Doubt as to liability offers on Form 656-L

What DATL covers

Form 656-L (Rev. 7-2026) defines the ground: “DATL exists where there is a genuine dispute as to the existence of or the amount of the correct tax debt under the law.” The offer amount should be what the taxpayer believes is the correct liability. It is not a hardship tool. The form says it in capitals: “If you agree that you owe the tax but cannot afford to pay, DON'T FILE a Form 656-L.” That case belongs on Form 656 as a doubt as to collectibility offer.

Congress built two protections into IRC 7122(d)(3)(B) for liability-only offers: such an offer “shall not be rejected solely because the Secretary is unable to locate the taxpayer's return or return information for verification of such liability”, and the taxpayer “shall not be required to provide a financial statement”. IRM 5.8.4.21.4 adds that “The taxpayer is not required to submit an application fee or any TIPRA payments with a DATL offer.” It also states that “Current compliance and submission of financial statements are NOT required”, and that the five-year compliance terms do not apply after acceptance.

Use the other remedies first

The form says a taxpayer “should only submit a DATL offer if you are unable to dispute the amount of tax the IRS claims you owe during the time allowed by the Internal Revenue Code or IRS guidelines.” Its pre-qualifier routes most disputes elsewhere, and for liabilities other than the trust fund recovery penalty (TFRP) or personal liability for excise tax (PLET), those options should be pursued before an offer:

The form's own examples show the intended use: a taxpayer who never received audit notices because they moved, had all expenses disallowed, requested audit reconsideration, got an adverse result and did not appeal; or a taxpayer whose stock option income was overstated by fraud who filed a 1040-X and was told to pay in full before a refund claim could be considered. In both, the DATL offer comes after the normal route is exhausted. The form makes the sequence a condition rather than a suggestion: “You must request audit reconsideration before submitting a DATL offer.” If an adverse reconsideration determination is not appealed, the offer may follow; if the reconsideration or another IRS function is still working the liability, the form says “you must wait until that process is complete,” and “Failure to resolve outstanding issues may result in the IRS returning the DATL offer without further consideration.” The form also rules out two categories at the threshold: “A DATL offer cannot be considered if the liability has been established by a final court decision or judgment, or if the assessed tax is based on current law.” The second clause is the one that defeats most weak offers. Doubt as to liability means a factual or legal dispute about whether this tax was correctly determined, not a complaint that the Code produces a harsh result; an offer that says the tax is unfair is routed to collectibility or effective tax administration, or returned. Other tools to weigh: a refund claim and suit (which generally requires full payment), and a challenge to the underlying liability in a CDP hearing if the taxpayer did not receive a notice of deficiency or otherwise have an opportunity to dispute it (IRC 6330(c)(2)(B)).

When a DATL offer cannot be considered

IRM 5.8.4.21.4(6) lists conditions under which the IRS will not consider a DATL offer:

• The taxpayer's real intent is an installment agreement or a compromise because they cannot pay.
• The period is unassessed and pending in Automated Underreporter, a substitute for return program, Combined Annual Wage Reporting or a FUTA adjustment.
• The return is still under examination.
• The 30-day letter or statutory notice of deficiency has been issued (the dispute belongs in Appeals or the Tax Court; see Letter 3219).
• A determination is pending before the Tax Court.
• The case has been referred to the Department of Justice.

Form 656-L adds: an open bankruptcy (file after the case is completed or discharged); restitution assessments; an existing accepted DATC or DATL offer for the same year and liability; IRC 965(i) election liabilities; and a deactivated ITIN. It also says a DATL offer cannot be considered if the liability was established by a final court decision or judgment, and that the taxpayer must have received a balance due notice.

Returned as solely to delay. Separate from the list above, IRM 5.8.4.21.4 identifies DATL offers that may be returned under IRM 5.8.4.7.1 as submitted solely to delay collection, with no appeal: a resubmission of an explanation that was already rejected or returned with nothing new; a claim that the liability stems from the operation of a law that is unfair, the IRM's example being tax on a 401(k) withdrawal; “Claims based on a divorce decree which stipulates the spouses each owe certain portions of a joint liability (the government is not party to such agreements)”; offers that raise no valid liability issue or give no reason; and frivolous positions of the kind listed in Notice 2010-33, which can also draw the IRC 6702 penalty. When the account is assigned to a revenue officer, the officer reports on Form 657 whether the offer was submitted solely to delay, and the DATL unit asks for that report before deciding whether to consider the offer. A divorce decree that allocates a joint liability therefore belongs in an innocent spouse request as the legal obligation factor, not in a Form 656-L.

