Legacy Tax & Resolution Services

What Is an Offer in Compromise (Doubt as to Liability)?

What Is an Offer in Compromise (Doubt as to Liability)?

An Offer in Compromise is an agreement between you and the Federal Government to settle your back taxes for less than you owe.

An Offer in compromise is strictly based on numbers; basically, your income versus your expenses and the equity in your assets.

If you can prove to the IRS you do not have the ability to pay back your taxes in full before the Statute of Limitations expires, then you may be eligible to file an Offer in Compromise. However, it will depend on your Reasonable Collection Potential and how much time is left before Statute of Limitations on the debt expires.

 

Offer in Compromise (Doubt as to Liability)

Doubt as to Liability is when there is doubt as to whether the tax total that was assessed is correct. If there is any doubt that an error was made, you may be able to reach a compromise.  To make this request, you must complete a Form 656-L and submit with your application. Obviously, submitting your application does not guarantee the IRS will accept this Offer, but it will begin the process of evaluation and verification of your documents.

As the IRS states in the Instructions for Form 656-L, Doubt as to Liability cannot be disputed or considered if the tax debt has been established by a final court decision or judgment concerning the existence or amount of the assessed tax debt or if the assessed tax debt is based on current law.

 

Examples of Genuine Doubt

Some examples of doubt that you owe a debt to the IRS, it could be something as simple as you failed to file a return.  When a taxpayer neglects to file a return that was required, the IRS will prepare a return for you, known as a Substitute for Return.  These returns are typically filed as Single status and without exemptions or deductions, so the balance due is often inflated.  To fix this issue, you need to submit a correct tax return for processing.  Once the return is processed, the balance due will be updated, or could result in a refund.

Another example is, you already submitted a return for processing, but it wasn’t processed.  Same process as above, submit the correct tax return for processing.  This time, send the return is such a way it can be tracked to ensure it reaches the service center.  When applying for an Offer Doubt as to Liability, you will need to submit documentation to support your efforts.  Having a way to track a return is helpful in that process.

 

Supporting Documentation

When submitted an Offer in Compromise, you must submit documents to support your Offer.  These documents must match your income and expenses you listed on your Offer for processing.  Some of these documents include:

  • Bank statements, investment statements, etc.
  • Tax Returns filed within the last 60 days.
  • Internal Revenue Codes to support your position to submit an Offer, Doubt as to Liability.
  • A written statement explaining why the tax debt is incorrect.

When submitting an Offer Doubt as to Liability, you need to Offer an amount.  Therefore, it would be suggested to submit an Offer for $1 as it must be more than Zero.  However, if you find there is a small amount of liability owed as you filed a corrected return, then you will want to Offer the amount due on the return.

 

Offer in Compromise

When submitting an Offer in Compromise, it’s important to understand what Offer you need to submit under.  If it’s not Doubt as to Liability, you do not want to complete a Form 656-L, but a Form 656. In addition, the documentation you will be submitting with your Offer would be different from Doubt as to Liability as you are not attempting to show the IRS you don’t owe the amount they say you owe, but you are wanting to compromise the debt you do owe.

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