How to Legally Reduce Tax Debt

For those who are unable to pay the entire amount that is owed to the IRS, they may request to have the amount reduced by filling out an Offer in Compromise form.  With this form, the amount may be reduced into one smaller lump sum payment, or a payment schedule may be arranged.

Items Needed

• Form 656


• Checks

Steps

1. Contact the Internal Revenue Service, or IRS, to request Form 656, which is the Offer in Compromise form.  You can call the IRS to request the form, or find it on their website.


2. Go over the checklist that comes with the form to determine if you are eligible for the offer in compromise.


3. Look over the form, and enter your personal information, including your name, address and social security number.  If you are applying for your business, enter the name and address of the business, as well as your employer identification number.


4. Write down each year for which you are asking the amount to be reduced.


5. Check the box on the form that states the reason you are filing - a doubt as to collectibility - which states that you will not have sufficient funds to pay the amount that you owe.


6. Look on the form to determine if you qualify for low income certification.


7. Determine the amount of money you are able to pay the IRS, and come up with a payment schedule.  You may choose to pay in five or fewer payments, or choose to make monthly payments.


8. Give an explanation as to why you are unable to pay the full amount that you owe.


9. Explain how you intend to make payments, including if you intend to borrow money from friends or family, take out a loan or sell assets.


10. Sign the form, indicating that you agree to the terms and conditions.


11. Include two separate checks for the application fee and your first payment, as well as the payment voucher.


12. Mail the completed form, application fee, payment and payment voucher to the address that is listed in the instructions on the form.