The IRS has updated the Offer in Compromise Manual on September 23, 2008. The government, like other creditors, encounters situations where an account receivable cannot be collected in full or there is a legitimate dispute as to what is owed. It is an accepted business practice to resolve these issues through negotiation and compromise. The IRM provides procedures for collection employees to follow when considering a taxpayers proposal to compromise. An offer in compromise is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed. The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section § 7122. The Commissioner of Internal Revenue, under Treasury Regulation § 301.7122-1, is authorized to compromise a liability on any one of three grounds: Doubt as to Collectibility (DATC), Doubt as to Liability (DATL), or to promote Effective Tax Administration (ETA).

Policy Statement P-5-100 states:

The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

In cases where an OIC appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise.
The success of the OIC program will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay and the Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a compromise that is in the best interest of both the taxpayer and the government. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of a fresh start toward compliance with all future filing and payment requirements.
2. Offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, installment payments extending through the remaining statutory period for collection (CSED), or other means of collection, unless special circumstances exist.
3. A DATC offer amount must usually equal or exceed a taxpayer's reasonable collection potential (RCP) in order to be acceptable. The exceptions are that when special circumstances exist as defined in IRM 5.8.4.3, Effective Tax Administration and Doubt as to Collectibility with Special Circumstances, or when per IRM 5.8.11, Effective Tax Administration, the offer may be accepted on the basis of hardship or ETA.
5.8.1.1.4 (09-23-2008)
Objectives
1. The objectives of the OIC program are:
• Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government.
• Achieve a resolution that is in the best interests of both the individual taxpayer and the government.
• Provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements.
• Secure collection of revenue that may not be collected through any other means.
5.8.1.1.5 (09-23-2008)
Process
1. Revenue Procedure 2003-71, effective August 21, 2003-2 C.B. 517, defines the procedures applicable to the submission and processing of OIC tax liabilities. Notice 2006-68, 2006-31 I.R.B. 105, provides additional guidance regarding offers submitted on or after July 16, 2006. This handbook further describes, in detail, those processes.
5.8.1.1.6 (09-23-2008)
Timeliness of Offer Investigations
1. The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process, but also as a key component of taxpayer satisfaction in this program area. Managers and employees need to ensure that communications from taxpayers are addressed in a timely manner, and the timeliness of case actions ensure the length of the offer investigation process is as brief as reasonably possible. The guidelines for timely case actions outlined in this IRM are intended to provide structure for the overall offer process and to ensure investigations are completed in a responsive and efficient manner.
2. These guidelines are not intended as absolute measures of performance for individual employees. Performance evaluations of individual employees must be based on reviews of the actual work produced by the employees, and take into account any special circumstances that may have impacted the ability of the employees to meet the specified guidelines. In general, unwarranted inactivity gaps in an offer investigation should be avoided, and offer managers should establish controls to ensure that cases with unwarranted inactivity gaps are identified and addressed appropriately.
5.8.1.2 (09-23-2008)
Functional Responsibilities
1. The following list, while not all inclusive, provides a brief summary of various functions' activities related to OIC processing.
5.8.1.2.1 (09-23-2008)
Tax Cases Controlled by Department of Justice
1. The IRS may not have the authority to accept an OIC when:
A. Questions concerning the amount of the taxpayers liability or the collection of a liability for all or part of the periods the taxpayer owes is in litigation.
B. The federal tax liability for all or part of the periods the taxpayer owes has been reduced to a judgment.
C. If an offer is received that covers tax periods for which restitution was ordered refer to IRM 5.1.5.24.5. We cannot accept an OIC that in any way modifies the terms of a restitution order. We may consider an OIC for periods for which restitution was ordered only if the defendant has paid or will pay the full amount of the restitution as part of the offer.
D. The IRS has a civil or criminal prosecution pending against the taxpayer in the Department of Justice (DOJ) or United States Attorneys Office.
E. Acceptance by the IRS is dependent upon the DOJ accepting a related offer or settlement.
F. If there is a closed Criminal Investigation (CI) indicator on the account, contact should be made with Technical Services to verify if restitution was ordered. If restitution was ordered, the tax period may be under the control of the DOJ. In those cases, request the guidance of local Counsel before proceeding.
G. If the offer is returned based on (a) through (d) above, the application fee and TIPRA payments should be returned to the taxpayer.
2. If there is any indication that one or more of the above conditions exist, contact Area Counsel for guidance.
3. In some instances, the DOJ may request the case be forwarded to them for inclusion in pending litigation. However, in DATC offers, DOJ generally requests the OI conduct the investigation and make a recommendation whether the offer should be accepted or rejected. In those cases, coordinate with Area Counsel to determine if the request should be worked as a courtesy investigation or if Collection has jurisdiction to process the offer.
Note:
In all instances, DOJ cases will be worked by field Offer Specialists.
5.8.1.2.2 (09-23-2008)
Collection Function
1. The Collection function is responsible for processing and investigating the following offers:
• All offers based on DATC, including proposed liabilities still subject to settlement in Examination or Appeals.
• All offers based on ETA.
• All offers submitted under DATL for either a TFRP or PLET assessment.
5.8.1.3 (09-23-2008)
Examination Function
1. Examination function is responsible for processing and investigating offers submitted based on DATL, excluding offers submitted to compromise a TFRP or PLET. DATL only offers are not controlled on the Automated Offer in Compromise (AOIC) system and Examination is responsible for all case processing.
2. Examination function employees must also provide the Collection function with a recommendation on offers based on ETA with public policy/equity issues, when requested by Compliance. See IRM 5.8.11.2.2, Public Policy or Equity Grounds, IRM 4.18.2, Exam Offer-In-Compromise - Doubt as to Liability Offers.
5.8.1.4 (09-23-2008)
Appeals
1. Offers secured in Appeals offices in conjunction with related casework ,such as Collection Due Process (CDP), will be forwarded to the COIC sites for processability determination, processing of the application fee(s), deposit(s), required TIPRA payment(s), and mailing of processability letters provided by Appeals. These offers are not controlled on AOIC. COIC will be responsible for the input of necessary transaction codes to the IDRS. See IRM 5.8.3.4.3, Determining Processability for Appeals Collection Due Process Offers. Appeals will normally investigate their own offers, but if complex issues are identified, they may require the assistance of Collection or Examination through the issuance of an Appeal Referral Investigation (ARI).
Note:
See IRM 5.8.4.12.4, for exceptions to investigation of OIC's under the jurisdiction of Appeals.
5.8.1.5 (09-23-2008)
Counsel
1. Counsel attorneys provide opinions on OIC's recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater. Counsel attorneys, when requested, may also provide legal opinions for matters related to investigation and processing of offers.
5.8.1.6 (09-23-2008)
Taxpayer Advocate Service
1. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers in solving tax problems that have not been resolved through normal channels, or who are experiencing significant hardships. TAS employees may request expedite processing of an offer if they deem such action necessary. The Service Level Agreement (SLA) negotiated between TAS and Small Business/Self Employed (SBSE) describes when the request for expedited processing would be appropriate and provides instructions for processing the case between the TAS and SBSE functions.
2. When appropriate, TAS employees may issue Form 12412 to initiate the Operations Assistance Request (OAR) to initiate the OAR process. Upon receipt of an OAR, Collection management should:
• Follow the instructions for expedite processing and/or assignment of the offer, based on the reason for the request.
• Control the request and ensure a response is provided to the TAS office within requested time frames.
• Contact the TAS office and negotiate additional time if it is determined that the time frame cannot be met.
• Contact the TAS office and discuss the OAR issue with the TAS employee.
• Respond to the OAR indicating how the issue is being addressed or how the offer was closed, if appropriate.
3. TAS cannot issue a TAO requiring the Service to accept an offer or apply a value to an asset or expense item. However, TAS may issue a TAO requesting that an action be reconsidered or reviewed at a higher level.
5.8.1.7 (09-23-2008)
Liabilities to be Compromised
1. Offers accepted based DATC or ETA must include all unpaid tax liabilities and periods for which the taxpayer is liable.
Example:
If a taxpayer who submits an OIC for income tax liabilities is also responsible for employment taxes for a sole-proprietorship, both the income tax liabilities and the business liabilities must be included in the accepted offer.
2. Offers accepted based on DATL should only include the tax years or periods in question. Liabilities for other tax periods should not be included in the offer.
5.8.1.7.1 (09-23-2008)
Taxes, Penalties, and Interest Constitute One Liability
1. An OIC is effective for the entire assessed liability for tax, penalties, and interest for the years or periods covered by the offer. All questions of tax liability for the years or periods covered by the agreement are conclusively settled. Neither the taxpayer nor the government can reopen a compromised tax year or period unless there was falsification of information or documents, concealment of ability to pay and/or assets, or a mutual mistake of a material fact which would be sufficient to set aside or reform a contract.
5.8.1.7.2 (09-23-2008)
Unassessed Liability
1. The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed unless IDRS indicates a return has been received or an assessment is pending.
2. Taxpayers may submit, and the Service will consider, an offer to compromise taxes due on tax returns which have been filed but have not yet been assessed. However, before the offer can be accepted, the taxes must be assessed.
3. If IDRS does not indicate a return has been received, an assessment is pending, or unpaid liabilities already exist, the offer will be returned to the taxpayer.
5.8.1.7.3 (09-23-2008)
Expired Liability
1. A compromise will not be accepted on any tax liability which has become unenforceable due to the expiration of the statutory period for collecting the debt.
2. If a taxpayer desires to make a voluntary payment on a liability for which the statutory period for collection has expired, the payment should be accepted, but the taxpayer should be asked to sign a statement indicating that they are aware that collection of the tax is barred and that the payment will not be credited toward a specific liability. Attach the statement to the payment posting document and process the payment through normal remittance processing procedures. Do not treat these payments as offer payments, but should apply the payments to Excess Collections.
5.8.1.7.4 (09-23-2008)
Non-Tax Liability
1. IRC Section § 6305 requires the Secretary of the Treasury to assess and collect certain child support obligations certified by the Secretary of Health and Human Services. These liabilities are identified on the non-master file with a master file tax code of 59.
2. The Secretary of the Treasury is not authorized to compromise these liabilities. However, the individual may seek a to pursue any available, equitable, or administrative action in a state court or before a state agency to determine the correct liability or to recover an amount collected under this section.
5.8.1.8 (09-23-2008)
Application Fee
1. Effective November 1, 2003, the Service began charging an application fee for offers submitted after that date.
2. The application fee applies only to certain offers processed under Section 7122. It does not apply to offers in settlement under the jurisdiction of the Department of Justice (DOJ).
5.8.1.9 (09-23-2008)
The Tax Increase Prevention and Reconciliation Act of 2005
1. On May 17, 2005 Congress passed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted on May 17, 2006, which made major changes to the offer in compromise (OIC) program. These changes become effective for all offers received by the IRS starting July 16, 2006.
2. Under the new law, taxpayers submitting requests for lump sum cash offers must include with the offer a payment equal to 20% of the offer amount. The payment is treated as a payment of tax and is nonrefundable. That is, it will not be returned even if the offer is deemed to be not processable, later returned or rejected. A lump sum cash offer means any offer of payments made in five or fewer installments.
3. Taxpayers submitting requests for periodic payment offers must include the first proposed installment payment with their application. A periodic payment offer is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. All installment payments are nonrefundable, even if the Offer is deemed not processable, later returned or rejected.
4. Under the new law, taxpayers that qualify as low-income, based on current criteria, and submit a Form 656-A , will not have to submit the application fee or any TIPRA payment.
5. If the IRS cannot make a determination on an OIC within two years, then the offer will be deemed accepted. If a liability included in the offer amount is disputed in any court proceeding, that time period is omitted from calculating the two-year period. Once a determination letter is issued by the Offer Investigator, the 24 month time frame will be considered stopped. The 24 months does not include the time in Appeals.
6. OIC requests are submitted using Form 656, Offer in Compromise. The form provides detailed instructions for completing an offer and includes all of the necessary financial forms. When submitting Form 656, taxpayers must include an application fee of $150 and the required TIPRA payment, depending on the type of offer, unless they qualify for the low-income exemption or are filing a doubt-as-to-liability offer.
5.8.1.10 (09-23-2008)
Form 656, Offer in Compromise
1. Taxpayers who wish to propose an OIC should submit Form 656, Offer in Compromise, using the most current version. Computer generated or photocopied versions of Form 656 are also acceptable provided they contain the following statement: "I/we affirm that this form is a verbatim duplicate of the official Form 656, and I/we agree to be bound by all terms and conditions set forth in the official Form 656."
2. Offers submitted on the basis of DATC or ETA should include a current version of the collection information statement. For offers based solely on DATL, no collection information statement is required. However, the taxpayer must include a written statement explaining why the liability is incorrect and must include a statement addressing the validity of the actual assessment(s) or a portion of the assessment(s).
5.8.1.10.1 (09-23-2008)
Name and Address of Taxpayer
1. The full name, address, Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number (ITIN) of the taxpayer must be entered on Form 656. If the taxpayer(s) uses a mailing address that is different from the street address, the physical address must be included as well.
5.8.1.10.2 (09-23-2008)
Basis for Compromise
1. Taxpayers must indicate the basis(es) upon which they propose to compromise; DATC, DATL, and/or to promote ETA.
5.8.1.10.3 (09-23-2008)
Amount Offered
1. The total amount of money offered must be indicated. The amount offered may not include money already paid, expected future refunds, funds attached by levy, or anticipated benefits from capital/net operating losses.
5.8.1.10.4 (09-23-2008)
Payment Terms
1. Taxpayers are expected to pay the entire amount offered in as short a time as possible. Acceptable offer terms should be determined by the Offer Investigator and should not be limited to the proposal of the taxpayer.
2. The amounts and due dates of payments must be specified.
3. There are three (3) types of payment terms that the Service and the taxpayer may agree to:
A. Lump Sum Cash — payable in five or fewer installments from notice of acceptance; must be accompanied by a payment of 20% of the offered amount.
B. Short Term Periodic Payment — payable in six or more installments within 2 years (24 months) from the IRS received date; must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer's proposed offer terms while the Service evaluates the offer.
Note:
If an amended offer is secured, the 24-month period begins the date the offer is accepted.
C. Deferred Periodic Payment — payable in six or more installments 25 or more months from the IRS received date, but within the time remaining on the statutory period for collection; must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer's proposed offer terms while the Service evaluates the offer.
4. A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund. Once the offer has been accepted, the funds are applied in the government’s best interest and the taxpayer no longer has the right to designate payments.
Note:
Pre-acceptance payments designated to trust fund should be posted using DPC 02.
5.8.1.10.5 (09-23-2008)
Standard Conditions
1. Taxpayers must agree to all the standard conditions of the agreement as they are printed on the Form 656.
2. Offers accepted under DATL or ETA) based on Public Policy/Equity are not subject to the waiver of refund condition. See IRM 5.8.11, Effective Tax Administration, discussing Public Policy/Equity offer.
5.8.1.11 (09-23-2008)
Interest on the Compromise Amount
1. For all offers accepted after December 31, 1999, interest on the compromise amount is also compromised.
2. For all offers accepted before January 1, 2000, on Form 656 revisions prior to 1–2000, interest continues to accrue until the compromise amount is paid in full.
5.8.1.12 (09-23-2008)
Effect of Previous Offers on Collection Statute
1. Over the years various changes in the tax law has had an effect on the statutory collection period. See IRM 5.8.10, Special Case Processing, for additional guidance.
Exhibit 5.8.1-1 (09-23-2008)
Common Abbreviations Used in the IRM
Below is a list of common abbreviations used throughout this IRM.

AET – Asset Equity Table – A table listing all the taxpayers assets, encumbrances, and exemptions. It then calculates the equity which is included in the reasonable collection potential (RCP) calculation.
AOIC – Automated Offer in Compromise – Computer application where offers in compromise are recorded and monitored from receipt to closure. History of the offer investigations conducted by COIC employees and of actions taken by Monitoring OIC (MOIC) units are also maintained on this system.
ARI – Appeals Referral Investigation – A request from Appeals for assistance from the appropriate Collection function on verifying the accuracy of information reported on a CIS or assistance in completing the offers investigation.
ASED – Assessment Statute Expiration Date – The date the statutory period for assessing tax expires.
ATAT – Abusive Tax Avoidance Transactions – Abusive transactions taken by taxpayers to avoid paying, such as creating trusts, using off shore credit cards, etc.
CDP – Collection Due Process - Allows taxpayers a right to a hearing before Appeals regarding proposed collection enforcement actions or filed Notice of Federal Tax Lien.
CIS – Collection Information Statement – A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer. This financial statement can be submitted on Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses.
COIC – Centralized Offer in Compromise – Units located in Brookhaven and Memphis campus that complete initial processing and work less complicated offers to completion. Do not confuse this with MOIC – COIC units do not monitor or default accepted offers.
CSED – Collection Statute Expiration Date – The date the statutory period for collecting the tax expires.
DATC – Doubt as to Collectibility – Basis for acceptance of an offer where there is doubt that the tax can be paid in full.
DATL – Doubt as to Liability – Basis for acceptance of an offer where there is doubt that the liability is correct.
DCSC – Doubt as to Collectibility with Special Circumstance – Basis for acceptance of an offer where there is doubt that the tax can be paid in full and special circumstances exist that warrants accepting the offer for less than the reasonable collection potential (RCP).
ETA – Effective Tax Administration – Basis for acceptance of an offer where this is no doubt that the liability is correct or can be paid in full. However, requiring the taxpayer to fully pay the tax would either create an economic hardship or be a public policy/equity issue.
FICA – Future Income Collateral Agreement – An agreement secured in connection with an accepted offer that requires a taxpayer to pay a percentage of future income for a set number of years as additional consideration for acceptance of the offer.
FMV – Fair Market Value – The value a taxpayer would receive if an asset was sold to a willing buyer given time to obtain the best and highest possible price.
IA – Installment Agreement – An agreement under I.R.C. § 6159 to pay the liability over an established period of time.
IAR – Independent Administrative Reviewer – An independent third party who reviews a decision to reject an offer prior to that decision being conveyed to a taxpayer. This person is not in the chain of command of the employees responsible for the rejection of the offer.
IBTF – In Business Trust Fund – a taxpayer who is in business and owes trust fund (e.g. – Form 941) taxes.
ICS – Integrated Collection System – Computer application used by Compliance employees to monitor inventory. Histories of OIC investigations conducted by area office employees are maintained on this system.
IET – Income/Expense Table – A table that lists the income and expenses both claimed and allowed for purposes of calculating reasonable collection potential (RCP).
MOIC – Monitoring OIC Unit – Unit in Compliance Services located in a campus that completes end processing and monitoring of accepted offers.
NFTL – Notice of Federal Tax Lien - The notice of the filed Federal Tax Lien
NRE – Net Realizable Equity – Quick sale value less the amount owed on an asset.
OE – Offer Examiner – a tax examiner appointed as an offer investigator and located in COIC.
OI– Offer Investigator – a term referencing procedures that apply to either a tax examiner or revenue officer working offer in compromise cases
OS – Offer Specialist – A revenue officer appointed as an offer investigator, generally located in an area office.
PE – Process Examiner – A tax examiner who completes initial processability determinations on offers and is located in COIC.
PLET — Personal Liability for Excise Tax – Assessments made on individual taxpayers for withheld excise taxes.
POD – Post of Duty – Internal Revenue Service local office(s).
QSV – Quick Sale Value – The amount that could be obtained if an asset is sold quickly, usually less than FMV.
RCP – Reasonable Collection Potential – The amount that could reasonably be collected from the taxpayer.
TFRP – Trust Fund Recovery Penalty – Assessments made on individual taxpayers for the withheld or trust fund portion of delinquent employment taxes.
TIPRA – Tax Increase Prevention and Reconciliation Act of 2005 – Section 509. Legislation enacted in May, 2006, which made major changes to the OIC program..

5.8.2 Offer Receipts
• 5.8.2.1 Overview
• 5.8.2.2 Initial Receipt of Offers
• 5.8.2.3 Form 656, Offer in Compromise
• 5.8.2.4 Signatures
• 5.8.2.5 Initial Processing of Offers in Centralized Offers in Compromise Sites
• 5.8.2.6 Emergency Processing
• 5.8.2.7 Processing Deposits Received With Offers
• 5.8.2.8 Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites
• 5.8.2.9 Interoffice Transfers
• 5.8.2.10 Powers of Attorney
• 5.8.2.11 Processing of Forms 4844 From Automated Collection Services, Toll Free, or Other Service Divisions
5.8.2.1 (09-23-2008)
Overview
1. Jurisdictional responsibility must be determined upon receipt of a taxpayer's proposal to compromise. This section provides instructions for initial case processing on new offers. It also provides directions for processing payments, powers of attorney, and emergency case processing.
5.8.2.2 (09-23-2008)
Initial Receipt of Offers
1. All initial offer receipts that are submitted based on Doubt as to Collectibility (DATC), Effective Tax Administration (ETA), or Doubt as to Liability (DATL) for either Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET) must be processed by the appropriate Centralized Offer In Compromise (COIC) site. Form 656 instructions advise taxpayers to send offers to the appropriate COIC site based on the taxpayer's state of residence.
A. If the taxpayer resides in Alaska, Alabama, Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin, or Wyoming, the offer will be processed by the Memphis COIC Unit
B. If the taxpayer resides in Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, West Virginia, or if they have a foreign address the offer will be processed by the Brookhaven COIC Unit.
2. DATL offers , other than those mentioned above, will be submitted on a Form 656-L and will be forwarded to the centralized DATL processing unit located at the Brookhaven campus for screening and processing. Forward the offer using Form 3210, Document Transmittal, to:
Internal Revenue Service
Centralized DATL Unit
PO Box 480 Stop 661
Holtsville, NY 11742-0480
The centralized DATL unit will utilize the full range of campus resources, including the Examination function, to resolve legitimate liability issues raised. If the campus classification function concludes that the issues involved require area office Examination function scrutiny, the centralized DATL unit will forward the offer to the area office Examination OIC coordinator
3. Offers that are received elsewhere by Service employees must be immediately date stamped and forwarded to their respective COIC site for processing within 24 hours of receipt. When an offer is received on an assigned case by a field revenue officer (RO), Form 657, Offer in Compromise Revenue Officer Report, must be completed and attached to the offer package. This form is to be signed by the RO and approved by the manager. The RO should retain all information related to the collection case and forward only the following information to COIC:
• Form 656, Offer in Compromise
• Form 657, Offer in Compromise/Revenue Officer Report
• ICS history sheets
• Collection Information Statement (CIS) with attached substantiation
• Current Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization, if applicable
• Any information gathered during the field investigation that verifies or refutes amounts claimed on the CIS submitted with the offer
• Form 656-A, Income Certification for Offer in Compromise Application Fee, if applicable
• Application fee and Lump Sum Cash (20%) or Initial Periodic Payment(s), if applicable
4. The above information should be transmitted to the appropriate COIC site using Form 3210, Document Transmittal, and must be sent by traceable methods if an application fee and/or payment is attached.
5.8.2.3 (09-23-2008)
Form 656, Offer in Compromise
1. Individuals or self-employed taxpayers filing a DATC or ETA offer should complete and attach the Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a Form 433-B, Collection Information Statement for Businesses, if the taxpayer is self-employed.
Note:
A 433-B may not be required if information provided by the taxpayer includes a current Profit and Loss statement and/or sufficient information to make a determination.
A. Two or more taxpayers who jointly owe the same liability (including spouses living separately or divorced) may submit a joint OIC on one Form 656 showing each name, address, and taxpayer identification number. However, separate offer forms (one for each person) may be submitted if the individuals deem it to be appropriate for their particular situation.
B. Taxpayers who owe both joint and individual liabilities must submit two offers.
Note:
These taxpayers should never be asked to submit three offers, even if they each owe separate and joint liabilities. There should only be as many offers as there are entities.

