When most of us think of an Offer-In-Compromise (OIC), we think about where a Taxpayer owes and agrees that they owe an amount to the government, are unable to pay, and qualify to settle the debt with the government using an OICfor less than the full amount. This is the typical example of an OIC.
However, there are three types of Offers-In-Compromise:
- Doubt as to Collectability (the most frequent OIC referenced above),
- Doubt as to Liability, and
- Effective Tax Administration
Today we’ll discuss Doubt as to Liability and when we would use that option to deal with a tax issue. With Doubt as to Liability, the argument is not that the taxpayer can’t pay the tax but that the underlying liability is incorrect, and that they don’t owe the government the money. Typically, this happens when a taxpayer goes through audit, they don’t agree with the findings, perhaps the auditor simply ignored the documentation supplied, but they don’t go to appeals to fight the tax assessment. Filing a Doubt as To Liability is One Option to address this issue once the tax has been assessed.
The assessed tax then goes into the collection group. One option at this point is to file a Doubt as to Liability and submit the documentation that supports why you don’t owe the tax. Because it is an Offer In Compromise, you need to make an offer even if you feel you don’t owe the tax. You can make a nominal offer, for example $100, but you must make an Offer to be considered.
The Taxpayer would request file the request using IRS Form 656-L and provide the needed documentation to support the position that they tax is not owed. The Taxpayer does not need to Complete Form 433 since collection is not the issue with the offer. The Taxpayer must meet all other requirements to file an OIC such as being in Tax Compliance. The application process is the same as other Offer-In-Compromises including appeals available if rejected.
Do You Need Help?
If you need help with an Offer In Compromise or any other IRS issue, please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.