A Lifeline for Taxpayers Struggling with Tax Debt
For individual and business taxpayers grappling with outstanding tax liabilities they cannot afford to pay in full, the Internal Revenue Service (IRS) offers a potential solution: the Offer in Compromise (OIC) program. This arrangement allows taxpayers to settle their tax debt for less than the total amount owed, providing a much-needed lifeline in challenging financial circumstances.
The OIC is not a tax reprieve or a free pass; rather, it is a compromise that aims to satisfy both the taxpayer’s ability to pay and the IRS’s interest in collecting the maximum amount possible. However, navigating the OIC process can be complex, and understanding the nuances is crucial for increasing the chances of acceptance.
Doubt as to Liability: Challenging the Tax Debt Itself
In some cases, taxpayers may dispute the existence or the calculated amount of their tax debt altogether. This is where the “Doubt as to Liability” provision of the OIC comes into play. By submitting Form 656-L, taxpayers can present their case, including supporting documents and a written statement explaining why they doubt the accuracy of the assessed tax liability.
Notably, taxpayers pursuing the Doubt as to Liability option are not required to submit an application fee with their Form 656-L, alleviating an additional financial burden during an already challenging time.
Grounds for Doubt as to Liability
There are several circumstances under which taxpayers may submit an Offer in Compromise based on Doubt as to Liability. For instance, they may believe that the tax examiner misinterpreted the law or failed to consider relevant evidence during the assessment process. Additionally, if new evidence emerges that could potentially modify the tax liability, taxpayers can use this as grounds for their offer.
It’s important to note, however, that Doubt as to Liability cannot exist if the tax amount has been established as final through a court decision or if it was based on an estimated assessment.
One Offer at a Time
Taxpayers cannot simultaneously file both Form 656-L (Doubt as to Liability) and Form 656 or 656-B (Doubt as to Collectibility). This would effectively be claiming doubt about the accuracy of the tax amount while also asserting an inability to pay within the specified collection period. The IRS requires taxpayers to first resolve any disputes over the tax liability itself before considering their ability to pay.
Maximizing the Chances of Acceptance
Navigating the Offer in Compromise process can be complex, and having a competent and experienced tax professional by your side can significantly increase the chances of acceptance. A skilled tax advisor can guide you through the process, assist in preparing Form 656-L and supporting documentation, and ensure that your case is presented in the most compelling manner possible.
For taxpayers drowning in tax debt they cannot realistically pay, the Offer in Compromise program provides a potential lifeline. By understanding the nuances of the process, particularly the Doubt as to Liability provision, and seeking professional guidance, taxpayers can increase their chances of reaching a favorable settlement with the IRS and finding a path toward financial relief.
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