If… Then…
The taxpayers owe joint years and in addition one of the parties individually owes tax A. One Form 656 listing the joint tax periods (both parties must sign) and a 2nd Form 656 listing the tax periods owed by the individual (only the individual signs this offer), or
B. One Form 656 from the individual listing all periods owed, including the joint years and 2nd Form 656 from the other party listing all periods owed including the joint years (the individuals will sign their own Form 656).
The taxpayers each owe separate liabilities and together owe joint liabilities One offer from each taxpayer with each individual listing all taxes from all periods owed, including the joint and separate years owed, for a total of two offers. Each individual taxpayer must sign their own Form 656.
A taxpayer is solely responsible for a liability (e.g., employment taxes) and jointly responsible for another liability (e.g., income taxes) and only one person is submitting the offer Only one Form 656 is required, listing all of the liabilities.
Note:
See IRM 5.8.6, Collateral Agreements, for information concerning co-obligor agreements.
A taxpayer submits a joint offer for joint liabilities and also owes other liabilities (e.g., employment taxes, TFRP), either solely or jointly with other persons Separate offers must be submitted for each entity.
2. All other forms of business entities (partnerships, corporations, limited liability companies, etc.) should submit the Form 433-B, Collection Information Statement for Businesses.
Note:
A 433-B may not be required if information provided by the taxpayer includes a current Profit and Loss statement and/or sufficient information to make a determination.
3. Taxpayers who submit an offer to compromise individually owed tax and also have a substantial interest in an ongoing business may be required to submit a Form 433-B for that business.
4. When corporate offers are being considered, corporate officers, shareholders, or others determined to be responsible for a TFRP may be required to submit a Form 433-A. When partnership or LLC offers are being considered, the general partners and the LLC's owners may be required to submit a Form 433-A as well.
5. In conjunction with an acceptance letter, Form 656 constitutes a binding agreement between the government and the taxpayer.
5.8.2.3.1 (09-23-2008)
Total Liability
1. Each separate tax period and type of tax must be indicated on the Form 656. TFRP assessments made prior to August 2000, will be assessed on the last quarter only, while those made after August 2000 will include an assessment for each quarter. Verification on IDRS will be required to determine how the assessment was completed. If an offer is accepted that has TFRP assessments, the case file must include information identifying the BMF periods that comprised the TFRP assessment.
2. A taxpayer may submit an offer that does not include all outstanding liabilities. Prior to accepting the offer, the Form 656 should be amended to include all outstanding tax liabilities.
3. An offer submitted on Form 656-L, under DATL criteria, will be accepted for only the tax periods that are in question.
5.8.2.3.2 (09-23-2008)
Explanation of Circumstances
1. Taxpayers may use the designated space on the Form 656, Offer in Compromise, or attach a separate statement to explain why they are submitting the offer.
2. If special circumstances exist, the taxpayer should explain the situation under Item 9 of the Form 656 (or attach a separate statement) and include all supporting documents to assist in verification of the special circumstance that is being claimed.
5.8.2.4 (09-23-2008)
Signatures
1. Each taxpayer that is party to an OIC should personally sign the Form 656. When unusual circumstances prevent this (e.g. the taxpayer is incapacitated), an authorized representative may sign for the taxpayer.
The case file should include a copy of the properly executed Form 2848, Power of Attorney and Declaration of Representative, Form 8821, Tax Information Authorization; or CFINQ print as verification of the representative's authority.
Note:
Geographical distances between the representative and the taxpayer is not an acceptable reason for a representative to sign on the taxpayer's behalf.
2. Since the CIS requires certification under penalty of perjury, the taxpayer(s) must personally sign the Form 433-A and/or 433-B.
3. In the case of joint OIC's, all parties, or their designated representative as explained in paragraph (1) above, must sign the Form 656 to ensure the provisions of the agreement bind all parties.
4. Offers submitted for corporations should reflect the corporate name on the first signature line. The signature name and title of the authorized officer should be reflected on the second line.
5. An offer submitted by the fiduciary of an estate of a deceased taxpayer will be binding on the taxpayer's estate to the extent that it would be binding on a taxpayer who submits an offer on their own behalf. Include in the case file a copy of the fiduciary's appointment document.
6. If an offer is submitted on behalf of a deceased taxpayer, when there is no estate, the individual who signs the offer must have authority. This authority can be designated by a will appointing that individual as the executor or by written authorization from the probate court.
5.8.2.5 (09-23-2008)
Initial Processing of Offers in Centralized Offers in Compromise Sites
1. When an offer is received in the COIC site, an employee will:
A. Date stamp the form upon receipt in the "IRS Received Date Stamp" block of Form 656, and create separate offer sorts, as follows:
• Form 656 with check(s) for more than $150
• Form 656 with check for $150 only and no waiver
• Form 656 with waiver and a check for more than the $150 application fee
• Form 656 with check for $150 and a waiver
• Form 656 with waiver only
• Appeals Collection Due Process (CDP) offers, with checks
• Out of Area Transfers, with checks
• DATL (Form 656-L ), with checks
B. Verify the case is the type of offer that is processed by the COIC site and if not, immediately route it to the proper jurisdiction.
C. If the offer is the responsibility of the Collection function, query IDRS to ensure the receipt is a new offer.
D. If the offer is the responsibility of the Collection function, add the offer to the AOIC data base as a "U" case (except for Appeals CDP and DATL offers).
E. The following fields should be completed on the AOIC record:
• Screen 1 — complete the IDRS TIN, OFFER TIN, and DATE RECEIVED fields.
• Y-Entity screen — complete the name control field, the complete name and address of the taxpayer(s) as reflected on the Form 656, Offer in Compromise.
• Write the AOIC offer number on the top right corner of Form 656, Offer in Compromise, in "red ink."
• Write the AOIC offer number in blue or black ink in the upper left hand corner of the remittance.
F. Upon receipt, COIC will prepare the Form 13479, COIC Remittance Tracking Report. See IRM 5.8.3.5, Processing Application Fees and Offer Payments/and Deposits, for instructions on preparation and processing.
G. Use one line on the report for each remittance. One offer may have more than one line completed on Form 13479, COIC Remittance Application Fee Tracking Report, if accompanied by multiple remittances.
Note:
Do not put more than 5 offers on one Form 13479.
H. Enter the IRS received date of the offer and remittance amount. Each Form 13479, COIC Remittance Tracking Report, must list the offers received on the same date.
I. For those offers loaded on AOIC, write the offer number on the upper left hand corner of the remittance(s) and in the "Offer #" column on the Form 13479, COIC Remittance Tracking Report.
J. For all offers received with remittances:
• Complete the "SSN/EIN" , "Name Control" , "Check Amount" , "Check No." , and "Check Type" (e.g., money order, bank check, government check, personal check, etc.) columns.
• Attach all remittances to the front of Form 13479. Secure acknowledgement of receipt of the Form 13479 and the checks by Receipt and Control/Payment Perfection Unit (PPU) by obtaining their initials in the column marked "Campus Support Initials."
• Secure the remittances to Form 13479 and release to PPU after they have acknowledged receipt.
• Retain Parts 2 and 3 of the Form 13479 with the batch of offers and forward for assignment to the PE.
K. Review submitted documents for an emergency processing request (i.e. "Please Rush" , "Urgent Matter" , etc.). See IRM 5.8.2.6, Emergency Processing, for these requests.
5.8.2.6 (09-23-2008)
Emergency Processing
1. Taxpayers may occasionally request that their offer be expedited due to an emergency or perceived emergency situation. Situations that may warrant expedited case processing include:
• A contract or business agreement requiring the taxpayer, as a condition of the contract or agreement, to resolve the tax liability by a specific date.
• Availability of the money to fund the offer is limited to a certain time.
• A terminal illness may affect the ability to complete the payment terms.
2. Offers received with a request for expedited processing should be referred to management for a decision on whether or not expedited treatment is warranted.
3. If a decision is made to expedite offer processing, the manager should document the AOIC history, indicating the basis for the decision. The Form 656 should be clearly labeled at the top "Emergency Processing Requested," and an immediate processability determination and assignment for investigation should be made. Every effort should be made to close the offer within 90 calendar days of receipt. In an attempt to bring the case to a prompt and timely resolution and to meet the special needs of the taxpayer, immediate contact should be made with the taxpayer to request any additional information needed.
4. If a decision is made not to expedite the case, the manager should document the basis for the decision on the AOIC history. Contact the taxpayer by telephone or correspondence explaining the basis for the decision. The case should be worked under routine processing.
5.8.2.7 (09-23-2008)
Processing Deposits Received With Offers
1. Deposits submitted with an offer to compromise a liability or during the pendency of an OIC will not be applied to the liability until the offer is accepted unless the taxpayer provides written authorization for application of the payments. The partial payments required under TIPRA are not deposits, but rather nonrefundable payments of tax. Voluntary payments submitted in connection with an offer to the extent they exceed the required initial payment, will be applied as payments of tax unless designated as a deposit by the taxpayer on the Form 656.
2. Deposits are defined as payments of part or all of the offered amount submitted prior to acceptance. Offers do not require deposits, but deposits can be made with new offers or any time while an OIC is being considered. .
3. Although deposits are voluntary payments and generally not required, a deposit may be required when considering a compromise of an accepted offer as discussed in IRM 5.8.9.3, Potential Default Cases
4. Deposits are not treated as payments of tax upon receipt. Rather, they are held in a special deposit fund commonly referred to as the "4710 Account." The deposit is not reflected on IDRS nor applied to any specific tax period until the offer is accepted. For those offers previously loaded on AOIC, the amount will be annotated on the Deposit Screen of the taxpayers AOIC record by the MOIC employee processing the remittance.
5. COIC sites will treat any remittance (including those for $150) received with DATL offers (non-TFRP/PLET) as a deposit. Since such offers are not loaded onto AOIC, and will be manually monitored by MOIC. Employees should list any such remittances on the Form 13479 and prepare the Form 2515 for processing. Utilize the RACS deposit numbering system provided by MOIC to generate and enter a 10-digit control number on both the Forms 13479 and 2515.
Note:
A PDF fillable version of the Form 2515 is accessible on the IRS Intranet.
6. During the course of an investigation an OI must process any payment received on a pending offer within 24 hours of receipt. The employee who receives the payment will:
A. Prepare Form 13479
B. Generate Form 2515 from AOIC (make one copy or print 2 copies).
C. Complete form(s) and attach the payment(s)
D. Forward the Form 13479, Form 2515, and remittance to Payment Check Conversion (PCC) for deposit
E. Forward a copy of the Form 2515 to MOIC. Attach the Form 3210
F. Attach Form 3210, Document Transmittal, and include the following information:
• Offer number
• Taxpayer's ID number and name
• Amount of the payment
• Transmit the payment by traceable methods to the appropriate MOIC unit for processing.
5.8.2.8 (09-23-2008)
Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites
1. Once the COIC sites have loaded the offer to AOIC and completed initial processing, pending offers in the following categories will be transferred to the appropriate Area office to be worked in a field group, except for those self-employed taxpayers meeting the criteria listed in paragraph 3 below.
• Corporations
• Partnerships
• Estates and trusts
• Currently incarcerated taxpayers
• Trust Fund Recovery Penalty (TFRP) - Doubt as to Liability (DATL)
• Any business with employees
• Closely held corporations
• Limited Liability Partnership (LLP) and Limited Liability Company (LLC)
• Partners in a partnership which serves as a primary source of income
• Sole proprietors with gross receipts over $500,000
• Out of business companies
2. Prior to the transfer of self-employed cases to an Area office, COIC will:
• Send the taxpayer the AOIC Combination letter using "Option A"
• Include the following in-house research in the case file:
C. Accurint
D. Basis 100, if real estate ownership is indicated on the CIS.
E. Copy of the NFTL, if notice of filing is on the Automated Lien System (ALS).
3. Only those self-employed taxpayers meeting the following criteria, will be retained and processed in the COIC sites:
• Offers that meet the criteria for "Screen for Obvious Full Pay" processing.
• Offers requiring issuance of "Option-Y" on the AOIC Combination letter to secure an additional Form 656, required initial payment and application fee or Form 656-A. See IRM 5.8.3.7, Forms 656 Application Fee Requirements TIPRA Payments and Perfection, for additional information on when it is appropriate to secure an additional Form 656, application fee, and required initial payment. COIC sites will also include all applicable case-building and perfection paragraphs in the Combination letter.
Note:
Cases meeting field criteria, but needing multiple offers, will be perfected in the COIC sites and will be shipped to the field immediately upon receipt of the taxpayers response is received. The site will not determine if the taxpayer substantively replied to the request for information. If no reply is received, the site will close the offer as a processable return.
• Previously self-employed but currently unemployed.
• Self-employed taxpayers with gross receipts of $500,000 and no employees.
4. All offers forwarded to Area offices for investigation will be sent to a central point designated by the Area office. Prior to transferring a case to an Area office, COIC will send the taxpayer an AOIC transfer letter. Within five (5) business days of receipt of the offer case file from the COIC site, the Area office will:
• Acknowledge receipt of the offer file(s) by signing and returning the acknowledgement copy of Form 3210, Document Transmittal.
• Accept transfer of the offer record on AOIC
• Determine the destination of the offer assignment and reassign the offer to the appropriate offer group on AOIC.
• Send the offer file to the appropriate group manager for assignment.
5. If assignment to an offer specialist does not or will not take place within 45 days of the transfer from COIC to the Area office, the Area office will:
• Contact the taxpayer (verbally or in writing) and advise of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the ICS history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.
• The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group.
•
The date COIC transferred the case on AOIC will be used as the start date for the 45 day calculation.
6. Within five business days of receipt of the offer case file from the COIC site, the Area office will:
• Acknowledge receipt of the offer file(s) by signing and returning the acknowledgement copy of Form 3210, Document Transmittal.
• Accept transfer of the offer record on AOIC.
• Determine the destination of the offer assignment and reassign the offer to the appropriate offer group on AOIC.
• Send the offer file to the appropriate group manager for assignment.
• Send a letter to the taxpayer providing the address of the office that will handle the investigation including a name and phone number of a contact person and an anticipated date of assignment to an offer investigator, if available. The AOIC Transfer Letter may be used for this purpose.
5.8.2.9 (09-23-2008)
Interoffice Transfers
1. Offer cases may be transferred from one office or site to another if:
• the taxpayer relocated,
• the case was originally received in the wrong jurisdiction, or
• the work has been realigned.
2. Misdirected offers without remittances should be transferred from one COIC site to another while in "U" (undetermined) status, before a processability determination is made.
3. Misdirected offers with remittances will be reviewed by the COIC sites for processability determinations.
• If the offer is not processable, the receiving site will return the offer and follow procedures outlined in IRM 5.8.3.4, Processability.
• If processable, the receiving COIC site will make the appropriate AOIC entries and process the remittances in accordance to IRM 5.8.3.5, Processing Application Fees.
• Transfer the offer to the appropriate COIC site based on the location of the taxpayer's place of residence. The receiving COIC site will be responsible for completing the "Screen for Obvious Full Pay," case building, and/or issuance of the Combo letter.
4. Misdirected offers received and determined to be under the jurisdiction of Appeals, as a result of a CDP hearing, will not be transferred between COIC sites. Follow the procedures outlined in IRM 5.8.3.4.2, Determining Processability for Appeals Collection Due Process Offers.
5. Transfers from one office or COIC site to another should be made if the taxpayer relocates and either the investigation has not been started or there is a substantial change in circumstances. Transfer letters should be generated and sent to the taxpayer by the transferring office or COIC site.
6. To transfer cases, the transferring office should take the following steps:
• Document the history with the taxpayer's new address and the location of the receiving office.
• Correct the address on the Y-Entity screen on AOIC.
• Prepare and mail the AOIC transfer letter.
• Transfer the case on AOIC (press (C)ontrol and (T)ransfer and input the correct area office code).
• Prepare the Form 3210, Document Transmittal, and mail the case by traceable mail to the receiving office.
5.8.2.10 (09-23-2008)
Powers of Attorney
1. Taxpayers who wish to be represented must submit a properly executed Form 2848, Power of Attorney and Declaration of Representative. Input the representative's information on AOIC and retain a copy of the form in the paper case file. Forward the original for recording on the Centralized Authorization File (CAF).
2. Send all original correspondence to the taxpayer and provide a copy to the representative unless the taxpayer has indicated otherwise by checking item b on line 7 of Form 2848.
3. Individuals who are not entitled to practice before the IRS with respect to a collection matter (such as unenrolled return preparers) may accompany taxpayers to meetings with a completed Form 8821, Taxpayer Information Authorization, or other proper authorization, and receive and provide information that relates to the offer investigation. They are not authorized to represent the taxpayers or sign documents relating to offers in compromise.
4. If the Form 2848 does not include liabilities that are included on the offer, a letter cannot be sent to the representative covering these periods. Instead, send a redacted letter to the representative. The letter sent to the taxpayer can request completion of a Form 8821 or a Form 2848 to cover the missing periods.
5.8.2.10.1 (09-23-2008)
Third Party Authorization Requests
1. Attorneys, Certified Public Accountants (CPA), enrolled agents, or enrolled actuaries are generally the only practitioners authorized to represent taxpayers before the IRS on collection matters.
Note:
An "unenrolled" return preparer is an individual, other than an attorney, CPA, enrolled agent, or enrolled actuary, who prepares and signs a taxpayers return as a preparer, or who prepared a return but is not required to sign the return. An unenrolled return preparer cannot represent a taxpayer before the IRS on any collection matter. An unenrolled return preparer, however, may represent a taxpayer before the IRS in certain other limited situations. See IRM 5.1.10.5.2, Right to Representation.
2. During the course of the investigation, a taxpayer may submit a Form 2848 designating a third-party as their representative or power of attorney, or the taxpayer may submit a Form 8821 designating an appointee or may complete item 14 on the Form 656, Offer in Compromise, for a "Third Party Designee" . When properly completed and filed by the taxpayer, each of these documents should be recognized during an investigation, and interaction with the third party should be governed by the parameters allowed within each of these authorization forms.
• Form 2848 — authorizes an eligible individual (e.g. attorney, CPA, enrolled agent, or enrolled actuary) to represent as well as receive confidential information.
• Form 8821 and item 14 on the Form 656.
3. The table below provides guidance to assist in distinguishing the differences between the Form 2848, Form 8821, and item 14 on the Form 656.
Type of Form Designee may be individual or entity Designee can inspect limited tax info. Designee may receive limited written info. Designee can represent TP on collection matters Designee can execute waivers, consents, etc. TP can designate more than one individual/ entity on the form Designee may redelegate to another individual or entity Unenrolled return preparer can be designated
Form 8821 Either Yes Yes No No Yes No Yes
Form 656, item 14 Individual Only Yes No No No No No Yes
Form 2848 Individual Only Yes Yes Yes Yes Yes Yes (Individuals Only) Yes (but only for non-collection matters)
5.8.2.10.1.1 (09-23-2008)
Form 8821, Tax Information Authorization (Rev. 4/2004)
1. If Form 8821 is missing critical information that can only be provided by the taxpayer (e.g., tax years, type of tax, missing taxpayer signature, date) it will be returned to the taxpayer.
2. Information that may be disclosed to the designee is limited to the type of tax, tax form number, tax years or periods, or specific tax matter that is listed on Form 8821, item 3.
3. If Form 8821, item 5a is checked, the designee is also entitled to receive copies of tax information, notices, and other written communication on an ongoing basis for the type of tax, tax form number, tax years, or specific tax matter listed under item 3.
4. The designee is not authorized to respond to any type of correspondence on behalf of the taxpayer if the response advocates a position that would indicate that the designee is taking on a representational role.
5. Mail the original Form 8821 to the appropriate Centralized Authorization File (CAF) campus in Memphis, Ogden, or Philadelphia (International), depending on the taxpayer's state of residence.
6. Form 8821 may also be faxed. Refer to page 2 of Form 8821 for detailed fax information and location. If the form is faxed, retain the original in the case file. Document the history to indicate the date and campus to which the form was sent.
5.8.2.10.1.2 (09-23-2008)
Form 656, Offer in Compromise, item 14: Third Party Designee (Rev. 7/2004)
1. The information and/or documentation that may be disclosed to the designee is limited only to information and/or documentation necessary to process an offer.
2. Information may include tax liabilities omitted on the Form 656, item 5, or unfiled tax returns affecting the acceptance of the offer.
5.8.2.10.1.3 (09-23-2008)
Form 2848, Power of Attorney and Declaration of Representative (Rev. 3/2004)
1. As of March 2004, the IRS will not honor a Form 2848 if it designates a representative who is not authorized to practice. Further, the form will not be treated as a Taxpayer Information Authorization. Form 8821 is required to allow those individuals, who cannot practice before Collection personnel, access to tax information beyond what would be allowed if they checked Form 656.
2. Taxpayers may authorize a student who works in a Low Income Taxpayer Clinic (LITC) or Student Tax Clinic Program (STCP) to represent them under a special order issued by the Office of Professional Responsibility (OPR). A copy of the letter from OPR authorizing practice before the IRS must be attached to the Form 2848. Students who have been authorized to practice by a special order may, subject to any limitations set forth in the letter from OPR, represent taxpayers before any IRS office and should be treated the same as any other taxpayer representative designated on the Form 2848.
3. The power to sign the taxpayer's tax returns can be granted only in limited situations. Refer to the Form 2848 and Treasury Regulations §§ 1.6012–1(a)(5) and 1.6061-1(a) for additional information.
4. If a joint return has been filed, one or both spouses may choose to be represented by a POA. If both spouses choose to be represented by the same individual(s), both the husband and wife are required to sign the Form 2848. If, however, the spouses choose different individuals to represent them, each spouse must submit a separate Form 2848 listing their independent representative. If only one spouse is to be represented, only the one that will be represented is required to sign the Form 2848. Regardless, any authorized representative of either souse is allowed access to tax information related to the joint tax return.
5. Mail or fax the Form 2848 to the appropriate Centralized Authorization File (CAF) campus in Memphis, Ogden, or Philadelphia (International) depending on the taxpayer's state of residence. Refer to the Instructions on the Form 2848 for address locations and fax numbers. If the Form 2848 is faxed, retain the original in the case file. Document the case to indicate the date and campus to which the form was sent.
5.8.2.11 (09-23-2008)
Processing of Forms 4844 From Automated Collection Services, Toll Free, or Other Service Divisions
1. Form 4844, Request for Terminal Action, will be prepared by Automated Collection System (ACS), Toll Free, and Walk-in operations to provide information submitted by the taxpayer on a previously filed offer in compromise. Normally, these forms will be prepared if the offer was submitted for processing more than 45 calendar days and the taxpayer has yet to be contacted or notified of the status of the offer.
2. Form 4844 will be faxed to the appropriate COIC sites. The forms should be reviewed within 48 hours of receipt and any necessary action taken on the account based on the information provided.
5.8.3 Processability
• 5.8.3.1 Overview
• 5.8.3.2 Routing Cases Based on Jurisdictional Responsibility
• 5.8.3.3 Combined Application Fee Payment Processing
• 5.8.3.4 Processability
• 5.8.3.5 Processing Application Fees and Offer Payments/Deposits
• 5.8.3.6 Dishonored Payments
• 5.8.3.7 Form 656 Application Fee, TIPRA Payments, and Perfection
• 5.8.3.8 Centralized Offers in Compromise Processability Determinations
• 5.8.3.9 Not Processable
• 5.8.3.10 Processable
• 5.8.3.11 Types of Perfection
• 5.8.3.12 Screen For Obvious Full Pay Processing (Centralized Offer in Compromise Only)
• 5.8.3.13 Centralized Offer in Compromise Case Building and Perfection Procedures
• 5.8.3.14 Centralized Offer in Compromise Internal Verification Research
• 5.8.3.15 Processing Taxpayer Responses to Combo Letters
• 5.8.3.16 Analyzing Taxpayer Responses to Combo or Additional Information Letters
• 5.8.3.17 "No Reply" Procedures
• 5.8.3.18 Withholding Collection
• 5.8.3.19 Offers Submitted Solely to Delay Collection
• Exhibit 5.8.3-1 COIC Remittance Tracking Report
5.8.3.1 (09-23-2008)
Overview
1. All offer receipts other than those based solely upon DATL are reviewed to determine if they are processable. No application fee or TIPRA payment is due with the submission of DATL offers, including DATL offers to compromise a TFRP or PLET. Processable offers are then "built" (i.e., internal and external information is secured to verify financial information), and perfected, if necessary, before being assigned for investigation. "not processable" offers are returned to taxpayers. This chapter explains the procedures to be followed for determining jurisdictional responsibility, processability, and case building.
5.8.3.2 (09-23-2008)
Routing Cases Based on Jurisdictional Responsibility
1. The following table provides guidance when it has been determined that Collection does not have jurisdictional responsibility:
If responsibility lies with… Then…
Department of Justice (DOJ) Contact Area Counsel to determine the status of the pending bankruptcy or litigation and whether Collection has jurisdiction to process the offer. If the DOJ requests the offer be sent directly to them, delete the offer from the AOIC system and forward the case to the DOJ.
Examination Send the offer directly to the centralized DATL processing unit located at the Brookhaven campus. No fee is required for these offers. Do not open a record on the AOIC system. If the record was inadvertently loaded to AOIC, delete the record.
Appeals Determine processability, complete the AOIC "Appeals Fee Screen" and follow the established Appeals application fee and payment procedures.
5.8.3.3 (09-23-2008)
Combined Application Fee Payment Processing
1. Multiple offers submitted with one remittance intended as the application fee(s) and/or payment(s) for all will be processed. Load the cases to the Automated Offers in Compromise (AOIC) system. Prepare the AOIC Combo Letter with the "Y" paragraph. If the taxpayer fails to respond to the request, return the offer.
5.8.3.4 (09-23-2008)
Processability
1. COIC PE's are responsible for determining processability of all offers received and worked by the Service, including DATL offers to compromise a TFRP or PLET. All other DATL offers are processed by the Centralized DATL Unit. See IRM 5.8.2.2. This determination must be made within 14 calendar days of receipt of an OIC at the appropriate COIC site.
2. Each new receipt will fall into one of the following categories:
• Not processable – The taxpayer does not meet one or more of the minimum established criteria for offer consideration.
• Processable – The taxpayer meets the minimum criteria for offer consideration.
5.8.3.4.1 (09-23-2008)
Determining Processability
1. An OIC will be deemed not processable if one or more of the following criteria are present:
A. Taxpayer in Bankruptcy – An offer will not be considered while a taxpayer is in bankruptcy. See IRM 5.8.10.2, Bankruptcy.
B. Taxpayer did not submit the application fee with the offer – The application fee of $150 or the signed Form 656-A, Income Certification for Offer in Compromise Application Fee, must be submitted with each Form 656.
Note:
No application fee or TIPRA payment is required for offers filed solely based on DATL.
C. Taxpayer did not submit the required initial payment with the offer – If the taxpayer fails to submit either of the following, the offer will be returned as not processable.
2. Lump Sum Cash offers must include 20% of the offered amount or a signed Form 656-A.
Note:
If the taxpayer submits the $150 application fee and a portion (but not all) of the required initial lump sum payment, the offer will be deemed processable, but not perfected.
3. Short Term and Deferred Periodic Payment offers must include initial proposed installment payment must be submitted with the offer or a signed Form 656-A.
4. The Form 656-A applies only to individual taxpayers.
5.8.3.4.2 (09-23-2008)
Offers Submitted Solely for Unassessed Liability(s)
1. An unassessed liability is a liability where no assessment has been made. These procedures do not apply to unassessed Examination or Automated Underreporter cases. Follow procedures in IRM 5.8.4.12.
2. If an offer is received that is solely for unassessed periods, COIC will determine processability following procedures in IRM 5.8.3.4.1.
If… Then…
The offer is not processable Return the offer following procedures in IRM 5.8.3.9
The offer is processable, research IDRS for the return(s), and if IDRS indicates the return has been received, but has not posted 1. Continue working the offer
2. Post the payments to the taxpayers account using Form 2515 with a TC 670 using one of the following DPCs: DPC 33 (Offer in Compromise $150 application fee); DPC 34 (Offer in Compromise 20% lump sum/initial periodic payment); DPC 35 (Offer in Compromise subsequent payments made during the offer investigation)
3. Request input of a TC 570 with $".00" , to allow the payment to post to the taxpayers account, before the assessment.
The offer is processable, and IDRS does not indicate the return has been received 4. Return the offer as a processable return following procedures in IRM 5.8.7.2.2
5. Do not return the application fee
6. Return the TIPRA payment(s), and any deposit. Because we do not have an assessment, we must return any TIPRA payment(s), or deposits.
7. Post the application fee to the 2395 Account only.
8. Generate the Return Letter on AOIC using paragraph "T."
9. Notate the Form 2424 with the following comment:"offer submitted for an unassessed liability"
5.8.3.4.3 (09-23-2008)
Determining Processability for Appeals Collection Due Process Offers
1. If Collection files a lien while an offer is being investigated; complete the investigation. If the taxpayer files a CDP request because of that lien and the CDP remains open, the offer falls under the jurisdiction of Appeals. Collection cannot work any offer that has an open CDP case. If the case falls under the jurisdiction of Appeals, forward the entire case to Appeals and delete the offer from AOIC.
Note:
Appeals may require Collection's assistance to complete the investigation on complex cases. In those cases, an Appeal Referral Investigation (ARI) may be issued to the field.
2. COIC will apply the same processability criteria as outlined in IRM 5.8.3.4.1, Determining Processablity, but do not load these offers on the AOIC.
3. CDP offers must be received with the required remittances to meet the basic processability criteria and processing guidelines as outlined in IRM 5.8.3.5, Processing Application Fees and Offer Payments/Deposits. These offers will not be controlled on AOIC and will require special handling as follows:
• Payments made on offers not controlled by the AOIC program must be processed manually using a specially designed RACS numbering scheme.
• A manual Form 2515 must be prepared on CDP offers. Include all taxpayer entity information, including the TIN.
4. The following numbering scheme should be used in place of the offer number on the Form 13479 and Form 2515:
• The first two digits should be 17 (Memphis COIC) or 18 (Brookhaven COIC), as appropriate.
• The third digit should designate the type of offer (i.e., 1 – for Appeals; 2 – for Exam/DATL; 3 – for DOJ; and 4 – for CI).
• The fourth and fifth digits should be the area office (i.e., Appeals AO) where you are sending the case.
• The six and seventh digits should be the year.
• The remaining three digits should be the sequence #.
• Assign one RACS number per offer. Up to 5 offers may be listed on each Form 13479.
• Maintain a log of manually assigned RACS numbers.
• Send a copy of the Form 2515 to MOIC for back-end monitoring.
5. The RACs number should be 10 digits.
Example:
1714806123
6. The payment date on the Form 2515 must be the IRS received date.
7. Appeals will provide COIC with both processable and not processable determination letters containing all necessary information, including the Appeals contact information on Form 3210. Appeals will provide two copies of Form 3210. One copy is for COIC clerical filing and the other copy will remain with Form 656 and related documents. It is the responsibility of COIC to sign, date, and mail the applicable letter based on the processability determination.
If... Then...
The offer is not processable and a remittance was attached 1. Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with the procedures in IRM 5.8.3.5.
2. Fax a copy of the not processable letter to the Appeals employee. The Appeals employee name and fax number should be noted on the Form 3210. Also, include a copy of the 2515 showing the designation of the monies received with the offer; noncompliance issues; if additional forms and fees are required.
Note:
The Form 3210 should remain with the case until a processability determination has been made. A copy should be retained by the Clerical staff in Appeals.
The offer is not processable and no remittance was attached Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with procedures in IRM 5.8.3.5, Processing Application Fees, Offer Payments and Deposits.
If the offer is processable and a remittance is attached 3. Access the Appeals Fee Screen application of AOIC and input the fee and payment data.
4. Input the Appeals employee information noted on the Form 3210 and the Appeals Fee Screen history.
5. Document the payment type, application of the funds, and taxpayer designation, if any, on the Form 3210.
6. Write the RACS number on the upper left corner of the Remittance.
7. Prepare the Form 13479 in accordance with IRM 5.8.3.5.1
8. Mail the processability letter to the taxpayer.
9. Send a copy of the letter and the original offer package to the Appeals employee designated on the Form 3210. The Appeals employee name and fax number should be noted on the Form 3210.
Note:
The Form 3210 should remain with the case until the processability determination has been made. A copy should be retained by the Clerical staff in Appeals.
If the offer is processable and the taxpayer submitted and qualified for the Form 656-A 10. Mail the processability letter to the taxpayer.
11. Send a copy of the letter and the offer package to the designated Appeals employee on Form 3210. The Appeals employee name and fax number should be noted on the Form 3210.
8. When an offer is received in conjunction with a CDP and is deemed to be processable, the COIC site will input the TC 480 on all related tax periods. This includes the input of a TC 480 on all balance due periods not specifically listed on the Form 656. If the module is an MFT 31, request input of TC 470 with Closing Code (CC) 90 to suspend collection activity. It will be the responsibility of Appeals to perfect the offer document.
9. COIC will advise the Appeals/Settlement Officer when it is necessary for the Appeals employee to secure additional Form(s) 656, application fee(s), and/or required initial payments prior to the investigation by generating the letter identifying "Option Y" criteria. See IRM 5.8.3.7, Form 656 Application Fee, TIPRA Payments and Perfection, for examples of these situations. The COIC site will prepare Form 3210 for transmittal of the processable offer back to Appeals. The Form 3210 will include the following information:
• List the specific periods with the TC 480
• Identify an "Option Y" condition
• Copy of 2515 (showing the designation of money; i.e., fee, periodic payment received, 20% or partial payment of 20%)
• Non-compliance issues
• Additional forms, fees, and/or payments
10. It will be the responsibility of Appeals to resolve each TC 480 (e.g. input of TC 481, 482, 483) after Appeals concludes the offer investigation. The Form 2515 should show the IRS received date for the date of the payment.
If… Then…
It is determined that the case is under Appeals jurisdiction and the CDP condition is identified while the offer is being processed through COIC • The COIC site CDP coordinator will advise the AO/SO of the processability determination.
• The AO/SO will generate and transmit via encrypted E-mail to the COIC site CDP coordinator the appropriate appeals processable and not processable letters.
• The COIC site will delete the offer record from AOIC and load the fee information to the Appeals application fee screen of AOIC.
• The COIC site will follow the procedures in IRM 5.8.3.4.2(2) (above) to process the letter and application fee.
• COIC will change the offer number on the Form 13479, COIC Application Fee Tracking Report, to the Appeals RACS number.
It is determined the case is under Appeals jurisdiction but the CDP condition is identified after the offer has been deemed processable and moved to a workable inventory COIC will:
• Delete the offer record from AOIC.
• Load the information to the Appeals application fee screen.
Note:
The application fee and initial offer payment should have already been applied at this juncture.
11. Offers submitted directly to the Compliance employee, are occasionally identified as having an open CDP control. When this occurs, the COIC site CDP coordinator will research the Appeals Centralized database System (ACDS) to determine if the CDP is still open, and if a determination letter has been issued.
12. If the CDP determination letter has not been issued or a withdrawal has not been signed and dated, the offer is considered to still be open and under the jurisdiction of Appeals.
5.8.3.4.4 (09-23-2008)
Exception Processing for Offers in Compromise Investigations Involving Taxpayers in Combat Zones
1. The following procedures are instructions on handling those taxpayers identified as being located in a Combat Zone (CZ) area. This determination should be based on correspondence, case history entries, or telephone contact.
2. Section 7508 postpones the time for performance of certain time-sensitive acts for the period of time that an individual serves in one of the three situations described below, plus the period of continuous qualified hospitalization attributable to an injury received while serving in one of these situations, plus the next 180 days:
• Individuals serving in the Armed Forces in an area designated by the President of the United States as a CZ for purposes of section 112, or serving in support of such forces, including individuals serving in an area certified by the Department of Defense as being in direct support of military operations in a CZ, for which the person receives special pay for duty subject to hostile fire or imminent danger;
• Individuals deployed outside the U.S. away from the individual’s permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation (as defined in 10 U.S.C. § 101 (a) (13); or
• Individuals serving in the Armed Forces in a qualified hazardous duty area.
3. Offers that are received and deemed not processable due to the application of section 7508 relief should be worked following standard procedures. If any of the following situations exist, exception processing should be followed:
• Offers that are received and deemed processable
• Offers in which a Combo Letter was issued and CZ notification for section 7508 relief due to one of the above-described situations is received after the letter was issued
• Offers in which a determination was made to accept, return, or reject the offer
• Offers in which a return or rejection letter was issued prior to notification for section 7508 relief due to one of the above-described situations
4. For all of the offer situations identified in paragraph (3) above, the following actions should be taken:
• Prepare the Form 3244 or 4844 requesting input of TC 500 CC 56 on the taxpayer's account. Use the current date for the incoming call or the IRS received date for the correspondence. The case should be suspended for 120 calendar days without taking any further action and should be reassigned on AOIC to a designated or locally designated assignment number. Management should utilize the AOIC Follow-up Screen to monitor the progress on the case until the TC 500 is reversed.
• The offer investigation may continue if there is a POA, or in the case of a joint offer, the spouse is able and willing to provide all substantiation.
5.8.3.5 (09-23-2008)
Processing Application Fees and Offer Payments/Deposits
1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law on May 17, 2006. The new law changed the rules for the submission of OIC.
2. The law stipulates that OIC's received on or after July 16, 2006 must include the application fee, and based on the offer terms, one of the following:
1. Lump Sum Cash Offers – The submission of any lump-sum OIC should be accompanied by 20 % of the amount of the offer or a 656-A. The term "lump sum" means any offer of payments made in 5 or fewer installments.
If… Then…
A taxpayer submits a Lump Sum Cash offer and the terms are a single amount payable in 5 months or less Load the offer on the Terms Screen as a "Cash" offer
The taxpayer submits a Lump Sum Cash offer and the terms are a single amount payable in more than 5 months Load the offer on AOIC Terms Screen as a "Deferred" offer
2. Short Term and Deferred Periodic Payment Offers – The submission of any periodic payment OIC should be accompanied by the amount of the first proposed installment or a 656-A.
Short Term Periodic Payment Offers Deferred Periodic Payment Offers
If…
The taxpayer submitted an offer payable in 6 to 24 months If…
The taxpayer submitted an offer payable in the remaining time on the statutory period for collection
Then…
Load the offer on AOIC "Terms Screen" as a deferred offer Then…
Load the offer on AOIC "Terms Screen" as a deferred offer
3. Document the terms of the offer on the AOIC Terms Screen.
4. If the taxpayer submits both the application fee and the required initial TIPRA payment (20 % or first installment) in one check, the $150 Application Fee will be entered first and the remainder will be applied as the payment amount. A decision concerning whether the submitted payment complies with the offer terms will not be made until a processability determination has been completed.
5. Insufficient remittance of the required initial lump sum cash payment (20% of the offer amount) will be considered a perfection issue.
6. Insufficient periodic payments will render the offer not processable and the offer will be returned to the taxpayer. Processing procedures are addressed in IRM 5.8.3.11, Types of Perfection.
7. The required initial TIPRA payment (20% or periodic payment) will be applied to the taxpayer’s liability in all instances. These monies are not refundable to the taxpayer.
8. Taxpayers may designate how these payments are to be applied to the tax liabilities. If the taxpayer does not designate how these payments are to be applied, the IRS will apply them to the tax liability with the earliest unexpired CSED.
9. Application fees will continue to be refunded to the taxpayer on not processable offers.
10. Qualified taxpayers may continue to submit Form 656-A for a waiver of the application fee. Taxpayers who qualify for a waiver of the application fee will also be exempted from all TIPRA payments. If, during the investigation, the OI determines the taxpayer does not qualify for the waiver, make one attempt to request the taxpayer submit the required initial TIPRA payment and application fee. If the taxpayer fails to respond, the offer will be returned as a processable return.
11. Incoming offers will be sorted in the following categories:
• Form 656 with check(s) for more than $150
• Form 656 with check for $150 only and no waiver
• Form 656 with waiver and a check for more than the $150 application fee
• Form 656 with check for $150 and a waiver
• Form 656 with waiver only
• CDP (with checks)
• Out of Area Transfers (with checks)
• DATL or Form 656 L (with checks)
12. If the taxpayer submits only the $150 application fee and does not submit the required initial TIPRA payment (any portion of 20% of a lump sum cash offer or the required initial payment of a periodic payment offer), the offer will be deemed not processable upon receipt, and will be returned. These offers must receive expedited processing to generate the return letter and update the AOIC history to meet the 24-hour deposit requirement.
13. The following are procedures for immediate processing of the not processable returns due to receipt of the $150 application fee submitted with a personal check.
. Complete a separate Form 13479 for those offers to be returned based on the receipt of only the $150 application fee.
A. Enter no more than 5 offers per 13479.
B. Load onto AOIC in "U" status.
C. Enter $150 in Column H of the Form 13479.
D. Hand-carry the Form 13479 to the Campus Support Mail Team to get personal checks stamped as "non-negotiable."
Note:
COIC will use a "non-negotiable" stamp on personal checks when the taxpayer fails to submit the appropriate TIPRA payment or the application fee. The Form 13479 will be used for control purposes only and should be maintained as a record of the payment(s) received. The Form 13479 must also indicate the check(s) were stamped as "non-negotiable" and the date they were stamped. The checks must be stamped "non-negotiable" within 24 hours of receipt.
E. Personal checks stamped "non-negotiable" will be returned to the designated COIC function employee housed in the Campus Support mail area.
F. Personal checks stamped "non-negotiable" will be suspended by the COIC function and maintained in a locked file until the completion of the return package.
G. Personal checks stamped "non-negotiable" and the offer package should be returned to the taxpayer through normal mail out procedures.
H. The AOIC history must be documented indicating the check was stamped "non-negotiable" and include the date it was stamped.
Note:
Once the checks have been stamped non-negotiable and handled according to the procedures above, the offer package should be assigned to a PE for completion of the return letter and offer package.
14. The following are procedures for immediate processing of the not processable returns due to receipt of the $150 application fee submitted with certified funds (money order, bank check, cashiers check, government check).
. Certified funds will be deposited upon receipt and processed through the normal work stream for both the clerical and process examiner procedures.
Note:
These payments must be deposited immediately to meet the 24-hour deposit requirement. Certified funds cannot be stamped "non-negotiable" and, therefore, cannot be held until the return letters can be generated.
A. The AOIC history must be documented indicating the check was stamped "non-negotiable" and include the date it was stamped.
Note:
Once the checks have been stamped non-negotiable and handled according to the procedures above, the offer package should be assigned to a PE for completion of the return letter and offer package.
B. Request a manual refund by preparing the Form 3753, Manual Refund Posting Voucher.
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
C. Prepare the offer package to be returned to the taxpayer.
15. The following procedures will only apply if the processability determination and return package can be completed on an expedited basis and the offer package with the certified funds payment instrument can be returned to the taxpayer within 24 hours of receipt.
. Hand carry the certified funds payment instrument and return offer package to the Campus Support Mail Team within 24 hours of receipt. The Campus Support Mail Team is responsible for preparation and mailing of the certified package.
A. The Form 13479 must be completed by entering $150 in Column H in red ink to indicate the payment was returned via certified funds to the taxpayer.
B. The certified funds payment instrument must be maintained in a secured area while the processability determination is being made.
16. If the processability determination and return package cannot be completed within 24 hours of receipt, the certified funds payment instrument must be deposited upon receipt and processed in accordance with the instructions below.
17. Management must establish controls to ensure returned offer packages are associated with the "non-negotiable" payment instruments and processed in accordance to established procedures.
18. It is possible the taxpayer may submit the $150 Application Fee, the required initial TIPRA payment, and a deposit with the Form 656. See IRM 5.8.2.7 for further discussion on what constitutes a deposit.
• If submitted on one check, the required application fee, required initial TIPRA payment, and a deposit must be entered as one amount on the Form 13479.
• If submitted on separate checks, the application fee, required initial TIPRA payment, and deposit will be entered on separate lines on the Form 13479.
19. All checks must be deposited within 24 hours, with the exception of those personal checks submitted with offers deemed not processable.
• The $150 application fee will be deposited to the 4710 Account using Form 13479.
• The application fee will be applied to the tax liability with the earliest CSED.
20. Once the offer is deemed processable, the process examiner will update AOIC changing the "N" to a "Y" and process the offer in accordance with established procedures.
21. If the offer is deemed not processable after the check(s) is deposited, prepare the Form 3753, Manual Refund Posting Voucher, to manually refund the $150 application fee to the taxpayer. Once the offer is deemed not processable take the following steps:
• Change the AOIC record to "N" status
• Complete the Form 2515 (Show the IRS Received Date at the payment date)
• Generate the return letter
• Complete the Form 3753
• Document the AOIC history that a 3753 was completed and processed.
• Enter the comment "Refund from 4710 Account" on Form 3753 and attach a copy of the Form 13479 and Form 2515 as backup.
• Prepare the offer package to return to the taxpayer;
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
22. The required initial TIPRA payment and the deposit (if applicable) will be deposited to the 4710 Account. Once a processability determination has been made, annotate the Form 2515 with the following abbreviations to move the payment from the 4710 Account to the taxpayer’s liability(s) as applicable.
23. Form 2515 Annotations (Abbreviations) – COIC will use the following to annotate the Form 2515 beside the appropriate entry in the "Amount" column. The blank space at the bottom of the form may be used for any additional remarks.
• Application Fee -------------------App Fee
• Payment -----------------------------Pymt
• Deposit-------------------------------Dep
• Estimated Payment---------------ES
• Refunded to Taxpayer------------RefTP (to be used when COIC prepares the 3753 to refund the Application Fee and sends it to Cincinnati for processing)
• Designated Payment-------------DsgP (COIC will also indicate MFT and period)
24. In all cases, the required initial payment and subsequent payments will be applied to the taxpayer’s account, whether the offer is deemed processable or not processable. These funds are non-refundable and should be moved immediately posted to the taxpayer’s account (either as designated by the taxpayer or to the Government’s best interest if not designated). This does not include deposits or application fees. Deposits and application fees may be refundable.
25. If the taxpayer also submitted a deposit and the offer is not processable, the deposit should be refunded to the taxpayer. Prepare the Form 3753, Manual Refund Posting Voucher, to refund the deposit from the 4710 Account, and forward it to MOIC for processing. Annotate the AOIC history screen.
26. If the amount submitted with the Form 656 exceeds the amount required, the entire amount will be treated as a non-refundable payment of tax, unless the taxpayer indicates on the Form 656 to treat the excess amount (less the $150 application fee if one check was submitted) as a deposit.
27. If the taxpayer sends one check, the amount submitted exceeds the required amounts, and the taxpayer indicated how the payment should be applied (for example, as a deposit or an estimated tax payment), process the amount according to the taxpayer’s designation. Any payments other than the application fee, required TIPRA payment, or deposit must be processed on Forms 2424 with the appropriate transaction code and designated payment code (DPC). For example, an estimated payment will be a TC 430 (for IMF) or TC 660 (for BMF), instead of TC 670. This determination will be made by the PE when making a processability determination and applying payments on the Form 2515 using the IRS received date as the payment date.
28. If the taxpayer submits multiple checks:
• Process the $150 application fee check, the required initial TIPRA payment, and any deposit, on the Form 13479,
• Additional payments submitted through individual checks will be processed on Forms 13479 and 3244 and processed under the manual deposit procedures.
• Prepare a separate Form 13479 for these payments.
• Hand carry the Form 13479 and attached Form(s) 3244 and check(s) to the Campus Support Mail Team for processing.
29. The "If and Then" table below provides the criteria for processing on the above sorts:
If you receive a… Then…
Form 656, the $150 application fee and required initial TIPRA payment and the terms of the offer is lump-sum or periodic payment 0. Load the offer in "U" status and complete the Entity screens.
1. Document the case history with check application information, including the Batch Number.
2. Complete the Form 13479 by entering the following: (1) Offer Number; (2) SSN/EIN; (3) Name Control; (4) Check Amount; (5) Check Number; (6) Check Type.
3. Generate Form 2515, Record of Offer-in-Compromise for the total amount of the check(s).
Form 656 with the $150 application fee and no required initial TIPRA payment (20% or first installment payment) Offers received with a check for the $150 application fee only are deemed not processable upon receipt and will be sorted by the clerical function during the "fine" sort.
4. Load the offer in"U" status.
5. Update the AOIC history documenting that the offer is not processable.
6. Complete the Form 13479 for a not processable return.
7. If the taxpayer submitted a personal check, send the Form 13479 and check to the Campus Support Mail Team to stamp the personal check as "non-negotiable" as appropriate.
8. If the taxpayer submitted certified funds (money order, certified check, etc.) the funds will be deposited and the offer worked through normal procedures.
Form 656 from an individual taxpayer with both a $150 application fee and a signed Form 656-A certification, and the required initial TIPRA payment 9. Complete the AOIC Entity Screen and the Form 13479 to treat the $150 and the TIPRA payment a deposit.
10. Prepare the Form 2515 designating the payment(s) as a deposit.
11. Complete the AOIC Application Fee screen and input "Li" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the payments be applied to the liabilities, and continue working the offer.
Form 656 from an individual taxpayer with both a $150 application fee and a signed Form 656-A certification, and no required initial TIPRA payment 12. Complete the AOIC Entity Screen and the Form 13479 to treat the $150 as a deposit.
13. Prepare the Form 2515 designating the $150 as a deposit.
14. Complete the AOIC Application Fee screen and input "LI" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the taxpayer submit the required initial TIPRA payment. Allow a reasonable amount of time to respond. If the taxpayer does not respond with the required payment, the offer will be a processable return. If the taxpayer submits the payment(s), continue working the offer.
Form 656 with a signed Form 656-A certification (instead of the $150 application fee and required initial payment) Complete the AOIC Application Fee screen and input "LI" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the taxpayer submit the required initial TIPRA payment and application fee. Allow a reasonable amount of time for a response. If the taxpayer does not respond with the required payment and fee, the offer will be a processable return. See IRM 5.8.4.7.1(4).
CDP Form 656 15. Complete the Form 13479 by entering the following: (1) RACS number; (2) Offer Number; (3) SSN/EIN; (4) Name Control; (5) Check Amount; (6) Check Number; (7) Check Type; (8) The $150 Application Fee; (9) Amount of the required initial TIPRA payment and deposit, if any.
16. Prepare the Form 2515
17. Complete the CDP AOIC Remittance Screen
18. Process in accordance to current guidelines
19. Document the AOIC history with payment application information
Out of Area Transfers 20. Process according to the procedures outlined above, as appropriate.
21. Make the processability determination and apply the initial TIPRA payment to the taxpayer's liability, as appropriate
22. Transfer to the correct area office
DATL offer (Form 656 L) for a TFRP only liability with a separate application fee DATL offers (Form 656-L) are exempted from application fees and all TIPRA payments. Any fee or payment will be treated as a deposit and processed on the Forms 13479 and Form 2515.
DATL offer (Form 656 L) for a TFRP only liability with a single remittance that represents both an application fee and a deposit. 23. Apply the entire amount as a deposit to the offer.
24. Complete the Form 13479
25. Prepare Form 2515
Note:
DATL offers are still exempted from fees and payments. Any fee or initial payment will be treated as a deposit.
30. Note:
31. DATL offers (and any other manually monitored offer such as CDP or DOJ) require the same RACS numbering scheme in place of the offer number on the Form 13479, COIC Remittance Tracking Report and Form 2515 as outlined in IRM 5.8.3.4.3, above.
32. Subsequent payments (periodic payment offers) made during the offer investigation must be deposited within 24 hours of receipt using Form 3244 and in accordance with the Discovered Remittance procedures outlined in IRM 3.8.46.1, Discovered Remittances.
Note:
Subsequent installment payments of a periodic payment offer are non-refundable and should be applied to the earliest tax liability with the earliest CSED or as designated by the taxpayer.
33. Process the check through the Manual Deposit function at the Cincinnati Submission Processing Center.
34. Forward to the Campus Support Mail Team with instructions to process the check through manual deposit.
35. If the payment is submitted on Form 656-PPV, Partial Payment Voucher:
• Process the payment as described above
• Indicate on Form 656-PPV the application of the payment
• Photocopy Form 3244 and Form 656-PPV to be included in the case file
• Forward the copies of Forms 656-PPV and 3244 to the correct inventory/employee assignment code
• Forward the original Forms 3244 and 656-PPV with the check to the mail team
• Document the case history
5.8.3.5.1 (09-23-2008)
Completing the Form 13479, COIC Remittance Tracking Report
1. The COIC sites must prepare Forms 2515 and 13479.
2. The checks and Form 2515 will be associated with the applicable Form 13479 and forwarded to the Campus Support Mail Team within 24 hours of receipt.
Note:
Deposit guidelines require that all deposits be made with 48 hours of the IRS received date. If there is a delay between the IRS received date and the COIC received date (i.e. a late receipt from a field office), document the AOIC history with the reason for the delay.
3. A Form 2515 must be generated for each offer listed on the Form 13479, which is used to apply the related checks to the 4710 Account. Each check submitted by the taxpayer will be listed on separate lines of the Form 2515. A copy of all Forms 2515 must accompany the Form 13479 and a file copy must remain with the offer until a processability determination has been made.
4. Load the offer on AOIC in "U" status and complete the AOIC entity screen with the required information.
5. The PE making the processability determination will be responsible for:
• Correcting the entity on both AOIC and the Form 2515
• Matching the entity information on IDRS
• Forwarding the corrected Form 2515 to accounting
• Load the offer on AOIC and complete the AOIC Entity Screen with the required information
6. The taxpayer entity must be verified on IDRS. If the entity information on the Form 656 does not match with the entity information on IDRS, an INOLE print must be attached to the Form 2515. The PE making the processability determination is responsible for correcting the entity information on both AOIC and the Form 2515, and forwarding a corrected Form 2515 to Accounting.
7. In order for processing transactions, such as TC 480 and 670 to post to the Master File, the entity on the input document must match the name control and TIN on IDRS. If it does not, the transaction will go unpostable. COIC is responsible for correcting all unpostable conditions.
Note:
It is critical that the AOIC record be corrected to match the entity information on IDRS.
8. Document the AOIC history defining the discrepancies found, and how the AOIC record was corrected.
9. Do not edit the entity information on the Form 656. This is a perfection issue that must be resolved before acceptance of the offer.
10. Some examples of the most common reasons for entity discrepancies are:
• A woman changes her name due to either a marriage or a divorce, and fails to change her name with the Social Security Administration (SSA).
• A taxpayer used a nickname or alias.
• Incorrect spelling of foreign names or a reversal of the foreign name.
• An out of business or incorrect business name entered on the Form 656.
Example:
Mrs. taxpayer is now divorced from Mr. taxpayer, and has changed her name back to her maiden name. The AOIC record, and the Form 2515 must reflect her maiden name with her married name in parenthesis. All input documents (Forms 2424, 3573, etc.) generated from AOIC must reflect the prior name control for transactions to post to Master File. Underline the IDRS name control on the Form 2515. Example: Maiden Name Here (Mrs. TP Married Name here).
11. Individual name changes cannot be made by the IRS. This can only be corrected by the SSA. In order to correct the entity record, the taxpayer must notify SSA. Once SSA makes the correction, IRS records will be corrected during the periodic downloads.
12. Business name changes may be corrected through the Entity function in Accounts Management. Entity establishes the business entity when the taxpayer applies for an Employer Identification Number (EIN) on the Form SS-4. Refer to IRM 1.7.13, business Tax Returns and Non-Master File Accounts - Assigning Employer Identification (EIN), for additional guidelines in determining the appropriate business name.
13. Offers with remittances will be batched with the Form 13479 for processability determinations. Each check should be put on separate lines of the Form 13479. Offers submitted with separate remittances for the application fee, required initial TIPRA payment, and a deposit will have entries on three lines on the Form 13479, while an offer submitted with a single remittance that combines the application fee, required initial TIPRA payment, and deposit will have only one entry.
Note:
Batch integrity must be maintained throughout the processability determination.
14. COIC will batch the checks, attach the associated Forms 13479 and Forms 2515, and forward to the Campus Support Mail Team within 24 hours of receipt of the offer. Checks will be processed through the Paper Check Conversion (PCC) system and deposited upon receipt by the Campus Support Mail Team.
A. All payments (application fee, 20% of a lump sum cash offer or first installment of a periodic payment offer, and deposit) will be deposited to the 4710 Account.
B. With the exception of deposits, all remittances will be moved from the 4710 Account and applied as payments to taxpayers’ liability accounts once a processability determination has been made.
15. No more than 5 offers should be entered on a tracking sheet.
Note:
CDP offers will be handled and processed as priority offers. There must be no more than 5 CDP offers per Form 13479.
16. Complete Forms 13479 as follows:
. Column A: Enter the AOIC offer number
A. Column B: Enter the taxpayer SSN/EIN
B. Column C: Enter the taxpayer name control
C. Column D: Enter the Money Order/Check amount
D. Column E: Enter the Money Order/Check Serial Number
E. Column F: Enter the acronym for the type of payment instrument:
Payment instrument Acronym
Money Order MO
Personal Check PC
Cashier Check CC
Bank Check BC
Government Check GC
F. Column G: Enter the amount of any miscellaneous payment (e.g. ES payment)
G. Columns H: Check whether the offer was determined to be not processable and the check was either a negotiable or not negotiable return.
H. Column I: Secure the initials and date of the Campus Support person receiving the 13479.
17. Completed Forms 2515 and 13479 and the attached checks must be hand carried to the Campus Support Mail Team for deposit.
18. Secure the Campus Support Mail Team employee’s initials and date on the Form 13479 before releasing the form and related checks to them.
19. The combined entries in Columns G and H on the Form 13479 must equal to the amount entered in Column D. The Forms 2515 and 13479 must be accurate before being released to the Campus Support Mail Team. The Campus Support Mail Team will complete processing and deposit of the checks in accordance to their IRM procedures. No further interaction between COIC and the Campus Support Mail Team is necessary once the Form 13479 and the related checks are released into their possession unless the Mail Team detects an out of balance situation with the Form 13479 and related checks. Resolution of all out of balance situations are the responsibility of COIC.
20. Management is responsible for establishing controls for checks and balances to ensure Forms 13479 are prepared correctly and balanced in all columns before releasing them to the Campus Support Mail Team. All out of balance conditions must be resolved by COIC prior to releasing the forms to the Campus Support Mail Team.
Note:
COIC is responsible for resolving all outstanding issues on the application fees and the required initial TIPRA payments. MOIC performs a monthly trial balance on the 4710 Account. If the account fails to balance, MOIC will consult with COIC to resolve any outstanding issues.
21. Occasionally, a check may be encoded for an amount other than what was written by the taxpayer. If notified by Accounting that a check was encoded for the wrong amount and negotiated for that amount, COIC will coordinate with MOIC to ensure the Form 2515 and the AOIC Deposit Screen are corrected for the amount of the negotiated check. If the amount results in an underpayment of either the application fee or initial TIPRA payment, follow procedures for securing the underpayment defined in this IRM.
Note:
All requests for changes on AOIC due to encoding errors must be reported to the Compliance Services headquarters program analyst for correction.
22. All offers must have a processability determination made within 14 calendar days of the IRS receipt date.
23. Upon assignment to the PE, the manager will ensure that the "PE Received Date" and "PE Assignment Number" fields on the Form 13479 are accurately completed within the required timeframe.
24. Once a processability determination has been made, the PE will annotate the file copy of the Form 2515 for the application of payments, if different from the original annotations made when the Form 2515 was generated.
25. The TIPRA regulation allows the taxpayer to designate application of the required initial payment, periodic payment, and all subsequent payments. The $150 application fee and deposits cannot be designated. Remittances will be applied as designated, if the request is in writing. Once the taxpayer requests designation of the payment, the payment cannot be moved at a later date. Document the AOIC history.
If… Then…
The payment is designated The PE will annotate the payment designation according to the taxpayer’s instruction
The payment is not designated MOIC will apply the payment to the taxpayer’s liability account that is in the best interest of the Government
26. Once a processability determination has been made, the PE will be responsible for accurately completing the Form 2515. The PE will indicate on the Form 2515 (using the appropriate abbreviations) movement of the application fee and required initial payments from the 4710 account to the taxpayer's liability, if changes have been made from the original application.
27. Once a processability determination has been made on all the offers listed on the Form 13479, the PE will complete the "PE Completion Date" field.
28. If the offer is deemed not processable, the PE will:
• Update AOIC to"N"
• Annotate the Form 2515 to apply the required initial payment as indicated, and to refund the application fee.
• Prepare the Form 3753 to manually refund the application fee.
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
