”. It sounds as if IRS is allowing a non-Circular 230 person to handle the offer with IRS.
Page 19: - what did they mean to say? “The preprinted terms and conditions have not changed”, do they mean, “have not been changed”?
Form 656, Page 1 – only one name line even for joint liabilities?
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Request agreement with Policy Statement regarding the filing of all tax returns or the last six years. The original regulations stated that compliance was no longer a processability criterion for OIC submissions. Now the very first line in Step Two states “you must file all tax returns”.
Use one line in identifying the amount to be paid, in excess of the 20% down payment, for a cash offer (be able to choose time to pay, similar to prior 656).
Add a second line so that the name and middle initial of the spouse can be entered on a joint offer.
Add a line for a business name.
Ask for clarification on how an increased counter offer amount would be paid.
Add a box (section with date) to be checked if the offer form is amended.
Instructions should include a section on how to obtain the CSED for each delinquent period.
I ask why the instruction now say there must be two separate checks for the application fee and the 20% down payment or the first periodic payment.
Spelling and reference issues should be addressed in the entire set of documents.
The application fee in Section V (c) on page 2 of the proposed 656 is not clear. (c) as written says that the fee will be kept by the IRS unless the offer was not accepted for processing. It sounds like the fee will be returned. The application, according to the new regs is to be applied to the liability. Is (c) saying that if the application is not accepted for processing, then the application fee is not applied to the outstanding liability?
Section V (f) should include the fact that if there was an installment agreement at time of OIC application and deferred payments elected as an option, then the current IA payments should cease as per IMRS 06-0000321. This should be made part of the new rewritten section instead of just being left out.
The Form 656, Instructions, IRM and Statute should be compatible.
Page one, item (3), at the bottom of the page, states that the “initial” (singular) payment may qualify for exemption. Page two, under the fourth bullet, identifies TIPRA payments (plural) as items that may qualify for exemption. Are we only talking about the initial payment or the ongoing payments as well?
Page 5, Item 1, includes all types of returns EXCEPT C-Corporations. If a taxpayer owns a C-Corp outright, 100%, then why would it not be required to file this return as well? If you jump to page 12, the last paragraph of section 1, it excludes corporate entities. Is this both S-Corps and C-Corps?
On page 8, under Lump Sum Cash Offer, if the 60-month term applies to Short Term Periodic Payment Offers, then it should be listed under that title. Otherwise, it is confusing for a Cash Offer Taxpayer. If you have a down payment AND five monthly payments, technically, that is “more than” five payments. Therefore, it could apply to the Cash Offer. Does this now mean that Cash Offers can be calculated under both 48 months and 60 months? This needs clarification.
On page 20, under “Effect of the Offer on Levies,” it does not state that the IRS MUST release the levy. It only instructs you to contact the Agent on the form. The language should be more specific. After the last two words “contact person” should be added, “to obtain an immediate release of all outstanding levies.”
On the old Form 656, under “Paid Preparer Section”, it used to ask for the Preparer’s signature. The new form asks for the Taxpayer’s signature.
Is now the DOL to be considered the entire tax liability that was assessed to be in doubt?
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General Comments:
Noted as “Taxpayer friendly”:
· Application fee now being applied to the liability if rejected.
· Taxpayer can designate where TIPRA payment funds are applied if rejected although having to state where upon submission seems to anticipate rejection.
· Taxpayer can also make a deposit above the required amount and presumably get a refund if the Offer is rejected, Form 656, Page 2.
· If estimates are not up to date, Taxpayer will be given an opportunity to catch them up.
· The “special circumstances” offer is good.
· Page 10 – asset valuation says “current value” not “fair market value” a less exact standard, Page 21, doesn’t require an appraisal of real estate.
· Page 17 – They state in writing that they won’t default the compiling spouse
· Now reserve the right to file FTL, even on lump sum offers.
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The new offer format is cumbersome and the offers program is becoming way to difficult – if they want to close it, they should close it. If they want it to be effective, they should o the following: Have an online submission form. This form would have you enter all the information, do a calculation as to what the offer should have to be and send back a letter with a request for information that would be submitted with the proessable offer form. This would eliminate compliance issues, allow the searches for alternate sources of income by computer, check on compliance with estimates and filing and limit submissions to processable offers.
If you want to eliminate frivolous offers, offers should be allowed to be fast tracked by use of representatives that have filed 5 or more successful offers or have completed a CPE course in offers. They would be given a number and the offers tracked. That way “offer mills” would be required to inform the public why they are not so certified and the service could track poor performance.
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The IRS should simply put “STOP” on the front page. The OIC program is dead on arrival.
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It appears to me that the system is making it much more difficult for the average person to make an offer. They do not always have the money to make the required monthly payments while it is being resolved and if rejected, it is lost. The procedures are becoming more difficult for those that do not keep very good records and are not able to find all the necessary documents required or do not have the money to pay to have the banks or others to make copies.
For the average person, it is harder to start over and come to terms. I think it will force more to stay in the underground. The other problem that I see in reality is the harder attitude agents are taking towards people and solving problems. They are so strong for enforcement that they are not in touch with the needs of some.
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The National Society of Tax Professionals appreciates the opportunity to comment on the proposed Form 656. While our members come from multitude of work experiences, they are all tax professionals, and as such, are very involved in the business of tax. If you have any questions or concerns about the information provided, please contact the NSTP Executive Director, Beanna J. Whitlock at or at 800-367-8130.
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