Form 656-L is your tool when you genuinely believe you don’t owe part or all of a tax debt that the IRS claims you owe. Unlike the regular Offer in Compromise (Form 656), which applies when you agree you owe taxes but can’t afford to pay, Form 656-L specifically addresses cases where there’s a legitimate dispute about whether the tax is actually owed.

What the Form Is For

Form 656-L applies to cases involving “doubt as to liability” (DATL) — meaning there’s a real question about the existence or amount of the correct tax debt.

Examples include:

• An IRS examiner misapplied tax law or ignored evidence during an audit
• The tax was assessed incorrectly
• The IRS failed to consider new evidence

This form allows you to propose settling the disputed debt for what you believe the correct amount should be — which could be substantially less than the IRS claim, or even nothing.

Important: This form is not for taxpayers who agree they owe the tax but cannot pay. Those situations require Form 656 (Doubt as to Collectibility).

IRS.gov

When You’d Use It (Including Late/Amended Situations)

Form 656-L should only be used after exhausting all other remedies. It’s generally a last resort when other dispute options haven’t worked or aren’t available.

Appropriate Situations

Submit Form 656-L when:

• An IRS examiner made a mistake and you missed the appeal deadline
• Records were lost (e.g., fire or flood) and expenses were wrongly disallowed
• You discovered errors in how your tax was calculated, but the appeal period expired
• New evidence has emerged that wasn’t available before
• Audit reconsideration was denied and you didn’t appeal

Inappropriate Uses

Do not use Form 656-L for:

• Errors on your original return → use Form 1040-X
• IRS-prepared substitute returns → file your own return
• Recent audit disputes → request audit reconsideration (Publication 3598)
• Penalty relief only → use Form 843 or first-time abatement
• CP2000 (unreported income) notices → respond directly to the notice
• Inability to pay → use Form 656 (Doubt as to Collectibility)
• ACA or Marketplace tax issues → file Form 1040-X
• Worker classification → submit Form SS-8
• Injured spouse claims → use Form 8379

Form 656-L is reserved for taxpayers who’ve gone through normal dispute channels and need one last opportunity before IRS collection begins.
IRS.gov

Key Rules and Requirements

Before filing, ensure you meet all eligibility and filing requirements.

Ineligibility Criteria

You cannot file Form 656-L if:

• You’re in bankruptcy
• You owe DOJ restitution (IRS can’t compromise restitution)
• You already have an accepted offer for the same tax year
• Your ITIN has been deactivated
• The tax debt was finalized by court decision or judgment
• You made an IRC §965(i) election for the liability at issue

Critical Filing Requirements

• Offer amount: At least $1, based on what you believe the correct tax is
• Written explanation: Required — explain why the tax is incorrect
• Supporting documentation: Provide proof (receipts, IRS correspondence, expert statements, etc.)
• Signature: Must be signed by you or an authorized representative
• No payment required: No fee or initial deposit — any money sent will be applied to your tax balance, not refunded

You cannot submit both Form 656 (Collectibility) and Form 656-L (Liability) at the same time.
The collectibility offer will be returned without consideration.

IRS.gov

Step-by-Step Filing Process (High Level)

Follow these key steps to prepare and submit Form 656-L properly.

Step 1: Verify Eligibility

Use the DATL Pre-Qualifier Assessment (pages 4–5 of the instructions).
This tool determines whether Form 656-L is appropriate for your situation.

Step 2: Gather Documentation

Collect:

• Audit reports
• IRS correspondence
• Financial records and receipts
• Any new or previously unavailable evidence

If you can’t reconstruct all records, explain why and show reasonable doubt exists.

Step 3: Calculate Your Offer Amount

Base your offer on what you believe the correct tax should be.
If you believe you owe nothing, you must still offer at least $1.

Step 4: Complete the Form

• Fill out Sections 1–2 (taxpayer and tax period info)
• Enter your offer amount in Section 3
• Review Section 4 (Terms and Conditions)
• Write your detailed explanation in Section 5
• Sign and date Section 6
• If using a preparer, complete Sections 7–8

Don’t include any payment with your form.

Step 5: Include Supporting Materials

Attach:

• Written statement
• Supporting evidence and documentation
  Use the checklist on page 9 of the form to ensure completeness.