• The required initial TIPRA payment will be applied to the taxpayer’s liability account. If the required initial payment was designated by the taxpayer, the PE will record how the payment is to be applied.
• Document the AOIC history.
29. Management must establish controls for checks and balances to ensure all Forms 13479 are prepared correctly and balance to all Forms 3753 and 2515 before forwarding for processing.
30. All Forms 3753 must be signed by the COIC manager, and forwarded to Accounting for processing, while all Forms 2515 will be forwarded to MOIC for processing. All out of balance situations must be resolved by COIC prior to forwarding the attachments to the appropriate area for processing.
31. Occasionally, a payment may have been erroneously applied to the wrong account or offer. If a correction is discovered while the TIPRA payment(s) is still in the 4710 Account, prepare a Form 3809, Miscellaneous Adjustment Voucher, to transfer the money.
• Record on the debit side "4710 Account," the offer number, and the TIN that the money is to be transferred from.
• Record on the credit side "4710 Account," the offer number, and TIN that the money is to be transferred to.
• Forward the Form 3809 to Cincinnati Accounting along with corrected Forms 2515.
• Document the AOIC history(s).
32. Due to the nature and complexity of payment processing and the coordination required between MOIC and Accounting to resolve problems it will be the responsibility of COIC to provide support to other functions; such as, field offices, Appeals, and DOJ, with payment posting problems. Referrals will be received on the Form 4442. These referrals must be controlled and handled by a designated unit within COIC.
33. COIC will be responsible for correcting problems and responding to the appropriate office on the actions taken to resolve the issue.
34. COIC in coordination with MOIC is accountable and responsible for posting all TIPRA payments and resolving all posting problems.
5.8.3.5.2 (09-23-2008)
Processing Forms 13479, COIC Remittance Tracking Report, After Processability Determinations
1. Forms 13479 will be returned for processing of the attached Forms 2515 and 3753 after processability determinations have been made.
2. All completed Forms 13479 will be retained in COIC and filed in "batch number" order.
3. If the offer was determined to be processable, forward the related Forms 2515 to MOIC for processing with a copy of the Form 13479. The Form 13479 serves as the transfer transmittal.
4. If the offer was determined to be not processable, forward the related Form 2515 and Form 3753 to MOIC for processing with a copy of the Form 13479. The Form 13479 serves as the transfer transmittal.
Note:
All forms should be forwarded to MOIC on an expedited basis.
5. The COIC sites will retain processable offers for further OIC processing and assignment.
6. Not processable offers (with the exception of offers returned because only the $150 application fee was submitted with a personal check) will be returned to the clerical function with the associated Forms 13479, 2515, and 3753. The PE will prepare the return letter and envelope for mail out. The following actions must be taken:
• Date and sign the return letter
• Include with the letter and any other associated documents
• Seal the envelope for mail out
• Close with final disposition 10 on AOIC
• Include the Form 656
• Return to the clerical function to be mailed
Note:
If the offer is being because the taxpayer submitted only one $150 personal check, do not seal the envelope. The clerical function must associate the check with the offer package before it is returned.
5.8.3.6 (09-23-2008)
Dishonored Payments
1. For payments processed through PCC, Cincinnati Accounting receives the initial notification of a dishonored OIC payment from the Federal Reserve Bank though the Electronic Verification and Image Services (ELVIS) automated system. The Cincinnati Dishonored Check Unit will notify the taxpayer by mailing them a copy of the dishonored check and the Form 12993-A, Check for Offer in Compromise Payment Not Accepted by Bank.
2. Cincinnati Accounting will fax copies of the dishonored payments to the COIC site that originated the Form 13479.
3. Upon notification of a dishonored application fee and/or TIPRA payment, the site will determine the current AOIC offer assignment by querying the offer number annotated on the upper left hand corner of the check. For Appeals CDP offers, see IRM 5.8.3.6.1(3).
Note:
Due to AOIC programming, only the assigned office can gain access to the "Action CD" field of the "Application Fee" screen to input the dishonored check status.
4. If the payment has been moved from the 4710 Account to the Master File, the Dishonored Check Unit will reverse the payment with a TC 671. If COIC or MOIC fail to receive notification of the dishonored payment, the dishonored check can also be identified by the posting of a TC 671 on IDRS.
5. Upon notification of a dishonored application fee and/or TIPRA payment, the offer will be immediately returned to the taxpayer with the appropriate AOIC letter for a dishonored check. Document the AOIC history with the following information:
• Which check(s) (application fee, TIPRA payment, or both) was returned
• The check number, and date the check was dishonored
6. If the payment was dishonored while still in the 4710 account, Accounting will annotate their copy of the Form 2515 as appropriate.
If… Then…
the dishonored check was a deposit notify MOIC, and continue investigation of the case.
the dishonored check was for either the application fee or TIPRA payments notify MOIC, and stop investigation of the case.
7. If the taxpayer or their representative offers to replace the dishonored check and requests reconsideration of their offer, contact by the taxpayer or their representative must be made within 10 days of the date of the initial AOIC return letter. The replacement payment must be in the form of certified funds (money order, cashier check, etc.) and received within a reasonable amount of time. See IRM 5.8.7.3 for reconsideration procedures.
8. The taxpayer must be informed that the offer will not be reconsidered if the payment is not made with certified funds. A due date for receipt of the payment must be provided to the taxpayer or their representative. Document the case history. It may be necessary to advise the taxpayer or their representative to submit the payment by overnight mail. In those cases, it should be mailed to either of the following addresses:
Brookhaven:
Mail Stop 681, PO Box 9011, Holtsville, NY 11742
Memphis:
AMC-Stop 880, PO Box 30834, Memphis, TN. 38130-0834
9. To ensure proper handling, advise the taxpayer to include a letter requesting reconsideration of the offer.
10. If the payment was dishonored while still residing in the 4710 Account, the payment should be processed through established deposit procedures. A copy of the Form 2515 must be forwarded to the appropriate MOIC function. Clearly indicate on the copy of the Form 2515 that the payment is a replacement for a dishonored check. MOIC will load the payment on the AOIC deposit screen once the AOIC record is reloaded. MOIC is responsible for ensuring the payment is applied to the Master File as originally intended.
Note:
The offer will be reloaded, and a new offer number will generate. The new Form 2515 will reflect the new offer number. Cross reference the original offer number in the AOIC history, and in the remarks section of the Form 2515 to ensure Accounting is aware there may be two Forms 2515 with different offer numbers for the same taxpayer.
11. If the payment was dishonored with a TC 671 on the Master File, prepare a Form 3244 to post the payment as a replacement for the dishonored payment.
12. Upon receipt of the replacement payment, the employee that processed the payment must reload the offer on AOIC, if appropriate. The employee will also be verify if the payment was received within the established deadline as annotated in the AOIC history. If the payment was received within the established timeframe, continue working the offer. If the payment is not received by the specified due date, the payment will be processed in accordance with TIPRA payment requirements, and the case will not be opened as a reconsideration. See IRM 5.8.7.3 for reconsideration procedures.
5.8.3.6.1 (09-23-2008)
Centralized Offer in Compromise Procedures for Dishonored Payments
1. If the offer is still assigned to a COIC site, COIC will immediately cease processing the associated offer, update the Automated Offer in Compromise (AOIC) "Application Fee" screen by entering "I" in the "Action Cd" field and return it to the taxpayer, utilizing letter option "RET-AA" .
2. If the offer is assigned to an Area office, COIC will telephone the employee assigned the offer (or the manager of the assigned function, if no individual is specified on AOIC) to advise of the dishonored payment. Once contact is made with the assigned area employee or manager, COIC will fax a copy of the dishonored check to include in the case file and document AOIC to indicate the information was communicated and to whom.
3. If the case was processed as an Appeals CDP offer, COIC should query ACDS to determine which Appeals employee is assigned the case. COIC will telephone the Appeals employee to advise of the dishonored check and fax a copy to include in the Appeals case file. COIC will update the "Appeals Fee Screen" application of AOIC by entering "I" in the "Action Cd" field.
Note:
Appeals CDP cases can be identified by the application fee number noted on the upper left corner of the check.
4. If notification of the dishonored check occurs after the offer was closed on AOIC, the designated AOIC liaison within the COIC site will contact the Headquarters AOIC analyst to correct the application fee record of the closed offer.
5.8.3.6.2 (09-23-2008)
Area Office Procedures for Dishonored Checks
1. Upon notification by the COIC site of a dishonored check, the OS (or manager of the assignment function, if the offer is not assigned to an individual) will immediately:
• Cease investigation of the offer
• Update the AOIC Application Fee screen by entering "I" in the "Action Cd" field
• Return the offer to the taxpayer utilizing letter option "RET-AA"
5.8.3.6.3 (09-23-2008)
Notification of Dishonored Application Fee Check After Issuance of the Rejection Letter
1. If notification of the dishonored OIC application fee check occurred after issuance of a rejection letter, in addition to procedures in IRM 5.8.3.6.1 and 5.8.3.6.2 above, the employee should:
• Date the return letter 31 days from the date of the rejection letter.
• Include the open paragraph "RET-M" with the following language: "As a result, your request for appeal has been dismissed."
Note:
This should only be used in those cases where a request for an Appeal was received within the 30-day appeal period.
• Close the case on AOIC as a return using the mail date of the return letter and AOIC final disposition code "10."
5.8.3.7 (09-23-2008)
Form 656 Application Fee, TIPRA Payments, and Perfection
1. Taxpayers are required to include one application fee and TIPRA payment or a Form 656-A for each Form 656 submitted. The table below is intended to assist in identifying a processable offer for application fee purposes and provide guidance on advising the taxpayer when more than one Form 656 application fee, initial TIPRA payment, or Form 656-A should be submitted. In the following scenarios, the status of the taxpayer is not relevant (e.g., married, separated, or divorced). The general rule is that there should only be as many Forms 656 as there are entities seeking to compromise. The following scenarios assume all processability criteria (other than for the application fee) are met.
Scenario Procedures
1) Two TPs have joint liabilities only. The TPs jointly submit one Form 656 and one $150 application fee and TIPRA payment. One offer was submitted therefore one application fee and TIPRA payment is required.
2) Two TPs have joint liabilities only. The TPs submit two Forms 656 but only one check for the $150 application fee and TIPRA payment without a signed Form 656-A. Two offers were submitted therefore two application fees and TIPRA payments are required.
• Follow procedures in Scenario 3 below.
3) Two TPs have separate liabilities only. The TPs submit two Forms 656 but only one $150 application fee and TIPRA payment (without a signed Form 656-A). Two offers were submitted therefore two application fees and TIPRA payments are required. The PE must secure a copy of the remittance to make the appropriate determination.
• If it can be determined which TP paid the application fee (i.e., a personal check drawn on the account of one of the taxpayers), the offer from the TP that paid the fee is processable. The second offer should be returned as not processable because the TP did not submit the required application fee and TIPRA payment.
• If each TP contributed a portion of the application fee and/or TIPRA payment (e.g., each submitted a personal check for $75, and a portion of the TIPRA payment), then neither TP has paid the appropriate fee or TIPRA payment, and both offers should be returned as not processable.
• If it cannot be determined which TP paid the application fee and/or TIPRA payment, treat it as though half were submitted by each individual. Return both offers as not processable, addressing it to the party with the primary SSN on the liability.
4) Two TPs have joint liabilities and one or both of the TPs also have separate liabilities. The TPs submit one Form 656 listing both the joint and separate liabilities and only one $150 application fee and TIPRA payment (without a signed Form 656-A). Although it is the policy of the Service to require two offers when TPs have both joint and separate liabilities, the offer submitted in this scenario is processable. However, the Service will require the taxpayer to perfect the original offer by submitting one new offer that list only the joint the liabilities. In this instance, the new offer will require a second fee and initial payment. When requesting the perfection of an offer that requires the submission of a second offer, send the TPs two Forms 656:
• Prepare an "amended/revised" Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the primary SSN on the joint liability. Include both joint and separate liabilities in item 5. Annotate the original offer number on the top of the "Amended/Revised" Form 656.
• Prepare a second Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the secondary SSN on the joint liability. Include both joint and separate liabilities in item 5. Annotate the top of the Form 656 in red "Related to Offer Number ________" , inserting the number of the original offer. This will help identify that the offer submitted in response to a perfection request.
Note:
Clerical units should be aware that new offers received in the PO Box designated for response correspondence must keep all correspondence and attachments associated with the offer to assist in the identification of the related offer.
• Include Option "Y" in the combo letter
• Include Form 656-A and the copy of the original Form 656 with the combo letter
If the TPs refuse to perfect the offer, the Service will return the offer without any further consideration.
5) One Form 656 is submitted that includes both corporation or partnership and individual liabilities, but only one $150 application fee and TIPRA payment (without a signed Form 656-A) for the individual. Follow the procedures outlined in Scenario 4 above.
6) Two taxpayers have joint liabilities and either or both of the taxpayers also have separate liabilities. The taxpayers submit two Forms 656 listing the joint liability on one and the separate liability on the other, but only one $150 application fee and TIPRA payment. Since the taxpayers submitted two offers, they require two fees and TIPRA payments. Only load the joint Form 656, treating it as processable and including the separate liabilities on the MFT screen. Follow procedures in Scenario 4 above.
5.8.3.8 (09-23-2008)
Centralized Offers in Compromise Processability Determinations
1. COIC sites are solely responsible for determining offer processability. See IRM 5.8.3.4.1, Determining Processability, for processability criteria. To accomplish this, PE's must take the following actions:
A. Determine if the taxpayer is in bankruptcy.
Note:
If the taxpayer fails to indicate the date of dismissal or discharge on the Form 433–A or Form 433–B, bankruptcy should be verified using IDRS, Automated Insolvency System (AIS) and Public Access to Court Electronic Records (PACER) before returning as not processable.
Circumstance... If... Then...
Upon receipt of an initial offer with an application fee and TIPRA payment IDRS research shows an open TC 520 with an appropriate bankruptcy closing code is present on any liability Follow current procedures to refund or return the application fee and TIPRA payment, as appropriate
Upon receipt of a subsequent periodic payment, and there was previously no open TC 520 with a bankruptcy closing code present on any liability at the time the offer was deemed processable IDRS research now shows an open TC 520 with a bankruptcy closing code present on any liability Follow current procedures to refund or return the application fee and TIPRA payment, as appropriate
During the investigation an open TC 520 with a bankruptcy closing code is discovered on any liability The posted petition date was after the receipt of the original offer or subsequent periodic payments Contact the local Insolvency function for instructions on handling the application fee and payments.
B. The following closing codes can be used to identify when a taxpayer has filed bankruptcy: 60 – 67, 81, 83, and 85 – 89. See Document 6209, IRS Processing Codes and Information, for additional information.
C. Check for any freeze codes such as: -Y (offer in compromise), -W (litigation), -Z (Criminal Investigation), -A (duplicate return), -V (bankruptcy), -L (AIMS) that may require special action. Freeze codes indicating CID, bankruptcy, Exam issues (i.e. AIMS), duplicate return filed, other litigations should be worked in accordance to guidelines in this IRM.
D. Check all SSN, EIN, and ITINs known or found for the taxpayer. At a minimum check the following IDRS command codes: ENMOD, INOLES, CFINQ, BMFOLI, SUMRY, and IMFOLI. If any data is found, print and include it in the file. Also, research IDRS command codes TXMOD AND FFINQ for additional data, but it is not necessary to include printed copies in the file.
E. Verify that the taxpayer has submitted the appropriate Form 656, Form 433-A and/or Form 433-B.
F. Verify the taxpayer has submitted the application fee, required TIPRA payment, or signed Form 656-A for each offer submitted.
G. Document AOIC of any findings.
2. Review AOIC and prior case histories for any previous offers. Document the current case history with the findings. This will allow the OI to determine upon initial analysis if the offer was submitted "Solely to Delay Collection." See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection.
5.8.3.9 (09-23-2008)
Not Processable
1. When returning the offer as not processable, the return letter should specify all reasons for the determination.
2. If the offer is not processable:
A. Change the AOIC "Proc Cd" field from "U" to "N" status.
B. Prepare the return letter.
C. Stamp the Form 656 with "RETURN" in red (or circle the date in red if a red ink stamp is not available) and write the date that the offer was determined to be not processable.
D. Cross out all IRS received dates with a red"X."
E. In addition to identifying the reason(s) for the determination, also address any issues concerning combined joint and separate liabilities, if appropriate; for example, individual and corporate or partnership liabilities on one Form 656. In those cases include Option "AF" in the return letter.
F. Annotate the AOIC history with the payment information, specifying the reason(s) for the not processable determination.
G. Annotate or update the Form 2515 indicating the offer was not processable and the application fee of $150 should be refunded to the taxpayer.
H. Prepare the Form 3753, if applicable.
I. Associate the Forms 3753 and 2515 with the related Form 13479.
Note:
The entries on the Forms 2515 and 3753 must be equal to the check(s) amount(s) recorded in Column D on the form 13479. The Form 13479 and associated documents should be returned to COIC clerical for processing.
J. Forward the Form 13479 to the Clerical Staff for processing.
K. Do not sign the Form 656.
L. Managers and journey level PE's may sign and date the letter and close the case on AOIC with a final disposition code of 10
M. Send the Form 656, the return letter, Pub 1 and 594 to the taxpayer along with all other documents originally sent. If a POA is present, send the representative a copy of the letter. If disclosure issues exist, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.
N. If a Form 656 was forwarded by an RO and is not processable, the COIC site should also forward the Form 657 and a copy of the not processable letter to the approving official of the Form 657.
3. Caution should be exercised to ensure that no IDRS prints or other internally generated documents are sent to either the taxpayer or the POA. All internal documents should be destroyed. Nothing is required to be maintained in local closed files on these cases because this information is available from IRS systems.
4. If the offer was originally determined processable and the application fee was deposited, but it was later concluded that this determination was made in error, processing should stop. The case should be closed using not processable procedures defined above. In these cases, it is important to ensure the "N" is input on AOIC to reverse the TC 480(s). This will result in the generation of a TC 483 posting to the appropriate modules, and a refund of the $150 application fee.
5.8.3.10 (09-23-2008)
Processable
1. An OIC is considered pending when a delegated IRS official signs and dates the Form 656 in the appropriate section. This date is the official offer pending date.
Note:
The pending date entered on AOIC must match the date the delegated official signed the Form 656. This date must also match the TC 480 date when it posts to IDRS.
2. If the offer is processable:
A. Sign and date the waiver on Form 656.
B. Change the "Proc Cd" to a "Y" (processable).
C. Complete the AOIC Application Fee Screen.
D. Complete the MFT and "Terms" screen on AOIC.
Note:
The MFT screen must reflect the liability(s) at the time the offer was submitted. Do not update the liability(s) to reflect TIPRA payments, during the investigation. The exception would be if the change was due to abatement, another assessment, or a refund offset. In this case, additional tax period(s) may be added at any time.
E. Include K-Data or a current IDRS print showing the liabilities at the time the offer was submitted, with each case file.
F. Annotate in the remarks section of the Form 2515 the payment application (e.g., 20% lump sum, first periodic installment, $150 application fee, and any deposit, if applicable).
Note:
If the taxpayer designated application of the payment, enter the appropriate information in the remarks section of the Form 2515. If the taxpayer also submitted a deposit separate from the required TIPRA payment, split the payment as requested. Enter the information according to the offer terms and annotate the difference as the deposit. Only the application fee and required TIPRA payment will be applied to the taxpayer’s liability account. The deposit will remain in the 4710 Account until a determination is made; that is, the offer is accepted, rejected, or returned.
G. Associate the Forms 2515 with the related Form 13479 and retain a copy in the case file.
Note:
The entries on the Form 2515 must equal to the check(s) amount(s) recorded in column D on the Form 13479. The Form 13479 and associated documents should be returned to COIC clerical for processing.
H. Document the AOIC history with the payment type and application of the funds.
Example:
One check received in the amount of $650. Applied monies in the remittance as follows: $150 application fee; $300 payment; $200 deposit.
I. On all IMF cases enter "P" if the offer is for the primary taxpayer of the controlling TIN on the entity, enter "S" if the offer is for the secondary taxpayer, or "B" if both husband and wife are making a joint offer. If only one party of a joint liability is submitting the offer, remove the"Y" from the MFT screen. This will take the case out of Status 71.
Note:
If tax periods are in status 60 (see "Exception" below), 61, 53 , or if the Form 657 indicates that no TDAs are to remain in the field, remove the "Y" on each tax period on the MFT screen. DO NOT change the status of those accounts, unless the taxpayer has defaulted the installment agreement.
Exception:
The status code may be changed on the following cases: Status 60 – if the offer was submitted under the criteria for Periodic Payment. Status 53 – with Closing Code "03" (unable to locate), Closing Code "12" (unable to contact)]
3. Generate the Full Pay Worksheet from AOIC and retain a copy in the case file.
4. Communication with the taxpayer and/or authorized representative may be necessary to perfect the offer while it is pending. This communication may be completed by letter, fax, phone, or personal contact.
If processable and… Then…
The offer requires perfection due to an insufficient number of Forms 656, application fees, required initial TIPRA payments (i.e., the remainder of the required 20% of a lump sum cash offer), or unfiled returns Except in the examples in IRM 5.8.3.7, below, send the combo letter to request the following information:
• Correct number of Forms 656 and fees (Option "Y" perfection)
• Correct amount of the required initial TIPRA payment(s)
• Any required financial substantiation
• Any unfiled returns
• Any additional Form 656 perfection, including incorrect or old Form(s)
• Assign to "5100"
The offer does not need perfection in the following categories and meets the criteria for field transfer:
• Option "Y"
• Unfiled return
Note:
See IRM 5.8.2.2 and IRM 5.8.3.13, for additional information. Immediately reassign the case on AOIC and ship to the appropriate area office.
The offer does not need Option "Y" perfection and qualifies under the "Screen For Obvious Full Pay" procedures.
Note:
See IRM 5.8.3.12, for additional information. Process under "Screen For Obvious Full Pay" Procedures.
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures, but all required financial substantiation is not attached or needs Form 656 perfection before beginning the investigation. • Assign to "5100"
• Send the combo letter to address all perfection issues
• Request the required substantiation, including incorrect or old form(s).
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and has attached all required substantiation except for proof of payment of certain expenses; such as, current real estate, or motor vehicle loan balances. • Send the combo letter to request substantiation and Form 656 perfection, if appropriate, including incorrect or old Form(s).
• Check internal verification sources,
• Assign the case to"5300" .
Note:
If the taxpayer has provided a substantial amount of the information and a determination can be made, assign the case to 6000.
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and is a total submission. • Send the combo letter, Option "A."
• Check internal verification sources.
• Assign to "6000."
5. If an offer was submitted by an RO and it is processable, but the RO has determined that the offer was submitted "solely to delay collection" , the COIC site will contact the originating RO to advise when the return letter has been issued. Unless a jeopardy situation exists, the RO must wait for COIC notification that the return letter has been issued before taking any collection enforcement action. See IRM 5.8.3.19 for delegated approval authority.
6. COIC will generate the TC 480 and Status 71 through the AOIC system. However, there may be situations when the Status 71 will not generate (e.g., MFT 31 modules created prior to January 2005, imminent statute, etc.). In those cases, the field OS may request input of the TC 470 with CC 90 to suspend collection activity.
7. Taxpayers that submit a periodic payment offer are required to continue making regular payments during the investigation process. It may be necessary for the OI working the case to monitor the payments. Until AOIC programming can be completed, the OI may use a calendar, tickler file, notating the follow-up date on the front of the file folder, or something similar to ensure the taxpayer remains compliant with the payment requirements.
8. Send the taxpayer the Forms 656-PPV with instructions for completion. The fill-in paragraph may be used to inform the taxpayer that payments must be made during the investigation process and Form 656-PPV must be used when submitting the payment. It is recommended that this form be included with the Combo letter.
9. It is the responsibility of the OI to monitor the payments, and to ensure they are correctly applied to the taxpayer’s account(s). If an error is discovered, the OI must take the corrective actions. The OI may need to research IDRS to determine that the payments have been appropriately applied. A Form 4442 should be prepared to correct the payment posting.
10. During the offer investigation, if the taxpayer fails to make the periodic payments the OI must attempt one phone call to notify the taxpayer of the need to make the payment(s).
11. If no contact by telephone can be made, a letter must be issued to notify the taxpayer of the deficiency.
. Allow 15 calendar days from the date of the letter for the taxpayer to comply with the request.
A. Allow 15 calendar days for mail time.
B. If the taxpayer fails to respond after 30 calendar days, by the 31st calendar day after the date of the telephone contact or letter, the offer will be considered withdrawn.
C. Initiate the appropriate AOIC withdrawal letter, secure managerial approval, and mail the letter to the taxpayer.
D. Document the ICS or AOIC history.
12. Ensure that the TC 480 has posted to each tax period shown on the Form 656:
If… Then…
TC 480 is not present Input the TC 480 using CC REQ77. Use the date the Form 656 was signed by the IRS official for the transaction date, not the date the taxpayer signed.
Note:
If the TC 480 is manually input, it must be manually released.
All TC 480s present do not have the same date the Form 656 was signed 0. Input TC 483 using CC REQ77
1. Input TC 470 using CC REQ77 to prevent balance due notices from issuing.
2. Input TC 480 using CC REQ77 with the correct date; include a posting delay code of 1.
Note:
The TC 480 dates for the amended 656 must have the same date the original offer was signed by the IRS official.
Note:
If the TC 480 is manually input, it must be manually released.
5.8.3.10.1 (09-23-2008)
Erroneous Processability Determinations
1. The Service only collects the application fee for processable offers; therefore, fees associated with offers that are initially deemed processable but subsequently determined to be not processable must be returned to the taxpayer.
2. Because of the requirement for all application fees and initial payments to be deposited within 24 hours, if a case was deemed processable in error, the application fee must be returned to the taxpayer by requesting a manual refund. When an erroneous processability determination is corrected, prepare the return letter and correct the AOIC fee screen record. Follow procedures in IRM 5.8.3.5 for refunding the application fee.
5.8.3.10.2 (09-23-2008)
"Application Fee Refund/Apply Listing" Validation
1. When an erroneous processability determination is corrected after forwarding the related application fee remittance for deposit, the COIC sites will need to determine whether the remittance has been deposited and credited to the taxpayer’s liability. An "Application Fee Refund/Apply Listing" should be generated from AOIC to identify application fees that were initially determined to be processable, but later determined to be not processable. Generation of this listing is required in order for the COIC site to verify and authorize a manual refund.
Note:
The COIC sites should request MOIC to generate the "Application Fee Refund/Apply Listing" on a monthly basis.
2. Generally, when an offer is deemed "not processable" , the Service includes the taxpayer's remittance with the return disposition letter. However, depending on the elapsed time between inputting a processability change on AOIC from a "Y" to a "N" , the Service may have already deposited the related application fee and applied the payment to the taxpayer's liability on Master File.
If… Then…
the payment has been deposited and still resides in the 4710 Account at the time the offer is deemed not processable prepare a Form 3753 to manually refund the application fee
the payment has been applied prepare the Form 5792, Request for IDRS Generated Refund, to manually refund the application fee from the Master File
3. Note:
4. The comments recorded on the Form 5792 must specifically state that the offer was deemed not processable and the taxpayer is entitled to the refund of the application fee. Include a contact name and number on the Form 5792. Accounting may question why a payment is being refunded from a liability tax module.
5. To determine whether or not a manual refund of the application fee should be issued, research the completed Form 13479, COIC Remittance Tracking Report, for those offers to determine whether the application fee was deposited by the Service or returned to the taxpayer via a manual refund.
Caution:
Thorough research and care is required when determining which offers on the "Application Fee Refund/Apply Listing" should receive manual refunds.
If… Then…
Research indicated that the application fee was returned to the taxpayer(s) The designated COIC site AOIC liaison should contact the Headquarters AOIC analyst to make the necessary adjustment to the application fee information to remove it from the "Refund/Apply Listing" . This action will eliminate the potential for the taxpayer to receive an erroneous refund.
Research indicated that the application fee was deposited and still resides in the 4710 Account Contact the MOIC function co-located with the COIC site and request a manual refund be generated to the taxpayer(s) using Form 3753.
Research indicated that the application fee was deposited and has been applied to the Master File • Prepare the Form 5792 to manually refund the application fee payment.
• The designated COIC site AOIC liaison should contact the Headquarter AOIC analyst to make the necessary adjustment to the application fee information to remove the payment from the "Refund/Apply Listing."
6. To request the MOIC function to issue manual refunds, the COIC sites must prepare a memorandum that includes:
• The offer number
• The taxpayer(s) name
• The taxpayer(s) identification number (TIN)
7. Records that support the COIC sites decision to either remove the offer record from the "Refund/Apply Listing" or to issue a manual refund must be retained for one year. At a minimum, the file should consist of:
• Copies of the "Refund/Apply Listing" or memorandum with the requested information
• Copies of the Form 13479
• Any other supporting documentation necessary to support the decision, including, but not limited to, the Remittance Processing System daily remittance register
8. TIPRA does not allow refunds of periodic payments or required initial TIPRA payments. However, it does allow refunds of the application fee and any deposits the taxpayer may have made.
5.8.3.11 (09-23-2008)
Types of Perfection
1. Certain errors in an offer must be corrected in order to perfect the offer and enable the Service to begin the offer investigation. The combo letter on the AOIC system is designed to communicate with the taxpayer and their representative to request the necessary corrective action. If there is no response to the request letter, return the offer to the taxpayer as not perfected. A return for failure to perfect an offer does not require a Form 1271, Rejection or Withdrawal Memorandum. The taxpayer has no appeal rights when the offer is closed as a return. The following errors must be corrected before beginning the investigation:
• The taxpayers name, physical address or taxpayer identification number (TIN) is missing or incorrect and cannot be determined from IDRS or other documents submitted with the offer.
Note:
If the information can be located on IDRS or other documents submitted with the offer, input the correct information on AOIC, and begin the investigation.
• The offered amount is blank or zero.
• Insufficient number of Forms 656, application fees, and TIPRA payments submitted.
2. When sending a combo letter to perfect the errors listed in (1) above or to request financial substantiation, also include a request to correct the following errors. If acceptance of the offer is considered and a combo letter was not sent but the errors listed below exist, they must be corrected prior to the recommendation to accept the offer.
• The offer was submitted on an obsolete Form 656.
• The Form 656 is not a verbatim duplicate. Such as, preprinted terms on the Form 656 are altered, deleted or missing.
• An amount of money is offered, but the payment terms are not specified.
• The taxpayer(s) signature is missing on Form 656.
• Form 433–A and/or 433–B is incomplete.
• The taxpayer has included a period(s) for which no amount is due.
• No tax liability is due.
• Unfiled returns are secured and there is a balance due.
3. If a period with an amount due is missing from the Form 656, but all periods due can be determined from IDRS or other documents submitted with the offer, add the missing periods to the AOIC MFT screen and to the Form 656.
4. When a taxpayer has included a period(s) for which there is no apparent amount due, do not add the period(s) to AOIC. Contact the taxpayer to determine if any issues are pending that may result in additional tax. If there is no tax due after contact with the taxpayer, document the history and do not add the period(s).
Note:
Contact may be made by telephone or by sending the AOIC combo letter requesting the deletion of the no tax due period(s) on the amended Form 656. If the taxpayer agrees to the deletion of the no tax due period(s), the history must be documented to reflect the method of agreement by the taxpayer.
5. If the basis for compromise is not indicated, but it can be determined by reviewing the package, begin the investigation.
Note:
The offer can be investigated, but cannot be accepted unless an amended Form 656 is signed correcting all errors listed in (1) and (2) above.
5.8.3.12 (09-23-2008)
Screen For Obvious Full Pay Processing (Centralized Offer in Compromise Only)
1. Taxpayers may submit an OIC based on DATC, yet indicate on their application an ability to pay the account in full. These cases, once determined to be processable, will be screened out. Absent any special circumstances they will be rejected with no further investigation or verification. The taxpayer will be directed toward the appropriate resolution for the delinquency.
2. The rejection letter will be the first communication with the taxpayer. A decision to reject with appeals rights is adequately justified by the taxpayer's self-disclosed ability to pay in full.
Exception:
Those cases meeting ETA, DATL for TFRP/PLET, and CDP criteria.
3. For processable offers one of the first considerations is to determine if the taxpayer can pay in full. The following initial review should be conducted by the COIC site on all processable offers to make that determination.
• Complete the Full Pay worksheet using the taxpayer's figures only, as reflected on the CIS.
• Do not adjust any asset values or apply necessary expense standards.
• If the amount shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due through either liquidation of assets or on an installment agreement, assign the offer to AOIC designation "6900."
Note:
If special circumstances or Effective Tax Administration (ETA) conditions are presented by the taxpayer, assign the case to an OE for further evaluation and consideration.
5.8.3.13 (09-23-2008)
Centralized Offer in Compromise Case Building and Perfection Procedures
1. For all processable offers to be transferred to an Area Office the COIC site will:
A. Request the following (if applicable) – Additional Forms 656; Additional application fees; Additional required initial TIPRA payments; Unfiled returns (IMF and BMF); Balance of the required initial 20% payment for a lump sum cash payment.
Note:
All tax returns for which the taxpayer has a filing requirement must be filed; however, the look-back period will generally be 6 years. This rule applies even if a Service employee previously decided not to pursue the filing of the return under the provisions of Policy Statement P-5-133, because it was believed to have little or no tax due. See IRM 5.1.11.1.3(2), Delinquent Return Program, which requires employees to conduct a compliance check to confirm and document all IMF tax returns were filed for the preceding 6-year period.
B. Prepare the combo letter using the paragraphs that address all deficiencies, such as insufficient amount of the required 20% of a lump sum cash offer, application fees, unfiled return.
C. Document the AOIC history to summarize the required substantiation submitted with the offer as well as all perfection issues.
D. If the taxpayer fails to provide any of the requested documentation, the offer will be returned as a processable return.
E. If the taxpayer provided or addressed the requested information, the offer will be immediately mailed to the field after transfer on AOIC.
2. For all processable offers not transferred to an Area office or for those not qualifying under the "Screen for Obvious Full Pay" procedures, the CIS should be reviewed to verify the taxpayer has submitted all supporting documents.
A. An analysis of the information provided on the CIS or any other documentation received should be made prior to issuing a document request or combo letter.
Note:
The letter(s) should only request information necessary to make a reasonable collection decision.
B. Prepare the combo letter using the paragraphs that address all deficiencies, such as insufficient amount of the required 20% of a lump sum cash offer, application fees, missing substantiation, unfiled returns, or incomplete documents, as well as any Form 656 perfection issues. Include Publications 1 and 594.
C. Document the AOIC history to summarize the required substantiation submitted with the offer as well as all perfection issues.
D. A copy of the signed and dated letter must be retained in the file.
Note:
All combo letters will be post-dated five (5) calendar days. Schedule follow up for the 45th day after the date of the letter. Thus, at least 50 calendar days (5 postdate plus 45 calendar days from the date of the letter) would have elapsed before following up.
E. Mail the letter to the taxpayer and representative, if applicable. If a disclosure issue exists, use the appropriate paragraph to indicate this in the combo letter, and do not send a copy to the representative.
F. Envelopes containing combo letters, including Options "B" , "C" , or "D," must be stamped or otherwise marked "URGENT - TIME SENSITIVE" .
G. Document the mailing date of the letter on the "I" screen, which will generate the follow up date on AOIC.
H. Assign the offer to AOIC designation "5100" or "5300" , as identified in IRM 5.8.3.10(4) above.
3. TIPRA requires inclusion of a partial payment upon submission of an offer. For lump sum cash offers, the taxpayer must include a $150 application fee and 20% of the offered amount. If the taxpayer sends less than 20%, it will be considered a processable offer and investigated accordingly. It will be necessary to request the remainder of the required 20% when the combo letter is issued.
4. An OIC submitted by a taxpayer who has unfiled tax returns will be a processable offer and investigated accordingly. It will be necessary to either secure the unfiled returns or a statement addressing the filing requirements.
5. If the taxpayer submits delinquent tax returns with a balance due, the OI will treat the liabilities as missing periods and process the return(s), add the missing periods on the AOIC MFT screen, include the periods on the original Form 656, and continue working the offer.
Note:
Paragraph (q) on the Form 656 clearly states that "I/We authorize the IRS to amend Item 5, above, to include any assessed liabilities we failed to list on Form 656." With this authority agreed by the taxpayer, we will not require the OI to secure an amended Form 656 for the missing periods only.
6. If the taxpayer indicates that they are no longer required to file a tax return, it will be the responsibility of the OI to close the filing requirements or indicate no liability to file; that is, input of Transaction Code 590 or 591, as appropriate. Refer to Document 6209, Sections 8 and 11 for the appropriate transaction and closing codes and request input of the TC 590/591.
Example:
The taxpayer is out of business and is no longer required to file. In the case of a business, if the taxpayer provides information that they are no longer required to file a return (e.g., Forms 941 or 940), close the filing requirements and work the offer.
7. The following information is considered necessary to allow for the OI to make a determination. If the following expenses were claimed on the CIS but substantiation was not included, supporting documentation should be requested.
• Income statements for the last three months (a current year-to-date statement is acceptable as long as it represents at least three months).
Note:
For those taxpayers on Social Security or a fixed pension or retirement where the monthly income does not fluctuate, it may only be necessary to secure one monthly statement to verify the amount of income. In some cases, a request for monthly statements would not be necessary when income could be verification through secured bank statements.
• If applicable, 3 months of income statements for any not liable person should also be requested in order to determine taxpayer's share of living expenses. See IRM 5.8.5.5.4 for additional information on the treatment of shared expenses.
• The last three months of bank statements.
• The current available cash value or loan value of life insurance, 401(k), profit sharing or other retirement plans, and the current balance due on any existing loans against that plan. See IRM 5.8.5.3.8, Retirement or Profit Sharing Plans, for more information on valuing a Retirement or Profit Sharing plan.
8. Substantiation should also be requested for the following information; however, if the taxpayer fails to provide the supporting documentation the expense should be disallowed unless the value can be determined using other sources as indicated below. If no value can be found, make a determination based on all other information. The following list is not all-inclusive.
• Health insurance and out of pocket cost for the last three months (refer to LEM 5.3).
• Current balance due on motor vehicle loans.
• Court orders and proof of payment for the last three months.
Note:
Court orders will only be required if the payment is to be allowed in the computation of the RCP.
• Current balance due on real estate mortgages
• Child and dependent care for the last three months.
• Other secured debt statements for the last three months.
• Life insurance premiums for the last three months.
5.8.3.14 (09-23-2008)
Centralized Offer in Compromise Internal Verification Research
1. Prior to assigning the offer for investigation, internal sources must be searched.
2. Conduct research using IDRS, the electronic locator source, state motor vehicle records, and in-house real property valuation sources, to verify claimed amounts and to identify undisclosed assets or sources of income.
5.8.3.15 (09-23-2008)
Processing Taxpayer Responses to Combo Letters
1. Update the AOIC history to annotate the information and documents received and sign any amended or revised Forms 656 with the current date. Retain the original Form 656 and any amended Forms 656 in the file.
2. If the determination is made to return the offer for failure to provide the requested information, use the appropriate paragraph(s) in the AOIC return letter.
A. Retain the original Form 656, any amended Forms 656, and a copy of the return letter in the file.
B. Cross out all IRS received dates with a red"X" . Stamp the Form 656 with "RETURN" , in red, and add the current date.
C. Update the case history on AOIC, including the reason for the return. Include a copy of the history in the file and give the file to the manager for approval.
If… Then…
The offer is assigned to "5100" , no taxpayer response is received and the follow-up date passes Invoke the "No Reply" procedures.
The offer is assigned to "5100" and the taxpayer responds Associate the mail and assign to "5500"
Note:
If the taxpayer has substantially replied to the request, but has not provided all the information the case should be assigned to an OE for review. The OE should review the reply to determine if the information provided is sufficient to make a decision. If not, the OE should attempt one phone call to secure the missing information before returning the offer as a"No Reply" .
The offer is assigned to "5300" and the taxpayer has provided sufficient information to make a determination Assign to "6000" .
3. PE's are required to initiate the next appropriate action on cases where taxpayers have responded to the combo letter within 10 calendar days from the date the offer is assigned to the PE.
4. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the AOIC history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the procedures as defined in IRM 5.8.3.17, "No Reply" Procedures.
5.8.3.16 (09-23-2008)
Analyzing Taxpayer Responses to Combo or Additional Information Letters
1. The failure to provide proof of payment of any monthly expenses claimed on the CIS, for health care, court orders/court-ordered payments, child/dependent care, life insurance, secured debt, or other expenses, or the failure to submit current loan balance statements for real estate mortgages, or current loan balance statements for motor vehicles will by itself not be a sufficient reason to return an offer.
2. If a court-ordered payment is to be acknowledged as an expense, a copy of the court-order must be secured to determine the number of months to allow for the remainder of the payments. If the court-ordered payment is not to be allowed, a copy of the court order will not be required.
3. Determine if the taxpayer's response or original submission statements and documents addressed all requested items. The failure to provide the desired information/documents will by itself not be sufficient reason to return an offer, as long as the taxpayer addressed the particular information or documentation requested.
Note:
If the taxpayer has substantially replied to the request, but has not provided all the information requested, the case should be assigned to an Offer Examiner (OE) for further review and evaluation on whether a reasonable collection potential (RCP) can be calculated. The OE should attempt one phone call to secure the missing information before returning the offer as a "No Reply"
4. Below are some examples of when a taxpayer may address, while not actually providing, the requested documentation. In these cases, the taxpayer would be considered to have substantially responded and the case should be forwarded to an OI for further investigation and consideration. This list may include but is not limited to the following:
• Bank statements are provided , but not all pages were included or only two months were sent instead of three.
• Wage statements are provided, but not all pages were included or only two months were sent instead of three.
• The taxpayer indicates an inability to provide a particular requested document (e.g., court order or judgment, annual statement of Social Security annuity amount).
Note:
For those taxpayers on Social Security, fixed pension, or retirement, where the monthly income does not fluctuate, you may accept only one monthly income statement to verify the amount of income. In those cases, verification of income may be available through secured bank statements.
• The taxpayer indicates that they did not understand the request or that all requested documentation is attached.
• The taxpayer indicates that a non-liable person(s) has no income or refuses to provide the substantiation.
• The taxpayer provides a letter of explanation for a missed payment or inability to make the entire payment.
5. For offers where it is determined the taxpayer has substantially replied or adequately addressed the requested information or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, the case will be assigned to an OI for further consideration.
6. If the OI determines that the RCP calculation cannot be completed because of the missing information or documents, the OI will attempt to telephone the taxpayer (or representative, if applicable) to secure any needed substantiation, explaining the information is needed in order to continue the offer investigation. If unable to contact the taxpayer by telephone after one attempt or if the taxpayer or representative is unable to provide the information to the OI within a reasonable amount of time (fax transmission is preferable), document the AOIC history and return the offer for failure to provide necessary information.
7. If any of the errors identified in IRM 5.8.3.11 above were not corrected to perfect the offer, the offer will be returned. The following conditions assume that the taxpayer's response corrected any perfection errors.
If the offer is assigned to "5500" and… Then…
The response included all required financial substantiation • Check internal verification sources.
• Assign to "6000"
• If a field case, assign to an OS to determine the RCP
The response included all requested financial information/substantiation except proof of payment of mortgage/motor vehicle loan balance, court order, or court-ordered payments • Check internal verification sources.
• Assign to"6000"
• If a field case, assign to an OS to determine the RCP
The taxpayer substantially replied or addressed the requested items Assign to an OI to determine if the information is sufficient to make an RCP calculation.
The response neither included nor addressed requested income or bank statements, non-liable person, or 401(k) information Return the offer.
8. If the taxpayer fails to submit the balance of the required initial TIPRA payment(s) (20% for a cash lump sum offer) within a reasonable amount of time, the offer will be considered to be a processable return. The OI should issue the appropriate AOIC withdrawal letter and mail it to the taxpayer.
Note:
If the taxpayer gives an explanation supporting special circumstances as a reason the funds were not available, the OI will continue to work the offer as if the taxpayer had submitted the entire payment. See IRM 5.8.11, Effective Tax Administration, for examples of special circumstances and ETA.
5.8.3.17 (09-23-2008)
"No Reply" Procedures
1. After the offer is determined processable and the combo letter has been sent, the offer should be held for the required number of days to allow the taxpayer to provide the requested information. If after the designated time period has passed and the COIC site has not received a response, an automated return process will be completed. The AOIC system will generate all the necessary letters and documents to close the case. Before closing the offer the employee must check AOIC to verify that no response was received.
Note:
Processable returns for "No Reply" will not be made by the PE unless the taxpayer did not submit any requested documentation and the taxpayer did not provide substantive information with the original submission. Those cases where the PE determined the taxpayer provided or addressed the information requested, will assign the case to an OE for a review and determination on whether the response was sufficient to make a decision or to return the offer.
2. Offers for which the PE determined the taxpayer has substantially replied or adequately addressed the requested information or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, will be assigned to an OE for further consideration. The PE will not implement the "No Reply" procedures.
3. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the AOIC history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the "No Reply" procedures as defined above.
4. See IRM 5.8.7.2.2.3 for additional procedures.
5.8.3.18 (09-23-2008)
Withholding Collection
1. A taxpayer's installment agreements remains in effect, if the taxpayer submits a lump sum cash offer only while the offer is pending. If the OIC was submitted as a periodic payment offer, the taxpayer will only be required to make the TIPRA payments. The cases submitted under periodic payment criteria will be changed to Status 71.
2. For offers submitted after December 31, 1999, collection by levy on property owned by the offer taxpayer is prohibited while the offer is pending unless collection is in jeopardy.
3. The term "jeopardy" has the same definition described Policy Statement P-4-88. Collection is not considered to be in jeopardy because an undisclosed asset was discovered during the investigation.
4. Upon receiving information that a jeopardy levy has been approved, contact the employee issuing the levy. If it is agreed that the offer was filed to hinder or delay collection, follow procedures in IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, below to return the offer.
5. The prohibition on levy does not require release of a levy that was served prior to the offer submission. The taxpayer's circumstances should be considered when making a determination to release a levy or keep it in place while the offer is pending.
Note:
Collection by levy is not prohibited (and the collection statute is not suspended) if the taxpayer has filed a written notice waiving the restrictions on levy. However, if the taxpayer submitted the Form 656 waiving the restrictions on levy, the offer should be immediately deemed a processable return based on altered Form 656.
6. While an offer is pending there is no prohibition on filing notices of federal tax lien. See IRM 5.8.4.9, Notice of Federal Tax Lien Filing, for a discussion of filing a notice of federal tax lien while an offer is pending.
5.8.3.19 (09-23-2008)
Offers Submitted Solely to Delay Collection
1. When it is determined that an offer is submitted solely to delay collection,, the offer can be returned to the taxpayer without further consideration.
Note:
The term solely to delay collection means an offer that was submitted for the sole purpose of avoiding or delaying collection activity. See IRM 5.8.3.19.1 below for examples of solely to delay.
2. The Field OIC group manager and the COIC Unit Manager, have delegated authority to approve returns based on solely to delay collection.
3. An offer is not considered submitted solely to delay collection just because there is an imminent CSED issue or if an offer has been investigated and rejected and the taxpayer exercises appeal rights.
5.8.3.19.1 (09-23-2008)
Solely to Delay Collection Determinations
1. When a taxpayer submits an offer that is not materially different from a previous offer that was considered and rejected with appeal rights, the offer may be returned as solely to delay collection.
2. When a taxpayer submits an offer that is not materially different from previous offer that was considered and returned and cause of the prior return has not been addressed, the offer may be returned as solely to delay collection.
Example:
The taxpayer fails to address the issues or defects of the previously submitted offer.
3. The offer may be considered as materially different when the amount reflected on the re-submission is substantially similar to, less than, or the same as the prior offer and the following exists:
1. The taxpayers financial situation has changed.
A change in the taxpayer's financial situation may include:
• A change in employment and/or income
• A change in marital status affecting future ability to pay
• A change in ownership of assets or significant decline the value of any assets
• The loss of an asset that was included in the original offer investigation
• A change in circumstances that would affect allowable expenses and future ability to pay
2. The taxpayer has raised special circumstances that were not considered during the prior investigation.
4. Although no provisions are provided for any formal appeal of a decision to return an offer submitted solely to delay collection, all employees must honor any taxpayer's request for a review of this decision with their immediate manager.
5. In some situations, it may be determined that an offer is submitted as solely to delay collection when no prior offer has been submitted. When a collection employee has determined that the next action necessary is to enforce collection through levy or seizure, but the taxpayer files an offer to delay this enforcement action, the offer may be returned as solely to delay collection.
Note:
This may include situations involving OICs from entities (subject to the assertion of the trust fund recovery penalty under IRC 6672) attempting to compromise trust fund taxes where any trust fund portion has not been paid or the applicable trust fund recovery penalty has not been previously assessed against all responsible persons, and the Service has previously explained to the principals that an offer will not be investigated unless the TFRP has been assessed or the trust fund paid. See IRM 5.8.4.13.2.
5.8.3.19.2 (09-23-2008)
Examples and Discussion
1. The following are examples of offers considered submitted solely to delay collection based on re-submission after a prior rejection or return:
Example:
(1) During initial analysis by an OI, it is discovered on AOIC that the taxpayer had a previous offer returned six months ago as part of the No Reply process. A review of the AOIC case history indicated the taxpayer did not provide any bank statements with the first offer and did not respond to the combo letter requesting the necessary documentation to determine an accurate RCP. The initial analysis indicated bank statements are required to determine an accurate RCP; however, none was provided with the new offer and there was no indication from the taxpayer the accounts were closed. No special circumstances were indicated.
Example:
(2) The taxpayer submitted an offer for $10,000. The OI computed the RCP to be $20,000. The taxpayer refused to increase the offer to the computed RCP. A rejection letter was issued, and the taxpayer did not appeal. One month later, the taxpayer resubmitted an offer for $10,100. A thorough analysis indicated there is no change in taxpayer’s financial condition and no special circumstances were indicated.
Example:
(3) A taxpayer submits an offer for $3,000 to be paid within 90 days of acceptance. A prior offer was submitted for $10,000 to be paid within 90 days. The investigation of the initial offer submission resulted in the offer being rejected with appeal rights. During that offer investigation it was determined that a piece of property was transferred to a non-liable spouse for no consideration and that a clear transferee issue exists. The value placed on the transferred property was $30,000, and was included in the reasonable collection potential (RCP). The taxpayer failed to request a timely appeal on the rejected offer. There were no special circumstances indicated.
Example:
(4) During initial processing of an OIC, AOIC indicates there have been three offers submitted by the taxpayer over the past 18 months. All three were returned for failure to provide requested CIS information. The closed return file indicates the taxpayer was asked to provide a financial statement for a closely held corporation, which the taxpayer holds 75% interest in and is the corporate president. A Form 433-B for this corporation was requested during the offer investigation. The offer specialist clearly documented in the file the taxpayer's interest and position in this corporation. The request was clear and specific and the taxpayer refused to provide this information claiming the IRS has no right to place a value on the corporation when determining his ability to pay on personal tax liabilities. The newly submitted offer package does not include a Form 433-B for the corporation and the Form 433-A indicates the same corporation is the taxpayers current employer.
Example:
(5) An offer is submitted for $30,000 payable within 90 days of acceptance. Research on AOIC indicates this the second offer submitted by the taxpayer. A prior offer was submitted for $20,000 payable within 90 days of acceptance. The original offer was rejected with appeal rights, the taxpayer filed a timely appeal, and Appeals sustained the rejection. A review of the prior offer file indicates the taxpayer has the ability to full pay the outstanding liability through an installment agreement. The total liability is for $40,000. A review of the financial information indicates the taxpayer still has the ability to full pay the liability. The original offer was received 18 months ago and no payments have been made during this period. There is no change indicated on the financial statement, except the taxpayer has a new employer. The taxpayer's income remained the same. There are no special circumstances indicated.
2. The following are examples of offers considered solely to delay collection based on a prior collection analysis and determination of ability to pay:
Example:
(6) Taxpayer owes $500,000. An offer is submitted for $15,000. The CIS, as submitted by the taxpayer, indicates the taxpayer has recently been fired from his job where he had been earning $200,000 a year. The CIS also reflects a personal residence with a fair market value of $1.5 million and outstanding mortgage of $750,000 leaving equity of $750,000; a piece of property owned free and clear valued at $60,000, a large boat with a value of $140,000 which is unencumbered. Final demand has been made and a collection employee has indicated to the taxpayer that a Notice of Federal Tax Lien will be filed and possible enforcement action if the taxpayer does not full pay the liability. The investigation has shown that there are no special circumstances to be considered.
Example:
(7) Taxpayers owe a joint 1040 liability for 1997 of $139,854 and submitted an offer for $250. Both taxpayers are self-employed: The husband is a painter and the wife is a real estate sales person. They have no future income potential. They own an unimproved lot valued at $14,700, a personal residence valued at $177,500, six automobiles and two horse trailers valued at $20,775. Their total reasonable collection potential (RCP) is $127,191 based on the equity in the assets. The balance due period was in active collection inventory prior to the offer submission. The collection employee advised the taxpayer to secure a loan on their equity or levy action would be initiated. The taxpayer refused to pay more than the proposed $250 and submitted the offer instead of making any payment to their tax liability. The collection employee completed the Form 657 indicating the case should be returned as solely to delay based on the prior collection history and recent taxpayer cooperation to resolve the balance due. It was agreed and approved by the collection manager. The investigation has shown that there are no special circumstances to be considered.
Example:
(8) A corporation owes Form 941 employment taxes which include the unpaid trust fund portion. The revenue officer previously advised the corporate principals that the Service would not consider an offer in compromise for this tax liability unless they personally full paid the trust fund portion or the trust fund recovery penalty (TFRP) was assessed against all responsible persons. The principals did not pay the trust fund portion and the corporation submitted an offer in compromise before the revenue officer assessed the TFRP against all responsible parties.
5.8.3.19.3 (09-23-2008)
Procedures for Return of Offers Submitted Solely to Delay Collection
1. The determination that an offer was submitted solely to delay collection may be made immediately after the offer is deemed processable or at any time during the offer investigation when the facts support the decision.
2. The determination that an offer was submitted after a prior reject or default can be supported by reviewing records on AOIC and IDRS transactions:
If… Then…
AOIC indicates that prior offer records exist Determine the type of disposition used to close the prior offer submissions.
AOIC indicates the prior offer submission was rejected with appeal rights The re-submission requires review to determine if it was submitted solely to delay collection.
The prior offer was defaulted within the past year The re-submission requires review to determine if it was submitted solely to delay collection.
3. To determine if the re-submission is materially different from the prior rejected or defaulted offer:
A. Review any AOIC and/or ICS history to establish that an offer is a re-submission solely to delay collection.
B. Compare the information contained in the prior history with the resubmitted offer package to determine if the offer was submitted solely to delay collection.
4. Cases assigned to a field Offer Specialist (OS) – When a field OS identifies that an offer was submitted solely to delay collection, Form 657, Revenue Officer Report, must be completed and submitted to the field OS group manager for approval. If the field OS group manager concurs, the case will be closed immediately as a return. A copy of Form 657 will be forwarded to the appropriate revenue officer (RO) group manager to explain why the offer was not investigated and to refer the balance due accounts for appropriate collection activity. It is important that coordination between the field OS and the RO occur to ensure that no levy is issued until after the return letter is sent by the OS.
5. Cases assigned to a Centralized Offers in Compromise (COIC) Offer Examiner (OE) – COIC OE's will not be required to complete a Form 657, but will be required to document the AOIC history that the offer was determined to be a re-submission solely to delay collection. If the COIC Unit manager concurs, the offer will be closed immediately as a return.
6. Cases assigned to a field RO – When the field RO receives an offer, or is notified that the taxpayer submitted an offer to COIC, and the RO determines an offer is submitted "solely to delay collection" , the RO will complete a Form 657, Revenue Officer Report, and submit it to their group manager for approval. The Form 657 must provide detailed reasons supporting the solely to delay collection decision. If the RO group manager concurs, the Form 657 will be faxed to the either the field OS group manager or COIC Unit Manager, depending on where the offer is assigned at that time. Copies of current (prior 12 months of activity) ICS history sheets will be also be provided to the COIC site. However if the RO feels that the ICS history sheets older than 12 months would benefit the COIC sites, then they should submit what they think is pertinent.
If an offer, application fee, and 20% payment or first initial installment were submitted to the RO by the taxpayer, then the RO group manager will over night express the offer, application fee, the 20% payment or first initial installment payment, current ICS history sheets, and Form 657 to the COIC Unit Manager.
7. The COIC sites will screen for Form 657’s. The COIC sites will make Form 657 a top priority and promptly process and return an offer submitted for solely to delay collection. If the COIC unit manager agrees with the determination, the manager, or COIC employee, will contact the originating RO to advise that the return letter has been issued. If the COIC unit manager disagrees with the determination, discussions should be initiated with the field manager to reach an agreeable solution.
8. The COIC sites will:
• Screen out Forms 657
• Make all Forms 657 a priority
• Promptly process
• Immediately return the offer as solely to delay collection.
9. Once the processability determination has been made, the COIC employee will contact the originating RO to advise that the return letter has been issued.
10. The Form 657, Revenue Officer Report, serves to establish coordination between the field group, the offer group, and the COIC site to provide case documentation regarding these determinations, and to ensure collection action is not pursued until the return is approved.
11. Once the return letter is sent and the case reassigned to the field RO, then the RO assigned the case must initiate appropriate collection action in accordance to IRM 5.1.10.7, Timely Follow Up’s
Exhibit 5.8.3-1 (09-23-2008)
COIC Remittance Tracking Report
Form 13479, Remittance Tracking Report is used to process payments received in COIC.

