Form 656-L: How to File a Doubt as to Liability Offer
Learn the formal IRS process for disputing the validity of a tax debt. This guide covers using Form 656-L to resolve an incorrect tax assessment.
An Offer in Compromise is a program allowing certain taxpayers to resolve their tax liability with the Internal Revenue Service (IRS) for a lower amount than what they originally owed. While many offers relate to a taxpayer’s inability to pay, a specific path exists for those who question the tax assessment itself. This is accomplished using Form 656-L, Offer in Compromise (Doubt as to Liability). This form is for situations where a genuine dispute exists regarding the existence or accuracy of the amount the IRS claims is owed.
Filing Form 656-L is a legal and factual challenge to the tax assessment. It asserts that the tax liability was calculated or assigned incorrectly based on the law and the facts of the case.
Determining Eligibility for a Doubt as to Liability Offer
To be eligible for a Doubt as to Liability Offer in Compromise, a taxpayer must have a genuine dispute regarding the legal or factual basis of the tax debt. The disagreement must be grounded in a reasonable interpretation of tax law or the evidence of a specific situation. The IRS will not consider an offer if the tax liability has already been finalized by a court judgment. This type of offer is for cases where the taxpayer believes the initial assessment was flawed.
Valid grounds for filing include an IRS examiner making a mistake in interpreting tax law or the discovery of new evidence that was not considered during the original assessment. For instance, if a taxpayer can produce records proving income was attributed to them in error or that deductions were wrongfully disallowed, this could form the basis of a successful offer.
This offer is distinct from the more common Offer in Compromise filed using Form 656, which is based on “Doubt as to Collectibility.” That offer is for taxpayers who agree they owe the tax but lack the income and assets to pay the full amount. A taxpayer must first resolve any questions about whether they owe the tax using Form 656-L before being considered for an offer based on their ability to pay.
Information and Documentation for Submission
A successful Form 656-L submission requires a complete and well-supported application package. The primary document is Form 656-L, which requires the taxpayer’s name and address, the specific tax years or periods in dispute, and the type of tax involved. The offer amount cannot be zero and should reflect what the taxpayer believes is the correct tax liability.
A detailed written statement is a required component of the submission. This document must clearly explain why the tax assessment is incorrect, citing specific facts and circumstances that create doubt about the liability. The statement needs to detail how the law was misapplied or how the facts do not support the IRS’s position.
To validate the claims made in the statement, you must attach comprehensive supporting evidence. Examples of effective evidence include copies of contracts, canceled checks, receipts, or legal documents that contradict the IRS assessment. If the dispute involves a legal interpretation, referencing specific sections of the Internal Revenue Code or relevant court cases can strengthen the claim.
A Doubt as to Liability offer does not require an application fee or an initial payment. This is a distinction from offers based on the ability to pay, which have these requirements. The absence of these fees for a Form 656-L submission underscores that the focus is on the legitimacy of the debt.
The Submission and IRS Review Process
Once prepared, the complete package must be mailed to the IRS location provided in the instructions for Form 656-L. It is advisable to send the package via a method that provides proof of delivery to ensure a record of the submission date.
After the IRS receives the offer, the taxpayer will receive a letter acknowledging its receipt, and the offer is assigned to an examiner for review. The examiner will review the written statement and evidence to determine if a legitimate doubt as to liability exists. The examiner may contact the taxpayer for additional information during this evaluation.
The review process concludes with one of three potential outcomes. The first is acceptance, where the IRS agrees with the taxpayer’s position and compromises the tax debt. Another possibility is rejection, where the IRS determines the offer does not have merit, in which case the taxpayer is given appeal rights. The third outcome is a return, where the package is sent back because it was incomplete or did not follow submission rules.