Glossary

IRS Form 656-L Offer in Compromise

IRS Form 656-L lets taxpayers dispute incorrect tax liabilities. Unlike typical Offers in Compromise (OICs) based on inability to pay, 656-L challenges the *amount* owed due to errors. It requires detailed explanations, supporting documentation, and a proposed settlement. Failure to provide accurate information may lead to rejection or further penalties. Successful use reduces tax burdens and provides recourse against inaccurate assessments.

Understanding IRS Form 656-L: Offer in Compromise

The IRS Form 656-L, Offer in Compromise, is a special tax form used by taxpayers who wish to dispute their tax liability with the Internal Revenue Service (IRS) when they believe the assessed amount is incorrect. This form offers a pathway for taxpayers to potentially reduce their tax debts by negotiating a settlement amount with the IRS.

What Is IRS Form 656-L and Its Primary Purpose?

The primary purpose of IRS Form 656-L is to allow taxpayers to make an Offer in Compromise (OIC) based on doubt as to liability. This differs from the more common OIC submissions, which are based on “doubt as to collectibility,” where taxpayers argue they cannot pay the full tax debt. Instead, Form 656-L is used when taxpayers firmly believe that some or all of the debt the IRS says they owe is incorrect.

For example, if a taxpayer believes that an error was made in their tax assessment, due to either a clerical mistake or misinterpretation of tax law by the IRS, they can use Form 656-L to submit their offer to settle the tax liability based on what they believe is truly owed.

Key Features or Components of Form 656-L

1. Reason to Doubt Liability: Taxpayers must clearly describe the reason they believe their tax liability is incorrect. It requires detailed explanations and supporting documentation that bolster the argument of why the assessed tax should be reconsidered.

2. Required Documentation: Alongside Form 656-L, the taxpayer must include all documentation supporting their claim. This can consist of financial records, previous tax returns, or legal documents that provide evidence of the alleged error or miscalculation.

3. Settlement Offer: Like other types of Offers in Compromise, Form 656-L requires the taxpayer to propose a settlement amount to pay the IRS in lieu of the full amount they are contesting.

Filing and Compliance Requirements

When filing Form 656-L, some important requirements and considerations include:

Filing Fee: Typically, the filing of an Offer in Compromise requires a fee, but this can be waived in some cases of financial hardship. It’s crucial to ensure the correct fee (if applicable) accompanies the submission.

Filing Location: Each form comes with detailed instructions on where to file based on the taxpayer’s location or specific circumstances.

Complete and Accurate Information: The taxpayer must ensure all the information on the form is accurate and truthful. Any discrepancies or omission can lead to reject of offer or invite stricter scrutiny by the IRS.

Consequences of Non-Compliance

If a taxpayer submits a Form 656-L without sufficient backing or on erroneous grounds, the IRS may reject the offer. Incorrect or incomplete submissions also risk further inquiries or audits by the IRS, as this could raise red flags about the taxpayer’s overall filing compliance.

Moreover, if after investigation, it’s found that the taxpayer owes more than initially assessed, penalties and interest might apply, exacerbating their tax liability and financial strain.

Importance of IRS Form 656-L in Tax Resolution

This form comes as a significant saving grace for taxpayers who genuinely believe their tax assessment contains errors. Successful submission can lead to reductions in owed taxes, removing inflated debt burdens.

For many taxpayers, simply knowing the opportunity to dispute discrepancies exists provides peace of mind. It encourages correctness in tax filing and ensures that aggrieved individuals or businesses have recourse to challenge perceived injustices in tax assessments.

Furthermore, as with any component of tax law, the Form 656-L process fosters a taxpayer’s better understanding of their rights and obligations under U.S. tax codes. It emphasizes the necessity for thorough documentation and clear communication with the IRS.

Conclusion

IRS Form 656-L plays a crucial role in helping taxpayers resolve disputes they may have over the amount of tax liability designated by the IRS. It is a vital tool for ensuring tax accuracy, providing a legal and organized procedure for challenging what taxpayers perceive as inaccurate assessments. Those seeking to leverage this form should be diligent in their documentation and precise in their arguments, maximizing their chance for a favorable resolution. As always, consulting tax professionals or advisors can be advantageous in navigating through the complexities of tax disputes with the IRS.