.8.4 Investigation
• 5.8.4.1 Overview
• 5.8.4.2 Doubt as to Liability
• 5.8.4.3 Effective Tax Administration and Doubt as to Collectibility with Special Circumstances
• 5.8.4.4 Doubt as to Collectibility
• 5.8.4.5 Screen for Obvious Full Pay (Centralized Offer in Compromise Procedures Only)
• 5.8.4.6 Actions Based on Reasonable Collection Potential
• 5.8.4.7 Initial Action, Follow-Up, and Closing Action Time Frames
• 5.8.4.8 Documentation
• 5.8.4.9 Notice of Federal Tax Lien Filing
• 5.8.4.10 Combination Offers
• 5.8.4.11 Responsibility of Offer Specialist and Field Revenue Officers
• 5.8.4.12 Coordination with Other Functions
• 5.8.4.13 Procedures for Certain Types of Taxpayers and Liabilities
• 5.8.4.14 Concluding the Offer Investigation
• Exhibit 5.8.4-1 Asset/Equity Table (AET)
• Exhibit 5.8.4-2 Income/Expense Table (IET)
• Exhibit 5.8.4-3 Offer in Compromise Recommendation Report
• Exhibit 5.8.4-4 Expedite Processing - Processability Determination
• Exhibit 5.8.4-5 Expedite Processing - Notification of Preliminary Case Decision
5.8.4.1 (09-23-2008)
Overview
1. This chapter provides:
• Instructions for conducting the different types of offer investigations.
• Definitions for considering each possible basis under which an offer may be filed.
• Directions for coordinating activities with other Service functions.
5.8.4.2 (09-23-2008)
Doubt as to Liability
1. After initial processing, offers based on DATL of a TFRP or PLET are transferred to Area offices for assignment to Offer Specialists. All other DATL offers should be forwarded with no initial processing, to the centralized DATL processing unit located at the Brookhaven campus.
2. For offers based on DATL of a TFRP or PLET, 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. Offers on assessments of this nature that were determined by Appeals or that received an Appeal hearing should be transferred to Appeals for consideration.
3. The taxpayer must offer a dollar amount. An offer for zero dollars on this basis is not acceptable and is subject to perfection requirements. The amount may be a cash or deferred offer, but must be payable within 90 days of acceptance.
4. The administrative file should be secured and reviewed to examine the evidence that supported the assessment. New information, testimony or documents presented by the taxpayer should be considered. Refer to IRM 5.7, Trust Fund Compliance Handbook, for a discussion of the factors and evidence that support an assessment of a TFRP or PLET.
5. A DATL offer should be resolved in one of the following ways:
If… Then…
No new information is available and the TFRP or PLET file supports the original assessment Reject the offer.
Another amount of liability is determined and the taxpayer agrees to the finding Prepare and submit the Form 3870, Request for Adjustment, to correct the assessment and secure a withdrawal of the offer or recommend acceptance of the offer for the correct amount.
Another amount of liability is determined and the taxpayer still does not agree Submit a Form 3870 to correct the assessment and recommend rejection of the offer.
The Administrative file does not support the assessment Abate the assessment in full and secure a withdrawal of the offer.
6. Note:
7. If new information is presented that raises doubt or the existing information supporting the assessment is weak, consider accepting an offer to avoid the hazards of litigation.
5.8.4.3 (09-23-2008)
Effective Tax Administration and Doubt as to Collectibility with Special Circumstances
1. Refer to IRM 5.8.11, Effective Tax Administration, for a full discussion on how to investigate and determine acceptability of offers submitted under ETA or Doubt to Collectibility with Special Circumstance (DCSC).
Note:
OI's should review comments in Section VI to determine if specific special circumstances or effective tax administration issues are discussed, which should be considered. Statements such as "I cannot pay" will be addressed via the determination of the taxpayer's RCP.
2. ETA offers can be accepted only when:
• There is no doubt the tax is owed and no doubt that the full amount owed can be collected from the taxpayer.
• The taxpayer has a proven economic hardship or has presented facts that would support acceptance under the public policy/equity basis, and
• Compromise would not undermine compliance with tax laws.
3. DCSC offers can only be accepted when the taxpayer cannot fully pay the tax due, but has proven special circumstances that warrant acceptance for less than the amount of the calculated RCP.
4. Factors establishing special circumstances under DATC are the same as those considered under ETA. See IRM 5.8.11, Effective Tax Administration, for a list of those factors.
5.8.4.4 (09-23-2008)
Doubt as to Collectibility
1. DATC offers may be worked either in the COIC site by an OE or in Area offices by an OS. Cases assigned to an OE in COIC may be forwarded to Area offices for assignment to an OS if complex issues requiring a field investigation are identified.
2. For DATC offers, the decision to accept or reject usually rests on whether the amount offered reflects the RCP. The exception to this rule would be for offers not accepted based on public policy reasons. RCP is defined as the amount that can be collected from all available means, including administrative and judicial collection remedies. Generally, the components of collectibility outlined in IRM 5.8.4.4.1 below, will be included in calculating the total RCP. See IRM 5.8.5, Financial Analysis, for more detail on how to analyze the taxpayers financial condition to arrive at the value of each component. In determining the taxpayers future ability to pay, full consideration must be given to the taxpayers overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training and work experience.
3. Offers should not be accepted where the tax can be paid in full as a lump sum or can be paid under current installment agreement guidelines, unless special circumstances are identified that warrant consideration of a lesser amount. Once the ability to make payments is established, the investigating employee must determine if a greater amount can be collected through current installment agreement guidelines than is being offered. If so, the offer should be recommended for rejection, unless special circumstances warrant acceptance.
4. To determine if the taxpayer can full pay, the calculation must be based on the balance due at the time the offer was submitted.
5.8.4.4.1 (09-23-2008)
Components of Collectibility
1. The following four components of collectibility will ordinarily be included in calculating RCP for offer purposes:
Components Definition
Assets The amount collectible from the taxpayers net realizable equity in assets.
Future Income The amount collectible from the taxpayers expected future income after allowing for payment of necessary living expenses.
• For Lump Sum Cashoffers, if the offer is payable in 5 or fewer installments within 5 months – project for the next 48 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 5 months and less than 24 months – project for the next 60 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 24 months – project through the statutory period.
• For Short Term Periodic Paymentoffers, it is the amount collectible over the next 60 months or the remaining statutory period, whichever is less.
• For Deferred Periodic Payment offers, it is the amount that is collectible over the life of the collection statute.
Amount Collectible from third parties The amount we could expect to collect from third parties through administrative or judicial action. For example, amounts collectible through assertion of a TFRP, a transferee assessment, nominee lien, or suit to set aside a fraudulent conveyance.
Assets and/or income that are available to the taxpayer but are beyond the reach of the government Assets that the lien will not attach, such as equity in assets located outside the country.
5.8.4.5 (09-23-2008)
Screen for Obvious Full Pay (Centralized Offer in Compromise Procedures Only)
1. In all cases, the OE will verify the full pay worksheet as prepared by the PE.
2. If the amounts shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due by either liquidation of assets or through an installment agreement, the offer should be rejected without substantiation or further analysis. The National Standard Expenses and Local Housing and Transportation expense standards should not be applied for this analysis.
3. Review the case to ensure no special circumstances exist that would warrant consideration under ETA. If the taxpayer submitted the offer under ETA, by marking the box on the Form 656, the offer will not be rejected under Screen for Obvious Full Pay criteria, but must be assigned to an OE or to the field as appropriate for further evaluation and consideration.
4. Taxpayers who have submitted an offer with a CIS that reflects an ability to fully pay the tax, absent special circumstances, will immediately be issued a rejection letter. In these cases, prepare the Form 1271, Rejection or Withdrawal Memorandum, and attach the Full Pay Worksheet in lieu of the Offer Recommendation Report and Asset/Equity and Income/Expense tables as instructed in IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing.
5.8.4.6 (09-23-2008)
Actions Based on Reasonable Collection Potential
1. Once the RCP has been calculated, process the case as follows:
If… Then…
The Screen for Obvious Full Pay shows the taxpayer can full pay based on CIS (COIC procedures only) The rejection letter should be issued. (See IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing)
The offer must be increased in order to be recommended for acceptance Issue Letter 3498 (SC/CG) or contact the taxpayer by telephone to amend the offer to the acceptable amount. If the taxpayer response does not change the case determination, issue the rejection letter using the option to increase paragraph.
The analysis shows the taxpayer can fully pay the tax through liquidating assets and/or installment payments Issue Letter 3499 (SC/CG) or contact the taxpayer by telephone. If the taxpayer response does not change the case determination, issue the rejection letter using the full pay paragraph.
The offer amount equals or exceeds the RCP and the offer is otherwise acceptable The acceptance letter should be issued. (See IRM 5.8.8, Acceptance Processing)
Special circumstances are identified that warrant acceptance for less than the RCP Consider an ETA offer or DCSC. (See IRM 5.8.11, Effective Tax Administration)
5.8.4.7 (09-23-2008)
Initial Action, Follow-Up, and Closing Action Time Frames
1. Time frames have been set for completing certain tasks associated with an offer investigation. These time frames vary depending on who is assigned the case.
2. The timely completion of an offer investigation is an organizational priority. As such, unwarranted inactivity gaps are to be avoided. (See IRM 5.8.1.1.6, Timeliness of Offer Investigations, for definitions of timely case processing.)
5.8.4.7.1 (09-23-2008)
Initial Offer Actions
1. Within 15 calendar days of the date an offer is assigned to an OE in COIC or within 30 calendar days of the date an offer is assigned to an OS, the assigned employee must complete the following actions:
A. Analyze the new receipt to determine if sufficient information is available to make a decision regarding the merits of the offer.
B. If additional information is needed from the taxpayer to reach a decision, issue an additional information request, as appropriate.
C. Where necessary and appropriate, this request should also include verification of the taxpayer's compliance with the current year's ES tax payments and/or current quarter FTD payments. See IRM 5.8.7.2.2.1 for additional information on the calculation and determination of appropriate ES payments.
D. If the taxpayer failed to make the appropriate amount of the required lump sum cash payment (20% of the offered amount), when requesting additional information you must also request the remainder of the payment.
E. If enough information is available, prepare a preliminary AET/IET to make a projected resolution to the case or to determine exactly what additional information is needed. This requirement does not apply to those offers determined to meet solely to delay collection criteria. See IRM 5.8.3.19 for additional information.
F. If no additional information is needed, initiate appropriate follow-up actions to recommend the disposition of the offer.
G. The initial lien determination should be made and documented.
2. Prior to the issuance of offer cases to the field, COIC will have made all processability determinations and completed initial internal case building actions. In some cases, no additional information will be needed from the taxpayer to complete the investigations. In these situations, the next appropriate action(s) should be scheduled in a manner that ensures the timely resolution of the case.
3. In situations where the Field OS are not co-located with the group manager, an additional 5 days will be allowed from the assignment date to complete the initial case actions. This time accounts for the need to transship the case files to remote locations. Situations where this transit time routinely takes more than 5 days to accomplish should be reported to the Area OIC Coordinator to determine the cause for the delays.
4. Generally, the AOIC assignment date will be the assignment date of record.
5. Prior to the income and expense analysis of an individual offer where the taxpayer submitted a Form 656-A certification, the OI will determine whether the household income and family unit size at the time the offer was submitted supported the decision not to pay the application fee or the required TIPRA payment. If the OI concludes that the income for the family size exceeds the levels for which a Form 656-A certification was allowed (i.e. the taxpayer should have paid the application fee and/or the required TIPRA payment), contact the taxpayer and request the required initial payment and application fee be submitted. If the taxpayer does not respond in a reasonable amount of time, the offer will be returned. Return the offer using letter code "RET-AB" for failure to pay the application fee and required initial TIPRA payment.
Note:
A definition of household is: "The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household."
6. If the taxpayer submitted the Form 656-A, the required TIPRA payment, and the application fee, treat the payments as a deposit. If during the investigation, the OI determines the taxpayer does not qualify for the waiver, the taxpayer will be notified. Request MOIC move the money to the taxpayer's liability(s), and continue working the offer. If the offer was a periodic payment offer, discuss the requirements with the taxpayer, and request the taxpayer to make all payments from the date of submission to the date of discovery. The taxpayer must also make payments through the remainder of the investigation. Allow a reasonable amount of time for the taxpayer to submit the funds. If the taxpayer fails to make up the payments, or cannot make the required TIPRA payments, return the offer, unless special circumstances prohibit the taxpayer to submit the funds. See IRM 5.8.3.5 for more information.
Note:
A definition of household is: The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household.
7. If additional information is required to make a decision, contact the taxpayer or POA to request the additional supporting documents. If it is determined no information is necessary, issue a decision letter.
8. If the taxpayer or their representative requests an extension of time to comply with the request for additional information, a reasonable amount of time should be granted. Generally, a minimum of 15 and a maximum of 30 calendar days should be allowed. If the taxpayer of representative requests additional time beyond the 30 calendar days, the additional time should be allowed. However, if it appears that the representative or taxpayer are delaying the progress of the offer investigation or if the taxpayer or representative fail to meet the deadline, initiate the "No Reply" procedures as defined in IRM 5.8.3.17. Document the ICS or AOIC history indicating the new deadline for the response.
9. Cases transferred from one Area office to another should have an AOIC transfer letter sent advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. The transferring office will be responsible for sending the transfer letter.
10. If assignment to an offer specialist does not or will not take place within 45 days of the transfer:
• The taxpayer must be contacted (verbally or in writing) and advised of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the ICS history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.
• The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group
11. If the request for information is in writing, the correspondence must include:
. A list of the specific items/information needed,
A. A specific deadline for providing the information,
B. A statement indicating that the offer will be returned without further consideration if all the information is not provided,
C. The name, phone number, and employee number of the investigating employee,
D. A statement regarding enclosure of Publication 1 and 594,
E. A statement indicating that a NFTL will be filed if a decision has been made to file a lien.
F. A statement addressing any potential special circumstances (e.g. ETA or DCSC),
G. Rubber-stamp or otherwise enter on all outgoing envelopes containing requests for additional information "URGENT — TIME SENSITIVE" .
12. If the request for information is in person (e.g. by telephone, office, or field visit) the contact must include the following information:
. Verify receipt of Pub. 1 and Pub. 594. If the first conversation is with the POA, verify that the taxpayer has received these publications. If the response from either the taxpayer or the POA is yes, ask if there are any questions and answer any questions they may have to ensure there is a clear understanding of their rights. If they have not been received, offer to either explain their rights before proceeding or re-mail the publications to the taxpayer and postpone conversation until they have been received and read.
A. Address and document any potential special circumstances (e.g. ETA or DCSC) identified during the initial review of documents submitted with the offer.
13. Cases transferred from one office to another should have an AOIC transfer letter sent within 15 calendar days of the transfer advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. Since cases are often reassigned to a POD once received in the Area office drop point, the receiving office will be responsible for sending the transfer letter. If the case cannot be assigned immediately, the taxpayer should be advised of the anticipated date of assignment to an OS. A follow up letter should be sent to the taxpayer advising of any delay in assignment if the case is not assigned by the date specified in the original letter.
14. To eliminate the potential for misrouted cases, the procedures outlined in IRM 3.13.62, Media Transport and Control, will be followed.
. The originating office responsible for shipment of the offer files will follow-up within 30 days from the shipment date if the acknowledgment copy of the Form 3210, Document Transmittal, is not received.
A. If all the cases listed on the Form 3210 are not included in the shipment, the receiving office is responsible for notifying the originating office within 10 days of receipt of the Form 3210.
B. Any and all discrepancies will be resolved within 30 days.
5.8.4.7.2 (09-23-2008)
Periodic Payments Required With Offer in Compromise Submission
1. IRC Section 7122(c), as amended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), requires OIC's submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount. These payments are applied to the tax liabilities included on the offer and are in addition to any application fee imposed. See IRM 5.8.3 for additional information.
2. The form of these partial payment depends on the taxpayer’s proposed offer and its terms.
A. A lump sum cash offer (defined as payable in five or fewer payments) must be accompanied by a payment of 20% of the offered amount.
B. A periodic payment (defined as payable in six or more installments) must be accompanied by payment of the first proposed installment, and additional payments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer.
C. For short term periodic payment offers, if the taxpayer qualifies for the Form 656-A waiver, the taxpayer is not required to pay the application fee, or TIPRA payment(s), including any future payments unless the offer is accepted. If the offer is accepted, the 24 month timeframe for paying the accepted offer amount will start on the date of written notice of acceptance. At that time, the taxpayer will begin making the payments in accordance to the terms of the accepted offer.
3. While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed payments as they become due. There is no requirement that the payments be made monthly or in equal amounts.
4. The Service is not bound by either the offer amount or the terms. The offer investigator may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the offer investigator may advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance.
5. Taxpayers who qualify for waiver of the $150 application fee based on their income level at the time they submit an offer are also exempt from making the required TIPRA payment(s). If during the investigation it is discovered that the taxpayer does not qualify for the waiver, contact the taxpayer and request the required payment(s) and the application fee. Allow a reasonable amount of time for the taxpayer to submit the payment(s) and fee. If the taxpayer fails to submit the payment and the fee, return the offer. However, if the taxpayer submitted the application fee, and TIPRA payment in addition to the Form 656-A Waiver, and it is discovered that the taxpayer doe not qualify for the waiver, the offer investigator will:
• Request the money be moved to the appropriate account and/or liability(s), and
• Continue working the offer
6. If the taxpayer submitted a periodic payment offer, the offer investigator will request that the taxpayer make up the past due payments from the date of submission to the date of discovery. A reasonable amount of time must be allowed for the taxpayer to send the requested funds. The taxpayer will then be required to make payments in accordance to the terms of the offer when submitted during the remainder of the investigation. If the taxpayer cannot or fails to make the payments by the deadline, the offer will be returned without further consideration.
7. Taxpayers may designate how the required TIPRA payments are to be applied to the taxpayer's liabilities. The request for designation must be made in writing when the offer is submitted (in the case of the initial partial payments) or when the payment is made (in the case of subsequent installment payments made for a periodic payment offer). Once a designation of payment is made, it cannot be changed at a later time. The written payment designation must clearly explain how these payments are to be applied to specific tax periods or liabilities (e.g., income taxes, employment taxes, trust fund portions of employment or excise taxes, etc.). This written payment designation must become part of, and remain with, the offer case file.
8. In the absence of any written payment designation by the taxpayer when the offer was submitted or when the payment is made, the Service will apply the payments in the best interest of the Government.
9. COIC will process the required initial TIPRA payment accompanying periodic payment offers prior to transferring an offer to an OI. For offers submitted by corporations to compromise trust fund taxes, COIC will apply the initial payment(s) to the tax liability with the earliest unexpired CSED. OI's assigned to investigate these offers are responsible for transferring the partial payment(s), if necessary, in the best interest of the government as defined in 5.8.4.7.2.1 below.
5.8.4.7.2.1 (09-23-2008)
Periodic Payments Made During Offer Investigation
1. It is the responsibility of the OI assigned the case to ensure that taxpayers make the proposed installments during the offer investigation. In addition, the OI must also ensure that required additional amounts are paid if the taxpayer submits a revised offer reflecting a larger proposed offer amount and/or changes the offer from a periodic payment to a lump sum cash offer.
2. If a subsequent payment is received by an OI with a Form 656-PPV, forward the payment with the Form 656-PPV to the appropriate COIC address shown on the form.
3. Upon receipt of a subsequent payment received by the COIC site while the offer is assigned to an OI, COIC must annotate the AOIC history with the following information:
• Date(s) of receipt
• Amount of the payment(s)
• Location (MFT and period) applied
4. It is the responsibility of the OI to check the AOIC history and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.
5. If a subsequent payment is received in the COIC site while the offer is assigned to an OI, COIC will annotate the AOIC history with:
• The date(s) of receipt,
• amount of the payment(s), and
• location (MFT and period) applied
6. It will be the responsibility of the OI to check AOIC and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.
7. If a subsequent payment is received by the OI, the OI will use Form 3244 to:
A. Apply the payment(s) directly to the tax liability in accordance with the taxpayer’s written payment designation, if any, submitted with the offer.
B. If no written payment designation was submitted with the offer, apply the payment(s) directly to a tax liability to the best interest of the Government.
3. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).
4. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).
If neither 1) or 2) above are applicable, apply in the following order:
• Non-trust fund portion of tax (employer’s share of FICA)
• Assessed lien fees and collection costs
• Assessed penalty
• Assessed interest
• Accrued penalty to date of payment
• Accrued interest to date of payment
5. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).
6. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).
If neither 1) or 2) above are applicable, apply in the following order:
• Non-trust fund portion of tax (employer's share of FICA)
• Assessed lien fees and collection costs
• Assessed penalty
• Assessed interest
• Accrued penalty to date of payment
• Accrued interest to date of payment
7. To the unpaid trust fund portion of the Form 941 (employee's and withholding share of FICA) in the earliest unexpired CSED order.
8. Annotate the AOIC history with the amount(s) and date(s) of receipt.
Note:
Use DPC 02 when posting subsequent periodic offer payments specified to the trust fund portion when the offer was submitted by a corporate taxpayer. In all other situations use DPC 35.
9. If the taxpayer fails to make a proposed installment for a periodic payment offer, the OI will allow one opportunity to pay the missing amount(s). Attempt to contact the taxpayer by telephone, and allow 15 calendar days for the taxpayer to submit the payment(s). If the taxpayer or the representative cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s).
. If the taxpayer submits the payment(s) within 30 calendar days from the date of the letter (allowing 15 calendar days for mail), continue the offer investigation. In some locations, it may be necessary to allow additional time for the taxpayer to submit the payments. Document the ICS or AOIC history with the reason for the delay.
A. If the taxpayer fails to submit the payment or request an extension of time within 30 calendar days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history.
Note:
Taxpayers will be afforded an opportunity to make up only one missed proposed payment for a periodic payment offer, including any amended offers, unless special circumstances exist.
10. The proposed offer amounts and terms submitted by a taxpayer dictate the required partial offer payments. The Service is not bound by those same terms in determining an acceptable offer. Therefore, OI's may negotiate different offer terms, when appropriate.
11. During evaluation of an offer, the offer investigator may determine that the proposed offer is too low or the payment terms too protracted to recommend acceptance. In this situation, the OI will advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance. If the taxpayer submits a revised offer reflecting a larger proposed offer amount or changing the terms, one or more additional payments may be required. The taxpayer will be given credit for partial payments already made with respect to the original offer.
If… And… Then…
Original offer was a lump sum cash offer Revised offer is a lump sum with a greater proposed offer amount Taxpayer must pay 20% of the revised amount, less the partial payment made with the original offer, with the revised OIC
Original offer was a periodic payment Revised offer is a lump sum cash Taxpayer must pay 20% of revised offer amount, less any installment payments already paid toward the original offer, with the revised OIC
Original offer was periodic payment Revised offer is periodic payment with greater proposed offer amount and/or different proposed installment amounts or schedule Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the OIC
Original offer was lump sum cash offer Revised offer is periodic payment with greater proposed offer amount Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the revised OIC
12. IRC Section § 7122(c), as amended by the TIPRA, requires that offers in compromise submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount.
13. If the taxpayer submitting a revised or amended offer does not make the additional required payment(s), the OI will return the offer as a processable return using the appropriate AOIC generated letter.
Note:
Cases worked prior to July 21, 2006 will be worked under the criteria defined in IRM 5.8 (revised 9/1/2005). No TIPRA payment requirements will apply to amended offers on those cases. TIPRA requirements only apply to those offers with an "IRS Received Date" of July 22, 2006 and after.
14. If the taxpayer fails to submit the revised offer, prepare the rejection letter.
15. For dishonored partial payments required with submission of offers, see IRM 5.8.3.6 for appropriate procedures.
5.8.4.7.3 (09-23-2008)
Follow-up Actions
1. In order to ensure timely case processing, all in-process offers must have follow-up dates scheduled for the next appropriate action.
2. Throughout the investigation, the scheduling of timely follow-up actions should be reasonable and appropriate, based on the facts of the case. In order to be considered timely, follow-up actions should be significant actions that can reasonably be expected to move the offer investigation toward resolution. Generally, follow-up actions should occur:
A. No later than 15 calendar days after a deadline for taxpayer action has passed without an adequate response.
B. No later than 15 calendar days of the receipt of additional information.
C. Within 30 calendar days in situations where no contact has been established with the taxpayer or no deadline has been given.
Exception:
See IRM 5.8.4.7.2.1 (7), for an exception to the 15 calendar day requirement in reference to a missed TIPRA periodic offer payment.
3. Follow-up actions may include:
• Recommending acceptance or rejection if the information received is sufficient to make a decision regarding the offer.
• Recommending the case for closure when the taxpayer has clearly failed to provide the requested documents or information.
• Personal contact when the taxpayer has made an attempt to comply with the requested documentation but the provided information is incomplete, or needs clarification.
5.8.4.7.4 (09-23-2008)
Case Recommendations and Closing Actions
1. Case Recommendations
A. OE's in COIC must submit all appropriate recommendation reports (i.e., Forms 1271/7249) within 10 calendar days from the date of the documented case decision.
B. OS's must submit all appropriate recommendation reports within 15 calendar days from the date of the documented case decision.
2. Closing Actions – Case must be submitted for closing actions (i.e. - dating/mailing of letters, closing on AOIC, ICS, etc.) within the defined 10 to 15 calendar days as described above.
5.8.4.8 (09-23-2008)
Documentation
1. Documentation must include but is not limited to:
• The basis of the processability determination
• Plans of action
• Case actions
• Requests for information/documentation
• Receipt of requested information
• Conversations with taxpayers or representatives
• Results of internal information analysis
• Special issues or circumstances
• Financial analysis, if applicable
• Case decisions
• The source of the funds, if the periodic payment amount is greater than the taxpayer's ability to pay
Note:
Do not repeat information already present on AOIC screens.
2. Documentation should include evaluation of the income, allowable expenses, asset values, and encumbrances. It should support and define differences and verification of the assets and expenses, including reasons for disallowance of income and expenses.
3. COIC employees will use AOIC to document case actions.
4. Field compliance employees will use ICS to document actions. When ICS is used to record documentation, a closing summary history must be placed on AOIC prior to closing the case, indicating the basis for the closure and a statement that the complete history is available on ICS.
5. Documentation should be recorded the day the action occurs or as soon as practical thereafter.
5.8.4.9 (09-23-2008)
Notice of Federal Tax Lien Filing
1. It is the responsibility of the employee to safeguard the government's interest and taxpayer rights. Employees must exercise judgment in deciding whether or not a Notice of Federal Tax Lien (NFTL) should be filed. See IRM 5.12, Federal Tax Liens, for further discussion on the NFTL.
2. A NFTL filing determination must be made and documented on all assigned cases as part of the initial offer actions defined in IRM 5.8.4.7.1 above.
Example:
Your initial case analysis reveals that the taxpayer has an interest in real property and no indication that a NFTL is filed. Or, your initial case analysis indicates that there are no NFTL's filed and the taxpayer threatens to file bankruptcy if we do not accept the offer. You should immediately file the lien to safeguard the governments interest.
3. The initial review of any case must include an analysis of whether a NFTL has been correctly filed on all tax modules owing, is filed in the correct jurisdiction, and whether or not any filed liens should be re-filed. If analysis indicates a lien was erroneously allowed to self-release, appropriate action must be taken to correct the problem.
4. A NFTL will generally be filed whenever the unpaid balance of assessments exceeds $5,000, and an offer is recommended for rejection or acceptance for the following:
A. Lump sum cash offer (20%), and five or fewer installments paid in six months or more
B. Short term periodic payment offer
C. deferred periodic payment offers
Example:
The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay $2,000 12 months after the date of acceptance, and $2,000 every 12 months thereafter until paid in full, a lien should be filed if it meets the IRM NFTL lien filing requirements as stated above.
5. Circumstances warranting non-filing of a NFTL in the above situations should be clearly documented on AOIC or ICS.
6. A lien will generally not be filed on accepted offers when the offer amount will be paid in 5 months or less.
Example:
The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay the $8,000 within 5 months from the date of acceptance, a lien will not be filed.
7. In those cases where an offer is being investigated and the taxpayer files a request for a CDP during the investigation, the case then becomes the jurisdiction of Appeals. If a determination to accept the offer has been made, the OI should contact Appeals to recommend the taxpayer withdraw the CDP request. If a determination to reject the offer has been made, the offer file should be forwarded to the Appeals Officer handling the CDP hearing before sending any rejection letters. Delete the offer from AOIC.
Exception:
See IRM 5.8.4.12.4 for CDP cases meeting COIC criteria and retained in COIC for processing and preliminary decision.
If… Then…
No lien has been filed and a decision is made to not file a lien until the conclusion of the investigation The case file should be documented when a lien determination was made and it should also include the basis for the decision to withhold filing. An additional determination will be required at the conclusion of the investigation. Generally, a lien will be filed if the offer is:
• accepted as a deferred payment offer,
• rejected
• returned
Caution:
Remember that an attempt must be made to contact the TP by phone, in person, or by letter to advise of the filing before requesting the lien. AOIC combo and rejection letters satisfy the notification requirement.
A determination is made to file a lien immediately Ensure that an attempt to notify the TP of the proposed filing (by phone, letter, or in person) has been made and documented before requesting the lien be filed. Provide the required appeal rights per IRM 5.12, Federal Tax Liens, if the taxpayer objects to the filing. If the lien is filed and a CDP request is received process it immediately following guidelines in IRM 5.1.9, Collection Appeal Rights.
Liens were previously filed but in an incorrect jurisdiction Determine whether to file a NFTL in the correct jurisdiction or withhold filing until the conclusion of the investigation. Follow instructions above based on your decision. If the decision is made to withhold the filing until the conclusion of the investigation, an additional determination must be made at that time.
Liens were filed but have expired Follow instructions in IRM 5.12, Federal Tax Liens.
Liens were filed and are currently in the refiled period Ensure that liens are correctly refiled in all required jurisdictions.
An offer where the unpaid balance of assessment is $5,000 or more and is being rejected or accepted with deferred payment terms A lien will normally be filed on these cases. Circumstances warranting non-filing must be documented in case history.
5.8.4.10 (09-23-2008)
Combination Offers
1. With the release of the Form 656–L, Offer in Compromise (Doubt as to Liability), which is for DATC only, and the 2007 Form 656 there will no longer be combination offers for consideration for DATL and DATC issues.
2. Combination offers submitted prior to the 2007 revision of Form 656 will be worked under procedures defined in IRM 5.8.4.10 (revised 09/01/2005).
5.8.4.11 (09-23-2008)
Responsibility of Offer Specialist and Field Revenue Officers
1. OI's are responsible for working only offer aspects of an investigation. During the offer process employees may discover collection issues that require traditional RO investigation. Generally, if these issues are initially identified by an OE in COIC, the case will be forwarded to a field OS, where the issues will be confirmed and if appropriate, action taken to refer the case to a traditional RO. Some of the issues that may be identified and the way they should be processed are:
Issue Procedure
Transferee, Nominee or Alter Ego When these issues arise during an offer investigation, OS should establish a valuation for the involved asset or income stream. The OS should include the value in computing the RCP but not actually complete the administrative actions required to establish the liability or secure a lien against the third party. If the value of the involved asset or income stream will be obtained through an accepted offer, that fact should be clearly documented and any transferee, nominee or alter ego remedy not pursued through administrative or judicial action. If the offer is rejected or moving toward rejection and time is of the essence due to the dissipation/transfer of assets or statute expiration, a Form 2209, Courtesy Investigation, or Other Investigation should be initiated to request the assignment of a RO to complete the required action to establish the transferee, nominee or alter ego liability or lien.
Levy or seizure related actions If during the course of an offer investigation an OI determines that immediate levy or seizure action may be needed, the case will be referred to the Collection field function. The OI will initiate an Other Investigation request to an RO group outlining the actions needed and providing any additional information that would assist the RO. Upon notification that a jeopardy levy has been approved the OI will follow the procedures to close the offer outlined in IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, if the field RO and their manager determine that the offer was filed to hinder or delay collection.
Suit recommendations OS should consider the value of any recovery that may be made through a suit when determining RCP. If the anticipated recovery amount is obtained through an accepted offer this fact should be clearly documented and the suit recommendation not pursued. If the offer is rejected or moving toward rejection and time is of the essence due to the statute expiration for filing suit, an Other Investigation should be initiated to request the assignment of a RO to complete the suit recommendation.
Continuing action on In Business Trust Fund (IBTF) cases Due to the potential for the pyramiding of liabilities and dissipation of assets in IBTF cases, the OS will initiate an Other Investigation on rejected or returned offers involving ongoing businesses with employment tax liabilities. Because rejected, returned and withdrawn offers do not systemically revert to Status 26 (field assignment), the Other Investigation serves as an open assignment until the case is systemically assigned to Status 24 (queue), at which time the collection group manager can assign the case to an RO and close the Other Investigation. This process will generally take about 30 days.
Trust Fund Recovery Penalty (TFRP) And Personal Liability for Excise Tax (PLET) cases It is the responsibility of the traditional RO to complete the investigation and make a determination regarding personal responsibility in these cases. Follow the provisions in IRM 5.7.4 Investigation and Recommendation of TFRP. The TFRP must be assessed, the outstanding trust fund amounts paid or the TFRP package forwarded for assessment prior to consideration of the offer. See IRM 5.8.4.13.2 below for instructions on processing these investigations in conjunction with open offers. The process of completing the PLET can be ongoing while the offer is pending but before the offer determination is finalized.
Note:
Other Investigations referred per these instructions should be considered high risk case (i.e., risk code 100) and processed accordingly.
Development of Potential Fraud When indicators of potential fraud arise during an offer investigation, the OS will discuss the case with the OS local fraud technical advisor (FTA). If the FTA agrees that the potential for fraud exists, the OS will issue a Other Investigation to the Collection office which covers the geographic area where the taxpayer is located. The field RO will be responsible for gathering the information required and developing the fraud referral. The office assigned the offer investigation will retain the offer pending the outcome of the potential fraud inquiry. If the potential fraud investigation has not been concluded within 20 months of the date IRS received the offer, consider rejection of the offer as not in the best interest of the government.
2. Note:
3. In the above situations , except in the case of TFRP or PLET investigations, an Other Investigation will be initiated only after the OIC manager and RO manager have discussed the issue and agree that the situation warrants the issuance of the Other Investigation.
5.8.4.12 (09-23-2008)
Coordination with Other Functions
1. Coordination with other functions is sometimes required during offer investigations. The most common coordination occurs between Collection and Examination or Collection and Appeals offices.
5.8.4.12.1 (09-23-2008)
Cases Pending in Examination
1. During initial analysis of an offer, IDRS should be checked to verify there are no actions for any periods either included or not included on the offer; such as, open audits, underreporter cases, TEFRA proceedings, or amended returns pending but not yet assessed. Pending examination cases may be identified by:
• TC 922 without a CP 2000 process code or TC 290/291
• TC 976 or 977 without a subsequent tax increase or decrease
• -L Freeze and/or an AMDIS record
• Partnership Investor Control File (PIFC) code on AMDIS of 5 indicating an investor with at least one open TEFRA key case linkage
2. If any potential adjustments are identified the assigned Examination or AUR function or employee should be contacted to determine the status of the audit and informed that an offer based on DATC has been received. The decision on how to proceed with the offer should be based on the status of the potential adjustment. The table below provide some examples.
If… Then…
The TP was involved in abusive tax avoidance transactions (ATAT), appears to have substantial unreported income (UIDIF), or there is another reasonable explanation given by the assigned Examination employee as to why the audit should continue The TP should be advised that the offer investigation cannot proceed until the Exam issues have been resolved. Solicit a withdrawal explaining that it is in the TPs best interest due to CSED suspension. If the TP refuses to withdraw, consider returning the offer using the AOIC reason that other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.
The audit is routine and the assigned Exam employee has agreed to close the tax year(s) with no change Proceed with the offer investigation.
The audit is routine, but nearly concluded, and Examination wishes to conclude and assess the tax. Proceed with the offer investigation. Talk to the TP and the Revenue Agent (RA) to coordinate securing an agreement to the deficiency to expedite assessment. Include the tax year in the acceptance, but do not issue the acceptance letter until the tax is assessed.
The return has been selected for examination or Automated Under Reporter (AUR) consideration, but not yet assigned. Contact the controlling Examination or AUR function to advise that we are proceeding with the offer investigation.
The Partnership Investor File Control (PIFC) code on AMDIS is a 5, indicating at least one open TEFRA key case linkage exists Advise the TP that we cannot consider an offer until all TEFRA partnership issues have been resolved. Attempt to secure a withdrawal. If the taxpayer refuses to withdraw, consider returning the offer using the AOIC Return Letter paragraph that other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.
The Partnership Investor File Control (PIFTD) code on AMDIS is a 7, the TEFRA case is closed Verify with the assigned Examination employee that the assessment was made and include the additional liability(s) in the offer.
3. Within 7 to 14 calendar days prior to accepting an offer, IDRS should be rechecked to ensure that there are no new audit issues pending.
5.8.4.12.2 (09-23-2008)
Claims for Relief from Joint and Several Liability Under Section 6015 (Commonly Referred to as Innocent Spouse Claims)
1. When one spouse files a claim for relief from joint and several liability and the other spouse submits an offer, the Service employee considering the section 6015 claim should be contacted prior to proceeding to ensure there are no reasons to delay the offer investigation until the 6015 claim is resolved.
2. If a taxpayer files a DATC offer but raises relief from joint and several liability issues during the investigation, the issue should be discussed with the taxpayer. If appropriate, the offer should be withdrawn and the claim should be forwarded to the Cincinnati Centralized Innocent Spouse Operations Unit (CCISO).
3. If IDRS indicates that the taxpayer has an open claim for relief from a joint and several liability, or if a DATC offer and a claim for joint and several liability are filed simultaneously the taxpayer should be requested to withdraw the offer unless CCISO advises that the claim will be closed immediately with no change. If CCISO indicates that the claim appears valid and the taxpayer will not withdraw the offer it should be suspended pending disposition of the section 6015 claim.
5.8.4.12.3 (09-23-2008)
Cases Pending or Decided in Appeals
1. During a CDP or equivalent hearing (EH) assigned to Appeals, an offer may be submitted by the taxpayer. Taxpayers also occasionally submit a DATC offer during an appeal of a proposed audit deficiency. Appeals retains jurisdiction of both these types of offers, but may send an Appeals Referral Investigation (ARI) to Collection.
Exception:
For exceptions to Appeals jurisdiction for offers submitted with a CDP, see IRM 5.8.4.12.4 below.
2. An ARI requesting CIS verification of a complex nature should be assigned to a field RO. The results of the investigation will be reported via memorandum to Appeals and Appeals will conclude the investigation. Requests for any expeditious treatment of an ARI will be decided on a case by case basis through a discussion between the two functional managers.
3. Offers based on DATL on TFRP or PLET assessments must be reviewed upon receipt to ensure that the case is not pending or was not already heard in Appeals. If a DATL assessment had previously been determined in Appeals or is found to be currently assigned to an Appeals office, the offer should be removed from AOIC and transferred to Appeals. Coordination should be made with Appeals to ensure that the TC 480 (and if applicable Command Code STAUP to Status 71) is re-input with the proper Appeals jurisdiction code, since removing the offer from AOIC will reverse the TC 480.
4. If an offer based on DATC only is received and there is an open case pending in Appeals, contact Appeals to determine who will have jurisdiction of the offer.
5.8.4.12.4 (09-23-2008)
Investigation of Offers Under Appeals Jurisdiction in the Collection Offer Program
1. All offers submitted during a CDP hearing or EH meeting COIC criteria will be investigated in a COIC site.
2. COIC is responsible for making a processability determination. Once a determination is made, COIC will notify Appeals using the form provided in Exhibit 5.8.4–4.
3. Procedures defined in this section apply only to those cases meeting COIC criteria, which consists of wage earners and self-employed taxpayers with gross receipts up to $500,000 and no employees. See IRM 5.8.2.8, Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites, for the categories of cases to be worked by the field. All other cases can be worked by COIC.
5.8.4.12.4.1 (09-23-2008)
Offers Received by Appeals With A CDP
1. Appeals will:
A. Suspend the CDP case while COIC completes the offer investigation.
B. Forward the case to the appropriate COIC site for processability determination. IN these cases, Appeals is not required to generate and include the processable and not processable letters with the offer prior to forwarding the case to COIC.
Note:
If the offer is determined to be not processable, COIC will follow procedures in IRM 5.8.3.4.3. COIC will be required to generate and mail the not processable letter, refund all applicable fees, and return the case to Appeals with no further action. COIC will include a copy of the letter in the case file.
2. COIC will:
A. Load the case on AOIC
Note:
By loading the case on AOIC, the system will generate the TC 480 with jurisdiction code 1. The jurisdiction code will not be changed even though Appeals will be making the final decision.
B. Follow procedures in IRM 5.8.3.4. These cases will not be screened through the Screen for Obvious Full pay process.
C. Assign the case for investigation.
D. Investigate the offer and close as indicated below.
Note:
TIPRA regulations state that an offer must be processed and a final determination regarding the offer must be made within 24 months from the date the offer was received in Appeals. If a final offer determination has not been made within that 24-month timeframe, the offer will be deemed accepted under 25 U.S.C. § 7122(f).
E. COIC must return a CDP OIC case to Appeals with no less than one year (12 months) remaining on the 24-month timeframe in order for Appeals to make its final determination on the offer, in addition to any other issues the taxpayer may raise in a timely manner.
F. If there are less than 12 months remaining on the 24-month period, COIC must contact the Appeals employee assigned the case, and provide a status report on the anticipated completion date of the investigation. Do not discuss the merits of the offer, since this is prohibited under ex parte communication.
G. If Appeals determines a final decision cannot be made within the 24-month timeframe, Appeals may ask COIC to immediately return the case to Appeals.
In that case, COIC will:
• Input the TC 480 with jurisdiction code 3 to prevent collection activity during the transfer.
• Delete the case from AOIC.
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail.
• Notify the Appeals employee the date the case was mailed, either through encrypted e-mail or telephone.
3. Proposed Decision by COIC — If the offer is to be rejected, returned, or withdrawn (voluntary or mandatory)
Note:
Rejected offers worked under this guidance do not require submission to the IAR prior to forwarding to Appeals.
A. Rejected, returned, or mandatory withdrawn offers
COIC will:
• Issue a pre-determination letter to the taxpayer (include the AET/IET, if completed)
• Assign the case to XXXX9020
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the letter (return, rejection, or mandatory withdrawal), using the transmittal document in Exhibit 5.8.4–5
B. Voluntary withdrawn offers
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Withdrawal Letter to the taxpayer
• Close the case as a withdrawal on AOIC
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
E. Rejected, returned, mandatory or voluntary withdrawn offers
Appeals will:
• Make a final determination within 60 calendar days from the date Collection shipped the offer
• Notify COIC of the final case determination by encrypted e-mail
• Explore other collection alternatives, such as an installment agreement, within a reasonable amount of time.
4. Appeals will work these CDP offers in an expedited manner. A determination will be made, and inform COIC of the final decision, within 60 calendar days of the date the Collection offer was sent to Appeals.
5. If the taxpayer requests a different collection alternative and Appeals is unable to make a final determination within 60 days of COIC's preliminary determination (i.e., the taxpayer requests innocent spouse relief after the offer is rejected), Appeals will send the COIC case worker an encrypted e-mail with the reason the 60 days cannot be met.
6. If Appeals does not inform COIC of its final determination within those 60 days, and an extension has not been granted based on the above criteria, COIC should contact the AO/SO assigned the case either by telephone or encrypted e-mail to determine the status of the offer. Do not discuss the merits of the OIC or have any other prohibited ex parte conversations.
7. If no reply, notify the National Senior Program Analyst for Offer in Compromise, by encrypted e-mail with the following information:
• Taxpayer Name
• Taxpayer Identification Number
• Date case originally sent to Appeals
• Offer number
8. Proposed Decision by COIC
. If the offer is to be accepted
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Acceptance Letter to the taxpayer (include the AET/IET if appropriate)
• Close the case as an acceptance on AOIC
• Forward the case file to the appropriate MOIC function for acceptance monitoring
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the acceptance letter, Form 7249, amended Form 656 (if applicable), using the transmittal document in Exhibit 5.8.4–5.
• Input a STAUP on the account before transfer to Appeals to prevent collection activity during the transfer.
Note:
The case must be reassigned form XXXX9020 back to the offer specialist before it can be closed on or deleted from AOIC.
A. If the offer is to be accepted
Appeals will:
• Adopt the decision of COIC to accept the offer in its entirety
• Close the CDP/EH
• Close the OIC WUNO
9. If the taxpayer sends in a withdrawal of the CDP hearing request to Appeals more than 30 calendar days after the withdrawal timeframe, Appeals will contact the taxpayer to confirm the withdrawal of the CDP hearing. If the taxpayer wishes to withdraw and wants Collection to work the offer, Appeals will inform the taxpayer that more than 30 days has passed, and the offer as well as the CDP hearing request will need to be withdrawn from Appeals. At that point, the taxpayer will need to submit a new offer with another application fee and TIPRA payment directly to COIC.
10. Appeals will be responsible for inputting the TC 521 cc 76/77, as appropriate.
5.8.4.12.4.2 (09-23-2008)
Collection Due Process Received by COIC While an Offer is Pending
1. COIC will:
A. Follow current procedures to forward the CDP to Appeals within five workdays. Collection will complete the Form 12153A or 12153B and e-mail Compliance Case Processing (CCP) for input of Stage 1 and 3 into the CDP Tracking System (CDPTS). Follow procedures defined in IRM 5.1.9.3.3.3(4).
B. The Stage 1 location codes are 0100 for Brookhaven an 0300 for Memphis. If a CDP request is withdrawn, request input of Stage 12 to reflect withdrawal of the CDP hearing request.
C. If the hearing request was timely, Appeals will input the TC 520 cc 76/77, when needed, on COIC originated CDP cases. Do not forward a CDP hearing request to Appeals until the posting of the TC 971 A/C 275 (for timely requests) or TC 971 A/C 278 (for untimely requests) has been verified. See IRM 5.1.9 for timeliness.
2. Appeals will:
A. Follow current Appeals procedures to notify the taxpayer and/or the POA of the receipt of the CDP
B. Inform the taxpayer and/or the POA that COIC will continue working the offer
3. Proposed Decision by COIC— If the offer is to be rejected, returned, or withdrawn (voluntary or mandatory)
Note:
Rejected offers worked under this guidance do not require submission to the IAR prior to forwarding to Appeals.
A. Rejected, returned, or mandatory withdrawn offers
COIC will:
• Issue a pre-determination letter to the taxpayer (include the AET/IET, if completed)
• Assign the case to XXXX9020
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the reject, return, or withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
B. Voluntary withdrawn offers
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Withdrawal Letter to the taxpayer
• Close the case as a withdrawal on AOIC
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
C. Rejected, returned, mandatory or voluntary withdrawn offers
Appeals will:
• Make a final determination within 60 calendar days from the date Collection shipped the offer
• Notify COIC of the final case determination by encrypted e-mail
• Explore other collection alternatives, such as an installment agreement, within a reasonable amount of time
4. If there are less than 12 months remaining on the 24-month period, COIC must contact the Appeals employee assigned the case, and provide a status report on the anticipated completion date of the investigation. Do not discuss the merits of the offer, since this is prohibited under ex parte communication.
5. If Appeals determines a final decision cannot be made within the required 24-month timeframe, Appeals may ask COIC to immediately return the case to Appeals.
6. If Appeals requests the case, COIC will:
• Input the TC 480 with jurisdiction code 3 to prevent collection activity during the transfer.
• Delete the case from AOIC
• Mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail.
• Notify the Appeals employee the date the case was mailed, either through e-mail or telephone.
7. Appeals will work these CDP offers in an expedited manner. A determination will be made, and COIC informed of the final decision, within 60 calendar days of the date the Collection offer was sent to Appeals.
8. If the taxpayer requests a different collection alternative and Appeals is unable to make a final determination within 60 calendar days of COIC's preliminary determination (i.e., the taxpayer requests innocent spouse relief after the offer is rejected), Appeals will send the COIC case worker an encrypted e-mail with the reason the 60 days cannot be met.
9. If Appeals does not inform COIC of its final determination within those 60 calendar days, and an extension has not been granted based on the above criteria, COIC should contact the AO/SO assigned the case either by telephone or e-mail to determine the status of the offer. DO NOT discuss the merits of the OIC or have any other prohibited ex parte conversations.
10. If no reply, notify the National Senior Program Analyst for Offer in Compromise, by encrypted e-mail with the following information:
• Taxpayer Name
• Taxpayer Identification Number
• Date case originally sent to Appeals
• Offer number
11. COIC will forward the OIC case to Appeals with no less than one year (12 months) left on the 24-month timeframe in which a final determination on the OIC must be made.
12. Proposed Decision by COIC
. If the offer is to be accepted
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Acceptance Letter to the taxpayer (include the AET/IET if appropriate)
• Close the case as an acceptance on AOIC
• Forward the case file to the appropriate MOIC function for acceptance monitoring
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the acceptance letter, Form 7249, amended Form 656 (if applicable), using the transmittal document in Exhibit 5.8.4–5.
• Input a STAUP on the account before transfer to Appeals to prevent collection activity during the transfer
A. If the offer is to be accepted
Appeals will:
• Adopt the decision of COIC to accept the offer in its entirety
• Close the CDP/EH
• Close the OIC WUNO
Note:
The case must be reassigned from XXXX9020 back to the offer specialist before it can be closed or deleted on AOIC.
13. If the taxpayer sends in a withdrawal of the CDP hearing request to Appeals more than 30 calendar days after the withdrawal timeframe, Appeals will contact the taxpayer to confirm the withdrawal of the CDP hearing. If the taxpayer wishes to withdraw and wants Collection to work the offer, Appeals will inform the taxpayer that more than 30 days has passed, and the offer as well as the CDP hearing request will need to be withdrawn from Appeals. At that point, the taxpayer will need to submit a new offer with another application fee and TIPRA payment directly to COIC.
5.8.4.12.4.3 (09-23-2008)
Complex Issues Discovered During Investigation
1. If during the investigation COIC discovers complex issues that would normally be worked by the field, COIC will:
A. Document the case file regarding the complex issue
B. Return the entire case file with all documentation to Appeals
C. Delete the case from AOIC
D. Follow procedures in IRM 5.8.3.4.3, Determining Processability for Appeals Collection Due Process Offers.
Note:
All cases will be worked in the appropriate COIC site. If the case has complex issues that cannot be worked by COIC, Appeals will retain jurisdiction of the case, and issue an ARI for field investigation when appropriate.
5.8.4.12.4.4 (09-23-2008)
Closing The Case on AOIC After Appeals Has Made The Final Determination
1. Upon notification from Appeals with the final decisionCOIC will:
A. Reassign the case from XXXX9020 on AOIC to any employee number determined by COIC management.
B. Use the following final disposition codes:
Code Disposition
1 Accept
5 Rejected (did not exercise appeal rights)
6 Withdrawn
8 Termination of Consideration
10 Return
2. When inputting a rejected offer, use the mail date of the Appeals Notice of Determination (NOD) or Decision Letter, minus 30 calendar days.
3. All other cases will be closed using the mail date of the Appeals NOD or Decision Letter.
4. It is important that only these codes be used to ensure accurate calculation of the collection statute.
5.8.4.12.5 (09-23-2008)
Open Criminal Investigations
1. Open criminal investigations can be identified on IDRS by an unreversed TC 914 or TC 916. When these transaction codes are discovered contact must be made with the assigned Special Agent and procedures in IRM 5.1.5 followed. It may be necessary for the group or unit managers to discuss with the Criminal Investigation (CI) manager to determine the next appropriate action. A decision will need to be made on the appropriate actions to take (including disposition of any application fee or deposit) and what may or may not be discussed with the taxpayer.
2. Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer a joint decision should be made whether it should be closed as a return or held open until the investigation is closed.
5.8.4.12.6 (09-23-2008)
Offer Submitted Solely to Delay Collection
1. When it is determined that an offer is submitted solely to delay collection, the offer should be returned to the taxpayer without further consideration. The term solely to delay collection means an offer was submitted for the sole purpose of avoiding or delaying collection activity. A determination that an offer is submitted solely for the purpose of delaying collection should be apparent to an impartial observer. See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, for a complete discussion of this topic and procedures to follow when a case meeting this criteria is identified.
5.8.4.13 (09-23-2008)
Procedures for Certain Types of Taxpayers and Liabilities
1. Certain types of taxpayers and/or liabilities require unique considerations. The instructions described below should be followed when considering cases of this nature.
5.8.4.13.1 (09-23-2008)
Offers From Operating Businesses
1. Trust fund taxes are taxes withheld or collected from an individual and paid over to the government on that person’s behalf. See IRM 5.7.3 for a list of tax returns used to report trust fund taxes and where assessment of the TFRP based on the liabilities reported on the returns is possible.
2. When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer is relieved of a significant operating expense. The effect is to grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of fairness to all taxpayers the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. The following procedures apply to all In Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, as well as corporations.
A. These taxpayers must remain in compliance while the offer is being considered. An untimely Federal Tax Deposit made after assignment to an OI, and during the investigation will result in a return of the offer. It is necessary for the taxpayer to be current with the quarter that the offer was submitted and remain in compliance with the filing and deposits requirements during the offer process.
B. For offers involving corporate entities, or any entity in which assertion of the TFRP is applicable, the trust fund portion of the tax liabilities must be assessed against all responsible persons before the Service will investigate an offer. See IRM 5.8.4.13.2.
C. If financial analysis reveals that the taxpayer cannot pay operating expenses and remain current with taxes (i.e. the business is operating at a loss), all business assets should be valued rather than valuing the income stream. The value of the business as a going concern should also be evaluated. Close review should be conducted as well to see whether the offer meets the criteria for rejection as not in the best interest of the government. See IRM 5.8.7.6(6).
D. If the offer is from an ongoing business that appears to be insolvent and it appears that the governments position would be better protected through a formal insolvency proceeding consideration should be given to the rejection as not in the best interest of the government. See IRM 5.8.7.6(6).
E. Business tax returns (Schedule C, Form 1120, and Form 1065), the taxpayers balance sheet, income statements, and the Form 433-B need to be carefully analyzed to arrive at the correct RCP.
The following issues should be carefully reviewed and/or considered:
1. Depreciation — Do not allow depreciation. Instead allow necessary actual monthly obligations paid to secured creditors on depreciable assets (i.e. autos, equipment, or real estate loans).
2. Accounts Receivable — Accounts receivable that are current (i.e. generally less than 90 days past due) generally should not be discounted at Quick Sale Value (QSV). Value all accounts receivable at 100% of the balance due, unless the taxpayer can substantiate the account has been delinquent over 90 days. If the account is determined to be delinquent, it may be discounted up to a maximum of 50%. However, supporting documentation is required to substantiate accounts the taxpayer claims are delinquent over 90 days; such as a request for the taxpayer to provide an aging report. If the account is over 90 days and the taxpayer fails to provide substantiation, it will be valued at 100%.
Note:
A delinquent account is defined as an uncollectible account that has been delinquent for more than 90 days. A collectible account is defined as one that may be considered to be past due, but is still an active client.
3. Personal Expenses Paid by the Business — Financial statements must be reviewed to ensure expenses such as car payments, insurance, utilities, etc. are not claimed on both the Form 433-A and the Form 433-B.
4. Compensation to Corporate Officers — Wages and/or other compensation paid to corporate officers in excess of applicable expenses allowable per National and Local standards should generally not be allowed as business expenses.
5. Stock Holder Distributions and Repayment of Loans to Officers — These expenses are discretionary in nature. Distributions of this nature made after the incurrence of the employment tax delinquency should be factored into the RCP analysis as dissipated assets. Loans to officers should be considered an account receivable and valued according to their collectibility.
6. Potential Recovery of "Priority Taxes" — Trust fund tax plus associated interest is classified as a "priority tax" in the U.S. Bankruptcy code. As such this tax must be paid in full, in a Chapter 11 or 13 payment schedule. If it is probable that the taxpayer will file a Chapter 11 or 13 if the offer is returned or rejected, then an offer should not be considered for less than what would be recovered through the bankruptcy proceeding.
7. Field Visits to Evaluate Business Assets — A field call may be made to validate the existence and value of business assets and inventory for all offers involving an operating business and that will be recommended for acceptance. The offer specialist should make the call, if practical, or initiate an Other Investigation to request that a call be made by another RO if the taxpayer operates in a remote location.
Note:
Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
5.8.4.13.2 (09-23-2008)
Trust Fund Liabilities
1. Before an offer to compromise trust fund tax will be investigated, for entities in which the trust fund recovery penalty is applicable (in business or out of business) all the issues outlined in IRM 5.8.4.13.1 above should be considered. In addition, as a prerequisite, the trust fund portion of the taxes must be paid, the TFRP must be assessed against all responsible persons, or the trust fund package forwarded for assessment.
2. It is the Service's policy that the amount offered to compromise a liability subject to assertion of the TFRP will represent what can be collected from the employer. If the Service enters into a compromise with an employer for a portion of the trust fund tax liability, the remainder of the trust fund taxes may still be collected from a responsible person pursuant to Section 6672 of the Internal Revenue Code.
3. Revenue officers have two options when they negotiate with the entity principals. This applies to trust fund liabilities in status 26, with any unpaid trust fund amount still within the TFRP Assessment Statute Expiration Date (ASED). They are:
• If the entity wishes to file an offer, generally, all responsible persons must first agree to the assessment of the TFRP. This requires the field RO to secure basic documentary evidence per LEM 5.7 to support assertion and that all responsible persons signed Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. The signing of the Form 2751 does not preclude the responsible person from challenging this assessment by paying a divisible portion of the tax, filing a refund claim and if unsuccessful, a refund suit. The responsible person should be advised of the right to file a refund claim when the From 2751 is provided to the responsible person.
• Alternatively, the responsible person(s) can personally full pay the trust fund amount on behalf of the entity. IRM 5.7.4.4 contains instructions when a responsible person chooses to pay on behalf of the entity. Failure to do either will result in a solely to delay determination if the entity files an offer. See IRM 5.8.3.19.
Note:
If extenuating circumstances are present that prevent the assessment of the TFRP against all responsible persons, the revenue officer, after consulting with a manager, may consider processing the OIC without the assessment of all potential responsible persons. For example, if a potential responsible person cannot be located. The RO may allow the OIC to be investigated if the governments interests are sufficiently protected if the other responsible persons have agreed to assessment of the TFRP.
4. Offers submitted on accounts in Status 26 before assessment of the TFRP but prior to the responsible person(s) being advised that an offer will not be considered unless the TFRP has been assessed or the trust fund paid in full. Otherwise, the offer will be returned as solely to delay collection. The assigned RO will retain the balance due case, and annotate this on From 657. The offer will be returned by COIC without input of ST 71 in accordance with the Form 657.
Note:
If the liabilities are not currently in status 26 and/or the responsible individuals were not previously advised that an offer will not be investigated unless the TFRP has been assessed or the trust fund paid, the OS will retain the offer and follow the instructions contained in IRM 5.8.4.13.2(7) below.
5. Only the amount that can be collected from the entity (including dissipated assets) will be considered in the RCP calculation of an acceptable offer. The Service will pursue collection of the TFRP assessed against the responsible person(s), unless the trust fund portion has been full paid.
Note:
A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund liabilities. Once the offer has been accepted, the funds will be applied in the governments best interest and the taxpayer no longer has the right to designate payments.
6. During initial analysis of an offer received from an entity subject to the assertion of the TFRP and involving unpaid trust fund tax the offer specialist must determine the ASED of each period and take immediate steps to protect it if expiration is imminent.
7. The following actions should be taken based on the facts of the case:
If… Then the RO will… Then the Offer Specialist will…
The TFRP has been completed and the assessment processed prior to the time the corporate offer is filed Obtain a copy of the Form 4183 and the CIS for each responsible person and proceed with the offer investigation Document this fact in the ICS history and on the Form 657 submitted with the offer
The account is in status 26, the TFRP has not been assessed, but the taxpayer was advised that an offer will not be investigated until the TFRP is assessed or full paid and submitted an OIC anyway Forward the case to COIC with a Form 657 requesting the case be returned as solely to delay Return the case as solely to delay
The account is not in status 26 and/or the responsible person(s) were not previously advised that an offer will not be investigated until the trust fund is paid or the TFRP assessed Retain the offer. Generate an Other Investigation (coded 100) to the field for completion of the TFRP. Coordinate with the RO to ensure the TFRP is assessed or trust fund portion fully paid by the responsible person(s).
Note:
A formal appeal of the proposed TFRP will result in return of the offer as solely to delay. Complete the TFRP investigation using an Other Investigation (coded 100) The Other Investigation should be completed in 90 days
The ASED has expired without any TFRP assessment Annotate the expiration in the case history and continue processing the offer determining only the corporation’s RCP. Prepare an expired statute notification and submit to the OIC group manager for processing.
8. In the situation where the amount offered by a corporation combined with the payments already made on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax periods:
A. Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP accounts to the related corporation liability.
B. Complete and process Form 3870 to accomplish the credit transfer.
C. Secure full payment of the balance due from the corporation.
D. Secure a withdrawal of the offer.
Note:
The above situation should be rare. If the combined payments made on the related TFRP assessments exceed the total employment tax liability of the corporation, then the accounting transactions completed by the campus should have posted the related payments to all accounts.
5.8.4.13.3 (09-23-2008)
Partnership Liabilities
1. Partnership employment tax liabilities are not "joint and several" as are joint income tax assessments. The Service's ability to collect from the partners is based on state law.
2. When a partnership liability is compromised for any individual general partner our ability to collect from all other general partners may be affected. Therefore, the amount offered to compromise a partnership tax liability must include what we can collect from the partnership plus what can be collected from each of the general partners. No offer should be accepted to compromise only one partners individual liability for the partnership debt.
3. When investigating partnership offers a CIS should be secured from the partnership and from all general partners. The RCP for the partnership must equal what could be collected from the partnership plus what could be collected from all general partners. Generally, an offer based on DATC from a partnership will not be accepted when the RCP of one or more of the general partners cannot be determined. When it is not possible to secure a CIS from one or more of the general partners, because they cannot be located or they refuse to cooperate or join in the offer, the offer may still be accepted if the investigation is able to establish that there is no collection potential from the non-participating partners.
5.8.4.13.4 (09-23-2008)
Child Support Obligations
1. While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise them. These accounts are identified on the Non-Master-File with a MFT code of 59.
2. If a taxpayer proposes a compromise that includes a child support liability, Service employees should request that the offer be amended to remove the child support obligation. If the offer is acceptable it can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be rejected using the public policy reason and the open paragraph stating that "We do not have authority to compromise child support obligations" .
5.8.4.14 (09-23-2008)
Concluding the Offer Investigation
1. Once the RCP has been calculated, immediate action should be taken to bring the case to closure. See IRM 5.8.4.7.3 above for time frames within which closing actions must be taken.
Exhibit 5.8.4-1 (09-23-2008)
Asset/Equity Table (AET)
Asset Equity Table – A table listing all the taxpayers assets, encumbrances, and exemptions. It then calculates the equity which is included in the reasonable collection potential (RCP) calculation.
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Exhibit 5.8.4-2 (09-23-2008)
Income/Expense Table (IET)
Income/Expense Table – A table that lists the income and expenses both claimed and allowed for purposes of calculating reasonable collection potential (RCP).
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Exhibit 5.8.4-3 (09-23-2008)
Offer in Compromise Recommendation Report
Form 657 is a report used to refer an OIC for consideration from a field Collection RO.
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Exhibit 5.8.4-4 (09-23-2008)
Expedite Processing - Processability Determination
This document is used by COIC only as a cover sheet to notify Appeals upon processability determination.
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Exhibit 5.8.4-5 (09-23-2008)
Expedite Processing - Notification of Preliminary Case Decision
This document is a cover sheet used by COIC to ship the case to Appeals upon preliminary case decision.
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5.8.5 Financial Analysis
• 5.8.5.1 Overview
• 5.8.5.2 Ability to Pay
• 5.8.5.3 Verification
• 5.8.5.4 Equity in Assets
• 5.8.5.5 Dissipation of Assets
• 5.8.5.6 Future Income
• 5.8.5.7 Payment Terms
• Exhibit 5.8.5-1 Deferred Payments Limited by Short Statute
• Exhibit 5.8.5-2 Deferred Payments Limited by Small Amount Due
• Exhibit 5.8.5-3 Deferred Payments Limited by Application of Payment From Equity in Assets
5.8.5.1 (09-23-2008)
Overview
1. This chapter provides instructions for analyzing the taxpayer's financial condition to determine RCP. IRM 5.15, Financial Analysis Handbook, provides information on analyzing and verifying of financial information and should be used in conjunction with this section.
5.8.5.2 (09-23-2008)
Ability to Pay
1. The ability to pay determination should be made on the liability(s) due prior to the application of TIPRA payments. If using Decision Point, the automated calculation should be run from the MFT screen on AOIC. Do not update the MFT screen on AOIC to current K-Data using IDRS command code INTST until this calculation has been run. If the MFT screen on AOIC has been updated, a manual computation must be completed.
2. A current IDRS or K-Data print showing the original liability(s) should be included in the case file.
5.8.5.3 (09-23-2008)
Verification
1. A thorough verification of the taxpayer's CIS, Form 433-A and/or Form 433-B involves reviewing information available from internal sources and requesting the taxpayer provide additional information or documents that are necessary to determine RCP.
As a general rule, requests for a real estate appraisal should not be requested from a taxpayer when the information would not be necessary, and/or is readily available from other internal sources. These types of requests should be tailored to the specific taxpayer situation.
2. Collection issues that have been previously addressed during a balance due investigation by field personnel will not be re-examined unless there is convincing evidence that such reinvestigation is absolutely necessary. It is expected that the results of a previous collection investigation will be used and only supplemented when necessary to make a determination on an OIC. Investigative actions that are less than 12 months old may be used to evaluate the OIC, unless the taxpayer indicates there has been a material change or there is evidence indicating his financial situation has changed in the intervening months.
Example:
If a Revenue Officer has completed a full CIS analysis, including verification of assets, income, and expenses, and has made a determination of the fair market value (FMV) of assets, equity in assets and monthly ability to pay, this information should not be reinvestigated. The OI should use the RO's determinations to calculate RCP. If the balance due case file does not provide documentation to indicate the source of the offer amount, the taxpayer will be contacted to determine the source of the offer funds
5.8.5.3.1 (09-23-2008)
Internal Sources
1. Verify as much of the CIS as possible through internal sources.
2. When internal locator services are not available or indicate a discrepancy, request that the taxpayer provide reasonable information necessary to support the CIS.
3. A full credit report should be requested prior to accepting an offer when the current balance due exceeds $100,000.
4. Regardless of the amount of the liability, the following information sources may be considered:
Internal Sources Review
ENMOD and INOLES Identify cross reference TINs for related business activity not declared on the CIS.
SUMRY, IMFOL and BMFOL Verify full compliance.
RTVUE (IMF) or copy of the last filed income tax return • Compare the amount of reported income to that declared on the CIS.
• Identify past sources of income: Schedule B — interest and dividends; Schedule C — self-employment income; Schedule D — capital gains or losses; Schedule E — rental or other investment income, net operating loss deduction; Schedule F — farm income.
IRPTRO and/or copy of older year income tax returns • Compare real estate tax and mortgage interest deductions to the amounts declared on the CIS. Higher amounts may indicate present or past real property ownership not declared on the CIS. Lower amounts may indicate property has been recently sold or transferred.
• Identify accounts not reported on the CIS, such as certificates of deposit or investment accounts.
• Verify sources of income, such as employers, bank accounts, and retirement accounts.
• Identify recently transferred or disposed of assets.
BRTVUE (BMF) or copy of last filed income tax return • Compare the amount of reported income to that declared on the CIS.
• Compare the value of assets and the amount of reported depreciation to the asset values declared on the CIS.
State Motor Vehicle Records Identify motor vehicles registered to the taxpayer but not declared on the CIS. Also check for ownership in business names.
Real Estate Records • Identify real property titled to the taxpayer but not declared on the CIS.
• Identify property held by transferee, nominee, or alter ego. Also check for ownership in business names.
Credit Bureau Report • Identify past residences and employers.
• Verify competing lien holders, balances due and payment history.
• Identify property not listed on CIS.
5.8.5.3.2 (09-23-2008)
Taxpayer Submitted Documents
1. Collection Information Statements submitted with an OIC should reflect information no older than the prior six months. If during the processing of the offer, the financial information becomes older than 12 months, contact should be made with the taxpayer to update the information.
2. In certain situations, information may become outdated due to significant processing delays caused by the Service and through no fault of the taxpayer. In those cases, it may be appropriate to rely on the outdated information if there is no indication the taxpayer's overall situation has significantly changed. Judgment should be exercised to determine whether, and to what extent, updated information is necessary. If there is any reason to believe the taxpayer's situation may have significantly changed, secure a new CIS.
3. Do not make a blanket request for information that would include such items as real estate appraisals, or information that is not necessary based on the financial statement or taxpayer’s facts and circumstances. Requests for financial information should be tailored to the taxpayer’s specific situation. Do not require the taxpayer to provide information that is available from internal sources, or information that would have no impact on the case resolution.
4. Offer Investigators may receive offers (other than those identified by the "Screen for Obvious Full Pay" process) where the taxpayers have not provided, either proof of payment for certain monthly expenses claimed on the Form 433-A or statements showing current real estate mortgage or motor vehicle loan balance. Often the taxpayers are not actually paying claimed expenses, or they are not allowable under offer program guidelines.
Example:
Taxpayers frequently list their unsecured credit card bills under "secured debt" or other expenses. While a taxpayer may have a liability for a court ordered judgment that is senior to the NFTL, unless the taxpayer is actually making payments on that liability, it is not considered as an allowable monthly expense.
5. If a taxpayer does not substantiate claimed expenses for Form 433-A categories of court ordered payments, child/dependent care, life insurance, other secured debt, or other expenses OI will complete the IET assuming that the taxpayer is not making any payments for the particular unsubstantiated expense. However, substantiation of claimed health cases expenses of less than the allowable standard is not required.
6. When computing equity in real estate or allowable motor vehicles, and the taxpayer has not submitted substantiation of loan balances claimed on the Form 433-A, OI's should request a credit report and use the loan balance information to determine the current balances of any relevant loans from commercial lenders. If the loan is from a private source, it may be necessary to contact the taxpayer/representative for the information.
7. If not present in the file when assigned for investigation, appropriate documentation from the chart below should be requested to verify the information on the CIS.
Taxpayer Documentation Review
Wage Earner — wage statements for the prior three months or a current statement with current year–to–date figures • Compare average earnings to the income declared on the CIS.
• Verify adequate tax withholding.
• Identify payroll deductions to ensure the expense is necessary and not claimed again on the CIS.
• Identify deductions to savings accounts, credit union accounts, or retirement accounts.
Self-employed — proof of gross income (invoices, accounts receivable, commission statements, etc.) for the prior three months • Compare average earnings to the income declared on the CIS.
• Identify deductions to ensure the expense is necessary and not claimed again on the CIS.
Three current months of bank statements that show the monthly transactions, withdrawals, and deposits.
Note:
Current is defined as 3 months as of the date the Form 656 was signed. Not the date the Form 656 was received. Compare deposit amounts to income reported on the tax return and CIS. Question deposits that exceed reported income and unusual expenses paid. Consider asking for the cancelled checks and deposit items for a specified time frame if questionable items cannot be adequately explained.
Retirement account statements and brochures, brokerage account statements, securities, or other investments Identify the type, conditions for withdrawal, and current market value.
Life insurance policies • Identify the type, conditions for borrowing or cancellation, and the current loan and cash values.
• Verify the amount of the required premiums and ensure payments are being made.
Motor vehicle purchase or lease contracts, statements from the lender indicating the payoff amount Verify equity and monthly payment expense.
Real estate warranty deeds, mortgage deeds, HUD closing statements, statements from the lender indicating the pay off amount Identify the type of ownership, amount of equity, and monthly payment expense.
Homeowners or renters insurance policies and riders • Compare the insured value to the value declared on the CIS.
• Identify high value personal items such as jewelry, antiques or artwork.
Financial statements recently provided to lending institutions or others Compare the financial information on the CIS to those submitted to other lending institutions.
Divorce court orders Verify disposition of assets in the property settlement.
Court orders for child support and proof of payment Verify responsibility for child support, that the payments are actually being made, and the length of time payments are required to be made. A copy of the court order is not critical or required if the taxpayer does not provide supporting documentation that payments are being made. In those cases, the payment will be disallowed as an expense. If the payment is to be allowed, a copy of the Court Order must be secured.
5.8.5.4 (09-23-2008)
Equity in Assets
1. Proper asset valuation is essential to determine RCP.
2. Field calls may be made to locate or personally ascertain the condition of assets.
3. Assets should not be eliminated or valued at zero dollars simply because the Service may choose not to take enforcement action against the asset. However, special circumstances should be taken into consideration when making the offer determination.
5.8.5.4.1 (09-23-2008)
Net Realizable Equity
1. For offer purposes, assets are valued at net realizable equity (NRE). Net realizable equity is defined as quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien.
2. QSV is defined as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short period of time, usually 90 calendar days or less. Generally, QSV is an amount less than fair market value (FMV) but greater than forced sale value (FSV). FSV is defined as no less than 75% of FMV.
3. Normally, QSV is calculated at 80% of FMV. A higher or lower percentage may be applied in determining QSV when appropriate, depending on the type of asset and current market conditions. If, based on the current market and area economic conditions, it is believed that the property would quickly sell at full FMV, then it may be appropriate to consider QSV to be the same as FMV. This is occasionally found to be true in real estate markets where real estate is selling quickly at or above the listing price. As long as the value chosen represents a fair estimate of the price a seller could get for the asset in a situation where the asset must be sold quickly (usually 90 calendar days or less) then it would be appropriate to use a percentage other than 80%. Generally, it is the policy of the Service to apply QSV in valuing property for offer purposes.
4. When a particular asset has been sold (or a sale is pending) in order to fund the offer, no reduction for QSV should be made. Instead, verify the actual sale price, ensuring that the sale is an arms length transaction, and use that amount as the QSV. A reduction may be made for the costs of the sale and the expected current year tax consequence to arrive at the NRE of the asset.
5.8.5.4.2 (09-23-2008)
Jointly Held Assets
1. When taxpayers submit separate offers but have jointly owned assets, allocate equity in the assets equally between the owners. However:
If… Then…
The joint owners demonstrate their interest in the property is not equally divided Allocate the equity based on each owner's contribution to the value of the asset.
The joint owners have joint and individual tax liabilities included in the offer investigation Apply the equity first to the joint liability and then to the individual liability.
2. See IRM 5.8.5.4.11(4) below for the treatment of assets held as tenancies by the entirety.
5.8.5.4.3 (09-23-2008)
Income-Producing Assets
1. When investigating the RCP for an offer that includes business assets, an analysis is necessary to determine if certain assets are essential for the production of income. When it has been identified that an asset or a portion of an asset is necessary for the production of income, it may be appropriate to adjust the income or expense calculation for that taxpayer to account for the loss of income stream if the asset was either liquidated or used as collateral to secure a loan to fund the offer.
2. When valuing income-producing assets:
If… Then…
There is no equity in the assets There is no adjustment necessary to the income stream.
There is equity and no available income stream (i.e. profit) produced by those assets There is no adjustment necessary to the income stream. Consider including the equity in the asset in the RCP.
There are both equity in assets that are determined to be necessary for the production of income and an available income stream produced by those assets • Compare the value of the income stream produced by the income producing asset(s) to the equity that is available.
• Determine if an adjustment to income or expenses is appropriate.
An asset used in the production of income will be liquidated to help fund an offer Adjusting the income to account for the loss of the asset.
A taxpayer borrows against an asset that is necessary for the production of income, and devotes the proceeds to the payment of the offer Consider the effect that loan will have on future expenses and the future income stream.
The taxpayer is either unable or unwilling to secure a loan on the equity in income producing assets • Compare the equity in the assets with the income produced by those assets.
• Determine if an adjustment to income stream is appropriate to account for the potential loss of the assets.
3. These considerations should be fully documented in the case history. For example:
If… Then…
A self-employed construction tradesman sells a truck, which he used to haul materials, and devotes the proceeds to the offer Consider allowing the expected cost of delivery services as a business expense.
A tradesman borrows against the truck instead of selling it and devotes the proceeds to the offer Consider allowing the loan repayment as a business expense.
A loan cannot be secured and loss of the truck would create an economic hardship When special circumstances warrant acceptance of less than RCP, document the circumstances and recommend acceptance to the authorized official in Delegation Order No. 5-1.
An outside salesman has a luxury car when all that is necessary is a moderate value sedan The equity should be included in the offer. Consider allowing only a portion of the loan repayment that would be required to purchase a moderate value replacement vehicle.
An outside salesman has a luxury car but no ability to make installment payments for purchase of a moderate value replacement vehicle The equity should be included in the offer. When special circumstances warrant acceptance of less than the RCP, document the circumstances and recommend acceptance to the authorized official in Delegation Order No. 5-1. Determine the acceptable amount of a special circumstances offer by allowing the taxpayer to retain only enough equity to purchase a moderate value replacement vehicle.
A business owns a vacation property, which is used for annual board meetings. The equity should be included in the offer. Do not allow any loan repayment.
5.8.5.4.4 (09-23-2008)
Assets Held By Others as Transferees, Nominees, or Alter Egos
1. A critical part of the financial analysis is to determine what degree of control the taxpayer has over assets and income in the possession of others. This is especially true when the offer will be funded by a third party.
2. When these issues arise, apply the principles in IRM 5.17.1 or request a Counsel opinion.
3. It is not necessary to actually seek or obtain any specific legal remedy in order to address these issues in an offer.
4. If the taxpayer has a beneficial interest in the asset or income stream, then the value should be reflected in the RCP.
5.8.5.4.5 (09-23-2008)
Cash
1. Review checking account statements over a reasonable period of time (generally three months).
• Determine if there are funds in the account that are not spent on a monthly basis. Generally, this would be the amount reflected on each month's statement when the account is at its lowest point.
• Treat overdrafts as a zero balance.
• Average the lowest daily ending balance on each of the three statements and use this amount as the value of the account.
• If the statements reflect an amount that is not spent, this amount will be added to the AET as an asset, however, it cannot be valued for less than zero.
Note:
This should represent any amount available in the account each month after alldeposits and withdrawals have been allowed.
2. Determine the taxpayer's interest in bank accounts by ascertaining the manner in which they are held and applying the principles described in IRM 5.17.1.
3. If analysis of the bank statements or discussions with the taxpayer reveal that an adjustment to the balance is appropriate based on unusual expenses that are necessary for the production of income or the health and welfare of the taxpayer or their family, consider adjusting the balance. The case file should clearly document these determinations.
4. Analyze the statement for any unusual activity, such as deposit in excess of reported income, withdrawals, transfers, or checks for expenses not reflected on the CIS. The OI should question these inconsistencies, as appropriate.
5. Review savings accounts statements over a reasonable period of time, generally three months.
• If the account has little withdrawal activity, use the ending balance on the latest statement as the asset value for the AET.
• If it is apparent that the account is used for paying monthly living expenses, treat it as a checking account and follow the instructions in paragraphs (1) through (4) above to determine its value.
6. If analysis of the bank statement reveals large amounts of recently expended funds, see IRM 5.8.5.5 below for a full discussion of the treatment of dissipated assets.
7. If the taxpayer offers the balances of accounts to fund the offer, allow for any penalty for early withdrawal and the expected current year tax consequence.
8. Verify whether deposits in escrow or trust accounts are actually held for the benefit of others.
9. For funds on deposit with the OIC, allow as an encumbrance any amount borrowed under the provision that, if the offer is not accepted, it must be repaid.
5.8.5.4.5.1 (09-23-2008)
Treatment of TIPRA Payments When Conducting Cash Analysis
1. Do not include any TIPRA payments (lump sum or periodic) as a separate asset on the AET.
2. Subtract all TIPRA payments (lump sum or periodic) from the RCP to yield the net remaining offer amount.
3. Include any deposits as an asset on the AET.
Note:
Deposits are refundable, and must be considered an asset. However, deposits designated as a payment of tax will not be considered an asset.
4. Payments in excess of any required TIPRA payment(s) are treated as a tax payment, and will not be included on the AET, unless designated as a deposit by the taxpayer.
5.8.5.4.6 (09-23-2008)
Securities
1. Financial securities are considered an asset and their value should be determined and included in the RCP when investigating an offer.
2. When the taxpayer will liquidate the investment to fund the offer, allow any penalty for early withdrawal and the current year tax consequence.
3. To determine the value of publicly traded stock, research a daily paper or inquire with a broker for the current market price. Then, allow for the estimated costs of the sale to arrive at the QSV.
4. To determine the value of closely held stock that is either not traded publicly or for which there is no established market, consider the following methods of valuing the company and assign a portion of the company's value to the taxpayer's stock:
• Secure and verify a CIS.
• Review recent year's annual report to stockholders.
• Review recent year's corporate income tax returns.
• Request an appraisal of the business as a going concern by a qualified and impartial appraiser.
5. When a taxpayer holds only a negligible or token interest, has made no investment and exercises no control over the corporate affairs, it is permissible to assign no value to the stock.
5.8.5.4.7 (09-23-2008)
Life Insurance
1. Life insurance as an investment (e.g., whole life) is not considered necessary. However, reasonable premiums for term life policies may be allowed as a necessary expense.
2. When determining the value in a taxpayer's insurance policy, consider:
If… Then…
The taxpayer will retain or sell the policy to help fund the offer Equity is the cash surrender value.
The taxpayer will borrow on the policy to help fund the offer Equity is the cash loan value less any prior policy loans or automatic premium loans required to keep the contract in force.
5.8.5.4.8 (09-23-2008)
Retirement or Profit Sharing Plans
1. Funds held in a retirement or profit sharing plan are considered an asset and must be valued for offer purposes.
2. Contributions to voluntary retirement plans are not a necessary expense. Review of the retirement plan document is generally necessary to determine the taxpayer's benefits and options under the plan.
3. When the taxpayer will liquidate the retirement plan to fund the offer, allow any penalty for early withdrawal and the current year tax consequence.
4. When determining the value of a taxpayer's pension and profit sharing plans consider:
If… And… Then…
The account is an Individual Retirement Account (IRA), 401(k), or Keogh Account The taxpayer is not retired or close to retirement Equity is the cash value less any expense for liquidating the account and early withdrawal penalty.
The account is an Individual Retirement Account (IRA), 401(k), or Keogh Account The taxpayer is retired or close to retirement • Equity is the cash value less any expense for liquidating the account and early withdrawal penalty.
• The plan may be considered as income, if the income from the plan is necessary to provide for necessary living expenses.
The contribution to a retirement plan is required as a condition of employment The taxpayer is able to withdraw funds from the account Equity is the amount the taxpayer can withdraw less any expense associated with the withdrawal
The contribution to an employer's plan is required as a condition of employment The taxpayer is unable to withdraw funds from the account but is permitted to borrow on the plan Equity is the available loan value.
Any retirement plan that may not be borrowed on or liquidated until separation from employment The taxpayer is retired, eligible to retire, or close to retirement Equity is the cash value less any expense for liquidating the account and early withdrawal penalty, or consider the plan as income if the income from the plan is necessary to provide for necessary living expenses.
The plan may not be borrowed on or liquidated until separation from employment The taxpayer is not eligible to retire until after the period for which we are calculating future income The plan has no equity.
The plan includes a stock option The taxpayer is eligible to take the option Equity is the value of the stock at current market price less any expense to exercise the option.
5.8.5.4.9 (09-23-2008)
Furniture, Fixtures, and Personal Effects
1. The taxpayer's declared value of household goods is usually acceptable unless there are articles of extraordinary value, such as antiques, artwork, jewelry, or collector's items. Exercise discretion in determining whether the assets warrant personal inspection.
2. There is a statutory exemption from levy that applies to the taxpayer's furniture and personal effects. This exemption amount is updated on an annual basis.
Note:
This exemption applies only to individual taxpayers.
3. When determining the value consider the following:
If… Then…
The taxpayer qualifies as head of household, single, or married Grant a reduction in the value of personal effects for the levy exemption amount.
The property is owned jointly with any person who is not liable for the tax Determine the value of the taxpayer's proportionate share of property before allowing the levy exemption.
Some of the furniture or fixtures are used in a business They are not personal effects, but they may qualify for the levy exemption as tools of a trade.
5.8.5.4.10 (09-23-2008)
Motor Vehicles, Airplanes, and Boats
1. Equity in motor vehicles, airplanes, and boats must be determined and included in the RCP. The general rule for determining NRE, as discussed in IRM 5.8.5.4.1 above, applies when determining equity in these assets. Unusual assets such as airplanes and boats may require an appraisal to determine FMV, unless the items can be located in a trade association guide. The case file should document how the values were determined.
2. It is not necessary to personally inspect automobiles used for personal transportation. When it appears reasonable, accept the taxpayers stated value. For these vehicles, consult a trade association guide. In most cases, the vehicle will be discounted for the FMV to 80% to arrive at the QSV.
3. When these assets are used for business purposes, they may be considered income producing assets. See IRM 5.8.5.4.3 above for a full discussion on the treatment of income producing assets.
5.8.5.4.11 (09-23-2008)
Real Estate
1. Equity in real estate is included when calculating the taxpayer's RCP in an acceptable offer amount.
2. When determining equity in real estate, the FMV of the property must be established. FMV is defined as the price at which a willing seller will sell and a willing buyer will pay for the property, given time to obtain the best and highest possible price. The following methods may be used to establish FMV:
• Recent purchase price or an existing contract to sell
• Recent appraisals
• Real estate tax assessment
• Market comparable
• Homeowner's insurance replacement cost
3. Once the FMV of real estate is established, a determination regarding a reduction of value for offer purposes must be made. Procedures outlining reduction to QSV are discussed in IRM 5.8.5.4.1 above. If the value of real estate is reduced beyond 80% or if FMV is not reduced to QSV, document the basis for the value used.
4. For real estate and other related property held as tenancies by the entirety when the tax is owed by only one spouse, the taxpayer's portion is usually 50% of the property's NRE.
5.8.5.4.12 (09-23-2008)
Accounts and Notes Receivable
1. Accounts and notes receivable are considered assets unless a determination is made to treat them as part of the income stream when they are required for the production of income. When it is determined that liquidation of a receivable would be detrimental to the continued operation of an otherwise profitable business, it may be treated as future income.
2. To determine the value of accounts receivable:
A. When the receivables have been sold at a discount or pledged as collateral on a loan, apply the provisions of IRC 6323(c) to determine the lien priority of commercial transactions and financing agreements.
B. Closely examine accounts of significant value that the taxpayer is not attempting to collect, or that are receivable from officers, stockholders, or relatives.
3. To determine the value of a note receivable, consider the following:
• Whether it is secured and if so by what asset(s).
• What is collectible from the borrower.
• If it could be successfully levied upon.
5.8.5.4.13 (09-23-2008)
Inventory, Machinery, and Equipment
1. Inventory, machinery, and equipment may be considered income producing assets. See IRM 5.8.5.4.3 above when it is determined that liquidation of these assets would be detrimental to the continued operation of an otherwise profitable business.
2. To determine the value of business assets, use the following:
• For assets commonly used in many businesses, such as automobiles and trucks, the value may be easily determined by consulting trade association guides.
• For specialized machinery and equipment suitable for only certain applications, consult a trade association guide, secure an appraisal from a knowledgeable and impartial dealer, or contact the manufacturer.
• When the property is unique or difficult to value and no other resource will meet the need, follow local procedure to request the services of an IRS valuation engineer.
• Consider asking the taxpayer to secure an appraisal from a qualified business appraiser.
3. There is a statutory exemption from levy that applies to an individual taxpayer's tools used in a trade or business. This exemption for tools of the trade generally does not apply to automobiles. The levy exemption amount is updated on an annual basis.
5.8.5.4.14 (09-23-2008)
Business as a Going Concern
1. Evaluation of a business as a going concern, is sometimes necessary when determining RCP of an operating business owned individually or by a corporation, partnership, or LLC. This analysis recognizes that a business may be worth more than the sum of its parts, when sold as a going concern.
2. To determine the value of a business as a going concern consider the value of assets, future income, and intangible assets such as:
• Ability or reputation of a professional
• Established customer base
• Prominent location
• Well known trade name, trademark, or telephone number
• Possession of government licenses, copyrights, or patents
Generally, the difference between what an ongoing business would realize if sold on the open market as a going concern and the traditional RCP analysis is attributable to the value of these intangibles.
3. Request the assistance of an IRS valuation engineer when a difficult or complex valuation is necessary.
4. When determining RCP for an individual taxpayer who has an interest in a business entity, flexibility should be used with consideration given to the taxpayer's control over the business.
5.8.5.5 (09-23-2008)
Dissipation of Assets
1. During an offer investigation it may be discovered that assets (liquid or non liquid) have been sold, gifted, transferred, or spent on non-priority items or debts and are no longer available to pay the tax liability. This section discusses treatment of the value of these assets when considering an OIC.
Note:
The scope of an offer investigation should not be expanded beyond the requirements defined in IRM 5.8.5.4, for the sole purpose of attempting to locate dissipated assets.
2. Once it is determined that a specific asset has been dissipated, the investigation should address whether the value of the asset, or a portion of the value, should be included in an acceptable offer amount.
3. Inclusion of the value of dissipated assets must clearly be justified in the case file and documented on the ICS or AOIC history, as appropriate. A determination that assets were dissipated should include an analysis of the following facts:
• When the asset(s) were dissipated in relation to the offer submission.
• When the asset(s) were dissipated in relation to the liability.
• How the asset was transferred.
• If the taxpayer realized any funds from the transfer of assets.
• How any funds realized from the disposition of assets were used.
• The value of the assets and the taxpayer's interest in those assets.
4. When the taxpayer can show that funds have been spent to provide for necessary living expenses, these amounts should not be included in the reasonable collection potential (RCP) calculation.
Example:
(1) Dissolving an IRA account to pay for necessary living expenses during unemployment; (2) Using bank accounts to pay for medical expenses; (3) Disposing of an asset and using the funds to purchase another asset that is included in the offer evaluation.
5. If the investigation clearly reveals that assets have been dissipated with a disregard of the outstanding tax liability, consider including the value in the RCP calculation.
Example:
Dissipated Assets that may result in an increase to the RCP calculation:
• Dissolving an IRA account to pay unsecured credit card debt
• Sale of real estate and "gifting" the funds from the sale to family members.
• A recent refinancing of equity in property and using the funds to pay unsecured debt.
6. The value of dissipated assets should not automatically be included in the calculation of the RCP. Each particular case must be evaluated on its own merit, and meeting the facts stated in paragraph (3) above.
7. If the tax liability did not exist prior to the transfer or the transfer occurred prior to the taxable event giving rise to the tax liability, generally, a taxpayer cannot be said to have dissipated the assets in disregard of the outstanding tax liability.
Example:
If a taxpayer withdraws funds from an IRA to invest in a business opportunity but does not have any tax liability prior to the withdrawal, the funds were not dissipated.
8. If the taxpayer does not provide information showing the disposition of funds from transferred assets, consider including all of these amounts in an acceptable offer amount.
5.8.5.6 (09-23-2008)
Future Income
1. Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. The number of months used depends on the payment terms of the offer.
A. For Lump Sum Cash offers:
If… Then…
The offer is to be paid in 5 months or less Project for the next 48 months or the statutory period, whichever is less
The offer is payable in 5 to 24 months Project for the next 60 months or the statutory period, whichever is less
The offer is payable more than 24 months Project over the remaining statutory period
B. For Short Term Periodic Payment offers — project for the next 60 months or the statutory period, whichever is less.
C. For Deferred Periodic Payment offers — project for the number of months remaining on the statutory period for collection.
2. Consider the taxpayer's overall general situation including such facts as age, health, marital status, number and age of dependents, level of education or occupational training, and work experience.
3. Retired Debts — A taxpayer's ability to pay in the future may change during the period being considered because necessary expenses may increase or decrease. Adjust the amount or number of payments to be included in the future income calculation, based on the expected change in necessary expenses.
Example:
Child support payments may stop before the future income period ends because the child turns a certain age. It is expected that these retired payments would increase the taxpayer's ability to pay.
4. Inclusion of retired debt should not be added automatically in the calculation of the RCP. The Offer Investigator should use judgment in determining whether inclusion of the retired debt is appropriate based on the facts of the case; such as special circumstances or ETA situations. In all instances, the case histories should be documented to support the inclusion or exclusion of the retired debt.
5. Some situations may warrant placing a different value on future income than current or past income indicates:
If… Then…
Income will increase or decrease or current necessary expenses will increase or decrease Adjust the amount or number of payments to what is expected during the appropriate number of months.
A taxpayer is temporarily unemployed or underemployed Use the level of income expected if the taxpayer were fully employed and if the potential for employment is apparent. Each case should be judged on its own merit, including consideration of special circumstances or ETA issues.
Example:
Underemployed – If a taxpayer is a teacher but recently moved and is currently working as a janitor until a teaching position becomes available, or has been hired and does not begin work until the school season begins, the taxpayer is considered to be currently underemployed.
A taxpayer has a sporadic employment history or fluctuating income Average earnings over several prior years. Usually this is the prior 3 years.
Note:
This practice does not apply to wage earners.
A taxpayer is elderly, in poor health, or both and the ability to continue working is questionable Adjust the amount or number of payments to the expected earnings during the appropriate number of months. Consider special circumstance situations when making any adjustments.
A taxpayer will file a petition for liquidating bankruptcy Consider reducing the value of future income. The total value of future income should not be reduced to an amount less than what could be paid toward non-dischargeable periods, or what could be recovered through bankruptcy. When considering a reduction in future income also consider the intangible value to the taxpayer of avoiding bankruptcy.
6. Below are some examples on when it is and is not appropriate to income average. Judgment should be used in determining the appropriate time to apply income averaging on a case by case basis. All circumstances of the taxpayer should be considered when determining the appropriate application of income averaging, including special circumstances and ETA considerations.
A. The examples below are instances when income averaging may or may not be appropriate.
Example:
Taxpayer is a commissioned sales person and the income varies year from year to year. It would be appropriate to income average in this case.
Example:
Taxpayer was on a fixed retirement and the spouse had not worked for over 2 1/2 years with no potential for future employment. Do not average income for the spouse's past employment.
Example:
Taxpayer had been unemployed for over a year and provided proof that Social Security Disability income was the sole source of income. Do not apply income averaging in this case.
Example:
The taxpayer was incarcerated and unable to work for the past 4 years and provided proof that a relative was paying for all expenses, including child support payments. The taxpayer had no skills or promise of work in the near future but was planning on attending trade school to improve his chances of getting a job. Do not include income prior to the incarceration. In this case, the income and expenses would be zero. Consideration should be given whether it would be in the best interest of the Government to accept the offer or reject the offer in favor of other case resolutions.
Example:
The taxpayer recently began working after several months of unemployment. Use the most recent 3 months pay statements to determine future income. Do not income average.
7. In some instances, a future income collateral agreement may be used in lieu of including the estimated value of future income in RCP. When investigating an offer where current or past income does not provide an ability to accurately estimate future income, the use of a future income collateral agreement may provide a better means of calculating an acceptable offer amount.
Future income collateral agreements should not be used to enable a taxpayer to submit an offer in a lesser amount than the current or past financial condition dictates. However, if the future is uncertain, but it is reasonably expected that the taxpayer will be receiving a substantial increase in income, it may be appropriate. See IRM 5.8.6.3.1, Future Income, for instructions on completing collateral agreements.
Example:
A taxpayer is currently in medical school; upon graduation income should increase dramatically. See IRM 5.8.6.3.1, Future Income, for instructions on completing collateral agreements.
Example:
A taxpayer recently secured a job as an attorney with a starting salary of $80,000 per year, with potential for significant increases in salary.
5.8.5.6.1 (09-23-2008)
Allowable Expenses
1. Allowable expenses consist of necessary and conditional expenses, as defined in IRM 5.15.1, Financial Analysis Handbook, and further discussed below. Once allowable expenses are determined, they are used to calculate the amount that can be collected from the taxpayer's future income. See IRM 5.8.5.6, above, for additional information on future income.
2. When determining a taxpayer’s housing and utility expense, use an amount sufficient to provide for basic living expenses. Use the amount shown in the expense standard schedules as a guideline except to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.
5.8.5.6.2 (09-23-2008)
Necessary Expenses
1. A necessary expense is one that is necessary for the production of income or for the health and welfare of the taxpayer's family. IRM 5.15.1, Financial Analysis Handbook, discusses the national and local expense standards, which serve as guidelines to provide accuracy and consistency in determining a taxpayer's basic living expenses. The standards are available on the IRS web site and are periodically updated.
2. Taxpayers are allowed the National Standard Expense amount for their family size, without questioning the amount actually spent. If the total amount claimed is more than the total allowed by the National Standards, the taxpayer must provide documentation to substantiate and justify the expenses that exceed the National Standard amounts. Fully document the reason for the exception or allowance of additional expenses.
3. Generally, the total number of persons allowed for national standard expenses should be the same as those allowed as dependents on the taxpayer's current year income tax return. There may be reasonable exceptions. Fully document the reasons for any exceptions.
Example:
Foster children or children for whom adoption is pending; Custodial parent has released dependency exemption to ex-spouse.
4. When determining a taxpayer’s housing and utility expense, use an amount sufficient to provide for basic living expenses. Use the amount shown in the expense standard schedules as a guideline unless such use results in the taxpayer not having adequate means to provide for basic living expenses. If it is determined that a standard amount is inadequate to provide for a specific taxpayers basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file. Deviations from the National Standard Expenses must be verified, reasonable, and documented in the case history.
Example:
A taxpayer with a physical disability or an unusually large family requires a housing cost that is not covered by the local standard. Require the taxpayer to provide copies of mortgage or rent payments, utility bills and maintenance costs to verify the necessary amount.
5. A deviation from the local standard should not be considered merely because it is inconvenient for the taxpayer to dispose of high value assets. In some situations, taxpayer's may be expected to make life-style choices that will facilitate collection of the delinquent tax.
6. Absent special circumstances, when determining a taxpayer’s housing and utility expense, use the amount that is claimed or the standard, whichever is less.
5.8.5.6.3 (09-23-2008)
Treatment of Non-Business Transportation Expenses
1. Transportation expenses are considered necessary when they are used by taxpayer's and their families to provide for their health and welfare and/or the production of income. Employees investigating OIC's are expected to exercise appropriate judgment in determining whether claimed transportation expenses meet these standards. Expenses that appear excessive should be questioned and, in appropriate situations, disallowed.
2. Operating Expenses — Allow the full operating costs portion of the local transportation standard, or the amount actually claimed by the taxpayer, whichever is less.
Note:
Substantiation for this allowance is not required.
3. Ownership Expenses — Expenses are allowed for purchase or lease of a vehicle.
Taxpayers will be allowed the local standard or the amount actually paid, whichever is less. Generally, auto loan or lease payments will not continue as allowed expenses after the terms of the loan/lease have been satisfied. However, depending on the age or condition of the vehicle, the complete disallowance of the ownership expense may result in a transportation expense allowance that does not adequately meet the necessary expenses of the taxpayer.
Therefore, in situations where the taxpayer owns a vehicle that is currently over six years old or has reported mileage of 75,000 miles or more, an additional monthly operating expense of $200 will be allowed per vehicle, for the collection period that remains after the loan/lease has been retired, plus the operating expense.
Example:
The taxpayer, owns a 1995 Ford Taurus, with 90,000 reported miles. The vehicle was bought used, and the auto loan will be fully paid in 30 months, at $300 per month. In this situation, the taxpayer will be allowed the ownership expense until the loan is fully paid, i.e., $300 plus the allowable operating expense of $231 per month, for a total transportation allowance of $531 per month. After the auto loan is retired in 30 months, the ownership expense is not applicable; however, at that point, the taxpayer will be allowed a $200 operating expense allowance, in addition to the standard $231, for a total operating expense allowance of $431 per month.
Example:
The taxpayer who owns a 1998 Chevrolet Cavalier with 50,000 miles, will be allowed the standard of $231 per month, plus $200 per month operating expense (because of the age of the vehicle), for a total operating expense allowance of $431 per month.
5.8.5.6.4 (09-23-2008)
Conditional Expenses
1. Conditional expenses are defined in IRM 5.15, Financial Analysis Handbook, as those that may be allowed when the tax will be paid in full by an installment agreement. within 5 years, i.e., with an installment agreement. For offer purposes, the full amount of the tax will not be collected, therefore, the rules for conditional expenses are different.
2. The one year rule which allows time for a taxpayer to adjust current expenses to meet the terms of an installment agreement is not allowed for Offers in Compromise.
3. The purchase of discretionary investments is not allowed in the calculation of the RCP.
Example:
Payroll savings plans, purchase of whole life policies, mutual funds, or voluntary retirement plan contributions.
4. Repayment of loans incurred to fund the offer and secured by the taxpayer's assets are allowed when those assets are of reasonable value and necessary to provide for the health and welfare of the taxpayer's family. The same rule applies whether the equity is paid to IRS before the offer is submitted or will be paid upon acceptance of the offer. See IRM 5.8.5.4.3, Income-Producing Assets, to determine when to allow repayment of loans on those assets used to fund the offer.
5. Repayment of student loans secured by the federal government will be allowed only for the taxpayer's post-secondary education. If student loans are owed but no payments are being made, do not allow them.
6. Education expenses will be allowed only for the taxpayer and only if it they are required as a condition of present employment. Expenses for dependents to attend colleges, universities, or private schools will not be allowed unless the dependents have special needs that cannot be met by public schools.
7. Child support payments for natural children or legally adopted dependents may be allowed, based on the taxpayer's situation, even when they are not court ordered. Regardless of whether they are court ordered, if no child support payments are being made, do not allow them.
Note:
Do not allow payments for expenses, such as college tuition or life insurance for children, made pursuant to a court order. The fact that the taxpayer may be under court order to make payments with respect to such expenses does not change the character of the expense. Therefore, that the taxpayer is under court order to provide a payment should not in the ordinary course elevate that expense to allowable status as an offer expense, when the Service would not otherwise allow it.
8. Monthly payments to state or local taxing agencies should not be allowed as a necessary expense, even if the state or local taxing agency has a lien that is senior to the IRS's lien or is collecting funds through a wage attachment or approved installment agreement. State and federal liens (regardless of priority) attach simultaneously to after-acquired-property. In general, if the federal tax lien attaches to after acquired property simultaneously with a competing perfected lien, the federal tax lien will take priority (see IRM 5.17.2.4.5, After-Acquired Property). Since future earnings of the taxpayer are after-acquired-property, the Service has first right to the earnings. Explain to the taxpayer that although the payment may be allowed in an installment agreement, where the tax will be paid in full, it will not be allowed for computation of an acceptable offer amount because the Federal government has priority rights to the funds.
Note:
State or local liens may enjoy a priority in fixed payment streams such as annuity payments. If necessary, consult with Area Counsel to determine lien priorities.
9. Generally, charitable contributions are not allowed in the RCP calculation. However, charitable contributions may be an allowable expense if they are a condition of employment or meet the necessary expense test.
Example:
A minister is required to tithe according to his employment contract. See IRM 5.15.1.10, Financial Analysis Handbook, Other Expenses.
10. Payments being made to fund or repay loans from voluntary plans will not be allowed. Taxpayer's who cannot repay these loans will have a tax consequence in the year that the loan is declared in default and that consequence should be estimated and allowed as an additional tax expense on the IET for the required number of months necessary to cover the additional tax consequence. The OI should request the taxpayer or their representative to estimate the tax ramification of the failure to re-pay the loan, or may request assistance from the Examination function or Customer Service to determine the tax consequences.
5.8.5.6.5 (09-23-2008)
Shared Expenses
1. Generally, a taxpayer will be allowed only the expenses the taxpayer is required to pay. Consideration must be given to situations where the taxpayer shares expenses with another. Shared expenses may exist in one of two situations:
1. An offer is submitted by a taxpayer who shares living expenses with another individual who is not liable for the tax.
2. Separate offers are submitted by two or more persons who owe joint liabilities and/or separate liabilities and who share the same household.
Note:
Treasury Reg. § 301.7122–1 (c) (2) (ii) (A) only applies in "not liable" and not in "partially liable" situations.
2. Generally, the assets and income of a "not liable" person are excluded from the computation of the taxpayer’s ability to pay.
Exception:
Related offers including both joint and separate liabilities. The amount of both offers should equal the total amount collectable from the shared household. IRM 5.8.5.4.2 provides that the equity in jointly owned assets should be applied first to the joint liabilities and then to the separate liabilities.
Exception:
Community property states. Follow community property laws in these states to determine what assets and income of the non-liable person are subject to the collection of tax. See IRM 25.18.1.1.2 Community Property Law.
3. The offer investigator should secure sufficient information concerning the non-liable person’s assets and income to determine the taxpayer’s proportionate share of the total household income and expenses. Review the entire household's information and:
A. Determine the total actual household income and expense.
B. Determine what percentage of the total household income the taxpayer contributes.
C. Determine allowable expense amounts using the rules in this chapter and IRM 5.15.1, Financial Analysis Handbook.
D. Determine which expenses are shared and which expenses are the sole responsibility of the taxpayer.
E. Apply the taxpayer's percentage of income to the shared expenses.
F. Verify that the taxpayer actually contributes at least this amount to the total household expense.
G. Do not allow the taxpayer any amount paid toward the other person's discretionary expenses.
4. When the taxpayer can provide documentation that income is not mingled (as in the case of roommates who share housing) and responsibility for household expenses are divided equally between co-habitants (as documented by rental agreements, bank statement analysis, etc.), the total allowable expenses should not exceed the total allowable housing standard for the taxpayer.
In this situation, it would not be necessary to obtain the income information of the other person(s). However, sufficient financial information must be secured to verify the total household expenses and prove that the taxpayer is paying his/her proportionate share. The investigating employees should exercise sound judgment in these situations to determine which approach is most appropriate, based on the facts of each case.
Example:
In the situation where the taxpayer is renting an apartment or room and the owner of the property is not the taxpayer, the rental agreement or signed statement from the owner of the property should support the decision not to require the owner to divulge any personal information regarding income or household expenses. In this case, the investigating employee should accept the information provided by the taxpayer and make a determination based on that information.
5. If an in-house verification is conducted on the not liable person, this information cannot be relayed to the taxpayer. This is not an Unauthorized Access (UNAX) violation but would be considered an unauthorized disclosure if any information is shared with the taxpayer.
5.8.5.6.6 (09-23-2008)
Calculation of Future Income
1. Generally, the amount to be collected from future income is calculated by taking the projected gross monthly income, less allowable expenses, and multiplying the difference by the number of months remaining on the statutory period for collection.
2. For lump sum cash and short term periodic payment offers, when there are less than 48 or 60 months remaining on the statutory period for collection, use the number of months remaining. To determine the amount collectible from future income on a deferred payment offer through the life of the statutory period for collection, take the following steps:
A. Subtract allowable expenses from the monthly income to determine the monthly installment amount.
B. Determine the valid CSED for each tax period included in the offer.
C. Sort the tax periods by earliest CSED.
D. For each tax period, determine the number of months remaining on the statutory period for collection. Begin with the day the offer was determined to be processable and end on the CSED. Round partial months up to the nearest whole month.
E. For each tax period, determine the number of installments that may be applied before running out of available funds. Round partial payments up to the nearest whole payment.
F. Calculate the number of installments applied to each period. For succeeding periods, do not count months on the CSED that were used for applying installments to prior periods.
G. Add the number of installments applied to all the periods and multiply the sum by the monthly installment amount to arrive at the total amount collectible from future income. For examples of situations where the amount that may be applied to a period is limited. See Exhibits 5.8.5-1 through 5.8.5-3.
5.8.5.6.7 (09-23-2008)
Deferred Payment Offer in Compromise Received After Collection Statute Expiration Date Extension
1. Taxpayers that previously extended the CSED in connection with an installment agreement may request approval of a deferred payment OIC.
2. On March 24, 1998, the Service issued procedures that limited the length of CSED extensions. See IRM 5.14, Installment Agreements, for further instruction on the policy of the Service.
3. By policy, if extensions granted prior to October 18, 1999, resulted in collection periods longer than 15 years; and a deferred payment OIC is later submitted on the balance due accounts (subject to the extension), then, for the purpose of reviewing the OIC, CSEDs are considered to be the later of the following:
• The original CSED (10 years from the tax assessment upon which the liability is based); or,
• 5 years from the date of acceptance of the OIC.
4. IDRS will not reflect any adjustments based on these procedures. Therefore, it is essential that case histories be fully documented and reflect the following statement:
"Time left prior to the CSED (per IDRS) was not used for computation of the deferred offer payment amount, per IRM 5.8.5.5.6."
Note:
These procedures do not apply to extensions up to 6 years. They only apply to CSED extensions longer than 5 years, as agreed to prior to October 18, 1999, and that were granted in conjunction with an installment agreement.
5.8.5.7 (09-23-2008)
Payment Terms
1. Payment terms are negotiable, but should provide for payment of the offered amount in the least time possible. If a taxpayer is planning to sell asset(s) to fund all or a portion of the offer, the payment terms for the offer should provide for immediate payment of the amounts received from the sale. If the taxpayer is planning to borrow a portion of the money, the OI should determine when the loan will be received and the payment terms of the offer should provide for payment of the borrowed portion at the time the funds are received.
2. For those taxpayers who agree to shorter payment terms, fewer months of future income are required:
Payment Type Payment Terms Number of Months Future Income Required
Lump Sum Cash 5 installments within 5 months 48 months or the remaining statutory period, whichever is less
Lump Sum Cash 5 installments paid in more than 5 months and less than 24 months 60 months or the remaining statutory period, whichever is less
Lump Sum Cash 5 installments paid in more than 24 months Number of months remaining on the statute
Short Term Periodic Payment Within 6 to 24 months 60 months or the remaining statutory period, whichever is less
Deferred Periodic Payment Within time remaining on the statute Number of months remaining on the statute
3. While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed installment payments as they become due. There is no requirement that the payments be made monthly or in equal amounts. However, the Service is not bound by either the offer amount or the terms. The OI may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the OI may advise the taxpayer of a larger amount or different terms that would likely be considered for acceptance.
Example:
Acceptable Payment Terms for a Short Term Periodic Payment Offer– A taxpayer submits an offer for $10,000. The IRS received date is January 1, 2007. The taxpayer's offer of $10,000 was accepted in November 2007. Therefore, the taxpayer has 24 months to complete the terms of the offer. The taxpayer pays $100 every other month for a total of 23 months. On the 24th month, January 2009, the taxpayer would then be required to pay the balance of $8,800 ($10,000 less $1,200 in installments). No adjustments to the terms would be required.
Example:
Unacceptable Payment Terms for a Short Term Periodic Payment Offer – A taxpayer submits an offer for $1,000. The IRS received date is January 1, 2007. The taxpayer has 24 months to complete the offer. The taxpayer pays $100 with the offer as the first payment. The taxpayer structures the remaining payments as follows: $100 within 90 days from written notice of acceptance; $100 by the 4th month following the date of the written notice of acceptance of the offer; $100 per month for the next 7 months thereafter for a total of $1,000 ($100 times 10 payments).
Note:
Although the taxpayer may technically structure payments in this manner, the Service is not bound by either the offer amount or the terms proposed by the taxpayer, and the offer investigator may negotiate a different offer amount or terms when appropriate. In this case, the taxpayer has proposed payment terms that may not meet the requirements of a short term payment offer, and the taxpayer should be contacted to re-negotiate the offer terms.
4. A third party source of funds may be required to make the portion of the monthly payment that is greater than we determined the taxpayer can afford from future income. Document the case history with source of the funds.
Exhibit 5.8.5-1 (09-23-2008)
Deferred Payments Limited by Short Statute
For example, the taxpayer has accrued the following tax liability:
MFT–Period CSED Liability
30-9312 07/20/2005 $29,000
30-9412 07/20/2005 $61,000
30-9512 09/27/2006 $ 8,900
30-9612 09/20/2007 $ 7,400
The offer was determined processable on May 31, 1999. The taxpayer has no equity in assets and can pay $300 per month.
MFT–Period Months on the statute Installments Due Installments Applied
30-9312 74 96 74
30-9412 74 203 0
30-9512 87 29 14
30-9612 99 24 12
Total 99
The amount collectible from future income is: $300 times 100 months = $30,000.
Exhibit 5.8.5-2 (09-23-2008)
Deferred Payments Limited by Small Amount Due
For example the taxpayer accrued the following liability:
MFT–Period CSED Liability
30-8912 07/20/2000 $100,000
30-9512 09/27/2006 $ 1,200
30-9612 09/20/2007 $ 600
The offer was determined processable on May 31, 1999. The taxpayer has no equity in assets and can pay $300 per month.
MFT–Period Months on the statute Installments Due Installments Applied
30-8912 14 333 14
30-9512 87 4 4
30-9612 99 2 2
Total 20
The amount collectible from future income is $300 times 20 months = $6,000.
Exhibit 5.8.5-3 (09-23-2008)
Deferred Payments Limited by Application of Payment From Equity in Assets
For example the taxpayer accrued the following liability:
MFT–Period CSED Liability
30-8912 07/20/2000 $30,000
30-9512 09/27/2006 $ 1,200
30-9612 09/20/2007 $ 600
The offer was determined processable on May 31, 1999. The taxpayer has $30,000 equity in assets which he will pay within 90 calendar days and can pay $300 per month which he will begin paying within 30 calendar days.
MFT–Period Months on the statute Installments Due Installments Applied
30-8912 13 0 0
30-9512 87 4 4
30-9612 99 2 2
Total 6
After applying the $30,000 payment for the equity in assets, the amount collectible from future income is $300 times 6 months = $1,800. Reasonable collection potential is $31,800.

