IRS Form 656-L: Offer in Compromise (Doubt as to Liability)

IRS Form 656-L is the lesser-known sibling of Form 656 — it is the form you use when you believe the IRS assessed the wrong amount of tax against you, not when you simply cannot afford to pay what they say you owe.

Most people know that the IRS has a program to settle tax debt for less through an Offer in Compromise. What fewer people know is that the program has two entirely different tracks. Form 656 is for taxpayers who accept that they owe the tax but cannot pay it in full. Form 656-L is for a fundamentally different situation: you are saying the IRS got the number wrong.

Who Should File Form 656-L

Form 656-L is appropriate when:

• The IRS assessed a tax through an audit, and you believe the audit findings were factually or legally incorrect
• You were assessed a tax on income you never received or that was someone else’s income
• The IRS made a computational error that resulted in a higher tax bill than you legally owe
• A substitute for return (SFR) was filed on your behalf by the IRS using incorrect figures, and you never had a prior opportunity to contest it
• You have deductions or credits that were disallowed but that you believe are legally valid

Form 656-L is not the right form if you agree on the tax amount but simply cannot afford to pay it. In that case, use Form 656 with Form 433-A. And if you are still within the time limits to file an amended return (Form 1040-X) or petition the Tax Court, those paths are often faster than a doubt-as-to-liability OIC.

How to Complete Form 656-L

Personal Information. Your name, SSN or EIN (if this involves a business tax), and current mailing address. Include your spouse’s information if the dispute involves a joint return.

Tax Periods and Amounts. List each tax year, the form type (typically Form 1040 or Form 941 for payroll taxes), and the specific amount the IRS has assessed. Then state the amount you believe is correct. If you believe the entire assessment is wrong, your offer amount can be zero.

Your Legal and Factual Argument. This is the core of the form. The IRS needs to understand exactly why you believe the assessment is wrong. A strong doubt-as-to-liability explanation includes: what the IRS assessed and why, which specific facts or legal rules you believe the IRS applied incorrectly, and what the correct outcome should be. Reference applicable code sections, regulations, or case law if you can. If you worked with a CPA or attorney, describe what advice you received and when.

Supporting Documentation. Attach everything relevant. This may include the audit report you are disputing, prior correspondence with the IRS, canceled checks, contracts, third-party records, or expert opinions. The more substantive your documentation, the more seriously the IRS will evaluate your claim.

Application Fee

Unlike Form 656, there is no $205 application fee for Form 656-L. The IRS does not require an initial payment either, because the premise of the offer is that the tax may not be legitimately owed at all.

Where to Submit

Mail Form 656-L to the IRS OIC unit. The mailing address varies by state — refer to the instructions included with the Form 656-L package downloaded from IRS.gov. Do not send it to your local IRS office or to the address on a general tax notice.

What Happens After Submission

The IRS will assign the case to an offer examiner who will review your argument and documentation. The examiner may contact you for additional information. If the IRS agrees that the liability was overstated, it will accept your offer. If it disagrees, it will issue a rejection notice and you have 30 days to appeal to the IRS Office of Appeals.

Common Mistakes to Avoid

• Using 656-L when you mean 656. These are fundamentally different submissions. If you cannot pay, use Form 656. If you dispute the amount, use Form 656-L.
• Filing 656-L when you still have appeal rights. If you can still file a Tax Court petition or an amended return, those may be faster and stronger paths.
• Weak explanations. Vague assertions that “the assessment is wrong” without legal or factual support are routinely rejected. Specificity is essential.
• Missing documentation. An explanation without evidence is not persuasive. Attach everything that supports your position.
• Expecting a fast resolution. Doubt-as-to-liability offers can take 12–24 months to resolve, especially if the disputed amount is large or the facts are complex.

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