IRS Doubt as to Liability: What It Means — And How It Relates to Form 656-L

The offer in compromise (OIC) is one of the best options for dealing with tax debt. This program takes multiple forms. Many taxpayers are familiar with doubt as to collectability, but an important alternative is also worth considering: doubt as to liability. Keep reading to learn what this means and how it relates to IRS Form 656-L.

What Is an IRS Doubt as to Liability?

If you don’t believe that you actually owe the tax debt you’ve been assessed, you may be able to secure an OIC based on a doubt as to liability. This reflects a dispute as to the amount of the debt — or its existence in general.

Because this version of the OIC calls the validity of the debt into question, the process and outcomes often look far different from that of OICs involving a doubt as to collectability.

Completing IRS Form 656-L

As soon as you suspect that you have a legitimate doubt as to liability, take action. This begins with completing IRS Form 656-L. This application does not guarantee that your offer will be accepted, but it does kick off the verification process, thereby taking you a step closer to potentially getting much-needed tax relief.

When completing Form 656-L, you’ll need to enter personal details (such as address and Social Security Number), along with information on tax periods. This will vary from one person to the next, with possible details highlighting years for individual tax returns, employer’s quarterly or annual federal tax returns, corporate income tax returns, or even the Trust Fund Recovery Penalty.

Next up? Suggesting a specific amount of money for the offer. This must be at least $1. Payments do not need to be sent with the form, however.

Finally, an explanation of the circumstances must be provided. Explain why, exactly, IRS calculations are wrong. Several potential arguments are outlined in the Doubt as to Liability Pre-Qualifier Assessment, found within Form 656-L.

Don’t go it alone as you seek an offer in compromise. Whether your OIC involves a doubt as to liability or a doubt as to collectability, a tax expert can improve your chances of getting your offer accepted. Our team at the Highland Tax Group is happy to help, so don’t hesitate to get in touch.