5.8.6 Collateral Agreements
• 5.8.6.1 Overview
• 5.8.6.2 Co-obligor Agreements
• 5.8.6.3 Other Collateral Agreements
• 5.8.6.4 Multiple Agreements
• 5.8.6.5 Waiver of Refunds
• Exhibit 5.8.6-1 Co-obligor Agreement Common Law States Pattern Letter P–229 (Rev. 6-90)
• Exhibit 5.8.6-2 Co-obligor Agreement Other States Pattern Letter P–230 (Rev. 6-90)
• Exhibit 5.8.6-3 Collateral Agreement – Modification of Waiver Provisions of Compromise Agreement
• Exhibit 5.8.6-4 Form 2261-C, Collateral Agreement Waiver of Net Operating Losses, Capital Losses and Unused Investment Credits
5.8.6.1 (09-23-2008)
Overview
1. A collateral agreement enables the government to collect funds in addition to the amount actually secured by the offer or to add additional terms not included in the standard Form 656 agreement, thereby recouping part or all of the difference between the amount of the offer or additional terms of the offer and the liability compromised.
5.8.6.2 (09-23-2008)
Co-obligor Agreements
1. When a compromise is accepted from one party to a joint liability, the other party is not released from their several liability. Secure a co-obligor agreement from the taxpayer submitting the offer to clarify the effect of the compromise on the obligations of the other parties.
Note:
TFRP assessments are not joint liability assessments and do not require a co-obligor agreement.
If… Then…
The taxpayer lives in a state where acceptance of an OIC from one party to a joint assessment also releases the other party Secure the common law co-obligor agreement. See Exhibit 5.8.6-1.
The taxpayer lives in a state where the right is expressly reserved to proceed against the other taxpayer who is not a party to the compromise Secure the non-common law co-obligor agreement. See Exhibit 5.8.6-2.
The taxpayer lives in a state where acceptance of an OIC from one party to a joint assessment also releases the other party up to the amount of their proportionate share of the liability There is no co-obligor agreement available for this case. An acceptable offer should include the RCP of all the obligors. When it is impossible to investigate all the obligors, there is a risk that the full collection potential will not be collected. Such an offer must meet the criteria for acceptance on the basis of Doubt as to Collectibility with Special Circumstances (DCSC) or ETA.
Both parties have submitted separate offers which are recommended for acceptance If appropriate, the parties may submit a joint offer to eliminate the need for co-obligor agreements. Otherwise, secure a co-obligor agreement from each taxpayer.
2. A co-obligor agreement is not warranted in the following instances:
A. In a proportionate liability state, when the offer amount is equal to or exceeds the not compromising taxpayers proportionate liability.
B. No possibility exists for collecting from the other obligors.
C. Under state law, no specific reservation of collection rights is required to protect the ability to collect from co-obligors.
5.8.6.3 (09-23-2008)
Other Collateral Agreements
1. Other collateral agreements may be appropriate in certain circumstances. Because all other collateral agreements must be monitored for compliance, they should only be secured when a significant recovery is anticipated. Securing a collateral agreement should be the exception and not the rule.
2. Do not use a collateral agreement to accept an offer amount less than the taxpayers financial condition indicates.
3. In lieu of a collateral agreement, the taxpayer may increase the amount of the offer equivalent to what the government could reasonably expect to recover from the collateral agreement.
4. A collateral agreement may be appropriate in the following situations:
If the taxpayer… Then consider securing a…
Anticipates a substantial increase in future income Future income collateral agreement.
Is compromising the income tax liability of a defunct professional corporation Future income collateral agreement from the professional to collect from future individual income.
Has real or personal property that is being depreciated Collateral agreement to reduce the basis of the asset.
Has net operating losses or capital losses arising from prior years available for deduction in future years A collateral agreement to waive the loss.
Is seeking to compromise a TFRP and qualifies to take a capital loss benefit from the defunct corporation on the Form 1040 A collateral agreement from the individual taxpayer to waive the capital loss.
5.8.6.3.1 (09-23-2008)
Future Income
1. It is appropriate to consider future collateral agreements for both individuals and corporations when the investigation reveals that a substantial increase in the taxpayers future income is expected.
2. The use of a future income collateral agreement may be an option when attempting to determine a taxpayers future income for RCP purposes. When investigating an OIC where the taxpayers past income does not provide an accurate analysis for what may be earned in the future then the use of a future income collateral agreement may be a better option.
Example:
(1) The taxpayer is an engineer, but is currently employed as a salesman earning less than half of his prior salary due to difficulty he has had in obtaining a job in the engineering field at the present time; (2) The taxpayer is a student and is expected to graduate soon and begin earning a significant annual income.
3. The period of time a future income collateral agreement should cover will be determined by the circumstances identified in the offer investigation based on the taxpayers financial situation. Generally the period of time the agreement covers should coincide with the future compliance provision.
Example:
(1) If the offer terms are for a cash or short term deferred payment and based on 48 or 60 months, the future income collateral agreement should generally run for five years; (2) If the offer terms are based on deferred payments calculated through the collection statute periods, the future income collateral should generally run through the last full year before the statutory period for collection expires; (3) The offer file should document the basis for the time frame used for each collateral agreement.
4. Use the Form 2261, Collateral Agreement — Future Income (Individual), for individual taxpayers or the Form 2261–A, Collateral Agreement — Future Income (Corporation) for corporate taxpayers. The beginning year is defined as the year following acceptance of the offer. The ending year is defined as the last year for which the collateral agreement will remain in effect. The beginning dollar amount is negotiable but generally should be the amount determined necessary to meet living expenses during the term of the offer. In determining the beginning dollar amount the expected rate of inflation during the term of the agreement should be considered, as well as any additional expenses such as those for an expected additional child or a replacement auto.
5. Offers with future income collateral agreements must be approved by a second level manager. The Territory manager for the field and Department manager for COIC will indicate approval by signing the Form 7249, Offer Acceptance Report, and the acceptance letter. The Form 2261 may be signed by the authorized official in Delegation Order 42.
6. Do not secure a future income collateral agreement:
• To collect future income that should be included in the offer amount.
• Merely on unfounded speculation about an increase in income.
• To cover statistically improbable events, such as lottery winnings.
• To attempt collection from a potential inheritance.
Example:
Do not secure a future income collateral agreement when the investigation reveals that the taxpayer is the only child of wealthy parents, and the surviving parent is well advanced in years and in poor health.
7. Future income collateral agreements must be monitored annually for the life of the agreement. The cost of monitoring and the difficulty in tracing income structured through other entities should be considered when deciding whether such an agreement is warranted.
5.8.6.3.2 (09-23-2008)
Adjusted Basis of Specific Assets
1. The initial basis of an asset is equal to the cost of acquiring it. Adjustments to the basis are made each year for the cost of improvements and accumulated depreciation. When an asset is sold, the basis is used to determine the amount of capital gain to be taxed.
2. A collateral agreement may be used to reduce the basis after accumulated depreciation, or book value, of a specific asset to a lesser amount or zero. This will have two effects. It will limit or eliminate the amount of deprecation deduction allowed in future years and it will cause a higher capital gain tax to be paid if the asset is later sold for an amount more than the adjusted basis.
3. Use the Form 2261–B, Collateral Agreement — Adjusted Basis of Specific Assets. The beginning year is defined as the year after the last filed tax return. Insert the year of the last filed tax return in the phrase "for all taxable years beginning after" . Specifically describe each asset. Set the amount of the basis at the reduced or zero value.
4. Adjusted basis collateral agreements must be monitored annually until the asset is ultimately disposed of all value. Consider the cost to monitor the agreement and the difficulty in tracing the sale or exchange of the property when deciding whether such an agreement is warranted.
5.8.6.3.3 (09-23-2008)
Waiver of Losses
1. Use the Form 2261–C, Collateral Agreement —Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits. The beginning year is defined as the next year after the last filed tax return. Insert the year of the last filed tax return in the phrase "for all taxable years beginning after" . Waive net operating losses and capital losses arising from all years prior to and including the last filed tax return.
2. Do not prohibit the deduction of losses that arise in years after the offer is accepted.
3. The waiver of investment credits is obsolete.
4. Waiver of losses collateral agreements must be monitored annually until all the losses are extinguished, potentially for decades. Consider the cost to monitor the agreement and potential for recovery of future tax liabilities when deciding whether such an agreement is warranted.
5. A waiver of losses collateral agreement may be secured to partially waive a loss, if the facts of the case support this determination.
5.8.6.3.3.1 (09-23-2008)
Net Operating Loss
1. Net Operating Loss (NOL) may be incurred when expenses exceed the income of a business.
• The taxpayer must be able to prove the amount of the loss.
• Generally, losses may be carried back no more than two years and forward no more than twenty years or until all the loss is offset against taxable income.
• If the taxpayer only wishes to carry the loss forward, the taxpayer must elect to do so on a timely field return for the year of the loss, or if the original return is filed timely but no election is made on an amended return by the close of the period 6 months after the due date of the return excluding extensions.
2. When the taxpayer has claimed a NOL, determine and verify the exact origin and amount of the loss. If a taxpayer has been associated with more than one business there may be multiple losses.
When… Then…
Calculating the remainder of the NOL The loss can be located on the "other income" line or the "business loss" line on the Form 1040 and should be labeled as Net Operating Loss.
1. Determine the original loss amount claimed on the tax return.
2. Subtract any carry backs.
3. Subtract the amounts claimed on subsequent tax returns from the year the NOL was established.
5.8.6.3.3.2 (09-23-2008)
Capital Loss
1. Capital Loss is one in which the taxpayer experiences a loss associated with such investments as land, stock, paid in capital, or loans from shareholders. This loss is:
• Found on a Schedule D.
• Only offset against income or capital gain in the year in which it is incurred and the remainder carried forward at a limit of $3,000 per year against other income or;
• Offset against a capital gain in total
Example:
A taxpayer has a $100,000 loss and a $40,000 gain. The taxpayer may offset $40,000 against the gain and an additional $3,000 loss against other income leaving a $57,000 loss that may be carried forward in future years.
• Individuals may deduct $3,000 each year until the loss is extinguished with no limit on the number of years. Corporations are generally limited to 3 preceding and 5 succeeding taxable years.
2. When the taxpayer claims a capital loss, determine and verify the exact origin and amount of the loss.
If… Then…
The loss is derived from personal investment The investment can be either loans to the corporation or the individual's capital investment in the corporation.
• Verify loans through copies of checks or general journal entries that establish the loan and track repayment.
• Verify capital investment through canceled checks or other documents which support the amount of the original loan.
Determining the remaining amount of the loss once you have determined the origin Trace the loss forward through the tax return copy or RTVUE.
5.8.6.3.3.3 (09-23-2008)
Passive Loss
1. Passive Activity Loss is one that involves the conduct of any trade or business in which the taxpayer does not materially participate. This loss should not be confused with net operating loss.
• Any rental activity is a passive activity even if the taxpayer does materially participate.
• Losses from a passive activity generally cannot be deducted from other types of income (e.g., wages, interest, or dividends).
• The amount of the taxpayers allowable loss is subject to the "at-risk" rules. Generally losses are limited to the amount of the taxpayers cash contribution, adjusted basis of other property which contributes to the activity, and amounts borrowed for use in the activity if the taxpayer has personal liability for the borrowed amounts.
Note:
Refer to the current Master Tax Guide for additional information.
2. Because passive losses are not deducted from earned income, waiving them may have little or no effect. One option is to reduce the basis of the property to zero so that the taxpayer cannot carry the loss over to the tax year in which the property is sold and receive benefit of the loss against a capital gain at that time.
5.8.6.4 (09-23-2008)
Multiple Agreements
1. When related taxpayers submit more than one offer to compromise different tax liabilities secure only one collateral agreement. Describe on the collateral agreement all the offers to which it relates.
2. When more than one type of collateral agreement is secured for the same offer, the terms of all the agreements may be incorporated into one Form 2261, Collateral Agreements – Future Income (Individuals) or Form 2261–A, Collateral Agreements – Future Income Corporation. The appropriate language may be found on the Form 2261–B, Collateral Agreement – Adjusted Basis of Specific Assets, or Form 2261–C, Collateral Agreement – Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits.
Type of Agreement… Statement…
Adjusted Basis of Assets "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, the basis for certain assets, under existing law for computing depreciation and the gain or loss upon sale, exchange or other disposition shall be as follows:
Name of asset _____
Dollar amount ______
That in no event shall the basis set forth above be in excess of the basis that would otherwise be allowable for tax purposes, except for this agreement."
Waiver of Net Operating Loss "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, Any net operating losses sustained for the years before __shall not be claimed as net operating loss deductions under the provisions of Section 172 of the Internal Revenue Code."
Waiver of Capital Losses "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, Any net capital losses sustained for the years before __shall not be claimed as carryovers or carrybacks under the provisions of Section 1212 of the Internal Revenue Code."
3. If there is insufficient space on the form to insert all the necessary paragraphs simply type the paragraph numbers followed by "See Attached" and fasten a separate sheet containing the added provisions.
5.8.6.5 (09-23-2008)
Waiver of Refunds
1. Form 656 contains a term which waives refunds and overpayments for all tax years through the year the offer in compromise is accepted. This waiver is a standard term, which cannot be altered.
2. When accepting an offer based on DATL or under the basis of ETA based on public policy/equity considerations, the waiver of refunds is not applicable.
3. In order to remove the waiver of refund provision for these type of offers, both the taxpayer and the investigating employee must sign an agreement and include it with the accepted offer in compromise. See Exhibit 5.8.6-3.
Exhibit 5.8.6-1 (09-23-2008)
Co-obligor Agreement Common Law States Pattern Letter P–229 (Rev. 6-90)
Collateral Agreement—Taxpayer Involved in Joint Assessment
(For Use in States Where Common Law Rule Applies)

