Section 7122 - Offer in Compromise Statute


SEC. 7122. COMPROMISES.


7122(a) AUTHORIZATION. --The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.



7122(b) RECORD. --Whenever a compromise is made by the Secretary in any case, there shall be placed on file in the office of the Secretary the opinion of the General Counsel for the Department of the Treasury or his delegate, with his reasons therefor, with a statement of --



7122(b)(1) The amount of tax assessed,



7122(b)(2) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed, and



7122(b)(3) The amount actually paid in accordance with the terms of the compromise.



Notwithstanding the foregoing provisions of this subsection, no such opinion shall be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. However, such compromise shall be subject to continuing quality review by the Secretary.



7122(c) RULES FOR SUBMISSION OF OFFERS-IN-COMPROMISE. --



7122(c)(1) PARTIAL PAYMENT REQUIRED WITH SUBMISSION. --



7122(c)(1)(A) LUMP-SUM OFFERS. --



7122(c)(1)(A)(i) IN GENERAL. --The submission of any lump-sum offer-in-compromise shall be accompanied by the payment of 20 percent of the amount of such offer.



7122(c)(1)(A)(ii) LUMP-SUM OFFER-IN-COMPROMISE. --For purposes of this section, the term "lump-sum offer-in-compromise" means any offer of payments made in 5 or fewer installments.



7122(c)(1)(B) PERIODIC PAYMENT OFFERS. --



7122(c)(1)(B)(i) IN GENERAL. --The submission of any periodic payment offer-in-compromise shall be accompanied by the payment of the amount of the first proposed installment.



7122(c)(1)(B)(ii) FAILURE TO MAKE INSTALLMENT DURING PENDENCY OF OFFER. --Any failure to make an installment (other than the first installment) due under such offer-in-compromise during the period such offer is being evaluated by the Secretary may be treated by the Secretary as a withdrawal of such offer-in-compromise.



7122(c)(2) RULES OF APPLICATION. --



7122(c)(2)(A) USE OF PAYMENT. --The application of any payment made under this subsection to the assessed tax or other amounts imposed under this title with respect to such tax may be specified by the taxpayer.



7122(c)(2)(B) APPLICATION OF USER FEE. --In the case of any assessed tax or other amounts imposed under this title with respect to such tax which is the subject of an offer-in-compromise to which this subsection applies, such tax or other amounts shall be reduced by any user fee imposed under this title with respect to such offer-in-compromise.



7122(c)(2)(C) WAIVER AUTHORITY. --The Secretary may issue regulations waiving any payment required under paragraph (1) in a manner consistent with the practices established in accordance with the requirements under subsection (d)(3).



7122(d) STANDARDS FOR EVALUATION OF OFFERS. --



7122(d)(1) IN GENERAL. --The Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.



7122(d)(2) ALLOWANCES FOR BASIC LIVING EXPENSES. --



7122(d)(2)(A) IN GENERAL. --In prescribing guidelines under paragraph (1), the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses.



7122(d)(2)(B) USE OF SCHEDULES. --The guidelines shall provide that officers and employees of the Internal Revenue Service shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.



7122(d)(3) SPECIAL RULES RELATING TO TREATMENT OF OFFERS. --The guidelines under paragraph (1) shall provide that --



7122(d)(3)(A) an officer or employee of the Internal Revenue Service shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer,



7122(d)(3)(B) in the case of an offer-in-compromise which relates only to issues of liability of the taxpayer --



7122(d)(3)(B)(i) such 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



7122(d)(3)(B)(ii) the taxpayer shall not be required to provide a financial statement, and



7122(d)(3)(C) any offer-in-compromise which does not meet the requirements of subparagraph (A)(i) or (B)(i), as the case may be, of subsection (c)(1) may be returned to the taxpayer as unprocessable.



7122(e) ADMINISTRATIVE REVIEW. --The Secretary shall establish procedures --



7122(e)(1) for an independent administrative review of any rejection of a proposed offer-in-compromise or installment agreement made by a taxpayer under this section or section 6159 before such rejection is communicated to the taxpayer; and



7122(e)(2) which allow a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals.



7122(f) DEEMED ACCEPTANCE OF OFFER NOT REJECTED WITHIN CERTAIN PERIOD. --Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. For purposes of the preceding sentence, any period during which any tax liability which is the subject of such offer-in-compromise is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period.



Code Sec. 7122(f)[(g)]), below, as added by P.L. 109-432, §407(d), applies to submissions made and issues raised after the date on which the Secretary first prescribes a list under Code Sec. 6702(c), as amended by P.L. 109-432, §407(a).

7122(f)[(g)] FRIVOLOUS SUBMISSIONS, ETC. --Notwithstanding any other provision of this section, if the Secretary determines that any portion of an application for an offer-in-compromise or installment agreement submitted under this section or section 6159 meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review.



Committee Reports on P.L. 105-206 (IRS Restructuring and Reform Act of 1998)


[This committee report does not reflect changes made by Senate Floor Amendment No. 2380. Selected portions of the Senate Floor Debate are reproduced below. --CCH.]

.17 Offers-in-compromise. --Rights of taxpayers entering into offers-in-compromise. --The provision requires the IRS to develop and publish schedules of national and local allowances that will provide taxpayers entering into an offer-in-compromise with adequate means to provide for basic living expenses. The IRS also will be required to consider the facts and circumstances of a particular taxpayer's case in determining whether the national and local schedules are adequate for that particular taxpayer. If the facts indicate that use of scheduled allowances would be inadequate under the circumstances, the taxpayer would not be limited by the national or local allowances.

