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Offer in Compromise

Offer in Compromise-Doubt as to Liability

By April 2, 2012May 21st, 2022No Comments

An offer in compromise is an agreement between you and the Internal Revenue Service (IRS) that settles a tax debt for less than the full amount owed. The program provides eligible taxpayers with a path toward paying off their tax debt and getting a “fresh start.” The ultimate goal is a compromise that suits the best interest of both the taxpayer and the IRS.

If you have a legitimate doubt that you owe part or all of the tax debt, you will need to complete a Form 656-L in Offer in Compromise (Doubt as to Liability). Submitting an offer application does not guarantee that the IRS will accept your offer. It begins a process of evaluation and verification by the IRS.

Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax debt under the law. Doubt as to liability does not exist if the tax debt has been established by a final court decision or judgment concerning the existence or amount of the tax debt.

You must provide supporting documentation or evidence that will help the IRS identify the reason(s) you doubt the accuracy of the tax debt to obtain tax relief. You must include a written statement explaining why the tax debt or portion of the tax debt is incorrect.

The amount of your offer should be based on what you believe the correct amount of the tax debt should be, not what you owe. You must offer more than zero ($0).

Generally, you will send in a doubt as to liability offer when you were unable to dispute the amount of tax the IRS claims you owe during the time allowed by the Internal Revenue Code or IRS guidelines. Possible reasons for submitting a doubt as to liability offer in compromise include the following: the examiner made a mistake interpreting the tax law, the examiner failed to consider the evidence presented; new evidence is available to support a change to the assessment. Below are some examples of when it may be appropriate to make an offer based on doubt as to liability.

Example 1: You filed your tax return reporting stock options as valued by your employer, which created a large tax liability including Alternative Minimum Tax (AMT). You paid part of the tax debt, but could not pay the full amount owed. You later discovered that the stocks were not worth as much as you originally reported. This was due to fraudulent acts by the broker and/or your employer. You filed a claim for a refund based on the reduced value of stock options. IRS told you that the full amount of the tax debt had to be paid before they could consider your claim and denied your claim for refund.

Example 2: You were audited by the IRS. When this happened, you moved and did not get the notification or you suffered a disaster (such as books and records were destroyed in a fire or other natural disaster) causing you to miss the meeting with the auditor. The IRS disallowed all expenses and now you have a tax debt. You discover the problem when you try to borrow some money and find that there is a federal tax lien filed. You are able to reconstruct your books and records with the correct expenses that would significantly lower your tax debt.

Example 3: You are an officer of a corporation that has employees. You are not in a decision-making position nor do you have the authority to pay bills or sign checks. The business is struggling to make ends meet. In order to pay suppliers, the money that should have been paid to the IRS as a federal tax deposit was used to continue business operation. In an effort to collect the trust fund part of the employee’s wages, the IRS assessed the trust fund portion of the tax against you and all the other officers of the corporation. You were not a person responsible for collecting and paying the withheld income and employment taxes. You have supporting statements and documentation to support that fact.

Doubt as to liability is an under-used tool and in certain circumstances may be helpful in resolving your IRS tax problems. If you believe that a doubt as to liability offer in compromise may provide you tax relief, you should consult with a CPA or tax attorney with experience in IRS collection matters.

Contact Us 

You deserve the best in IRS tax representation, tax preparation, and tax planning services. At East Coast Tax Consulting Group, you’ll work with a licensed CPA who will handle your case from beginning to end. We invite you to contact our team to schedule a free, confidential consultation.

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