An Offer in Compromise is an agreement made between the taxpayer and the Internal Revenue Service (IRS) that settles a tax debt for an amount less than the amount of tax liability. If you have a legitimate doubt regarding the amount of tax you owe, you may be able to reduce your tax liability by completing a Form 656-L. This type of Offer in Compromise is filed based on a taxpayer’s “Doubt as to Liability.”
What is a Doubt as to Liability Offer in Compromise?
Doubt as to liability means there is a dispute between the taxpayer and the Internal Revenue Service concerning the existence of tax liability or the correct taxes owed under the law. A taxpayer may have a doubt that they owe the tax amount, or a portion, to file this Offer in Compromise. The IRS will only accept a Doubt as to Liability offer for the specific tax period in question.
To reduce the amount of tax debt you owe through an Offer in Compromise based on Doubt as to Liability, you must establish that your doubt as to liability is legitimate. You must provide the IRS with adequate supporting documentation and evidence as to why they believe the liability as to the tax debt is inaccurate. You must submit a written statement explaining why the liability for tax owed is not correct. If you do not dispute the liability as to the debt, but only amount of tax debt, it’s important to understand that Form 656-L is not the proper form to use.
What are the Requirements for a Doubt as to Liability Offer in Compromise?
The primary requirement for a Doubt as to Liability Offer in Compromise is that you have a legitimate doubt about the liability as to the amount of tax assessed by the IRS or that the tax liability exists. You cannot simply disagree about the fairness of the tax you owe.
A taxpayer will not qualify for a Doubt as to Liability Offer in Compromise under these circumstances:
- A final court decision has been rendered about your tax liability
- There is an ongoing bankruptcy case
- You owe the IRS restitution
- You have filed a Doubt as to Collectability Offer in Compromise for the same tax year
- You have an S-corp and made an election under IRS Code 965(i)
If you have filed Form 656-L, you remain liable for the amount of tax, along with any penalties and interest during the time the offer is pending. As a condition of making the offer, you must submit payments, which the IRS can keep while the offer is under review — any over-collected amounts will be returned once a determination has been made on the offer. The IRS may also keep proceeds from any levies or wage garnishments in connection with the tax debt until it acknowledges the offer is pending. Once the offer has been signed, the IRS can no longer serve any levies. If your offer is rejected by the IRS, you may appeal within thirty (30) days.
How Much Should You Offer the IRS Based on Doubt as to Liability?
To make a Doubt as to Liability Offer in Compromise, you must offer the IRS an amount over zero dollars ($0.00). This offer should be based on what you believe the correct taxes should be — not how much you think you should owe. Other remedies may be available based on your specific circumstances. You should discuss your situation with an experienced tax attorney who can advise you regarding the best course of action in your case.
Contact an Experienced New York Tax Attorney
If you have been assessed tax that you don’t believe you are liable to pay, it’s essential to consult with a tax attorney — you may be able to file a Doubt as to Liability Offer in Compromise. Offering high-quality representation and dependable counsel, the legal team at Brinen & Associates assists clients with a broad scope of tax matters at both the state and federal levels. Call (212) 330-8151 or send us a message to learn more about how we can assist you.