What Is a Doubt as to Liability Offer in Compromise?

Many people think of the offer in compromise as a method for reducing taxes owed when incapable of paying. This is certainly one of the core functions of the OIC, but the program is also crucial when you believe your tax debt is illegitimate.

How Does a Doubt as to Liability Work?

If you dispute the amount that the IRS claims you owe, you can submit Form 656-L to seek a correction. Keep in mind, however, that in the eyes of the IRS, a doubt as to liability will not exist if a final court decision established the tax debt in question.

Determining what to offer looks a lot different for doubt as to liability OICs than it does when doubt as to collectability is involved. With doubt as to liability, you simply offer what you think is the correct amount of tax debt. As Form 656-L points out, this should be more than $0.

The IRS does not allow simultaneous submissions of doubt as to liability and doubt as to collectability OICs. Typically, it’s advisable to send in Form 656-L first, and, if turned down, follow up with an offer based on doubt as to collectability.

The Need for Documentation

Both doubt as to liability and doubt as to collectability OICs should be supported by extensive documentation. With doubt as to liability, the evidence you submit will depend on why, exactly, you believe the IRS has erred. Without proof, the likelihood of rejection is high — even when you think your reasoning is ironclad.

Do you think you might be eligible for an offer in compromise based on doubt as to liability? How you proceed can determine whether you’re able to get the IRS on your side. Our experts at the Highland Tax Group can help. Contact us today for help with Form 656-L and the OIC application process.