To: Commissioner of Internal Revenue:
I submitted an offer dated  (date) in the amount of $(amount) to compromise unpaid (Kind of tax) tax, plus statutory additions, for the tax period(s) (date(s)).
The purpose of this letter is to  amend that offer by adding the following provisions:
The (a) liability, which is the  subject of this proposed agreement, is the joint and individual responsibility of myself and my co-obligor(s). I agree to pay the United States $(amount). The United States agrees, in turn, not to:
(1) sue the undersigned for the   difference between the amount of the offer in compromise and the amount of the Iiability, or
(2) collect the difference from   assets of the undersigned by levy or any other means.
If this proposal is accepted, it does not mean that the liability or any part of the liability is settled for myself or the co-obligor(s). The United States still reserves all its rights to collect the liability from the co-obligors.

________________
Taxpayer's Signature

________________
Date
Exhibit 5.8.6-2 (09-23-2008)
Co-obligor Agreement Other States Pattern Letter P–230 (Rev. 6-90)
This is an example of a co-obligor collateral agreement.
Collateral Agreement — Taxpayer Involved in Joint Assessment
(For Use in States Where Statutes Expressly Reserve Right to Proceed Against Co-obligor)

To: Commissioner of Internal Revenue

I submitted an offer dated  (date) in the amount of $(amount), to compromise unpaid (kind of tax) tax, plus statutory additions, for the tax periods (dates).
The purpose of this letter is to  amend and clarify that offer by adding the following provision:
Although the liability sought to  be compromised is the joint and individual liability of myself and my co-obligors, I am submitting this offer to compromise my individual liability only. If this offer is accepted, it does not release or discharge my co-obligor(s) from liability. The United States still reserves all rights of collection against co-obligors.

________________
Taxpayer's Signature

________________
Date
Exhibit 5.8.6-3 (09-23-2008)
Collateral Agreement – Modification of Waiver Provisions of Compromise Agreement
This is an example of a collateral agreement modifying waiver provisions.

Collateral Agreement — Modification of Waiver Provisions of Compromise Agreement
(For Use when offer is being accepted under Detriment to Voluntary Compliance only)

To: Commissioner of Internal Revenue

I submitted an offer dated  (date) in the amount of $(amount), to compromise unpaid (kind of tax) tax, plus statutory additions, for the tax periods (dates).
The purpose of this letter is to  modify that offer by stating that Items 8(g) and (h) of the agreement, Form 656, governing refunds and overpayments, will not apply to this offer. Acceptance of this offer will in no way alter my rights to refunds of overpayment or my ability to designate an overpayment to estimated tax payments for the following year:

________________
Taxpayer's Signature
________________
Date

I accept this modification on behalf of the Internal Revenue Service:

