Form 656-L: Offer in Compromise - Doubt as to Liability

Form 656-L is an official document used by taxpayers to propose a settlement with the IRS for an outstanding tax debt. This settlement is based on the taxpayer's argument that the tax liability is inaccurate, either partially or entirely.

What is Form 656-L?

Form 656-L is used specifically for taxpayers who have a legitimate disagreement with the amount of tax they owe. This disagreement, known as "doubt as to liability," can be due to various reasons, such as:

Errors in tax calculations: The IRS may have made a mistake in calculating your tax liability.

Incorrect filing: Mistakes made when filing your tax return could lead to an inaccurate assessment.

Deductions or credits: You believe you qualify for deductions or credits that the IRS has not applied.

Disputed income: There may be a disagreement about the classification of certain income.

What is the Purpose of Form 656-L?

The primary purpose of Form 656-L is to allow taxpayers to resolve tax disputes with the IRS through a compromise. This compromise involves the taxpayer offering a lump sum payment or a series of payments that is less than the total amount owed. The IRS, in turn, considers the offer based on various factors, including the validity of the taxpayer's arguments and their ability to pay the full amount.

Who Should Use Form 656-L?

Form 656-L is ideal for taxpayers who:

  • Believe they were assessed taxes incorrectly due to errors in filing or IRS calculations.
  • Dispute the classification of income or deductions that led to the tax liability.
  • Have extenuating circumstances, such as a natural disaster or illness, that significantly impacted their ability to pay taxes.

What Form 656-L Does Not Cover?

Disagreements settled by final decisions: If a court has already issued a final judgment concerning the existence or amount of your tax debt, you cannot use Form 656-L.

Inability to Pay (Doubt as to Collectibility): This form is strictly for disputes about the validity of the tax itself. If you simply cannot afford to pay the full amount you believe you owe, you should explore Form 656, Offer in Compromise (Doubt as to Collectibility).

What are some common reasons for using Form 656-L?

  • Math errors: The IRS may have made a mathematical error in calculating your tax liability.
  • Incorrect filing status: The IRS may have assigned you the wrong filing status, impacting your tax calculation.
  • Deductions or credits: You may have valid deductions or credits that were not applied to your return.
  • Business income/expenses: For businesses, discrepancies in income or expense reporting could lead to incorrect tax assessments.

How Do I Submit Form 656-L?

You can download Form 656-L attached below. Once completed, you can mail the form along with supporting documentation to the designated IRS address provided in the instructions.

What Happens After I Submit Form 656-L?

The IRS will review your offer and supporting documents. They may request additional information or schedule a meeting to discuss your case further. The evaluation process can take several months, so be prepared to wait for a response.

What Happens if My Offer is Rejected?

If the IRS rejects your initial offer, you may have the opportunity to negotiate a revised offer. Alternatively, you can choose to pursue other options for resolving your tax debt, such as requesting an installment plan or filing an appeal with the IRS.