When taxpayers owe money to the IRS, they may be able to negotiate a compromise to settle the tax debt for less than the full amount owed. To do so, the taxpayer must submit an offer in compromise. The purpose behind this option is to give taxpayers a way to pay off their debt and establish a fresh start. There are two different types of offers in compromise. It is important to understand the difference before you submit the wrong type of OIC.
The Differences Between “Doubt as to Liability” and “Doubt as to Collectability”
When seeking an offer in compromise, you either claim that you have a doubt as to the debt itself, or you don't dispute the debt, but instead claim that you are unable to pay the full amount that is owed. These offers are known as a “doubt as to liability” and “doubt as to collectability”, respectively. The following is an overview of the differences between the two:
- Doubt as to liability offers are based on a legitimate doubt that you owe any part of the tax debt.
- If you believe you do not owe part or all of the tax debt, you need to complete Form 656-L.
- There is no deposit or application fee due for a doubt as to liability offer.
- Doubt as to collectability offers are based on an agreement that you owe the taxes, but believe that you cannot pay the tax debt in full.
- An appropriate offer must be made based on what the IRS considers your true ability to pay.
- To submit a doubt as to collectability offer, you must complete Form 656-B.
It is important to note that you cannot submit both types of offers at the same time. If you do, the doubt as to collectability offer will not even be considered and will be returned to you. Instead, you may be better off trying to resolve any disagreements as to the validity of the tax debt before filing a doubt as to collectability offer.
To learn more about dealing with your tax problems, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.