Wednesday, June 4, 2008

Compromises: IRS acceptance of offer - 7122

The IRS accepts an offer to compromise for processing when it determines that the offer is submitted on the proper version of Form 656 and Form 433-A or 433-B, as appropriate; the taxpayer is not in bankruptcy; the taxpayer has complied with all the filing and payment requirements listed in the instructions to Form 656; the taxpayer has enclosed the application fee as required (see ¶41,130.024); and the offer meets any other minimum requirements established by the IRS. A determination that the offer meets these minimum requirements means that the offer is processable (Rev. Proc. 2003-71, full text at ¶41,130.45). In order to be processable on or after July 16, 2006, the offer must also include the required partial payment. Any offer that is submitted to the IRS without the required partial payment will be returned to the taxpayer as unprocessable (Code Sec. 7122(d)(3)(C), as redesignated and amended by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222)). See ¶41,130.0245. In addition, the taxpayer must agree to suspend the running of the statutory period of limitations on both or either assessment or collection of the tax liability involved for the period during which the offer is pending, or the period during which any installment remains unpaid, and for one year thereafter (Instructions to Form 656 (Rev. February 2007)). The agreement extends the applicable statutes of limitation:

(1) while the IRS is processing and evaluating the taxpayer's offer;

(2) while the amount that the taxpayer has agreed to pay under an accepted offer remains unpaid;

(3) while any other term or condition of the offer remains unsatisfied;

(4) for 30 days following the a rejection of the taxpayer's offer;

(5) while the IRS Appeals Office considers a rejection appeal; and

(6) for one year in addition to the total of all of the above periods (Instructions to Form 656 (Rev. February 2007)). See ¶41,130.0475 and ¶41,130.04 for further discussion regarding statutes of limitations with respect to offers in compromise.

Deemed acceptance of offer. Any offer in compromise that is submitted on or after July 16, 2006, and is not rejected within 24 months of the date of submission is deemed to be accepted. However, any period during which the tax liability to be compromised is in dispute in any judicial proceeding is not taken into account in determining the expiration of the 24 month period (Code Sec. 7122(f), as added by P.L. 109-222).

Offer acceptance report. Form 7249, Offer Acceptance Report, will be prepared if the offer is accepted. If one taxpayer or related taxpayers, such as a husband and wife, partners, or a group of consolidated corporations, file several offers to compromise separate assessments, and the collectibility of the liabilities arises from the principal source, a separate Form 7249 will be prepared for each offer, with one report setting forth the reasons for acceptance. A report that fully supports the acceptance recommendation will also be prepared. A supplemental information report will be prepared only if the examining officer wants to discuss issues about the taxpayer's private affairs that would be pertinent to the delegated official's overall understanding of the case. Information already stated on Form 7249 will not be reiterated in the supplemental report (Internal Revenue Manual 5.8.24, 02-01-2004, CCH IRS OFFER IN COMPROMISE HANDBOOK).

Finality of acceptance. An acceptance of an offer in compromise by the IRS conclusively settles the taxpayer's liability for the specified tax period. Neither the taxpayer nor the IRS is permitted to reopen the case except in instances where:

(1) false information or documents are supplied in conjunction with the offer;

(2) the taxpayer's ability to pay and/or the taxpayer's assets are concealed; or

(3) a mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered (Reg. §301.7122-1(d)(5)).

Installment agreements. The IRS and a taxpayer can enter into an agreement allowing payment of taxes on an installment basis to facilitate collection. The IRS Restructuring and Reform Act of 1998 (P.L. 105-206) requires the IRS to enter into an installment payment agreement in certain cases. An installment agreement can be modified or terminated if the information provided by the taxpayer prior to the date of the agreement is inaccurate or incomplete or if the IRS subsequently determines that collection of the tax is in jeopardy. The agreement may also be modified or terminated if the financial condition of the taxpayer significantly changes, or if the taxpayer fails to pay any installment on time, to pay any other tax liability on time, or to provide the IRS with a financial condition update when requested to do so (Code Sec. 6159; see ¶37,181.01 et seq.).

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