The new Form 656 Offer In Compromise and Instructions is clearly more user friendly'94 than the old form. Hopefully, this will allow more offers to pass the initial screening. However, even though the form is much simpler, the underlying rules remain complex. Ability to pay An offer in compromise will not be accepted by the IRS unless the taxpayer is unable to pay the tax liability owed. Valuation and presentation are the keys to determining the value of your assets.
Valuation is an art rather than a science.
With no set rules the answers valuation questions vary from IRS district to district and from reviewing agent to reviewing agent. The issues that must be considered are inflation, future earning potential, health, and family circumstances. An installment agreement could be a solution to your tax problems. If you can convince the IRS that your liquid assets are insufficient for you to pay your tax liability immediately you may be eligible for an installment agreement. The IRS will not enter into an agreement unless you are current with respect to your return filings.