The provision prohibits the IRS from rejecting an offer-in-compromise from a low --income taxpayer solely on the basis of the amount of the offer.36 The provision provides that, in the case of an offer-in-compromise submitted solely on the basis of doubt as to liability, the IRS may not reject the offer merely because the IRS cannot locate the taxpayer's file. The provision prohibits the IRS from requesting a financial statement if the taxpayer makes an offer-in-compromise based solely on doubt as to liability.

Suspend collection by levy while offer-in-compromise is pending. --The provision prohibits the IRS from collecting a tax liability by levy (1) during any period that a taxpayer's offer-in-compromise for that liability is being processed, (2) during the 30 days following rejection of an offer, and (3) during any period in which an appeal of the rejection of an offer is being considered. Taxpayers whose offers are rejected and who made good faith revisions of their offers and resubmitted them within 30 days of the rejection or return would be eligible for a continuous period of relief from collection by levy. This prohibition on collection by levy would not apply if the IRS determines that collection is in jeopardy or that the offer was submitted solely to delay collection. The provision provides that the statute of limitations on collection would be tolled for the period during which collection by levy is barred.

Procedures for reviews of rejections of offers-in-compromise and installment agreements. --The provision requires that the IRS implement procedures to review all proposed IRS rejections of taxpayer offers-in-compromise and requests for installment agreements prior to the rejection being communicated to the taxpayer. The provision requires the IRS to allow the taxpayer to appeal any rejection of such offer or agreement to the IRS Office of Appeals. The IRS must notify taxpayers of their right to have an appeals officer review a rejected offer-in-compromise on the application form for an offer-in-compromise.

Publication of taxpayer's rights with respect to offers-in-compromise. --The provision requires the IRS to publish guidance on the rights and obligations of taxpayers and the IRS relating to offers in compromise, including a compliant spouse's right to apply to reinstate an agreement that would otherwise be revoked due to the nonfiling or nonpayment of the other spouse, providing all payments required under the compromise agreement are current.

Liberal acceptance policy. --It is anticipated that the IRS will adopt a liberal acceptance policy for offers-in-compromise to provide an incentive for taxpayers to continue to file tax returns and continue to pay their taxes.

Effective Date. --The provision is generally effective for offers-in-compromise submitted after the date of enactment. The provision suspending levy is effective with respect to offers-in-compromise pending on or made after the 60th day after the date of enactment. --Senate Committee Report (S. REP. NO. 105-174).

Senate Floor Debate. --Mr. MOYNIHAN. --* * * Mr. President, it was with these challenges in mind that Senator Kerrey and I offered this amendment to briefly delay some of the effective dates in the Finance Committee's IRS Restructuring legislation in order to allow time for the Y2K conversion to be completed. This amendment has been drafted based on Commissioner Rossotti's recommendations, and has been modified after consultations with the Majority.

The amendment would delay the effective date on a list of provisions from date of enactment until after the century date change. --Senate Floor Debate for Amendment No. 2380 (144 CONG. REC. 56, S4510).

Conference Agreement. --The conference agreement follows the Senate amendment, with the following additions. First, the provision suspending collection by levy while an offer-in-compromise is pending is also expanded to apply while an installment agreement is pending.

Second, the provision authorizes the Secretary to prescribe guidelines for the IRS to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute. Accordingly, the conferees expect that the present regulations will be expanded so as to permit the IRS, in certain circumstances, to consider additional factors (i.e., factors other than doubt as to liability or collectibility) in determining whether to compromise the income tax liabilities of individual taxpayers. For example, the conferees anticipate that the IRS will take into account factors such as equity, hardship, and public policy where a compromise of an individual taxpayer's income tax liability would promote effective tax administration. The conferees anticipate that, among other situations, the IRS may utilize this new authority to resolve longstanding cases by forgoing penalties and interest which have accumulated as a result of delay in determining the taxpayer's liability. The conferees believe that the ability to compromise tax liability and to make payments of tax liability by installment enhances taxpayer compliance. In addition, the conferees believe that the IRS should be flexible in finding ways to work with taxpayers who are sincerely trying to meet their obligations and remain in the tax system. Accordingly, the conferees believe that the IRS should make it easier for taxpayers to enter into offer-in-compromise agreements, and should do more to educate the taxpaying public about the availability of such agreements. --Conference Committee Report (H.R. CONF. REP. NO. 105-599).

36 This provision does not affect the ability of the IRS to reject an offer in compromise made by a taxpayer (other than a low-income taxpayer) because the amount offered is too low.


Joint Committee Summary of P.L. 109-432 (Tax Relief and Health Care Act of 2006)


.14 Frivolous tax submissions. --The provision modifies the IRS-imposed penalty by increasing the amount of the penalty to up to $5,000 and by applying it to all taxpayers and to all types of Federal taxes.

The provision also modifies present law with respect to certain submissions that raise frivolous arguments or that are intended to delay or impede tax administration. The submissions to which the provision applies are requests for a collection due process hearing, installment agreements, and offers-in-compromise. First, the provision permits the IRS to disregard such requests. Second, the provision permits the IRS to impose a penalty of up to $5,000 for such requests, unless the taxpayer withdraws the request after being given an opportunity to do so.

The provision requires the IRS to publish a list of positions, arguments, requests, and submissions determined to be frivolous for purposes of these provisions.


Effective Date


The provision applies to submissions made and issues raised after the date on which the Secretary first prescribes the required list of frivolous positions. --Joint Committee on Taxation, Technical Explanation of the Tax Relief and Health Care Act of 2006, December 20, 2006 (JCX-50-06).