What Form 656-L requires

1. Sections 1 and 2: identifying information for individuals or the business, and the tax periods and types being compromised.
2. Section 3, the offer amount: the amount the taxpayer believes is correct, $1.00 or more. The checklist warns that a $0 offer is returned without consideration, and IRM 5.8.4.21.4(3) says “An offer for zero dollars on this basis is not acceptable and is subject to perfection requirements.” Do not send a payment; any payment received is applied to the liability and not returned.
3. Section 5, the explanation: why the tax is wrong. The form requires a written statement and supporting documentation; if books and records cannot be reconstructed, an explanation that establishes reasonable doubt. Missing either means the offer is returned.
4. Signatures of the taxpayer (both spouses for joint liabilities), any paid preparer section, and a Form 2848 or 8821 if a representative will deal with the IRS. See Form 2848.
5. Mail to: Brookhaven Internal Revenue Service, DATL Unit, P.O. Box 9008, Stop 681-D, Holtsville, NY 11742-9008 (Form 656-L, Rev. 7-2026).

The explanation is the case. Treat it like a protest: state each adjustment disputed, the facts, the law, and attach the proof. A brief that would persuade an Appeals officer is the right standard. See writing a formal protest for structure.

Terms the taxpayer agrees to

Form 656-L Section 4 contains terms that matter more than practitioners expect:

• Assessment statute extension. The taxpayer agrees that “the date by which the IRS must assess my tax debt will now be the date by which my debt must currently be assessed plus the period of time my offer is pending plus one additional year if the IRS rejects, returns, or terminates my offer, or I withdraw it”. The form notes the taxpayer may decline or limit the waiver, but the IRS may then not consider the offer.
• Collection statute suspension. The CSED is suspended while the offer is pending, for 30 days after a rejection, and while Appeals considers it.
• Refunds. The IRS keeps payments and credits applied before or during consideration, including refunds for years before acceptance. IRM 5.8.4.21.4(5) tells the investigator to consider whether acceptance is appropriate when substantial prior-year refunds would exceed the offer amount.
• Over-collection. If the investigation shows the taxpayer does not owe the tax, or the IRS over-collected, the excess is returned unless a refund is barred by statute.
• Levy. The IRS may levy until an official signs the offer as pending (IRC 6331(k)(1)).
• Deemed acceptance. The offer is accepted by law if not rejected within 24 months of receipt in Brookhaven (IRC 7122(f)).

How the IRS works the offer

All Form 656-L offers other than TFRP and PLET offers go to the centralized DATL unit in Brookhaven (IRM 5.8.1.14.2). The investigator reviews the explanation and documentation, may request more, and resolves the offer by acceptance at an agreed amount, an assessment adjustment and withdrawal, or rejection. Rejections go through independent administrative review under IRC 7122(e) and carry a 30-day right to appeal to the Independent Office of Appeals, as with any offer. An accepted DATL offer amount is payable within 90 days of acceptance unless other terms are approved (IRM 5.8.4.21.4(3)).

Processing differs from a collectibility offer in four ways that affect the client's money. First, no fee or TIPRA payment is due, and under IRM 5.8.2.9 anything sent anyway is not held as an offer deposit: “Any fee or payment will be treated as a voluntary payment and applied to the taxpayer's account in the best interest of the government.” Second, when Form 656-L and Form 656 arrive together, IRM 5.8.2.4.1 says “The DATL offer will always take precedence over the DATC offer when submitted simultaneously,” and the DATC offer and its fee are returned while its initial payment is applied to the liability. Third, acceptance carries no tail: under IRM 5.19.7.4.12, “Accepted DATL offers are not monitored for the 5 year payment and filing compliance nor is the refund recoupment part of the terms,” and compliance is not a condition of acceptance, so a client with unfiled years can still resolve a disputed assessment this way. Fourth, the refund side is governed by the refund statute, not the offer. Section 4(e) of Form 656-L promises to return over-collected amounts if the investigation shows the tax was not owed, but only “unless such refund is legally prohibited by statute”, which means IRC 6511: a payment can be recovered only if the claim is made within three years of the return or two years of the payment, so older payments are not coming back even if the liability is abated. Where a refund matters, file a protective claim on Form 1040-X or Form 843 within the IRC 6511 period and let the offer address the unpaid balance; see refund claims and suits and audit reconsideration.

TFRP and excise liability offers

DATL offers on the trust fund recovery penalty or PLET go through Centralized OIC and are then assigned to a field offer specialist (IRM 5.8.4.21.4(1)). The question is narrow: “the decision to accept or reject rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay over the subject tax.” The specialist secures the TFRP administrative file and weighs new information, testimony or documents. IRM 5.8.4.21.4(5) sets the outcomes:

If Appeals already decided the TFRP or the taxpayer already had an Appeals hearing on it, the offer is rejected with appeal rights and the file goes to Appeals if a timely appeal is filed. For the underlying rules on responsibility and willfulness, see the trust fund recovery penalty and Letter 1153.

DATL and DATC together

The two cannot run at the same time. If both arrive and neither is processable yet, DATL processability is decided first (IRM 5.8.10.14). Form 656-L says a DATC offer sent with a DATL offer is returned and its initial payment kept. A taxpayer who wants DATL consideration while a DATC offer is being investigated must withdraw the DATC offer within 10 workdays of the DATL submission, or the DATL offer is not processable. When an examiner sees that a DATC filer really disputes the liability, IRM 5.8.4.21.4.1 tells them to discuss withdrawing and filing a DATL offer instead. The practical sequence is liability first, then collectibility.

Questions practitioners ask