What Form 656-L Is For
Form 656-L, Offer in Compromise, is a specialized Internal Revenue Service form used to resolve disputes involving doubt as to liability. It allows taxpayers to challenge an incorrect tax assessment or original tax debt when errors occurred during previous tax filings or audits. The form serves both individual and business taxpayers who believe the full amount claimed under the tax law does not accurately reflect their tax liability.
This process supports effective tax administration and ensures fairness for taxpayers facing inaccurate assessments. It requires a written statement explaining the disputed liability and supporting documentation that proves the correct tax amount.
When You’d Use Form 656-L
Form 656-L, Offer in Compromise, is used when taxpayers dispute a tax debt based on doubt as to liability. It helps correct inaccurate tax assessments made during prior tax filings or examinations. Both individual and business taxpayers may qualify if their tax bill was miscalculated under the tax law.
Eligible Situations
The form applies when the Internal Revenue Service misapplies the tax code or when new evidence changes the original tax debt. It may also be used if appeal or audit reconsideration deadlines have expired. Individuals experiencing financial hardship or those with open bankruptcy cases should consider alternative options.
Step-by-Step Filing Process
Filing Form 656-L, Offer in Compromise, involves completing specific steps that ensure proper evaluation by the Internal Revenue Service. Each step helps taxpayers clearly present their claim of doubt as to liability and provide complete financial and factual documentation. Accuracy and organization are essential throughout the process.
- Confirm Eligibility: You must verify that your case involves a disputed tax liability rather than financial hardship or inability to pay.
- Prepare Documentation: Gather tax filings, audit reports, and financial disclosures that support your position on the correct tax amount.
- Complete the Form: Include your identifying details, tax periods, and a written statement explaining why the tax debt is inaccurate.
- Submit the Package: You must mail the form and all supporting documents to the designated IRS address for review of Form 656-L.
Common Mistakes and How to Avoid Them
Filing Form 656-L, Offer in Compromise, requires precision and full compliance with Internal Revenue Service guidelines. Many taxpayers make errors that cause delays or rejections, often due to a misunderstanding of the filing process. Recognizing these issues and learning how to avoid them ensures the claim for doubt as to liability receives proper review.
- Using the Wrong Form: Always verify eligibility before submitting your form. Use Form 656-L for liability disputes and Form 656 for financial hardship cases.
- Missing Written Statement: Include a detailed written statement explaining your position under tax law and attach all supporting documents.
- Incorrect Offer Amount: Offer at least one dollar to meet IRS acceptance standards, even when disputing the full tax amount.
- Unsigned Forms: Double-check all signatures, especially for joint offers, to prevent automatic rejection.
- Incomplete Documentation: Organize tax filings, audit reports, and financial disclosures to strengthen your case and demonstrate accuracy.
Avoiding these mistakes helps streamline the compromise process and improves your chances of timely acceptance. Thorough preparation shows responsibility and ensures fair treatment under the effective tax administration process.
What Happens After You File
Once the Internal Revenue Service receives your Form 656-L Offer in Compromise, it reviews the application for accuracy and completeness. The review confirms that your written statement, supporting documentation, and identifying details meet the requirements for cases involving doubt as to liability. During this stage, your case is placed in pending status, and IRS collection actions on the disputed tax debt are temporarily suspended.
A tax examiner evaluates your financial disclosures, written explanation, and all evidence provided. The process can take several months, depending on complexity. If the IRS accepts your offer, you must pay the amount that has been approved. Rejected offers may be appealed within 30 days, while unresolved cases after 24 months are automatically accepted under federal tax law.
Frequently Asked Questions
What is Form 656-L, Offer in Compromise, used for?
Form 656-L, Offer in Compromise, allows taxpayers to dispute a tax debt when there is doubt as to liability under federal tax law. It helps both individual and business taxpayers challenge an incorrect tax assessment or original tax debt through effective tax administration. The Internal Revenue Service reviews each case to confirm whether the disputed tax amount is valid under the tax code.
Can I use Form 656-L if I am facing financial hardship?
Form 656-L applies only to disputes about the correctness of a tax liability, not financial hardship. Taxpayers struggling to pay should use Form 656 under the offer in compromise program based on collectibility. The IRS evaluates financial disclosures and payment requirements separately for hardship cases.
What happens if the IRS rejects my Form 656-L?
If the IRS rejects your offer, you can appeal within 30 days of receiving written notification of the rejection. A comprehensive written statement explaining your position, along with supporting documentation, strengthens your appeal. Providing additional financial information or new evidence may help the IRS reconsider the decision under the compromise process.
How long does it take for the IRS to review my offer?
The Internal Revenue Service review process can take several months and may extend up to 24 months in exceptional circumstances. During this period, the collection period is suspended, and your case remains under evaluation. If no decision is made within 24 months, the offer is automatically accepted under the tax code.
Should I work with a tax professional when filing Form 656-L?
Working with a qualified tax professional can improve the accuracy of your written statement and supporting documents. They help ensure that your filing meets all requirements, including the correct use of identifying details like a Social Security number or employer identification number. Professional guidance can also help taxpayers prepare a strong case that aligns with practical tax administration goals.
