Doubt as to Liability Offer in Compromise
Offer in Compromise Doubt as to Liability is an IRS Settlement option if you do not believe the back taxes you owe are correct. If there was an error made b the IRS, your accountant, or you, Offer in Compromise Doubt as to Liability can be filed to correct the error and reduce the taxes owed.
Doubt as to Liability – 2 Examples
Example 1 – 2009 Tax Audit
You obtain a free credit report. You notice a $25,000 IRS tax balance on the credit report. You are confused. You do not owe back taxes! You call the IRS to figure out what is going on. The IRS informs you that your 2009 return was audited. Your immediate reaction is 'What audit?' The IRS tells you that your return was audited a year ago and that they disallowed all your write-offs because you did not respond to the audit. You figure out that you moved and the IRS did not have your new address.
You can file Offer in Compromise Doubt as to Liability to fix this because you do not believe the IRS correctly audited your 2009 tax return and you didn't have the chance to provide the IRS all your receipts supporting the write-offs.
You file an Offer in Compromise Doubt as to Liability to contest the audit done by the IRS. You offer $1 to settle the $25,000 of taxes. (You must offer more than $0)
The IRS reviews your receipts for the write-offs. If the receipts support the write-offs, the IRS will accept a settlement for $1.
Example 2 – 2005 Amended Tax Return
Your 2005 tax return was filed by a CPA. There is a $50,000 tax bill. You do not think the 2005 tax return is correct, so you find a new CPA. The new CPA reviews your 2005 tax return and noticed errors made by your old CPA. The new CPA recommends amending the 2005 tax return. If the 2005 tax return is amended, you will owe $10,000.
The new CPA files an amended 2005 tax return. The IRS never processes the amended 2005 tax return. It has been two years and you still owe $50,000 for 2005. You can file an Offer in Compromise Doubt as to Liability with the amended 2005 tax return. You would offer $10,000 to settle the $50,000 of taxes.
The IRS reviews your amended 2005 tax return. If the IRS agrees with the amended 2005 tax return, the IRS will accept the $10,000 settlement.
Preparing Doubt as to Liability Offer in Compromise
Your Offer in Compromise should be well supported. This includes third party documentation and/or relevant tax authority. For example, if you believe the taxes owed should have been discharged in bankruptcy, you would provide the IRS with bankruptcy documentation. You would also put a tax case together on why the IRS should remove the taxes. The following are sources for relevant tax authority.
Primary sources of tax authority:
– Internal Revenue Code
– Legislative Intent
– Treasury Interpretations
– Judicial Interpretations
Secondary sources of tax authority:
– Staff of the Joint Conference Committee
– Journal Articles
Learn More About Calculating an Offer in Compromise
Free eBook Download
4 Steps to Calculating an Offer in Compromise
Learn step-by-step how to calculate an offer in compromise and whether a tax settlement is possible for your situation.
Doubt as to Liability – 9 Steps to Acceptance
1) Prepare Form 656L, Offer in Compromise Doubt as to Liability, with supporting documentation
2) Mail the prepared Offer in Compromise via Certified Mail
3) The IRS will mail you a letter of Offer submission within 30 days.
4) The IRS will hold off on collecting back taxes while your Offer in Compromise is pending
5) Your Offer in Compromise will be assigned to an IRS Offer Specialists
6) The IRS Offer Specialist will review the Offer with you or your representative.
7) The IRS Offer Specialist will accept or deny the offer
8) If your Offer in Compromise is denied, you have the right to appeal the decision
9) If your Offer in Compromise is accepted, you have 90 days to full pay the settlement amount
Doubt as to Liability Offer in Compromise is not as popular as the Doubt as to Collectability Offer in Compromise, but it can be just as effective in settling your back taxes if you qualify.