When can you file an Offer in Compromise based on Doubt as to Liability?

If you are charged with delinquent taxes that you genuinely feel you do not owe, there is a process you can use to challenge the tax.  It is the Offer in Compromise based on “Doubt As To Liability”. There is no filing fee for this Offer.  As the name implies, you state to the IRS that you do not think you owe the tax.  However, you

 

 

must convince the service of that!  In addition, this must be the first time that you have challenged the validity of the tax.  If you’ve appealed the imposition of the tax previously and lost, you cannot later file this Offer in Compromise.  This Offer does not depend on whether or not you have enough money to pay the tax, only whether or not you owe it.

One situation where this approach works is if the tax was assessed more than ten (10) years ago.  If the tax hasn’t been collected within ten years, they cannot force you to pay the tax.  Of course, there are several events that can toll  (i.e. stop the statute from running) the statute for a period of time.  Examples are if you file bankruptcy or file an Offer In Compromise.  Another situation where liability is doubtful is when an employer files a W-2 or 1099 form with the wrong information.  Many times this is hard to untangle but it can be done.  Another common example is when the IRS is trying to impose the Trust Fund penalty on an employee of a corporation.  This is when the individual has to pay the employees’ portion of employment taxes because the corporation did not.  To win this one, the employee must convince the IRS that she did not have the authority to direct the payment of money to someone other than the IRS.  Each case will be assessed on an individual basis.

Finally, if you file this Offer and eventually lose, you can still file an Offer based on Doubt as to Collectibility, if you otherwise qualify, i.e. if you do not have enough money or assets to pay the tax in full.