Recommended for You

Urban Public Garden Credit

The Urban Public Garden Credit is a tax incentive designed to encourage the development and maintenance of gardens in urban areas. It supports environmental sustainability and community well-being by offering tax deductions or credits to individuals or organizations that create and maintain public green spaces.

Form 8879 – IRS e-file Signature Authorization

Form 8879 is the IRS document that allows a tax professional to electronically file your tax return on your behalf, acting as your signature when you're not submitting the return directly. It’s a critical part of the e-filing process when you use a tax preparer.

Tax Credit for Affordable Green Solutions

Tax credits for affordable green solutions encourage investments in renewable energy technologies, offering financial incentives for eco-friendly upgrades.

Letter 3276: Offer in Compromise Partial Payment Request

Letter 3276 from the IRS is a request for a partial payment when you've submitted an Offer in Compromise (OIC). It indicates the IRS is considering your OIC but wants to see some money upfront.

Air Quality Testing for Business Premises Deduction

Air quality testing for business premises may be tax-deductible under certain circumstances, helping ensure a safe workplace while providing potential financial benefits.

Affordable Public Transit Credit

The Affordable Public Transit Credit is a tax benefit designed to encourage individuals to use public transportation, helping reduce commuting costs and support environmental sustainability.

CP01 Notice

A CP01 Notice from the IRS confirms they've received your tax return. It also indicates that they're processing it, and you may not need to do anything else.

Failure to Deposit Penalty

A failure to deposit penalty is a charge the IRS imposes when businesses don't deposit their payroll taxes or other required taxes on time. This penalty can add significant costs to a business, so avoiding it is important.

IRS Lien Removal

IRS Lien Removal involves the process of eliminating a lien placed by the IRS on a taxpayer's property due to unpaid taxes. Understanding this process can help safeguard your financial assets.

CP275 Notice for Missing Partnership Schedule K-1

The CP275 Notice is an IRS notification to a taxpayer about a missing Schedule K-1 from their tax filings. It is crucial for addressing discrepancies in partnership income reporting.

Form 8689 – Allocation of Individual Income Tax to the U.S. Virgin Islands

Form 8689 is used to figure out how much of your federal income tax goes to the U.S. Virgin Islands if you have certain income from that area. It's crucial for individuals with ties to the USVI.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a refundable tax credit for low-to-moderate income working individuals and families, designed to reduce the tax burden and supplement income. It can be a big help for those who qualify.

CP297A Notice: Notice of Levy on Social Security Benefits

The CP297A Notice is a formal notification from the IRS that they intend to take a portion of your Social Security benefits to pay off outstanding taxes you owe. It's a serious matter, but understanding it is the first step to resolving it.

Tax Credit for Urban Renewable Development

The Tax Credit for Urban Renewable Development incentivizes investment in urban areas by offering tax benefits for projects that rejuvenate infrastructure and promote sustainability.

Workforce Green Electrification Development Credit

The Workforce Green Electrification Development Credit is a tax incentive that supports renewable energy projects and workforce training in green electrification.

Maintenance of Business-Owned Housing Units Deduction

The Maintenance of Business-Owned Housing Units Deduction provides tax relief for businesses maintaining housing properties. It encourages upkeep and enhances property value.

Event Tickets for Networking Purposes Deduction

Event tickets purchased for business networking may be tax-deductible. Understanding criteria and compliance can help maximize tax benefits and minimize errors.

Financial Hardship Plan Request

A Financial Hardship Plan Request helps taxpayers facing economic difficulties manage their tax obligations more effectively. It offers options like payment plans and deferments.

Renewable Energy Workforce Electrification Incentive Credit

The Renewable Energy Workforce Electrification Incentive Credit is a tax credit designed to encourage hiring and training in the renewable energy sector.

Form 5471-A – Information Return of Controlled Foreign Corporations

Form 5471-A is an information return that certain U.S. persons must file to report information about a controlled foreign corporation. It helps the IRS track the financial activities of these international entities.