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

Allison Blackham

Expert Contributor
Last Updated: December 9, 2021

At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is how we get compensated.

If a taxpayer doubts the validity of a total amount of taxes owed to the IRS, they can submit an offer in compromise (doubt as to liability).
This process begins an IRS review of all documentation supplied to determine whether the amount owed is accurate.
If approved, the offer made by the taxpayer ($1 or more) will be accepted in exchange for a full settlement of the back taxes.

Easy Article Navigation hide

1 Offer in Compromise (Doubt as to Liability)

2 Examples of Genuine Doubt

3 Supporting Documentation

4 Offer in Compromise

The IRS offers a program to taxpayers that allows for an individual who is unable to pay the full amount of back taxes owed to pay a lesser amount that settles the owed amount in full. This program is called the Offer in Compromise program and is available to those who meet certain criteria. However, if you have a legitimate doubt about the amount you owe in back taxes, you will need to go through a different process than making a traditional offer in compromise. This process should only be done if you have legitimate and provable concerns about how much is owed.

Offer in Compromise (Doubt as to Liability)

In the event that you owe more than you believe is accurate, you will need to submit an offer in compromise (doubt as to liability). You can do so by completing IRS Form 656-L, which allows you to dispute the amount of back taxes that is owed. When you complete and submit this form to the IRS, the process of review will begin. IRS officials will carefully evaluate the information you’ve sent and review your application to determine if an error was made in calculating your back taxes.

If the back taxes you owe has been established by a judgment in a court of law, a final court decision, or through current tax laws, it is unlikely that you can dispute the liability. However, if you have a genuine dispute about the amount of back taxes, you can submit a doubt as to liability offer to the IRS by completing the required form. You can dispute back taxes if you suspect an error was made by the IRS, your accountant, or even yourself.

Examples of Genuine Doubt

In some cases, taxpayers don’t even realize they have any outstanding back taxes with the IRS until years after the back taxes have been assessed. One example is a taxpayer who reviewed their credit report, only to find that the IRS had imposed $25,000 in back taxes due to an audit on a previous tax year. The taxpayer may not have received information about the audit, resulting in the IRS assessing the penalty due to no response. In this case, the taxpayer may choose to file Form 656-L because they don’t think the IRS performed an accurate audit.

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

Solvable Exclusive Offer

How Much Tax Debt Do You Owe?

Next >>

Recommended

In the offer, the taxpayer would have to offer at least $1 — as the amount offered cannot be $0 — and include any receipts and other supporting documentation for the audit. If the documentation substantiates the claim that the back taxes owed is not accurate, the IRS would accept the offer and settle back taxes.

See More >> This Guy Resolved His $8,597 Tax Debt - Learn His Methods!

Another example may apply if you rely on the services of an accountant to handle the tax preparation process on your behalf. You may change accountants partway through the process because the first accountant is making errors on your taxes, resulting in a substantial amount of taxes owed. Your new CPA recommends making an amendment of your taxes, but the IRS doesn’t process the request. You could end up with a back taxes with the IRS for the original amount, even if it was an error.

In this case, you would also qualify to file a doubt as to liability form, which would begin the review process with the IRS. You would need to include the documentation submitted through the amendment process, as well as proof that you submitted the amendment prior to the tax deadline. In your offer, you would include the corrected amount of taxes owed as the settlement amount. If the IRS determines that you are correct, it would accept the settlement.

Supporting Documentation

Every offer in compromise must be well-supported with any applicable documentation. You may need to prepare and send the following:

Financial records and statements.
Previous tax filings.
Bankruptcy documents.
Internal Revenue Codes.
Treasury interpretations.

Additionally, your offer in compromise submission must include an actual offer. As mentioned, an offer made due to doubt as to liability cannot be $0, but if you believe the back taxes is fully inaccurate, you could offer $1 as a settlement. If you need to make a correction to the amount owed due to an error in the tax filing or a change in the tax laws, you would submit an offer with the correct amount owed.

The IRS reviews an offer in compromise with two main objectives. The first is to determine whether an error was made in processing the amount of taxes owed. The second is to determine how easily the IRS could collect the full amount from you, the taxpayer. If an error was made and you have supplied the documentation to support it, the IRS is more likely to accept your offer.

However, if officials do not agree that an error was made and they believe you do owe the full amount, they will assess whether they can collect the full amount from you in a reasonable amount of time. The IRS can turn the process of enforced back taxes collection to the Department of Treasury. This department can garnish wages, tax refunds, and other funds to collect your back taxes.

See More >> How One Woman Crushed $300,000+ of Student Loan & Mortgage Debt

However, the IRS will look at your assets and living expenses in order to determine whether you are able to pay the back taxes. If the offer you make is more than what it expects to collect in a reasonable timeframe, it may accept.

Offer in Compromise

If you aren’t disputing the amount of tax owed but you are unable to pay the full amount, you should not fill out Form 656-L. Instead, you will need to go through the process of submitting an offer in compromise to request the option to pay a lesser amount in exchange for payment in full. This program allows taxpayers to pay off their back taxes and enjoy a fresh financial start.

Navigating the complex world of the IRS and back taxes can be overwhelming. At Solvable, we’re here to help with personalized education and back tax assistance resolution services. If you’re struggling to know where to turn for help with your back taxes, learn more about Solvable and take the first step toward financial freedom.

Allison Blackham

Expert Contributor
Last Updated: December 9, 2021

Solvable is a Trusted Source For