Step 6: Mail Your Package

Send to:
Brookhaven Internal Revenue Service COIC Unit
P.O. Box 9008, Stop 681-D
Holtsville, NY 11742-9008

Step 7: Wait for Acknowledgment

You’ll receive a letter acknowledging receipt and an estimated contact date.
Processing can take several months to 24 months.
IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Using the Wrong Form

Use Form 656 if you agree you owe the tax but can’t pay.
Form 656-L is only for disputing whether you owe it.

Mistake #2: Missing a Written Explanation

Failure to explain why the tax is incorrect is the #1 reason for rejection.
Include a clear statement in Section 5.

Mistake #3: Not Exhausting Other Remedies

If you still have open dispute options (e.g., appeal or audit reconsideration), your offer will be returned.
Use the DATL Pre-Qualifier to confirm readiness.

Mistake #4: Sending Payment

No fee or deposit required — any payment will be applied to your balance, not refunded.

Mistake #5: Filing Both Offer Types

Do not file Form 656 and Form 656-L simultaneously.
The collectibility offer will be returned without review.

Mistake #6: Offering $0

Offers must be at least $1, even if you believe you owe nothing.

Mistake #7: Missing Signatures

Unsigned forms are automatically returned.
Both spouses must sign joint offers.

IRS.gov

What Happens After You File

Initial Processing (Within 15 Days)

Per IRM 5.19.24, tax examiners will verify:

• Signature
• Written explanation
• Documentation completeness

If incomplete, the IRS returns your offer without review.

Pending Status

Your offer is pending from the date the IRS signs it for processing until they accept, reject, return, or acknowledge withdrawal.

During this period:

• The collection statute of limitations is suspended
• IRS generally won’t levy property
• Time to assess liability is extended
• You must continue filing current taxes

Investigation Period

The IRS may take up to 24 months to investigate.
An examiner may contact you for clarification or more documentation.

Automatic Acceptance Rule

By law, if no decision is made within 24 months, your offer is automatically accepted.

Decision Outcomes

• Accepted: You’ll receive written confirmation and must pay within 90 days.
• Rejected: You have 30 days to appeal using Form 13711.
• Returned: Usually due to incomplete forms or ineligibility; you can resubmit after correction.

If you default after acceptance, the IRS may reinstate your full tax debt, with penalties and interest.

IRS.gov

Frequently Asked Questions

How long does the Form 656-L process take?

Up to 24 months, depending on complexity and IRS workload.
If no decision within that time, your offer is automatically accepted.

Can I file Form 656-L if I’m already on an installment agreement?

Yes. You may continue your offer without making installment payments during review — but you must file current returns and pay ongoing taxes.

What happens if my offer is rejected?

You have 30 days to appeal to the IRS Independent Office of Appeals using Form 13711.
During this time, the IRS cannot levy your property.

Will the IRS file a tax lien while my offer is being considered?

Yes, they may. However, if your offer is accepted, the lien is usually released within 45 days after final payment.

How much should I offer?

At least $1, representing what you believe the correct tax should be.
Your offer should reflect a good-faith recalculation of your actual liability.

What if I realize I should’ve filed an amended return instead?

If your dispute involves errors on your original return, file Form 1040-X instead of Form 656-L.

Can I hire someone to help me?

Yes. Include Form 2848 (for representation) or Form 8821 (for information sharing) with your application.
Sections 7 and 8 are reserved for preparers.

Additional Resources

• Download Form 656-L: IRS.gov/pub/irs-pdf/f656l.pdf
• Offer in Compromise Main Page: IRS.gov/payments/offer-in-compromise
• Topic No. 204, Offers in Compromise: IRS.gov/taxtopics/tc204
• IRM 5.19.24 (DATL OIC): IRS.gov/irm/part5/irm_05-019-024
• Taxpayer Advocate Service: TaxpayerAdvocate.irs.gov or call 877-777-4778
• IRS Toll-Free Help: 1-800-829-1040
• Forms & Publications: 1-800-TAX-FORM (1-800-829-3676)

This guide provides comprehensive information about Form 656-L, based exclusively on official IRS sources.
Because tax disputes can be complex, you may benefit from consulting a qualified tax professional to determine if this form is right for your situation.