________________
Signature of delegated official — Date
________________
Exhibit 5.8.6-4 (09-23-2008)
Form 2261-C, Collateral Agreement Waiver of Net Operating Losses, Capital Losses and Unused Investment Credits
This is a table to help with the completion of Form 2261-C.
1 — Name and Address of Taxpayer :
This must be the same as the name on address that show on the Offer Form 656 7 — line item 1 - first space
Earliest loss years which could be carried forward to the year of acceptance
2 — Social Security and Employer Identification Number:
Both need to be shown 8 — line item 1 - second space
Year offer is to be accepted
3 — In the body of the form- an offer dated:
Date the taxpayer signed the offer. If Amended then the date the taxpayer signed the offer being accepted. 9 — line item 2 - space
Year following acceptance of the offer
4 — In the body of the form-$ amount
This is the amount of the offer in Item 7. If Amended then the amount of the offer being accepted. 10 — line item 3 - first space
Earliest year of unused investment credit which could be carried forward to the year of acceptance
5 — In the body of the form-Type of tax and taxable periods
Liability identified as to the kind of tax with each year or period involved exactly stated. 11 — line item 3 - second space
Year offer is to be accepted
6 — In the body of the form-beginning after ___
Ending date of taxable year preceding the year of acceptance 12 — Signature and Title line
Waiver of statute of limitations should be signed at the earliest possible date by the investigation employee
.8.7 Return, Terminate, Withdraw, and Reject Processing
• 5.8.7.1 Overview
• 5.8.7.2 Returns
• 5.8.7.3 Return Reconsideration
• 5.8.7.4 Withdrawal
• 5.8.7.5 Termination of Consideration
• 5.8.7.6 Rejection
• 5.8.7.7 Authorization to Apply Deposit
• 5.8.7.8 Alternative Resolutions
• 5.8.7.9 Closed File Retention
5.8.7.1 (09-23-2008)
Overview
1. Offers that are not recommended for acceptance will be closed by return, rejection, withdrawal, or termination. This chapter defines the types of dispositions other than acceptance and describes the procedures for completing each type of closure.
5.8.7.2 (09-23-2008)
Returns
1. An offer can be returned as either a "not processable return" or a "processable return" . It is important to note the distinction because the collection statute is not suspended for a "not processable return" , and the $150 Application fee will be refunded.
5.8.7.2.1 (09-23-2008)
Not Processable Returns
1. Not processable returns are those returns made when upon receipt, an offer meets one or more of the "Not Processable" criteria listed in IRM 5.8.3.4.1.
Note:
This is the responsibility of the COIC sites.
5.8.7.2.1.1 (09-23-2008)
Closing an Offer as a Not Processable Return
1. See IRM 5.8.3.9 for complete procedures.
5.8.7.2.2 (09-23-2008)
Processable Returns
1. Processable returns include all returns made after the offer has been determined to be processable.
2. During the offer investigation, there are a number of situations that may result in a processable offer being returned to a taxpayer. A processable return will result in a suspension of the collection statute for the period of time that the offer was considered processable and will result in the Service keeping the $150 application fee, and applicable TIPRA payment(s). A taxpayer whose offer is closed as a return does not receive appeal rights; however different levels of approval exist for some return situations. The Service's return of an offer may be reconsidered in limited situations. See IRM 5.8.7.3 below.
3. The following chart lists the reasons a processable offer may be returned and who can authorize the return.
Reason for Return Who has delegated authority to sign the letter? See the following IRM references for additional information on the "Reason for Return"
Taxpayer failed to remain in filing or payment compliance, or an in-business taxpayer failed to make required FTDs' during investigation. Group Managers, Compliance Services Unit managers (COIC) • 5.8.3.4.1, Processability
• 5.8.3.8, Centralized Offers in Compromise Processability Determinations
• 5.8.4.7.1, Initial Offer Actions
• 5.8.4.13.2, Trust Fund Liabilities
Taxpayer filed bankruptcy during a pending investigation. Investigating PE, OE, OS 5.8.10, Special Case Processing
Tax is paid, has been abated, or no tax can be identified as owing. Investigating PE, OE, OS 5.8.3.11, Types of Perfection
Taxpayer failed to perfect offer forms necessary to process the offer for acceptance. Investigating PE, OE, OS • 5.8.3.7, Forms 656 Application Fee, TIPRA Payments, and Perfection
• 5.8.3.11, Types of Perfection
All other return reasons Group Manager in area office and Unit Manager in COIC • 5.8.3.11, Types of Perfection
• 5.8.3.15, Processing Taxpayer Responses to Combo Letters
4. Approval authority is outlined in Delegation Order No. 5-1.
5.8.7.2.2.1 (09-23-2008)
Return for Inadequate Estimated or Insufficient Withholding Tax Payments
1. A processable offer must be returned when the investigation reveals the taxpayer does not have sufficient estimated tax paid or income tax withheld to cover the current year estimated tax due. See IRM 5.8.3.4.1 for additional information.
The requirement to have adequate estimated tax paid prior to acceptance of an offer applies to corporate as well as individual taxpayers.
Example:
While investigating an OIC on July 15, 2007, you learn that the taxpayer has an extension until October 15, 2007 to file their 2006 Form 1040. You should determine whether the taxpayer has sufficient income tax withheld or estimated taxes paid for the entire 2007 tax year, as well as for the first two quarters of the 2008 tax year.
2. Who should make estimated tax payments?
A. A person that is considered to be self-employed is generally required to make estimated tax payments during the tax year.
B. Self-employment tax is based on the taxpayer's net self-employment income or earnings.
C. See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.
3. How much is due and when should the payment(s) be made?
A. For individuals the amount of the payment will be based on 100% of the prior year's tax or 90% of the current year's tax due at the time of the offer, whichever is less. Current year's tax should be based on current income and all legally allowable expenses.
Note:
If the prior year's net earnings showed no estimated payments were due, then the taxpayer would not legally be required to make any payments for the current year. However, a taxpayer must be made aware of the consequences of filing a return with a balance due if the offer was to be accepted.
B. The amount of the estimated tax payment is generally based on the net earnings. Net earnings are defined as the gross income earned, less allowable deductions. This includes depreciation, home office expenses, automobile expense, and depletion.
C. Generally, payments should be made quarterly and are due April 15th, June 15th, September 15th, and January 15th of the following year.
D. See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.
4. The OI should determine the appropriate amount due during the initial analysis of the case as defined in IRM 5.8.4.7.1.
5. If it is determined that the taxpayer is delinquent in the payment of estimated tax, the OI should calculate the appropriate amount due and give the taxpayer up to 30 calendar days to make the payments. One attempt should be made to contact the taxpayer by telephone to request the necessary tax payment(s). Document the case history with the results of the phone contact attempt.
6. If no telephone contact can be made, a letter must be prepared and mailed to the taxpayer requesting the payment. Allow 30 calendar days from the date of the letter for the taxpayer to respond (plus 5 calendar days for mailing for a total of 35 calendar days), before taking the next action. Document the case history.
Note:
If the OI is preparing an additional information letter, the request for the ES payment may be included at that time. This is only after one phone contact has been attempted and the history appropriately reflects this action.
7. Prior to returning an offer for this reason, the following actions must be taken:
A. A determination must be made if the taxpayer has earned sufficient taxable income to require ES payments or income tax withholding for the year(s) in question.
B. A calculation should be made to determine the amount of tax that should have been paid in ES tax payments to date (or withheld) on the income earned.
C. Contact with the taxpayer or representative must be made explaining the calculated non-compliance. The OI must attempt to contact the taxpayer by telephone to explain the calculation and request payment(s). Once contact has been made, the OI will allow up to 30 calendar days for the taxpayer to comply with the request.
Note:
A "no answer" contact does not meet the criteria as an attempt. If contact by telephone could not be made, a letter must have been sent requesting payment and a copy must be retained in the case file.
D. If the taxpayer or their representative provides a legitimate reason for requesting additional time to make the payment(s), a reasonable deadline for responding must be given along with a warning that the offer will be returned if the payment is not received by the established deadline. This may be an additional 15 calendar days from the original established deadline. Barring any special circumstances such as, medical reasons that may extend the request beyond the additional 15 calendar days, the offer may be returned if the taxpayer fails to comply with the request for the payment(s). The case history must be sufficiently documented indicating the attempts made to secure the payment(s).
Note:
Proof of payment may include a copy of a cancelled check, a receipt issued by the walk-in site that accepted the payment; certification of mailing to the appropriate Campus for processing, or a receipt from the bank that processed the payment.
8. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into compliance.
9. A return for failing to make required estimated tax payments or insufficient withheld tax requires approval of a Group Manager in the field or a Unit Manager in COIC.
5.8.7.2.2.2 (09-23-2008)
Return for Insufficient Failure to Make Timely Federal Tax Deposit
1. A processable offer may be returned when the investigation reveals the taxpayer has not made federal tax deposits for the current quarter. An untimely Federal Tax Deposit (FTD) during the investigation will result in a return of the offer.
2. Initial review by field OS
A. Review IDRS to determine if there are open employment tax filing requirements. If the taxpayer is in-business and has an open filing requirement, research the quarter in which the offer was received and all subsequent quarters for FTD payments. When FTD payments are required, if no payments have been made or payments are missing and there is no TC59X transaction, return the offer.
B. Generally, a taxpayer will have multiple open employment tax filing requirements at one time. For example, for 2006 an employer may have Form 941 (or 943, 944, or CT1) and Form 940 and Form 945 filing requirements. Required FTD payments must have been made for all open filing requirements.
3. Who should make FTDs?
A. Generally, every employer who pays wages to an employee must withhold income tax from the employee’s gross wages and report the tax liability on an employer’s federal tax return (941, 943, 944, 945 or CT-1). Non-payroll income tax withholding must be reported on Form 945. If the employer accumulates an employment tax liability greater than $2500 or more during a quarter (for returns due quarterly) or a year (for returns due annually), this liability must be deposited monthly or semi-weekly depending upon the employer's deposit schedule.
Note:
The deposit rules for Form 941 also apply to tax liabilities for Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees; Form 944, Employer’s Annual Federal Tax Return; Form 945, Annual Return of Withheld Federal Income Tax; and Form CT-1, Employer’s Annual Railroad Retirement Tax Return. However, because Forms 943, 944, 945 and CT-1 are annual returns, the rules for determining the deposit schedule apply to a calendar year rather than a calendar quarter.
4. How much is due and when should federal tax deposits be made?
A. There are two deposit schedules: monthly and semi-weekly. The deposit schedule a taxpayer must use is based on the total tax liability the taxpayer reported during a lookback period. The lookback period begins July 1 and ends June 30. If the taxpayer reported $50,000 or less of employment taxes during the lookback period, they would be classified as a monthly depositor. If the taxpayer reported more than $50,000 of employment taxes in the lookback period, they would be classified as a semi-weekly depositor.
Exception: If an employer’s total tax liability for any quarter is less than $2,500, payment may be made with the Form 941 on the due date of the return in lieu of making deposits.
B. Use IDRS command code ENMOD to determine if the taxpayer has an open employment tax filing requirement. Use BMFOLK to determine if a taxpayer is a monthly or semi-weekly depositor for a particular quarter.
C. Monthly depositors must deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month.
D. Semi-weekly depositors must deposit accumulated taxes on payments using the following schedule:
Payment Days Deposit By
Wednesday, Thursday, and/or Friday Following Wednesday
Saturday, Sunday, Monday, and/or Tuesday Following Friday
E. Generally, the amount required to be deposited is comprised of the federal income tax withheld plus both the employee and employer social security and Medicare taxes.
Note:
For more information on federal tax deposit requirements, see IRM 20.1.4, Failure to Deposit Penalty.
5. The OS should determine the type of depositor (monthly or semi-weekly) and verify that deposits are being made, and should monitor compliance with FTDs throughout the offer investigation. The taxpayer will be asked to provide proof of each required deposit while the investigation remains open.
6. Most employers will also have an employment tax filing requirement for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. If an employer’s FUTA tax liability for any calendar quarter is over $500 (including any FUTA tax carried forward from an earlier quarter), the employer must deposit the tax (i.e., make an FTD) by electronic funds transfer (EFTPS) or in an authorized financial institution using Form 8109, Federal Tax Deposit Coupon. The employer must include liabilities owed for credit reduction with the 4th quarter FTD. If an employer’s FUTA tax liability for a quarter is $500 or less, the employer does not have to deposit the tax. Instead, it may be carried forward and added to the liability for the next quarter.
7. During the initial OIC review, the OS will review the taxpayer’s account for FTD compliance during the quarter in which the offer was submitted and any subsequent quarters. If it is determined that the taxpayer is missing or is not current with FTD(s), contact the taxpayer and request the missing deposits. Allow the taxpayer 15 calendar days to make up the missing deposits. One attempt to contact the taxpayer by telephone should be made. Document the case history with the results of the phone contact attempt.
If telephone contact cannot be made, a letter must be prepared and mailed to the taxpayer requesting the missing FTD(s). Allow the taxpayer 30 calendar days from the date of the letter (plus five days for mailing for a total of 35 calendar days) for the taxpayer to respond. Document the case history.
Note:
Depending on the taxpayer’s required method of deposit, current quarter deposits must be made using the Electronic Federal Tax Payment System (EFTPS) or via Form 8109, Federal Tax Deposit Coupon, at an authorized financial institution. Missing deposits for quarters in which the due date for the return has passed should be forwarded directly to the OS for processing as a TC 670 (subsequent payment). Proof of deposit for the current quarter may be provided in the form of an FTD receipt from an authorized financial institution or an EFTPS acknowledgement number.
8. The taxpayer will be allowed one opportunity to make up missed deposits. Subsequent missed deposits will result in immediate return of the offer.
9. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into FTD compliance.
10. A return of an offer for failure to make required FTDs requires approval of the Group Manager.
11. A taxpayer whose offer is returned for failure to make FTDs will not include appeal rights. The $150 application fee, as well as any TIPRA payments will also be retained.
5.8.7.2.2.3 (09-23-2008)
Return for Failure to Provide Information
1. An offer may be returned at any time during processing if the taxpayer fails to provide information necessary to determine whether it should be accepted.
2. Prior to returning an offer for this reason the following actions must be taken:
• A review must be made to determine if the missing information would prohibit the Service's ability to determine the RCP of the taxpayer.
Note:
If the taxpayer has substantively complied or if only limited information is missing, the OI will attempt to contact the taxpayer by telephone to secure the missing information prior to returning the offer. A "no answer" contact does not meet the criteria as an attempt.
• A request for the needed information must be made by phone, in person, and/or by letter. A reasonable deadline for responding must be given along with a warning that the offer will be returned if the information is not received by the deadline.
• The above information must be clearly documented in the case history. A reasonable deadline should be determined by the amount of information required from the taxpayer.
3. In those cases where the taxpayer or their representative have attempted to cooperate with any requests, the OI will make attempt a second telephone call the taxpayer or their representative to request the additional information prior to returning the offer.
Note:
A "no answer" contact does not meet the criteria as an attempt.
4. If the taxpayer or Power of Attorney notifies the OI that the payment was made prior to deadline, but after the return letter was issued and the case has been closed, the case will be reopened and worked in accordance to criteria in IRM 5.8.7.3, Return Reconsideration.
5. The history should be clearly documented to reflect the missing information requested and results of the telephone call.
6. The return letter must be signed by the Group Manager in the field or a Unit Manager in COIC.
5.8.7.2.2.4 (09-23-2008)
Closing an Offer as a Processable Return
1. Processable returns do not require preparation of the Form 1271.
2. The following actions should be taken to close a case as a processable return:
A. Verify that the AOIC record reflects a "Y" in the Processable status field.
B. Generate the AOIC "Return Letter" for the signature of the appropriate delegated official, listing the reason(s) the offer is no longer processable.
C. Generate the POA letter for any authorized representative. If a disclosure issue exists, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.
D. Stamp the Form 656 "RETURN" in red, or circle in red ink. Cross out the IRS received date(s) with a red "X" .
E. Document the history, indicating the reason(s) the offer is no longer processable and with any other pertinent information regarding the case.
F. Attach a copy of the offer to the taxpayer's letter and submit the letter(s) for approval and required signature.
G. Keep the original offer, any amended offers, the closing letter(s), the CIS, all supporting documentation, and all internal documentation secured in connection with the investigation in the case file. Purge the file of any duplicate IDRS prints or other data not related to the offer.
H. Close the case on AOIC as a "return" once the letter is signed.
I. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
3. See IRM 5.8.3.6 for procedures to return an offer based upon notification of a dishonored payments, after issuance of a rejection letter.
5.8.7.3 (09-23-2008)
Return Reconsideration
1. This section does not apply to the return of offers deemed not processable. It also does not apply to processable offers returned for any of the following reason codes, unless the return was determined to have been in error.
• P (filed bankruptcy after offer submission)
• Q (non-compliance after offer submission)
• R, V, W ("solely to delay" submissions)
• S (collection is in jeopardy)
• X ("other investigations are pending that may effect …" )
• Y (original assessment fully abated)
2. Situations may arise when the reconsideration of a returned offer would best serve the interests of both the Service and the taxpayer. In most cases, an additional application fee and mandatory payment is not required. Upon receipt of a return letter, taxpayers may telephone to object to the return of an offer. Below are the criteria for possible reconsideration.
5.8.7.3.1 (09-23-2008)
Criteria for Return Reconsideration
1. Generally, the taxpayer or the representative must contact the Service to raise objections and justify the failure to provide the requested items within 30 calendar days from the date of the return letter (unless the condition that caused the failure to supply the substantiation continued for a prolonged period).
2. Acceptable criterion for potential situations where return reconsideration may be applicable are listed below. These are not all inclusive. Judgment should be used when considering re-opening an offer that was returned in error.
A. The offer was returned in error by either the field or the COIC site.
B. The information was sent timely but it was not associated with the case.
Note:
The postmark date should be used to determine if the information was "received timely" .
Note:
Special rules apply in determining the postmark date for documents sent by private delivery services. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
C. Serious illness or injury prevented the taxpayer from submitting the information timely.
Note:
Serious illness or injury may not apply to the representative, since the taxpayer controlling the information receives a copy of the combo or additional information letter.
D. There was a death in the taxpayer's immediate family that prevented timely mailing of the information.
E. The taxpayer suffered a disaster, such as a fire or flood, or any other disaster, that prevented timely mailing of the information.
F. The failure to perfect by providing a required additional Form 656, required TIPRA payment (i.e., remainder of 20% of the amount of a lump sum cash offer), and application fee when the original Form 656 included both joint and separate liabilities or individual or joint and corporation or partnership liabilities.
G. The taxpayer submitted a Form 656-A certification instead of paying the $150 fee and required TIPRA payment, and then provides proof that an incorrect conclusion was made.
H. The taxpayer failed to make estimated payments but provides proof that estimated payments or withheld taxes were not due.
I. The taxpayer provided proof of estimated payments, but it was not received until after the deadline.
J. The taxpayer provided proof that the required TIPRA payments were made, but not posted.
K. The taxpayer submitted certified funds (e.g., money order, cashiers check, etc.) within the required timeframes to replace previously dishonored check(s).
5.8.7.3.2 (09-23-2008)
Conditions for Return Reconsiderations
1. Before reconsidering the closed offer, the following conditions must be met:
A. The total offer amount must be equal to the amount offered on the returned Form(s) 656;
B. The taxpayer or authorized representative must have requested return reconsideration within 30 calendar days from the date of the return letter
2. The following would not be acceptable reasons for return reconsideration:
A. "Unavailable absence" of either the taxpayer or representative, since they control the timing of the filing of the offer;
B. Representatives’ "filing season" activity, since they control the timing of the filing of the offer.
5.8.7.3.3 (09-23-2008)
Approval Authority for Return Reconsideration
1. Approval to reconsider a returned, processable offer(s) will be obtained from COIC Department Managers or field Group Managers before requesting the taxpayer or authorized representative to send any missing documentation, payments or fees. This authority may not be re-delegated. The manager will indicate approval or denial of the request by making a history entry on AOIC or ICS.
5.8.7.3.4 (09-23-2008)
Reconsideration Procedures
1. If the employee receiving a telephone request from a taxpayer or authorized representative for reconsideration determines the request does not have merit, based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will advise the taxpayer or their authorized representative and annotate the closed offer record history on AOIC.
Note:
Any request by the taxpayer or authorized representative to speak with the employee's manager should be honored.
2. If the employee receiving a telephone request for reconsideration determines that the request does have merit based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will:
• Contact the taxpayer or their representative and request additional information to support the reconsideration request, if applicable.
• The information must be sent within 10 calendar days of the contact. Fax is the preferred method of receipt.
• Annotate the closed AOIC or ICS offer history.
3. If the taxpayer or their representative fails to provide the requested information, annotate the closed AOIC history that there will be no reconsideration.
4. If the taxpayer or their representative provides the requested information, the recommending employee will:
• Annotate the closed AOIC history and request the reconsideration by making a history entry on the closed offer record on AOIC (not ICS), describing the taxpayer's claim or supporting verification and why the reconsideration request is justified.
• Submit the closed offer case file, along with any verification submitted by the taxpayer to support the reconsideration request, through the appropriate management channels to the approving official.
5. Denial of the Reconsideration – If the approving official denies the reconsideration request, the employee assigned the case should clearly communicate by telephone to the taxpayer or their representative that the request for reconsideration was denied and that the matter is closed. Document the AOIC history of the closed offer information with the information.
6. Approval of the Reconsideration – If the approving official agrees that a returned offer should be reconsidered, the employee assigned the case will telephone the taxpayer or their representative and advise that the offer is being reconsidered. They should also be advised that they must be able to provide the missing or required information, substantiation, Forms 656, and/or applicable fees within 10 calendar days of that telephonic communication of the reconsideration approval.
Field offices should fax a copy of the front page of the original Form 656, including the offer number and received date of the requested information and/or substantiation, to the respective COIC sites. This will enable the COIC sites to create the new offer record.
The offer information will not be reloaded to AOIC or worked until receipt of any required information or substantiation, Forms 656, and/or applicable fees. If the taxpayer fails to submit the promised items, document the AOIC history of the closed offer and take no further action.
7. Reloading the Reconsideration Offer – For purposes of an approved "return reconsideration," do not reopen the closed offer record on AOIC. Instead, take the following actions:
• Create a new AOIC offer record by reloading the same AOIC data as the returned offer, except for "IRS Rcvd Dt," "AO Rcvd Dt" and "Pend Dt" fields which will contain the date that we receive any missing information, substantiation, Forms 656, and/or applicable fees.
• Associate the documents from the closed offer with the new, reloaded offer folder.
• Enter an AOIC history notation in the closed offer record to indicate the documents were refiled with the reloaded offer.
• Place a hard copy of the AOIC history in the closed offer folder.
• Reloading Offers With a Previously Submitted Application Fee
If the taxpayer paid the application fee with the original returned offer, for the new AOIC offer record enter:
o "N" in the "Fee Due" field
o "ME" in the "Waiver Criteria" field
o The number of the original, returned offer in the "Master Offer #" field of AOIC Application Fee screen
• Reloading Offers With a Previously Submitted Form 656-A
If the taxpayer previously submitted a Form 656-A with the returned offer, enter the following for the new AOIC offer record:
o "N" in the "Fee Due" field
o "LI" in the "Waiver Criteria" field of AOIC Application Fee screen
• Additional Form(s) 656 and Application Fee(s) Received as Condition for Reconsideration
Some reconsideration situations may involve an original offer that included either joint and individual tax liabilities, or joint or individual and corporation or partnership liabilities on one Form 656. The offer may have been returned because the taxpayers failed to perfect the offer by submitting additional Forms 656 and the applicable application fee and required TIPRA payments for each. Since the taxpayers met the fee and payment requirement for the original, returned Form 656 they must submit and meet the fee requirement for each additional Form 656 before the original offer can be reloaded under return reconsideration procedures. Therefore, both the "Amended/Revised" and "Related to" offers that were previously provided with the Combo letter, must be loaded to AOIC, but not until the application fee is received for the "Related to" offer along with any additional substantiation that was required.
8. Retain the original Form(s) 656 in the case file and take the following actions on the original Form 656 retained in the case file:
• Sign and insert the employees title in Item 11 of the Form 656 for the authorized Service official. This information is to be inserted alongside the entries on the original offer.
• Enter on the date line of AOIC "Pending Dt" used for the new offer record.
Note:
A copy of the Form 656 will be returned to the taxpayer or their POA. Originals will be retained in the case files.
5.8.7.4 (09-23-2008)
Withdrawal
1. There are now two kinds of withdrawn offers; they are (1) Voluntary and (2) Mandatory.
2. Voluntary Withdrawal of Offers – An action that may be taken by the taxpayer at any time during the offer investigation. See IRM 5.8.7.4.1 below for more information.
3. Mandatory Withdrawn Offers – An action that may be taken by an Offer Investigator during the offer investigation. See IRM 5.8.7.4.2 below for more information.
5.8.7.4.1 (09-23-2008)
Voluntary Withdrawal
1. Taxpayers may voluntarily withdraw their OIC at any time after the offer has been submitted. A withdrawal must never be solicited merely to avoid a complete investigation or deny taxpayers access to Appeals.
2. When an OIC cannot be recommended for acceptance the OI should give the taxpayer an opportunity to voluntarily withdraw the offer and at the same time inform the taxpayer that withdrawing the offer forfeits their appeal rights.
3. Document the case history or correspondence must document that the taxpayer was informed of these rights.
4. A voluntary withdrawal request may be made orally, by fax, or in writing. The Letter 3504(SC/CG) is available for taxpayers to request a withdrawal. Service employees should encourage taxpayers to provide the withdrawal in writing, but if a taxpayer or authorized representative provides a clear statement, either in writing or orally, indicating a wish to withdraw the offer, the offer may be closed as a withdrawal.
Note:
The request for a voluntary withdrawal may be either in writing or orally. Receipt of a withdrawal request must be clearly documented in the case file indicating how the request was received.
5. If a request for a voluntary withdrawal is made by a Service employee, and a deposit has been received, the taxpayer should be asked to:
• Provide a request in writing clearly indicating a desire to withdraw the offer.
• Include a statement indicating that it is understood that rights to appeal are forfeited by a withdrawal.
• Include a statement indicating how any deposit made (if any) should be disposed (i.e. should it be refunded or applied to the tax debt).
• Sign and date the request.
5.8.7.4.2 (09-23-2008)
Mandatory Withdrawal
1. TIPRA requires the taxpayer to submit an initial payment with the offer. See IRM 5.8.1.9 for more information. If the taxpayer sends a portion of the money, but not all, an attempt to contact the taxpayer must be made before closing the offer. This may be accomplished by including the request in the combo letter or by telephone.
2. If during the investigation the taxpayer fails to make the subsequent periodic payments as required by TIPRA, the offer may be considered withdrawn. One request for the missed payment(s) must be made by telephone or by issuing a letter. A reasonable amount of time must be given for the taxpayer to make up the missed payment(s). Generally, this will be 2 weeks. If the taxpayer provides a reasonable explanation for missing the payment(s) (i.e. special circumstances exist) the investigation of the offer should continue.
3. If a decision on the offer can be made before contacting the taxpayer (i.e. a rejection has been determined), then no contact is necessary. Issue the rejection letter, document the case history, and close the case on AOIC. In this case, the taxpayer will receive appeal rights.
4. If the taxpayer fails to respond within a reasonable amount of time to the request to pay the remainder of the required initial payment, the offer will be considered withdrawn.
• This should not be considered an optional or voluntary withdrawal.
• No additional written or oral requests will be made.
• No additional notification will be provided to the taxpayer.
5. Issue the withdrawal letter indicating that the taxpayer failed to comply with the request for the required payment(s), therefore the offer is withdrawn.
6. The letter must include the following information:
• A statement indicating that the taxpayer failed to respond to the request for the remainder of the required initial payment or missed periodic payments.
• A statement indicating how any deposit made should be disposed of (i.e., refunded or applied to the tax deposit).
7. Close the offer as withdrawn as defined in IRM 5.8.7.4.3 below.
8. Document the case history, thoroughly describing the attempts to secure the funds and the decision to consider the offer withdrawn.
5.8.7.4.3 (09-23-2008)
Closing an Offer as a Withdrawal
1. Offers closed as a withdrawals do not require preparation of Form 1271, Rejection or Memorandum.
2. The effective date of the withdrawal will depend on the method of receipt of the request to withdraw. The following chart shows the correct date to use as the withdrawal date:
If taxpayer withdraws an offer in compromise by… Then the offer will be considered withdrawn …
personal delivery when notification of the withdrawal is received by the Service.
mailing written notification of the withdrawal via U.S. certified mail on the date the Service receives the certified mail.
non-certified mail, fax, or phone on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.
3. The following actions should be taken to close an offer as a withdrawal:
A. Generate the AOIC "Withdrawal Letter" for the signature of the authorized delegated employee. Use the chart above to determine the correct date to use as the effective date of the withdrawal.
• Voluntary withdrawal – Use the chart above to determine the correct date to use as the effective date of the withdrawal.
• Mandatory withdrawal – The date of the withdrawal is the date of the "Withdrawal Letter."
B. Generate the POA letter for any authorized representative.
C. Document the history, indicating the date, method of receipt, and type of withdrawal (e.g., voluntary or mandatory).
D. Submit the file for approval and signature of the letter(s).
E. Close the case on AOIC as withdrawn after approval has been received. If there is a deposit and the taxpayer has requested that the deposit be applied to the tax, input "A" and mail a copy of the taxpayer's written request for application of the funds to the appropriate MOIC Unit. If there is a deposit and the taxpayer has asked for a refund or provided no instructions for disposition, input "R" to refund the deposit.
F. Keep a copy of the letter(s) with the closed offer file.
5.8.7.5 (09-23-2008)
Termination of Consideration
1. Consideration of an offer must be terminated upon the death of a single proponent. The date of termination is the taxpayer's date of death and the date used for the TC 482. Offers that are terminated do not receive appeal rights. See IRM 5.8.10.4 for instructions on actions to take prior to termination when advised that one party to a joint offer has died.
5.8.7.5.1 (09-23-2008)
Closing an Offer as a Termination
1. Offers closed as terminations do not require preparation of Form 1271.
2. The following actions should be taken to close an offer as a Termination:
A. Generate the AOIC Termination Letter for the signature of the authorized delegated employee.
B. Generate a copy of the letter for any authorized representative.
C. Document the history indicating the date of death and how notification was received.
D. Request input of TC 540 to IDRS if the exact date of death is confirmed.
E. Submit the package for approval and signature of the letter(s).
F. Close the case on AOIC as a "Termination" after approval and document the date of death in the case history.
G. Keep a copy of the letter(s) with the closed offer file.
H. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 482 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
5.8.7.6 (09-23-2008)
Rejection
1. When the facts of the case do not support acceptance and the taxpayer will not agree to an acceptable offer or an alternative resolution of the delinquency and withdraw the offer, the taxpayer should be informed that the offer will be recommended for rejection.
2. When the offer is rejected, the taxpayer will be notified in writing and the letter will explain how the taxpayer may exercise their appeal rights. Information received from the taxpayer in response to a conversation or letter must be considered before proceeding with the rejection.
3. Generally, rejections on offers based on DATL are because the tax is believed to be correct as assessed.
4. The most common reason for rejecting an offer based on DATC are because it has been determined that more can be collected than was offered. In all cases (other than those processed under "Screen for Obvious Full Pay" ), the taxpayer should be informed prior to the issuance of the rejection letter that an acceptance cannot be recommended. This communication should be by telephone.
The computation of RCP should be explained, a copy of the financial analysis provided, and the taxpayer should be given an opportunity to submit any additional financial information (except for those cases rejected under "public policy" or as not in the "best interest of the government" ). If no conversation is held with the taxpayer to convey this information, Letters 3498 (SC/CG) and 3499 (SC/CG) may be used for this purpose.
Note:
When preparing the letter for potential rejection or requesting an increased offer, the calculation should reflect any TIPRA payments made. For example, "Your RCP is $5,000. To date you have made (insert number) payments totaling $2,000. Your balance must be paid in an additional 6 months at $500 per month."
5. If the taxpayer or their representative presents new information, it must be considered and addressed in the history. If the information does not change the decision to reject, issue the appropriate AOIC rejection letter and document the AOIC or ICS history.
6. An offer rejection may also be based on a determination that acceptance of the specific offer at hand is not in the "best interest of the government" as discussed in policy statement P-5-100. Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative. Offers rejected under this section require the review and approval of the second level manager; that is, Territory Manager for the field or Department Manager for COIC. Examples of situations that may warrant rejection as not being in the "best interest of the government" include:
• Recent compliance satisfies offer processability criteria; however, the taxpayer has an egregious history of past noncompliance and our analysis of his current finances reveals that it will be highly unlikely the taxpayer will be able to remain in compliance during the offer period.
• An in-business taxpayer compromising employment taxes, where financial analysis indicates the business does not have the ability to fund the offer, remain current with future tax obligations, and meet the business's normal operating expenses.
• Any offer involving deferred payment where financial analysis indicates the taxpayer cannot fund the offer.
• The taxpayer is the primary responsible party for a related entity, i.e. corporation, partnership, etc., that is not in compliance with its filing and paying requirements.
• The offer is from an ongoing business that appears to be insolvent, and it appears that the government's position would be better protected through a formal insolvency proceeding.
7. When an offer is rejected, there is no obligation on the part of the taxpayer to continue to make periodic payments pursuant to the offer schedule, even if the taxpayer has appealed the rejection.
5.8.7.6.1 (09-23-2008)
Public Policy Rejection
1. Policy Statement P-5-89 establishes that offers may be rejected on the basis of public policy if acceptance might in any way be detrimental to the interests of fair tax administration, even though it is shown conclusively that the amount offered is greater than could be collected by any other means, provided no ETA issues exist.
Note:
This section should not be confused with IRM 5.8.11.2.2 under ETA offers.
2. A decision to reject an offer for public policy reason(s) should be based on the fact that public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance by the general public. Decisions to reject offers for this reason should be rare.
3. Below are some examples of situations that may warrant rejection based on a public policy decision.
• The taxpayer has openly encouraged others to refuse to comply with the tax laws.
• Indicators exist showing that the financial benefits of a criminal activity are concealed or the criminal activity is continuing.
4. An offer will not be rejected on public policy grounds solely because:
• It would generate considerable public interest, some of it critical.
• A taxpayer was criminally prosecuted for a tax or non-tax violation.
5. The rejection narrative should discuss the specific public policy issues.
6. Rejections of this type require the approval of the SB/SE Collection, Territory Managers (2nd level) in the field or SB/SE Compliance Services Operations Managers for COIC. Refer to Delegation Order 5-1 for approval authority.
5.8.7.6.2 (09-23-2008)
Closing an Offer as a Rejection
1. The following actions should be taken to close an offer as a rejection:
A. Update the balance for all modules on the MFT screen by pressing "I" . Enter the proposed disposition code"2" .
B. Generate the AOIC "Rejection Letter" using the appropriate optional paragraph(s) for the signature of the authorized delegated official. Attach the IET and AET (or the "Screen for Obvious Full Pay" Worksheet) to the letter when the offer is based on DATC.
C. Generate the POA letter, if applicable.
D. Generate Form 1271 for signature by the appropriate delegated officials. The Reviewer on Form 1271 must be the Independent Administrative Reviewer (IAR).
E. Document the history regarding the decision. Include the following:
• Amount of the RCP
• Attempts to negotiate an alternative resolution
• Key issues in the disagreement
• Discussion of any special circumstances noted
F. Print the AOIC or ICS history and include it in the offer file.
G. Prepare a supplemental memorandum to report any rare facts of a confidential nature that should not be disclosed through a Freedom of Information Act (FOIA) request and include it in the file clearly identifying it as "Confidential Information– Not to be Disclosed" .
H. Place Tabs (Document 9600B) in the case file for ease in review or if the decision is appealed.
I. Submit the package for approval and signing of Form 1271.
J. After approval, route the file to the IAR.
K. After approval of the IAR, route the offer for signature, dating, and mailing of the letter(s).
L. Assign the case on AOIC to the designated "30 day hold" assignment number and route the case file to the hold file for monitoring of the appeal period.
M. Prepare Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
2. See IRM 5.8.3.6 for procedures to close the offer as a return based on notification of a dishonored check after issuance of a rejection letter.
5.8.7.6.2.1 (09-23-2008)
Closing a Combination DATC/DATL Offer Investigated By the Centralized DATL Unit as a Rejection
1. The centralized DATL processing unit will provide a narrative explaining the reasons for the DATL offer rejection determination to the originating Collection function. The Collection function will include this narrative in the AOIC rejection letter that it sends to the taxpayer, addressing both bases of the taxpayer's offer.
Note:
The higher delegated authority (Compliance Services Department or Collection Territory managers) for rejection on the basis of DATL should sign the combination rejection letter issued by the originating Collection function.
5.8.7.6.3 (09-23-2008)
Rejection Not Appealed
1. Treas. Reg. 301.7122-1(f)(5) provides that the 30-day period to request an appeal starts the day after the date on the rejection letter. The rejected offer must be suspended during this 30-day period to allow the taxpayer an opportunity to request an appeal, even if the taxpayer advises the Service that no appeal is desired. These cases should be monitored for receipt of a request for appeal.
2. Rejected offers should be held in the suspense file for 15 calendar days past the 30-day deadline to allow time for an appeal request to be received and associated with the offer file.
Note:
If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 6, 2008. The request for the appeal is dated Monday, August 8, 2008. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.
Note:
Special rules apply in determining the postmark date for documents sent by private delivery service. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
3. If no appeal request is received by the 45th day from the dy of the rejection letter, the following actions should be taken:
A. Close the offer record as a rejection with no appeal on AOIC.
B. If warranted, take action to return the accounts to the Field Compliance function for immediate resumption of collection activities.
C. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
D. Route the offer file to the closed files.
5.8.7.6.4 (09-23-2008)
Fast Track Mediation for Offers in Compromise
1. A joint memorandum, dated May 8, 2002, from the Commissioner, SB/SE and National Chief, Appeals, implemented the Fast Track Mediation (FTM) process. The goal of FTM is to help taxpayers resolve disputes arising in examination and collection source work without having to send the case to Appeals.
Note:
This program is not available for any work in the COIC sites.
5.8.7.6.4.1 (09-23-2008)
Criteria for Fast Track Mediation
1. Mediation may only be considered after the OS has fully developed the case facts and made a reasonable attempt to negotiate an acceptable offer.
Note:
Mediation is not a substitute for the taxpayer's or their representative's right to a conference with the manager.
2. Taxpayers, or representatives who express an interest in mediating must first request a conference with the manager.
3. The opportunity to mediate should only be granted after the first level manager has reviewed the case and determined that the issues in dispute may be resolved in mediation.
4. When appropriate, mediation should be offered before the case is forwarded to the IAR for approval.
5. Below are some examples of when it would be appropriate or inappropriate to offer mediation. The examples are not all inclusive.
Example:
Appropriate — valuations of ongoing business' goodwill; artwork with collector or sentimental value; valuation of assets including real property.
Example:
Inappropriate — taxpayer has ability to full pay based on financial data; taxpayer declines to increase the amount offered and does not disagree with the values; rejection is based on public policy.
5.8.7.6.4.2 (09-23-2008)
Processing Granted Requests for Fast Track Mediation
1. When the request for mediation is granted, the OS will complete the following actions:
• Complete the Form 13369, Agreement to Mediate
• Complete a summary of issues
• Within 3 business days of securing the taxpayer's or their representative's signature, follow local established procedures to submit the request to Appeals.
• Provide a copy of the Form 13369 to the taxpayer or their representative.
• The OS will represent Collection in the mediation session.
Note:
Collection retains jurisdiction of the offer throughout the mediation process.
5.8.7.6.4.3 (09-23-2008)
Processing Denied Requests for Fast Track Mediation
1. If the taxpayer or their representative's request is denied, document the case file with the reason for the denial, including how it was relayed to the taxpayer and/or their representative.
2. Secure the approval of the first and second level manager.
5.8.7.6.5 (09-23-2008)
Rejection Appealed
1. If a request for an appeal is received that is postmarked no later than the 30 calendar days following the date of the rejection letter, the case must be forwarded to Appeals function for consideration.
Note:
If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 6, 2005. The request for the appeal is dated Monday, August 8, 2005. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.
Note:
Special rules apply in determining the postmark date for documents sent by private delivery services. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
• Timely appeals- Upon transfer of the case to Appeals notify the taxpayer that the case is being transferred and provide the telephone number of Appeals Customer Service. Notification may be verbal or in writing but should be documented. Written notification may be completed using the AOIC transfer letter, paragraph B.
• Untimely appeals- Notify the taxpayer that the appeal was not timely and will not be forwarded to Appeals for consideration. Notification may be verbal or in writing but should be documented. Written notification may be completed using AOIC transfer letter, paragraph C.
2. The taxpayer should provide specific information with the appeal letter, including a list of items of disagreement and evidence to support any of those items. If the letter provides new information not previously considered, the case should be reassigned to an Offer Examiner or Offer Specialist for reconsideration.
Note:
Caution must be exercised when reviewing a case where new information is received and the offer reconsidered following issuance of a rejection letter. If the taxpayer's letter requested an appeal, the offer must still be forwarded to Appeals if this reconsideration of the offer results in no change to the initial decision to reject. A new rejection letter should be not sent.
3. The taxpayer is entitled to an appeal of the offer rejection even if items of disagreement are not provided or argued. If it can reasonably be determined that the letter is a request for an appeal, the taxpayer should be afforded that right.
4. If an appeal is received that includes additional information to reconsider but it does not change the rejection determination:
A. Attempt to reach the taxpayer by phone to advise that we have received and considered the information provided, however, the decision to reject the offer has not changed, so the offer will be forwarded to Appeals for consideration as requested.
B. Document any rebuttal to arguments the taxpayer raised in the rejection letter. Print the additional case history and include it in the offer file.
C. Transfer the case to 90XX on AOIC.
D. Mail the case to the appropriate Appeals Area office based on the taxpayer's zip code.
E. Prepare the Form 3177 to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
5. If Appeals sustains the rejection determination or the taxpayer withdraws the offer in Appeals:
. Close the offer record on AOIC as:
• Closing code "9" if withdrawn in Appeals.
• Closing code "3" if Appeals sustained the rejection.
A. If warranted, take action to return the offer to the Field Compliance function for immediate resumption of collection activities.
B. Route the offer file to the closed files.
5.8.7.7 (09-23-2008)
Authorization to Apply Deposit
1. When a deposit is made with an offer, Service employees should ask taxpayers if they wish to have the funds applied to the delinquent tax debt whenever a withdrawal is solicited or when advising taxpayers that acceptance cannot be recommended. See IRM 5.8.2.7 for further information regarding deposits.
2. If a taxpayer agrees to the application of the deposit to a tax liability, a written authorization or Form 3040 should be completed, signed, and submitted to the MOIC unit when the case is closed. A copy of the withdrawal or rejection letter must be included with the Form 3040 and forwarded to the appropriate Monitoring OIC (MOIC) unit for processing.
Note:
When closing the AOIC record, input "A" in the pop up screen to alert MOIC that the funds are to be applied and immediately mail the written authorization to that unit. The Accounting Branch requires written authorization from the taxpayer before the funds can be applied to any tax period.
3. If a taxpayer does not authorize application of the deposit to a tax liability it will be returned to the taxpayer.
4. Occasionally requests for a discharge or subordination are received while an offer is pending. See IRM 5.8.10.6 for instructions on processing the Form 3040 received in conjunction with issuance of the lien certificates.
5.8.7.8 (09-23-2008)
Alternative Resolutions
1. Whenever an OIC cannot be recommended for acceptance, OI should discuss alternative resolutions with the taxpayer. All actions necessary to complete the agreed resolution should be taken prior to closing the case.
Note:
In cases where the taxpayer does not agree with the proposed alternative resolution, such as an installment agreement, refer the case to the appropriate Collection function for the next appropriate action.
2. Alternative resolutions that may be appropriate include:
• Negotiating and processing the Form 433-D, Installment Agreement, to fully pay the tax due or processing a partial payment installment agreement.
• Preparing the Form 53, Report of Currently Not Collectible Taxes, to report the account uncollectible when requesting current payment would create an undue hardship, the taxpayer is deceased and there is no probate, or the taxpayer cannot be located.
• Preparing and processing the Form 3870, Request for Adjustment, when a reasonable cause abatement or other adjustment to a liability should be made.
• Assigning the case to the ACS or a field RO when prompt enforcement action is warranted.
• Processing a lien subordination request
3. The above actions cannot be processed on IDRS until the TC 48X posts. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post. If the actions are to be processed by another Service function, the request should be mailed immediately to that office with a cover memo explaining the TC 48X transactions have been initiated and the requested actions should be processed once the offer closing transactions post.
4. The appropriate IRM Part V Chapter should be followed to process an installment agreement, report an account uncollectible, or process a request for adjustment.
5. To assign a case to ACS or an RO follow locally established guidelines.
5.8.7.9 (09-23-2008)
Closed File Retention
1. Closed cases (other than acceptances) are to be retained in closed files in the Area or COIC offices. See IRM 1.15.28, Records Control Schedule for Collection Function, directs that the Area and COIC offices may retire the closed files to the Federal Records Center (FRC) when it is determined they are no longer needed for current business.
2. As space dictates in the offices, the files should be prepared to be retired to the FRC. Instructions for shipping files should be secured from the appropriate AWSS area Records Manager. A record of the cases shipped, including taxpayers name, TIN, and year closed, with a cross reference to the FRC box number and location, should be maintained in the Area or COIC office so the closed case file can be retrieved, if necessary, for litigation or other necessary action.
3. Prior to shipping these cases they should be purged so that only the following documents are shipped:
If… Then ship…
Returned, Terminated or Withdrawn Return, Termination or Withdrawal letter to the taxpayer (and POA letter if applicable)
• All Forms 656 received
• Form 2848, if applicable
• CIS
• Case history sheets
• Other significant correspondence/ documents
Rejected Rejection letter to taxpayer (and POA letter if applicable)
• All Forms 656 received
• Form 2848, if applicable
• Form 1271
• Narrative report
• CIS with supporting verification/documentation
• Case history sheets
• Other significant correspondence/documents
5.8.8 Acceptance Processing
• 5.8.8.1 Overview
• 5.8.8.2 Amending Form 656
• 5.8.8.3 Closing a Case as an Acceptance
• 5.8.8.4 Acceptance Processing for Specific Types of Offers
• 5.8.8.5 Legal Opinion of Counsel
• 5.8.8.6 Public Inspection File
• 5.8.8.7 Accepted Offer File Processing
5.8.8.1 (09-23-2008)
Overview
1. The determination to accept an offer is based on sound decisions relating to an analysis of the taxpayer's facts, circumstances, and financial situation. Documentation supporting this decision and proper approval levels are required to complete the acceptance. This section describes the process for accepting an OIC.
5.8.8.2 (09-23-2008)
Amending Form 656
1. When an offer is being recommended for acceptance, the tax periods owing and/or payment terms may need to be adjusted. This will require the taxpayer to submit an amended Form 656 to reflect the new terms.
A. Mark it "amended" in red on the top margin of page one.
B. Input "A" (amended) on screen one of the AOIC record to reflect receipt of an amended offer, but do not change the "offer pending date" .
C. Add any new tax periods not included on the original Form 656 to the MFT screen. The date the IRS official signed the amended offer should be added to the MFT screen as the waiver date for the new periods only.
D. Delete any tax periods found on the MFT screen that are no longer owed.
E. Add the new terms for payment, if any, to the terms screen.
Note:
Amended offers will show the total offer amount, not the amount remaining after applied TIPRA payments.
2. Offers received on or after July 21, 2006, that require the submission of an amended Form 656 will also require submission of either 20% of the revised offer amount (less the amount previously submitted) or the revised periodic payment. See IRM 5.8.4.7.2 for periodic payment requirements for revised offers.
5.8.8.3 (09-23-2008)
Closing a Case as an Acceptance
1. Prior to preparing an acceptance report, IDRS command code "AMDIS" should be checked to ensure that no additional assessments are pending. If an open audit is found contact should be made to resolve the issue per instructions in IRM 5.8.4.12.1 for additional instructions. The tax must not be compromised unless it is assessed and legally due; therefore, IDRS should also be checked to ensure that all taxes included on the accepted offer have been properly assessed and are still due and owing.
2. At the time the acceptance report is prepared, update the MFT screens on AOIC using the current K-Data or IDRS command code INTST to reflect the current liability(s). This will ensure the Form 7249, and the MFTRA-X are in close agreement since the Form 7249 requires various levels of approval, and both become public documents.
3. Before closing a case as an acceptance, document the case history on AOIC regarding the decision. Include any special instructions for the Monitoring Offer in Compromise (MOIC) unit regarding application of funds or requesting a lien re-filing if one will be required during the terms of any deferred payment offer. See IRM 5.12 for more information about when to re-file a lien.
4. Order a MFTRA-X as close to the acceptance date as possible without delaying acceptance. Sanitize the MFTRA-X or K-Data transcript to "black out" or redact the taxpayer's social security number (both primary and secondary, if a joint offer) and all tax information that is not to be disclosed to the public as follows:
Note:
The AOIC download process may be used to generate and print a sanitized report, which may be used instead of the MFTRA-X.
A. Name and SSN of a co-obligor spouse if the spouse is not a party to the compromise.
B. Number of exemptions.
C. Filing status.
D. Adjusted gross income.
E. Taxable income.
F. Principal Industry Activity Code.
G. Transaction Codes without dollar amounts. The entire line including the date should be redacted.
H. Transaction Codes and explanations dealing with fraud, negligence, or criminal investigations, but not the date and amount of the transaction.
I. Power of Attorney/Tax Information Authorization (POA/TIA) on file.
5. Prepare an Acceptance Report. The report referenced in IRM Exhibit 5.8.4–3 may be used for this purpose. The report should contain at a minimum:
A. The taxpayer's personal information such as age, health, dependents, education and occupation.
B. The cause of the delinquency and status of current compliance.
C. The amount of RCP and an explanation of how the RCP was calculated.
Note:
The AET and IET shown in IRM Exhibits 5.8.4–1 and 5.8.4–2, respectively, will generally fulfill this requirement.
D. Whether or not special circumstances exist and how they affected the amount agreed upon.
E. Negotiations resulting in the acceptable offer amount.
F. A conclusion that summarizes the basis for acceptance.
6. In the rare situation where relevant facts of a confidential nature exist that should not be included in the recommendation report, complete a supplemental memorandum for the record and include it in the case file. Do not include information already discussed in the offer recommendation report.
7. Update the AOIC record as follows:
A. Main Screen — Update to reflect the correct basis for compromise and, if appropriate, to indicate the existence of special circumstances. Update the disposition code to "1" (proposed acceptance).
If… Then…
Any modules have restricted penalty or interest Use IDRS command code COMPAD or COMPAF to determine the accrued amounts. Include the accrued amounts in the total liability listed on the MFT screen. The manually accrued amounts must also be added to the paper transcript.
Any modules are Non-Masterfile, and not on IDRS Secure an Automated Non-Masterfile (ANMF) transcript, and update it as necessary using IDRS command code COMPAD and/or COMPAF.
The module was full paid as a result of a payment action other than TIPRA (such as, refund offset, prior levy payment) Remove the period from the MFT screen on AOIC, and amend the offer to remove the tax period from the Form 656.
The payment that satisfied the tax period included both a TIPRA payment, and other payment (such as, refund offset, prior levy payment) Do not remove the period from the MFT screen on AOIC.
The period was full paid The MFT screen will reflect a zero balance due.
Note:
An amended Form 656 is not required to remove periods that were full paid due to TIPRA payments.
B. MFT Screen — Input the assessment date for each module. Press "I" to update interest to the current date using the INTST command.
Note:
If any modules have restricted penalty or interest, use IDRS command code COMPAD or COMPAF to determine the accrued amounts. Include the accrued amounts in the total liability listed on the MFT screen. The manually accrued amounts must also be added to the paper transcript.
Note:
If any modules are Non-Master File and not on IDRS, secure an ANMF transcript and update it as necessary using IDRS command code COMPAD or COMPAF.
C. K-Data Request Screen — Do a re-request for an IDRS download on all applicable TINS to update the AOIC screens with the accruals to the current date. Once the screens are updated generate and print the Public Offer report to use in lieu of a MFTRA-X.
Note:
A MFTRA-X may be requested through IDRS instead of taking this step.
D. Terms screen — Update the terms to those reflected on the offer that is being accepted ensuring that any collateral agreement(s) are referenced as necessary.
8. Generate and print the Form 7249 for the required signatures. The accepting official is the official that has delegated responsibility for accepting based on the type and dollar amount of the case. Delegation Order No. 5-1 provides the level of authority for approving all Offer in Compromise dispositions.
9. Generate and print the appropriate acceptance letter for the signature of the delegated official. Attach copies of the accepted Form 656 and any applicable collateral agreement(s).
10. Generate and print the POA letter if there is an authorized representative.
11. Assemble the file using Document 9600 B, Tab Dividers for Offer-in-Compromise Case Files Document. The use of labeled dividers is required.
12. Submit the file for approval, routing to Counsel for review. See IRM 5.8.8.5, Legal Opinion of Counsel.
13. Upon approval and signature, date and mail the acceptance letter(s). The acceptance letters should be mailed the same calendar year that the letters are signed. Ensure signed and dated copies are retained in the offer file.
14. Make a copy of the Form 7249, sanitize to black out or redact the taxpayer's social security number (both primary and secondary, if a joint offer) and mail it together with the sanitized transcripts to the appropriate office for placing in the public offer file.
15. Close the case on AOIC and process. See IRM 5.8.8.7 below.
5.8.8.4 (09-23-2008)
Acceptance Processing for Specific Types of Offers
1. When two or more related offers are being recommended for acceptance, but acceptance is based on one financial analysis, one acceptance narrative may be used. Multiple files should be created containing the separate items that pertain to each offer. It is not necessary to duplicate the information that pertains to both files. The files should be clearly marked indicating that there are related offers, for example "1 of 2" and "2 of 2."
2. When the accepted offer includes TFRP assessments, a careful review must be made to ensure all TFRP assessments are included. Generally, TFRP assessments made before August, 2000, combine all unpaid corporate tax quarters and were assessed under the tax period of the latest quarterly period owed by the corporation. Since August, 2000, TFRP assessments are made for each quarterly period that is owed by the corporation. The Form 656 and the Form 7249, Offer Acceptance Report, must match and must reflect each individually assessed TFRP tax period.
3. Offers from Federal employees require a determination of whether public policy implications exist based on the sensitivity of the employee's position or area of responsibility. The result of this consideration should be documented in the case file. Offer acceptances for employees of the IRS also require the approval of the SB/SE Territory Manager (2nd level) or SB/SE Compliance Services Department Manager (COIC).
Note:
Offers from Federal civil service retirees are to be considered under normal procedures.
5.8.8.5 (09-23-2008)
Legal Opinion of Counsel
1. Counsel is required to review offers when the total liability for all related offers on the same taxpayer is $50,000 or more. The purpose of Counsel's review is to determine whether the offer legally meets the standards of DATL, DATC or the promotion of ETA. Counsel reviews the offer to ensure it meets the legal requirements for compromise and conforms to the Service's policy and procedures.
2. If the liability(s) at the time of submission is $50,000 or greater, Counsel opinion is required.
3. Counsel’s signature on Form 7249 constitutes the legal opinion required by IRC § 7122(b). By signing the form, Counsel is certifying that all of the legal requirements for compromise have been met. If Counsel does not sign the form, the case cannot be compromised until any legal issues are resolved.
4. Counsel’s signature does not necessarily indicate concurrence with the acceptance decision, but only that there are no legal barriers to compromise. In some cases, Counsel may determine that the compromise is legally permissible, but raise policy concerns or other issues of a nonlegal nature. In such cases, Form 7249 will be signed and any other issues will be communicated by separate memorandum.
5. It is not required that Counsel concur in the acceptance decision in order for a compromise to go forward. However, the accepting official reviews and considers any opinion from Counsel prior to making the acceptance final. Where major policy concerns have been raised, it is appropriate to document the case history indicating that the accepting official fully considered the issues before accepting the offer.
5.8.8.6 (09-23-2008)
Public Inspection File
1. Public inspection of certain information regarding all OIC's accepted under I.R.C. section § 7122 and is authorized by I.R.C. section § 6103(k)(1).
2. Treas. Reg. 601.702 (d) (8) provides that for one year after the date of execution, a copy of the Form 7249, "Offer Acceptance Report," for each accepted OIC with respect to any liability for a tax imposed by title 26 shall be made available for inspection and copying. A separate file of accepted OIC records will be maintained for this purpose and made available to the public for a period of one year. The public inspection file will be maintained in a location designated by the Area office. The file will be maintained in the Area where the taxpayer resides . The Area office may destroy the Public Inspection file after the year has expired.
3. For each accepted offer, the file will only contain the following items:
• A copy of the redacted Form 7249
• The sanitized MFTRA-X or ANMF transcript.
4. The office that has accepted the offer will be responsible for providing all required documents as soon as possible after acceptance, for inclusion in the public inspection file.
5.8.8.7 (09-23-2008)
Accepted Offer File Processing
1. Once an offer has been closed on AOIC, it should be held in-house until the following Monday. On Monday, or as soon as practical thereafter, the offer should be released on AOIC and the entire file mailed to the proper MOIC unit. Care must be used to ensure that the offer is mailed to the same unit it is released to on AOIC. If two related offers are accepted and one has a Business Operating Division (BOD) code of Small Business (SB) and the other is coded Wage & Investment (WI), change the BOD code on the WI offer on AOIC to match the BOD code of the SB offer before releasing it to the MOIC unit and ship both to the designated SB site.
2. If the case is chosen for Embedded Quality (EQ) review, copies of the following documents should be made and placed in the file in lieu of the originals before the offer is forwarded for review. The following original documents should be sent to the MOIC unit in a file folder clearly indicating that the remaining information was mailed to EQ.
A. Original and amended Form 656, Offer in Compromise
B. Form 7249, Offer Acceptance Report
C. Copy of the Acceptance letter(s)
D. Any collateral agreements
Note:
Before forwarding the case to the MOIC unit take the following steps: (1) Verify that the original and any amended Form(s) 656 are in the case file; (2) Check to be sure that the Form(s) 656, Form 7249, IDRS, and AOIC all reflect the same tax liability period(s); (3) Verify that the waiver dates on the Form(s) 656, IDRS, and AOIC are correct and consistent.
3. Accepted offer files should be mailed with a Form 3210. Shipping offices must ensure that a receipted copy of the Form 3210 is received. If a receipted copy of the Form 3210 is not received within 30 calendar days of mailing, contact should be made with the receiving office and tracing actions taken. Appropriate actions must be taken to recover or replace missing files.
5.8.9 Possible Actions on Accepted Offers
• 5.8.9.1 Overview
• 5.8.9.2 Rescission of Accepted Offers
• 5.8.9.3 Potential Default Cases
• 5.8.9.4 Compromise of a Compromise
• 5.8.9.5 Overlooked Periods
• Exhibit 5.8.9-1 Pattern Letter 1603(P)
• Exhibit 5.8.9-2 Pattern Letter 1604(P)
• Exhibit 5.8.9-3 Pattern Letter 1607(P)
• Exhibit 5.8.9-4 Default Letter
5.8.9.1 (09-23-2008)
Overview
1. During the time an accepted offer is monitored, a determination to terminate or rescind an existing compromise agreement may need to be made. A determination whether to compromise an existing accepted offer may also be considered. This chapter addresses the situations which lead to the need for such decisions to be made and the procedures to follow.
5.8.9.2 (09-23-2008)
Rescission of Accepted Offers
1. An offer is an agreement which is binding on both the government and the taxpayer, and precludes further inquiry into the matters to which it relates, unless fraud or a mutual mistake of fact is identified.
2. An offer may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or a false representation that was made by one party.
3. A "mutual mistake of fact" is defined as an erroneous belief held by both parties about the facts as they existed at the time the contract was entered into.
4. The mere fact that both parties are mistaken with respect to the same basic assumption about an existing fact does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the offer in compromise.
5. To constitute fraud or false representation, the following must be present:
A. The representations related to material facts were false.
B. The maker knew the facts to be false.
C. The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.
6. If the offer was accepted by Appeals, the offer should be sent to the appropriate Appeals office to make the determination that the offer should be rescinded.
5.8.9.2.1 (09-23-2008)
Rescission Procedures
1. Rescind an offer in the following manner:
1. Prepare a letter to the taxpayer identifying the offer by the day it was accepted, and advising that the acceptance of the offer is rescinded and the acceptance letter is revoked.
2. Include in the letter the grounds for rescission in general terms with a demand for payment of the unpaid tax liability.
3. All rescission determinations must be reviewed and approved by Counsel before a rescission letter is forwarded to the taxpayer.
Note:
The letter must be signed by the same level of approval that accepted the offer.
4. Document the basis for the decision to rescind and any taxpayer contact on AOIC.
5. After all approvals have been received, notify the appropriate MOIC liaison of the rescission and request input of a TC 781 to ensure the case is reassigned to the field for appropriate collection action.
5.8.9.3 (09-23-2008)
Potential Default Cases
1. An offer can reach a potential default status in one of three ways:
A. The taxpayer failed to make timely payment of the amount due based on the terms of the offer or a related collateral agreement;
B. The taxpayer has not adhered to the compliance provisions of the offer; or
C. Taxpayer failed to return an erroneously issued refund.
Note:
Offers accepted after December 31, 1999 contain a clause relating to the severability of joint offer periods when a joint Form 656 is accepted. The severability clause will be applied to all joint offers, including those accepted prior to 1/1/2000.
2. Campus MOIC units have responsibility and authority to make determinations on potential offer default cases.
3. The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns or payments, the MOIC unit will default the offer. After all appropriate letters have been sent, generate a TDI or TDA, as appropriate and close the case as a default.
5.8.9.4 (09-23-2008)
Compromise of a Compromise
1. The compromise of a compromise should be rare in light of the investigation completed in connection with the original offer. However, in cases where the taxpayer is unable to pay the balance of an accepted offer or the balance of the contingent liability under the terms of a collateral agreement and the investigation reveals that extreme hardship or special circumstances exist, which would justify that a default is not in the best interest of the government, the Service has the option to:
A. Adjust the payment terms of the offer,
B. Formally compromise the existing compromise, or
C. Obtain managerial approval to settle the offer for the amount already paid and not default the offer.
2. A Other Investigation request will be made by the monitoring campuses to the field Offer groups only if a compromise of an accepted offer is received. An Other Investigation to the field should be rare, but when issued, the courtesy investigation should be coded with a priority code 100 and worked in an expeditious manner.
Note:
An Other Investigation to the field should only be issued by the MOIC function if a compromise on a compromise is received or the terms of an agreed collateral agreement cannot be properly monitored.
5.8.9.4.1 (09-23-2008)
Authority to Compromise Under a Compromise Contract
1. The Commissioner is authorized to accept an offer to compromise an accepted offer.
2. A proposal to compromise the balance of an accepted offer must rest on DATC.
5.8.9.4.2 (09-01-2005)
Receipt and Processing
1. The office of jurisdiction that initially accepted the offer will consider the taxpayer's proposal.
2. No specific offer form (such as Form 656) is prescribed for use in submitting such a proposal. The proposal should be:
• Made in letter format, and
• Include 20% initial required payment of the lump sum offer or the periodic payment.
3. Upon receipt of the proposal, add a history entry to AOIC indicating that an offer to compromise the offer has been received and notify the MOIC unit that the offer should not be defaulted until the results of the investigation are known.
Note:
For ICS, create an OI or CIP to control the taxpayer's proposal. When closing, be sure to note the results in the AOIC history.
4. The total amount offered to satisfy the balance due under a compromise contract must be fully paid no later than 10 calendar days after a notice of acceptance is issued. The taxpayer may:
A. Enclose full payment of the proposed amount with the proposal.
B. Pay part of the proposed amount with the proposal and pay the balance when notice of acceptance is received.
C. Full pay the proposed amount within 10 calendar days of the date the notice of acceptance is received.
5. The proposal letter should be addressed to the Commissioner of Internal Revenue Service and must conform to pattern Letter 1603(P), shown in Exhibit 5.8.9-1 below.
6. The taxpayer must submit a current financial statement(s) and all required supporting documentation.
5.8.9.4.3 (09-23-2008)
Consideration of Proposal
1. The consideration of such a proposal will be made by the office of jurisdiction that originally accepted the offer. Acceptance will depend on:
A. If it is in the best interest of the Government; and
B. If the same considerations and merits were applied as if it were submitted on a Form 656.
2. The information required to support the proposal should fit the case. Such as:
• Copy of the taxpayer's most recent income tax return or Command Code (CC) RTVUE/BRTVU print.
• Estimate of the remaining liability under the terms of the future income collateral agreement, if applicable.
• Reasons why the request is being made to compromise the existing agreement.
• Full compliance check.
• Statement of current financial condition.
• Description of future prospects and any other information which might have a bearing upon the acceptability of the offer.
• Estimated and projected amount of future income over the period covered by the remaining terms of the original offer in compromise agreement.
3. Compare the amount of the taxpayer's offer and the amount which is anticipated to be recouped under the remaining terms of the original offer agreement.
5.8.9.4.4 (09-23-2008)
Processing Completed Investigations
1. When the investigation is complete, the taxpayer's proposal, investigative report, and memorandum containing a complete statement of the facts in the case including the recommendation should be forwarded to the next level of authority for approval.
2. An acceptance or denial letter should be prepared for the delegated official. See Exhibits 5.8.9–2 and 5.8.9–3.
If… Then…
The taxpayer's proposal is acceptable The procedures for acceptance of original offers will be followed which include an opinion of Counsel as set forth in IRM 5.8.8.5, Legal Opinion of Counsel.
The offer is accepted The acceptance file will contain the following:
• Copy of Acceptance Letter
• Taxpayer's proposal
• Memorandum supporting the compromise of a compromise
• Work papers and financial information
• Original acceptance recommendation, if available
The proposal is not acceptable Forward to the delegated official for approval and signature. Include:
• Denial Letter (return without appeals)
• Taxpayer's proposal
• Memorandum supporting the recommendation
• Offer case file
Note:
No appeal rights are granted to the taxpayer.
3. Update the AOIC history with the results of the investigation. If the proposal is accepted, include in the AOIC history the amount of the accepted proposal and the terms for payment.
4. Once the decision letter has been signed and mailed, the Other Investigation or CIP should be closed. There is no open AOIC record.
5. Document the case history indicating that the OI is closed and the final resolution of the offer.
6. The closed file should be mailed to the appropriate MOIC unit for monitoring, if accepted, or defaulting if it was not accepted.
5.8.9.5 (09-23-2008)
Overlooked Periods
1. Occasionally, additional periods or years are discovered subsequent to the acceptance of an offer. When such liabilities are discovered, the offer agreement may be modified to include the additional period(s) as long as both the Service and the taxpayer are in agreement. The tax must have been assessed prior to the issuance of the notice of acceptance. Such modification would not require a determination of "mutual mistake of material fact."
2. If the overlooked periods are discovered by the local office then they should secure the original offer file and have the taxpayer add the omitted period(s) to the original offer. A pen and ink change should be made to the Form 7249 including the additional period(s). The appropriate officials must initial the recommended changes to the Form 7249.
3. Document the AOIC history indicating the period(s) added.
4. Return the case file to the MOIC unit.
5. If the overlooked periods are discovered by the MOIC unit then, they should send the file back to the original appropriate Area office or COIC site for consideration of whether to include the periods, per (2) above.
Exhibit 5.8.9-1 (09-23-2008)
Pattern Letter 1603(P)
This is an example of a proposal letter to compromise a balance due on an OIC or to compromise future income collateral agreements.
Proposal letter to compromise balance due on offer in compromise and/or to compromise future income collateral agreement contingent liability. The information that is printed in bold letters is to be added for a collateral agreement.
Commissioner of Internal Revenue
Washington, DC 20224
On [enter date from upper right corner of  acceptance letter] you accepted [my/our] offer in compromise and the related Form [2261, Collateral Agreement, Future Income –Individual; or 2261–A, Collateral Agreement, Future Income–Corporation]. [I/we] agreed to pay $[enter amount from Form 656, Offer in Compromise; if you amended Form 656, you must take this information from the latest amendment] to compromise the tax liability(s) listed below:
[List type(s) of tax and period(s) from Form 656 or the latest amendment, if applicable.]
 Instead of future payments specified in Form [2261; or 2261–A], [I/we] propose to pay [enter amount you are offering to pay] in full settlement of the original offer and the collateral agreement. [Also select one of the following sentences to describe how you will pay the amount you entered in the previous sentence:
[I/we] have enclosed full payment of the  proposed amount.
[I/we] will make full payment of the  [my/our] proposed amount when you notify [me/us] that you have accepted proposal.
[I/we] have enclosed $[enter amount you  are sending with this letter] and will pay the balance when you notify [me/us] that you have accepted [my/our] proposal.]
[If your original offer was submitted on a  Form 656, Offer in Compromise, with a revision date of February, 1992, or later, please insert the following sentence:
[I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years from [enter the date from the upper right corner of the acceptance letter.
[I/we] agree to waive any and all claims  to overpayments of tax or other liabilities, including interest on those payments, that I may be entitled to receive under the Internal Revenue Code. This waiver is limited to overpayments which haven't already been refunded to me for any years or tax periods which end before or during the year you accept this proposal.
[I/we] have enclosed a letter with this  proposal which contains the detailed reasons for submitting this offer and a completed financial statement showing [my/our] current financial condition.
[Enter your signature and today's date.
Each person who is submitting this    proposal must
sign here.]
Enclosure:
Exhibit 5.8.9-2 (09-23-2008)
Pattern Letter 1604(P)
This is an example of an acceptance letter for a compromise of a compromise.
Acceptance letter for proposal to compromise balance due on offer in compromise and/or collateral agreement. The information that is printed in bold letters is to be added for a collateral agreement.
Date: Social Security or Employer
Identification Number:
Salutation Person to Contact:

Telephone Number:
We accept your proposal to pay  $---- to settle the remaining liability under the offer in compromise accepted on Enter Dateand/or the related collateral agreement.
Since you have paid the amount  proposed, you do not need to take further action. (or: Since you enclosed $---- with your proposal, please send the balance of $---- by Enter Date) (or: Since payment was to be made on notice of acceptance of your proposal, please send $---- by Enter Date.)
Your check or money order should  be made payable to the United States Treasury and sent to (service center address Attn.: Collection Offer Unit).
If you receive a refund that you  specifically waived under the terms of your proposal, please return it promptly to the service center, to the attention of the Offer Unit.
If you have any questions,  please contact the person whose name and telephone number are shown above.
Sincerely yours,
(Signature and title)
Exhibit 5.8.9-3 (09-23-2008)
Pattern Letter 1607(P)
This is an example of a denial of a proposal of an offer on an offer.
Denial of proposal to compromise balance due on offer in compromise and/ or collateral agreement. The information that is printed in bold letters should be added for a collateral agreement.
Salutation
We are sorry, but we cannot accept your proposal dated ---- to compromise the remaining liability under the offer in compromise accepted on Enter Date(and/or related collateral agreement).
(Explain reasons)
We must, therefore, ask you to comply with the terms of the offer in compromise including any collateral agreement. If you have any questions, please contact (name, Internal Revenue Service Center, address, telephone number).
Sincerely yours,
(Signature and title)
Exhibit 5.8.9-4 (09-23-2008)
Default Letter
This is an example of a default of an offer for failure to meet the agreed terms.
Failure to Comply with the terms of an accepted offer in compromise and/or related collateral agreement. The information that is printed in bold letters should be added for a collateral agreement.
Salutation:
This refers to our letter of  [date], accepting your offer of $[amount], in compromise of your [kind of tax] tax liability, plus statutory additions, for [years or tax periods]. Your offer included your agreement to the default provisions, waiver of refunds, payment of interest, and other terms provided on the Form 656.
 Also included was a related collateral agreement(s) you submitted as additional consideration for acceptance of your offer.
Under the terms of your offer,  $[amount] was to be paid as follows:
[Quote terms of payment shown on Form 656]
 The collateral agreement(s) provide that you must file annual income statements and pay graduated percentages of annual income for the years [date] through [date].
Our records show that you did  not comply with the terms of the offer and collateral agreement(s) [specify reason for non-compliance], therefore your offer in compromise is declared in default and the agreement to compromise the original liability is terminated. All payments on the offer and collateral agreement(s) will be applied to the original liability.
Please contact [name, address,  and telephone number] if you have any questions and to discuss payment of the remaining amount of the original liability.
Sincerely yours,
[signature and title]
.8.10 Special Case Processing
• 5.8.10.1 Overview
• 5.8.10.2 Bankruptcy
• 5.8.10.3 Other Insolvency Cases
• 5.8.10.4 Death of Taxpayer
• 5.8.10.5 Transferee
• 5.8.10.6 Discharge and Subordination Requests
• 5.8.10.7 Effect of Previous Offers on Collection Statute
• 5.8.10.8 Indicators of Practitioner Fraud
• 5.8.10.9 Indicators of Taxpayer Fraud
5.8.10.1 (09-23-2008)
Overview
1. During the investigation of an offer, certain situations may be encountered that require consideration before a final determination can be made. This section discusses how to treat these situations when evaluating an offer.
5.8.10.2 (09-23-2008)
Bankruptcy
1. Bankruptcy can have a specific impact on the Service's consideration of an offer. The taxpayer may file bankruptcy and an offer simultaneously, or file an offer in an attempt to avoid bankruptcy, or a file an offer after a bankruptcy has been concluded. The following discusses these situations.
5.8.10.2.1 (09-23-2008)
Offer in Compromise During Bankruptcy
1. The Service will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides procedures to resolve the Service's claim.
2. An OIC will not be considered under administrative OIC procedures until the bankruptcy is concluded. In Chapter 7 cases, an administrative compromise with the taxpayer can be considered after the taxpayer has received a discharge. See IRM 5.8.10.2.3 below. In Chapter 11, 12, and 13 cases, an administrative compromise will not be considered until the taxpayer completes payments under the plan or the bankruptcy is dismissed by the court.
3. If a taxpayer is in bankruptcy when an administrative OIC is submitted or during a pending offer investigation, the offer is returned.
5.8.10.2.2 (09-23-2008)
Offers in Compromise Before Bankruptcy
1. When a taxpayer threatens bankruptcy, the impact of bankruptcy on the Service's ability to collect must be considered. If the OI believes, based upon factual information, that the taxpayer is seriously considering filing bankruptcy, the employee should discuss the benefits of filing an administrative offer instead.
2. Benefits to the Service:
• The Service can negotiate for amounts collectible from future income and from assets beyond the reach of the government, that may not be collectible if the taxpayer files bankruptcy.
• Negotiations may result in an offer amount that exceeds the amount recoverable in an insolvency proceeding.
• Terms for payment of an offer may result in funds being collected in a shorter time than through bankruptcy.
3. Benefits to the Taxpayer:
• Bankruptcy carries certain negative repercussions that an OIC will not cause, such as the effect on credit ratings.
• Bankruptcy does not discharge all tax liabilities.
• If a NFTL has been filed, the federal tax lien may survive bankruptcy against certain assets.
4. While evaluating the acceptability of an OIC when the threat of bankruptcy is a consideration, determine the RCP as defined in IRM 5.8.5. To determine the amount that would be collected through bankruptcy and what liabilities would be discharged, contact an advisor in the Insolvency Section and discuss the facts of the case.
5. Analysis of the collectibility, if bankruptcy were filed, along with the financial analysis and a determination of liabilities that would be fully discharged, should result in the ability to make an informed decision regarding the OIC. It should also open negotiation with the taxpayer.
6. When doing the analysis consider the following questions:
• Is the Service the sole or major creditor?
• Would taxes be dischargeable in bankruptcy?
• Does the offer amount equal or exceed what the Service can reasonably expect to recover from bankruptcy?
• Are there other considerations, such as what could be collected on liabilities that would not be discharged, or what could be collected from property outside of the bankruptcy, including third parties?
Note:
Under no circumstances will the Service accept less than would be recoverable from a Chapter 7 bankruptcy, unless special circumstances exist.
7. If it is determined that processing an offer under the Service's administrative procedures is the better alternative, then proceed with the offer process.
5.8.10.2.3 (09-23-2008)
Acceptance of Offer in Compromise After Chapter 7 Bankruptcy
1. In most Chapter 7 bankruptcies, the discharge is issued and the stay lifted in approximately 5 months. An OIC will not normally be considered under the Service's administrative procedures until the discharge is granted.
2. For debtors discharged in Chapter 7, where the bankruptcy case is still pending, it is uncertain whether the Service would still have a valid claim in bankruptcy if an OIC is accepted. Therefore, the amount acceptable should include the amount that the Service can reasonably expect to recover from the bankruptcy in addition to what can be collected from the taxpayer on non-discharged liabilities or from property outside the bankruptcy.
5.8.10.2.4 (09-23-2008)
Bankruptcy After Offer In Compromise Acceptance
1. When a taxpayer files bankruptcy after an OIC is accepted, the Service may need to take specific actions to secure unpaid offer funds or to secure payment of tax through the bankruptcy proceeding. (See IRM 25.17, Bankruptcy, for additional information.)
2. In accordance with the Bankruptcy Code, the offer should not be defaulted or payments solicited while the taxpayer is in bankruptcy.
3. When the Service becomes aware that a bankruptcy has been filed after the acceptance of an OIC:
If… Then…
The offer funds have been paid in full The bankruptcy filing has no effect on the accepted offer.
The offer funds have not been paid in full Contact the Insolvency Unit to determine necessary action to secure the Service's interest in the bankruptcy proceeding.
5.8.10.3 (09-23-2008)
Other Insolvency Cases
1. A copy of the court order or other evidence should accompany Form 656.
2. The following should be secured in "Receiverships" and other non-bankruptcy insolvencies:
• A general statement of the circumstances which resulted in the receivership and the purpose of the receivership; that is, whether the objective is liquidation of assets, conservation of assets, foreclosure of a mortgage or reorganization.
• A copy of the petition for the appointment of a receiver and a copy of the court order appointing the receiver or trustee can be used in lieu of a general statement, if the petition provides the information above.
• Copies of all pertinent schedules filed with the court.
3. Consideration of an OIC frequently presents questions concerning the rights of the government to priority in the collection of the tax claims over the claims of other creditors of the taxpayer.
4. The rights of other creditors are based on liens which may be recognized by state law, but because of the taxpayer's assignment of assets for the benefit of other creditors, the provisions of 31 U.S.C. § 3713 apply.
5. When considering the offer:
• Evaluate the rights of all creditors,
• Evaluate all facts and circumstances relating to the various claims,
• Verify all pertinent dates, such as the origin and filing of all claims and liens, and
• Verify the steps which have been taken towards the enforcement of the claimant's alleged rights.
If… Then…
The priority rights of the United States are disregarded when the funds of the estate are disbursed An assignee for the benefit of creditors, as well as an executor or administrator of a decedent's estate, may become personally liable.
A corporation is the assignor and the tax liability sought to be compromised consists of withholding of Federal Insurance Contribution Act (FICA) taxes, or taxes which the assignor might be required to withhold or collect from others and pay over to the government Consider the possibility of enforcing the TFRP provisions of the code.
6. When questions arise regarding the priority rights of the United States contact Area Counsel.
5.8.10.4 (09-23-2008)
Death of Taxpayer
1. When the Service is notified of the death of the taxpayer who submitted an OIC that is currently under consideration, the Service can no longer consider the OIC. A termination letter will be generated from AOIC and the offer should be closed with the termination closure option.
2. Many times the OIC under consideration was submitted jointly by a husband and wife. In that situation, contact with the surviving spouse should be made to determine whether there is a probate proceeding pending. See IRM 5.5, Insolvencies, Descendents' Estates and Estate Taxes, and IRM 5.17.13.10, Descendents Estates, for more information about decedent taxpayers and probate proceedings.
If… Then…
There is a probate Explain that consideration of the offer will be terminated and that another offer can be submitted once the probate has been concluded. Contact Technical Support and advise of the probate proceeding and the tax liability due. Terminate consideration of the offer.
There will be no probate proceeding and the surviving spouse does not want us to continue considering the OIC Terminate consideration of the joint offer due to the death of the spouse.
There will be no probate proceeding, the surviving spouse does want us to continue considering the OIC, and the surviving spouse is named as executor by a will, or if there is no will, the spouse is named as the personal representative by the probate court Even if the surviving spouse is named as the executor in a will, the spouse may need approval from the probate court, which determines the validity of wills, prior to acting on behalf of the decedent spouse. Consult Area Counsel.
Once the surviving spouse is authorized to act on behalf of the decedent by the probate court, obtain a copy of the will and/or court order, and an amended OIC reflecting the spouse as deceased and continue consideration of the joint offer.
There is no probate proceeding and the surviving spouse wants the Service to continue consideration of the OIC; however, the spouse was not appointed executor by a will (with approval by the probate court), or if there is no will, the surviving spouse is not named as the personal representative by the probate court Since the surviving spouse does not have the authority to compromise the liability of the deceased taxpayer, secure an amended offer removing the deceased spouse's name and continue consideration of an offer for the surviving spouse's obligation only.
5.8.10.5 (09-23-2008)
Transferee
1. When an OIC investigation reveals the potential for a transferee situation, the burden of proof of transferee liability rests with the government.
Note:
If it is determined that a transferee investigation should be initiated, it will not be conducted by the Offer Investigator. Instead, it will be conducted by a field RO by generating an Other Investigation. Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
If… Then…
A potential transferee is discovered during an OIC investigation Conduct an investigation to determine if a transferee exists.
A transferee liability exits 1. Determine the amount the Service may reasonably expect to collect from the transferee.
2. Attempt to negotiate an acceptable OIC amount with the transferee value included in the RCP calculation.
There is a question whether a transferee liability may be established and sustained 3. Determine the value of the transferee based on the degree of doubt regarding the transferee being sustained.
4. Attempt to negotiate an acceptable offer amount including this value in the RCP.
Note:
Flexibility should be exercised during negotiations if the transferee assessment will not be pursued.
While investigating an OIC and the OI determines that a transferee assessment should be pursued and negotiations have not resulted in an acceptable offer amount 5. Attempt to secure a withdrawal letter from the taxpayer.
6. If the taxpayer does not withdraw the OIC, prepare the rejection closing documents and follow procedures for recommending rejection with appeal rights. Include the value of the transferee in the RCP.
7. Prepare an Other Investigation to be issue to a field RO to investigate the transferee issue.
5.8.10.6 (09-23-2008)
Discharge and Subordination Requests
1. The government is bound by the payment terms of an accepted OIC. The Service cannot require payment of the offer amount in different terms, other than agreed to in the OIC agreement.
Note:
In these cases, the discharge or subordination investigation will not be conducted by the OI. Instead, it must be conducted by the appropriate Technical Support by generating an Other Investigation.Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
2. Requests for discharge or subordination received while an OIC is pending are to be handled as follows:
If… Then…
The discharge or subordination request is approved. Advise the taxpayer that proceeds from the discharge or subordination will be applied to the OIC, if accepted. If the OIC is not accepted, the proceeds will be applied to the tax liability. Before delivering the certificate of discharge or subordination, require the taxpayer to execute a Form 3040. In the signature block, have them write the word "irrevocable" . Retain the signed Form 3040 in the case file for use in the event the OIC is returned, withdrawn, or rejected.
Note:
For those taxpayers who have submitted a discharge or subordination while the OIC is pending, the taxpayer should check the box and place their initials next to that box. This will serve the same purpose as having the taxpayer write "irrevocable" on the Form 3040.
3. Requests for discharge or subordination received after an OIC has been accepted, but before all the payment terms have been met, should be handled as follows:
If… Then…
The taxpayer does not intend to apply the proceeds received from the discharge or subordination to the OIC amount Deny the discharge or subordination request.
The taxpayer does intend to apply the proceeds toward the OIC amount Request an investigation of the discharge or subordination from Technical Support and then coordinate with Technical Support to apply the proceeds to the OIC amount.
5.8.10.7 (09-23-2008)
Effect of Previous Offers on Collection Statute
1. Over the years there have been numerous changes in the law and IRS procedures relating to the extension of the statutory period for collection while OIC's are being considered. The information provided in this section will assist in determining the correct CSED, which can impact the number of required payments.
2. For OIC's pending prior to 1/1/2000, the taxpayer executed a waiver of the statutory period for collection, extending the collection statute for the period the OIC was under consideration and for an additional one year. For OIC's accepted prior to 1/1/2000 this waiver of the statutory period for collection also included the period of time the terms of an accepted OIC were still in effect.
Note:
RRA 98 imposed a limitation for OIC's subject to a waiver of collection statute. The waiver cannot extend the CSED beyond either 12/31/2002, or the original CSED, whichever is later.
3. For OIC's submitted or pending after 12/31/1999, the statutory period for collection was suspended, by operation of law, while the OIC was pending, for 30 calendar days following rejection of an OIC, and for the period the rejection was being considered in Appeals. This suspension of the collection statute is effective through 12/20/2000.
4. For OIC's that were pending prior to 1/1/2000 and were still pending on or after 1/1/2000, the collection statute is extended by both waiver periods and by the suspension period (See paragraphs 2 and 3 above).
Note:
The limitation on the waiver of collection statute applies to these OIC periods.
5. The Community Renewal Tax Relief Act of 2000 was signed into law on 12/21/2000. This act eliminated the suspension of the statutory period for collection, effective on the day of enactment (12/21/2000).
6. The Job Creation and Workers Assistance Act was signed into law March 9, 2002. This law reinstated the suspension of the statutory period for collection, by operation of law, while the OIC is pending, for 30 calendar days following rejection of an OIC, and for the period the rejection is being considered in Appeals.
7. Cases may be encountered where prior rules were in effect. The following chart shows the changes that have occurred in this area.
If the offer has a… and was… then…
Pending date of 1/1/2000 or later Accepted prior to 12/21/2000 The CSED is extended from the pending date (TC 480) until the acceptance date (TC 781/788).
Pending date of 1/1/2000 or later Accepted between 12/21/2000 and 3/8/2002 The CSED is only extended from the pending date (TC 480) through 12/20/2000.
Pending date of 1/1/2000 or later Accepted after 3/8/2002 The CSED is extended from the pending date (TC 480) through 12/20/2000 and if the offer was still pending, it was also extended from 3/9/02 until the date of acceptance (TC 780).
Pending date of 1/1/2000 or later Rejected and taxpayer does not appeal The CSED is extended from the pending date (TC 480) until 30 calendar days after the rejection letter is issued (TC 481), excluding any portion of that period which falls between 12/21/2000 and 3/8/2002.
Note:
As of 2/2/2004, the AOIC system automatically 30 days to the date of the TC 481 on rejected not Appealed offer closures prior to transmission to master file. Appealed rejections carry the Appeals rejection date.
Pending date of 1/1/2000 or later Rejected and sustained in Appeals The CSED is extended from the pending date (TC 480) until the date that Appeals issues a decision letter (TC 481), excluding any portion of that period which falls between 12/21/2000 and 3/8/2002.
Pending date prior to 1/1/2000 Accepted prior to 1/1/2000 The CSED is extended from the pending date (TC 480) until all payment installments are made (TC 780) plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later.
Pending date prior to 1/1/2000 Accepted after 12/31/1999 but prior to 12/21/2000 The CSED is extended from the pending date (TC 480) through 12/31/99 plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later. If the offer was still pending on 1/1/2000, the CSED would also be extended from that date until the date of acceptance (TC 780).
Pending date prior to 1/1/2000 Accepted after 12/20/2000 The CSED is extended from the pending date (TC 480) through 12/31/99 plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later. In addition, the CSED is extended from 1/1/2000 through 12/20/2000. However, the CSED would not be extended from 12/21/2000 until 3/8/2002. If the offer was still pending on 3/9/2002 the CSED would also be extended from that date until it was accepted (TC 780).
Pending date prior to 1/1/2000 Rejected prior to 1/1/2000 The CSED is extended from the pending date (TC 480) until the rejection date (TC 481) plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later.
Pending date prior to 1/1/2000 Rejected 1/1/2000 or later The CSED is extended from the pending date (TC 480) until 12/31/1999 plus 1 year. The CSED cannot be extended beyond 12/31/2002. In addition, the CSED is extended from 1/1/2000 until 12/20/2000 or the rejection date (TC 481) plus 30 calendar days, whichever is earlier, and from 3/9/2002 until the rejection date (TC 481) plus 30 calendar days.
8. If only one party to a joint assessment files an OIC, then the statute is suspended just for that person. The appropriate CSED suspension code must be input on IDRS to identify the specific taxpayer for which the offer applies. They are described below.
• P = Primary
• S = Secondary
• B = Both
5.8.10.8 (09-23-2008)
Indicators of Practitioner Fraud
1. During the verification of financial statements, employees should always be aware of any indications that a practitioner violated the duties relating to practice before the IRS (Circular No. 230 Sections 10.20 to 10.23) or engaged in incompetent or disreputable conduct (Circular No. 230 Section 10.51) relating to OIC. Also, be aware of indicators of fraud. A referral to the Office of Professional Responsibility (OPR) may be appropriate. Some examples of those indicators are:
A. Failure to exercise due diligence. This is conduct that shows that the practitioner did not act consistently with the affirmative duties requiring a thorough effort on the taxpayer's behalf.
B. Deceptive advertising with respect to offers (such as unqualified promises of settlement, or "pennies on the dollar" ).
2. Section 822 of the American Jobs Creation Act of 2004, PL. 108-357, 118 Stat. 1418, expands the sanctions that the Secretary may impose on representatives to include both censure and monetary penalties. If the employee is acting on behalf of an employer or other entity, the Secretary may impose a monetary penalty on the employer or other entity if it knew, or reasonably should have known, of the conduct.
3. A referral should also be made if the employee becomes aware that a suspended or disbarred practitioner is practicing or attempting to practice before the IRS, or when it is noted that an unenrolled return preparer has been added to an otherwise valid Form 2848, Power of Attorney and Declaration of Representative , to attempt to have this person represent the taxpayer before the IRS during the course of the offer investigation.
Note:
The referral process is required by Section § 10.53(a) and 10.53(b) of Circular No. 230.
4. Employees should also report suspected violations of 18, U.S.C. § 207, Post Employment Conflicts of Interest (Circular No. 230, Section 10.25), to TIGTA or the Associate chief counsel (General Legal Services).
5.8.10.8.1 (09-23-2008)
The Role of the Office of Professional Responsibility
1. Under the authority provided by 31 U.S.C. § 330 and 31 CFR § 10, which is published asTreasury Department Circular No. 230 "Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service" (Revised 6/20/2005), OPR renders decisions on applications for enrollment to practice, makes inquiries into matters under its jurisdiction, and institutes disciplinary proceedings against tax practitioners who are found to have violated any part of Circular No. 230.
5.8.10.8.2 (09-23-2008)
Badges of Tax Practitioner Abuse in the Offer in Compromise Program
1. A pattern of inappropriate conduct is a factor that the OPR will consider in determining whether to bring disciplinary action against a practitioner under Circular No. 230.
2. Below are some indicators of abuse by practitioners.
A. Badge of Abuse #1 — Establishing a pattern on several Offer in Compromise investigations to influence the case disposition or Service employee to obtain the desired results by:
• Using abusive language
• Threatening claims of misconduct (e.g., Section 1203 of the RRA)
• Making false claims of misconduct
• Making false accusations
• Verbal/Physical threats or assaults
• Offering a bribe (e.g., offering gifts or other things of value)
Note:
Verbal and/or physical threats/assaults should be referred directly to the local TIGTA office or by calling the TIGTA National Hotline at 1–800–366–4484 or 1–800–589–3718 after hours.
B. Badge of Abuse #2 — Establishing a pattern on several OIC cases in which investigations are delayed by the practitioner performing one or several of the following actions:
• Missing appointments
• Canceling appointments at the last moment with no good cause provided
• Agreeing to provide requested documentation and/or information and then refusing to follow through, hindering the ability of the employee to complete the investigation of the offer
• Providing partial information requiring repeated call backs/correspondence and delays.
Note:
IRM 1.25.1.3 provides that a referral must clearly document all case actions leading to the request for information/documents/substantiation, and the practitioner's failure to comply. This set of facts may also support a referral under Section 10.22 (Diligence as to accuracy) and Section 10.23 (Prompt disposition of pending matters) of Circular 230. In the event that a practitioner refused to provide documentation on grounds of privilege, the Office of Chief Counsel should be consulted.
C. Badge of Abuse #3 — Establishing a pattern on several offer submissions, which would include significant omissions, or significant and unreasonable discounts on a number of assets. The information provided must be shown to be materially misrepresented, not merely a simple error. The omissions or material misrepresentations could include, but are not limited to, the following:
• Assets are omitted
• Listed assets are undervalued
• Understating the taxpayer's income
• Over stating the taxpayer's expenses
• CIS reflects a large number of claimed dependents
• CIS reflects similar dollar amounts in both checking and savings accounts
• CIS reflects no available credit, including credit cards
• CIS reflects omissions of assets
• CIS shows similar listings for monthly income and expenses (e.g. same low wages, same child care expenses)
3. The badges of practitioner abuse may also be indicators of potential fraud. The inappropriate misconduct should be discussed with your Fraud Technical Advisor (FTA) if appropriate. If a decision is made to refer the practitioner to TIGTA and/or the Fraud program for potential criminal sanctions, these actions must be clearly documented in the OPR referral.
5.8.10.8.3 (09-23-2008)
Referring Tax Practitioner Abuse to the Office of Professional Responsibility
1. Employees should be alert to the patterns and/or trends of inappropriate conduct as discussed in IRM 5.8.10.8.2 above. When patterns and/or trends are identified through OIC's submitted by a tax practitioner, or when reported to an employee by any other person other than an officer or employee of the Service, the employee should complete and submit Form 8484, Report of Suspected Practitioner Misconduct and Report of Appraiser Penalty, to the OPR, and refer the suspected practitioner misconduct for appropriate disciplinary action.
2. Circular No. 230, Section 10.53 states a referral should include all of the basic information, as well as the reasons supporting the Service employee's belief that the information submitted by the practitioner was below the expected standard.
3. Mail or fax the Form 8484, the accompanying narrative, and any other supporting documents to:
Office of Professional Responsibility
SE:OPR
Attn: Misconduct Reports Desk
1111 Constitution Ave, NW
Washington, DC 20224
FAX: (202) 622–2207
4. Additional information about reporting suspected practitioner misconduct may be found on the OPR Intranet Website at http://nhq.no.irs.gov/OPR/ or go to irweb at irs.gov. OPR has established an e-mail address to answer questions about Circular No. 230 issues at OPR@irs.gov.
5.8.10.8.4 (09-23-2008)
Preparation of Form 8484, Report of Suspected Practitioner Misconduct and Report of Appraiser Penalty to the Office of Professional Responsibility (OPR)
1. Part A – Practitioner Information
Practitioner information must include the practitioner's name, mailing address, telephone number, fax number, social security number, and CAF number. Indicate whether the practitioner is an attorney, certified public accountant, enrolled agent, or enrolled actuary.
2. Part B – Evidence of Practice before the IRS
If available, attach a copy of the Form 2848, Power of Attorney and Declaration of Representative, or an IDRS CAF printout to the Form 8484. If neither a copy of the Form 2848 nor a CAF printout is available, but the employee has personal knowledge of the practice, provide the following statement, "I dealt with this practitioner during (year) regarding a collection matter. The Form 2848 was not put on the CAF and I do not have access to the closed case file." OPR must be able to accurately identify and locate the tax practitioner in order to process the referral and establish proof of practice before the Internal Revenue Service.
3. Part C – Explanation of Suspected Misconduct
Complete and attach a narrative to the Form 8484. The narrative should be detailed enough to allow the OPR to give the practitioner fair notice of the suspected misconduct. It should list all significant events that illustrate the inappropriate conduct in chronological order, explain how the conduct impacts on the administration of the tax laws, as well as any other supporting information that will establish a pattern of abuse. It should include appropriate quotations from the case history that would support the alleged misconduct. If applicable, hand-written material should be transcribed. The narrative should be specific and should include: who, what, when, where, and why.
4. Part D – Contact Person and Address
The contact person is not necessarily the person with first-hand knowledge of the suspected misconduct. Rather, the contact person may be an Area employee responsible for collecting misconduct reports and submitting them to the OPR. OPR will direct questions concerning the referral to the contact person.
5. Part E – Management Approval
While OPR does not require any particular level of management approval that is required, referrals made by OIC employees, the referral should be reviewed and approved by field Group Managers or Offer Examiner Unit Managers (COIC) before documents are sent to the OPR.
6. Part F – Office of Professional Responsibility (OPR) Acknowledgement of Report
Upon receiving the Form 8484 and the corresponding narrative, OPR will complete Part F and return a copy to the contact person.
5.8.10.9 (09-23-2008)
Indicators of Taxpayer Fraud
1. The following are potential fraud warning signs most identifiable during an interview:
A. Failing to keep proper books and records in a business or profession.
B. No records, poorly kept records, or attempts to falsify or alter records.
C. Destroying books and records without plausible explanation or refusal to make certain records available.
D. Extent of taxpayer's control of sales and receipts and the apparent unwillingness to delegate this function to employees.
E. Engaging in illegal activities.
F. Personal living standard and asset acquisition is inconsistent with reported income.
G. Indications that valuable assets belonging to the taxpayer are being acquired and held in the name of others.
H. Self-serving statements with no documented proof.
I. Repeated procrastination on the part of the taxpayer in making and keeping appointments.
J. Hasty agreement to adjust and undue concern about immediate closing of the case may indicate a more thorough examination may be necessary.
2. The following are potential fraud warning signs most identifiable during verification of the financial statement:
A. Uncooperative attitude displayed by:
• Not providing requested information
• Refusal to make certain records available
• Not furnishing adequate explanations for discrepancies or questionable items
B. Trying to conceal a pertinent fact or record.
C. Failing to deposit all receipts to the business account.
D. Use of nominees or false names.
E. Unusual depletion of assets shortly before filing an offer.
F. Inflated salaries, payment of bonuses or cash withdrawals by officers, directors, shareholders, or other insiders.
G. Transfers of property to insiders, shareholders, or relatives shortly before filing the offer.
H. Payoff of loans to directors, officers, shareholders, relatives, or other insiders shortly before filing of the offer.
I. Complicated corporate structures and relationships.
J. Undervaluing of assets.
K. Overstatement of liabilities.
3. The fraud indicators below can fall into any of the categories in paragraphs (1) and (2) above:
A. Making false, misleading, and inconsistent statements.
B. Using currency instead of bank accounts or making large expenditures in currency.
C. Concealment of bank accounts and other property.
4. If indications of fraud are identified, follow established procedures for preparing a referral to Criminal Investigation and suspend the offer investigation in the following manner:
If Criminal Investigation… Then…
Rejects the referral Investigation of the OIC may continue.
Accepts the referral No contact will be made with the taxpayer regarding the status of the offer until Criminal Investigation informs the taxpayer of the criminal investigation and /or authorizes the OI to contact the taxpayer.
5. Once the taxpayer has been notified by CI of the pending investigation and Collection has been authorized to contact the taxpayer, the OI will advise the taxpayer of the following:
• The OIC could be returned because other investigations are pending that may affect the liability sought to be compromised or the grounds on which it was submitted
• Action on the OIC will be suspended pending the outcome of the criminal investigation
• The offer could be withdrawn.
.8.11 Effective Tax Administration
• 5.8.11.1 Overview
• 5.8.11.2 Legal Basis for Effective Tax Administration Offer
• 5.8.11.3 Initial Processing of Effective Tax Administration Offers
• 5.8.11.4 Evaluation of Offers
• 5.8.11.5 Documentation and Verification
• 5.8.11.6 Final Processing
• Exhibit 5.8.11-1 Effective Tax Administration Non-Hardship OIC Check Sheet
5.8.11.1 (09-23-2008)
Overview
1. As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added section 7122(c) to the Internal Revenue Code. That section provides that the Service shall set forth guidelines for determining when an OIC should be accepted. Congress explained that these guidelines should allow the Service to consider:
• Hardship,
• Public policy, and
• Equity
Treasury Regulation § 301.7122-1 authorizes the Service to consider OIC's raising these issues. These offers are called Effective Tax Administration (ETA) offers.
2. The availability of an ETA offer encourages taxpayers to comply with the tax laws because taxpayers will believe the tax laws are fair and equitable. The ETA offer allows for situations where tax liabilities should not be collected even though:
• The tax is legally owed, and
• The taxpayer has the ability to pay it in full
3. No compromise to promote ETA may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.
4. If a taxpayer submits an ETA offer, first investigate the offer for:
• DATL, and/or
• DATC
5. An ETA offer can only be considered when the Service has determined that the taxpayer does not qualify for consideration under DATL and/or DATC.
6. The taxpayer must include the CIS (Form 433-A and/or Form 433-B) when submitting an offer requesting consideration under ETA.
7. Economic hardship standard of § 301.6343-1 specifically applies only to individuals.
5.8.11.2 (09-23-2008)
Legal Basis for Effective Tax Administration Offer
1. Compared to Doubt as to Collectibility (DATC)
A. In a DATC offer, the tax liability equals or exceeds the taxpayers RCP which is:
• Net equity, plus
• Future income, and
• Other components of collectibility
B. In an ETA offer the tax liability is less than the taxpayers RCP. The RCP shows the taxes owed can be collected in full either:
• In a lump sum, or
• Through an installment agreement (IA)
C. A DATC offer does not convert to an ETA offer if the OI and the taxpayer cannot agree on an acceptable offer amount.
2. Compared to Doubt as to Collectibility with Special Circumstances (DCSC)
A. Taxpayers may qualify for an ETA offer when their RCP is greater than the liability but there are economic or public policy/equity circumstances that would justify accepting the offer for an amount less than full payment.
B. Taxpayers may qualify for a DCSC offer when they cannot fully pay the tax due but have proven special circumstances that warrant acceptance for less than RCP. Factors establishing special circumstances under DATC are the same as those considered under ETA. Refer to IRM 5.8.4.3.
Example:
The taxpayer owes $ 20,000. The RCP is $ 25,000. The taxpayer could have an offer accepted for less than the total liability of $ 20,000 under the ETA provisions if economic hardship, or public policy/equity issues exist which would support an acceptance recommendation.
Example:
The taxpayer owes $20,000. However his RCP is $15,000. The offer does not meet the legal basis for an ETA because the RCP is lower than the liability. However, applying the same factors of economic hardship, or public policy/equity, an offer could be accepted for less than the RCP ($15,000) under DCSC provisions.
3. Compared to Doubt as to Liability
An offer can be considered under ETA provisions only when there are no DATL issues.
4. In reaching these determinations:
If… Then…
The Service determines that there is doubt as to the amount of the liability the taxpayer owes Taxpayer is not eligible for ETA consideration. The OIC is considered based on the DATL issue.
The Service determines that the taxpayers equity in assets plus future income (RCP) does not exceed the amount of the tax liability Taxpayer is not eligible for an ETA offer. The OIC is considered based on DATC. However, hardship or public policy/equity may be present in the case to allow consideration under DCSC.
The Service determines the taxpayer is not eligible for compromise based on DATL or DATC and the taxpayer can demonstrate that collection of the tax liability in full would create economic hardship, or demonstrate that there is compelling public policy or equity issues in the case that would provide sufficient basis for compromise The taxpayer would be eligible for ETA consideration.
5. Before we can consider an OIC based on economic hardship or public policy/equity considerations, three factors must exist:
A. A liability has been or will be assessed against taxpayer(s) before acceptance of the OIC
B. The sum of net equity in assets, future income, and the other components of collectibility making up RCP must be greater than the amount owed.
C. Exceptional circumstances exist, such as the collection of the tax would create an economic hardship, or there is compelling public policy or equity considerations that provide sufficient basis for compromise.
5.8.11.2.1 (09-23-2008)
Economic Hardship
1. When a taxpayers liability can be collected in full but collection would create an economic hardship, an ETA offer based on economic hardship can be considered.
2. The definition of economic hardship as it applies to ETA offers is derived from Treasury Regulations § 301.6343-1. Economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses. The determination of a reasonable amount for basic living expenses will be made by the Commissioner and will vary according to the unique circumstances of the individual taxpayer. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.
Note:
Because economic hardship is defined as the inability to meet reasonable basic living expenses, it applies only to individuals (including sole proprietorship entities). Compromise on economic hardship grounds is not available to corporations, partnerships, or other non-individual entities.
3. The taxpayers financial information and special circumstances must be examined to determine if they qualify for an ETA offer based on economic hardship. Financial analysis includes reviewing basic living expenses as well as other considerations.
4. The taxpayer’s income and basic living expenses must be considered to determine if the claim for economic hardship should be accepted. Basic living expenses are those expenses that provide for health, welfare, and production of income of the taxpayer and the taxpayer’s family. National and local standard expense amounts are designed to provide accuracy and consistency in determining taxpayer’s basic living expenses. These standards are guidelines and if it is determined that a standard amount is inadequate to provide for a specific taxpayer’s basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file.
5. In addition to the basic living expenses, other factors to consider that impact upon the taxpayers financial condition include:
• The taxpayers age and employment status,
• Number, age, and health of the taxpayers dependents,
• Cost of living in the area the taxpayer resides, and
• Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster.
Note:
This list is not all-inclusive. Other factors may be considered in making an economic hardship determination.
6. Factors that support an economic hardship determination may include:
1. The taxpayer is incapable of earning a living because of a long term illness, medical condition or disability, and it is reasonably foreseeable that the financial resources will be exhausted providing for care and support during the course of the condition.
2. The taxpayer may have a set monthly income and no other means of support and the income is exhausted each month in providing for the care of dependents.
3. The taxpayer has assets, but is unable to borrow against the equity in those assets, and liquidation to pay the outstanding tax liabilitie(s) would render the taxpayer unable to meet basic living expenses.
Note:
These factors are representative of situations the Service regularly encounters when working with taxpayers to resolve delinquent accounts. They are not intended to provide an exhaustive list of the types of cases that can be compromised based on economic hardship.
7. The following examples illustrate the types of cases that may be compromised under the economic hardship standard.
Example:
The taxpayer has assets sufficient to satisfy the tax liability and provides full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. The taxpayers overall compliance history does not weigh against compromise.
Example:
The taxpayer is retired and the only income is from a pension. The only asset is a retirement account and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without adequate means to provide for basic living expenses. The taxpayers overall compliance history does not weigh against compromise.
Example:
The taxpayer is disabled and lives on a fixed income that will not, after allowance of adequate basic living expenses, permit full payment of the liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate for a disability. The equity in the house is sufficient to permit payment of the liability owed. However, because of the disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayers home has been specially equipped to accommodate the disability, forced sale of the taxpayers residence would create severe adverse consequences for the taxpayer, making such a sale unlikely. The taxpayers overall compliance history does not weigh against compromise.
8. The economic hardship standard authorizes compromise regardless of the cause of the liability, provided compromise does not undermine compliance by other taxpayers.
Example:
The taxpayer submitted an ETA offer based on economic hardship. The financial statement appears to support the offer. When a research of the county property records is conducted, it is noted that the home was transferred to a child for $100 plus love and affection. The transfer of the home was made after the tax was assessed. It is confirmed that deliberate actions were taken to avoid the payment of tax; therefore, the offer should not be accepted.
9. In economic hardship cases, an acceptable offer amount is determined by analyzing the financial information, supporting documentation, and the hardship that would be created if certain assets, or a portion of certain assets, were used to pay the liability.
Example:
The taxpayer was diagnosed with an illness that eventually will hinder any ability to work. Although currently employed, the taxpayer will soon be forced to quit their job and will use personal funds for basic living expenses. The taxpayer owes $ 100,000 and has a reasonable collection potential of $ 150,000. An offer was submitted for $ 35,000. Through the investigation, it is determined that collecting more than $ 50,000 would cause an economic hardship for the taxpayer. A determination on economic hardship was made due to the fact the taxpayer’s reasonable living expenses, including ongoing medical costs will exceed their income once the taxpayer is unemployed. The taxpayer is advised to raise the offer to $ 50,000 since it is the amount the Service can collect without creating an economic hardship.
10. The existence of economic hardship criteria does not dictate that an OIC must be accepted. An acceptable offer amount must still be determined based on a full financial analysis and negotiation with the taxpayer. When hardship criteria are identified but the taxpayer does not offer an acceptable amount, the OIC should not be recommended for acceptance.
5.8.11.2.2 (09-23-2008)
Public Policy or Equity Grounds
1. Acceptance of an OIC based on considerations of equity and public policy will generally be based on a combination of facts and circumstances. It is important that appropriate cases are identified and forwarded to the NEH-ETA group in Austin, TX for consideration. Generally, the circumstances should be such that acceptance of the offer is fair and equitable and promotes ETA.
2. Where there is no DATL, no DATC, and the liability could be collected in full without causing economic hardship, the Service may compromise to promote ETA where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for accepting less than full payment. Compromise is authorized on this basis only where, due to exceptional circumstances, collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner. Because the Service assumes that Congress imposes tax liabilities only where it determines it is fair to do so, compromise on these grounds will be rare.
3. The Service recognizes that compromise on these grounds will often raise the issue of disparate treatment of taxpayers who can pay in full and whose liabilities arose under substantially similar circumstances. Taxpayers seeking compromise on this basis bear the burden of demonstrating circumstances that are compelling enough to justify compromise notwithstanding this inherent inequity.
4. All non-hardship ETA offers should meet the following requirements:
• The taxpayer has remained in compliance since incurring the liability and overall their compliance history does not weigh against compromise;
• The taxpayer must have acted reasonably and responsibly in the situation giving rise to the liabilities; and
• The circumstances of the case must be such that other taxpayers would view the compromise as a fair and equitable result. For example, it should not appear to other taxpayers that the result of the compromise places the taxpayer in a better position than they would occupy had they timely and fully met their obligations.
Note:
Generally, tax liabilities associated with the taxpayer’s participation in abusive tax avoidance transactions will not be compromised under these procedures.
5.8.11.2.2.1 (09-23-2008)
Public Policy or Equity Compelling Factors
1. Compromise may promote ETA where a taxpayer’s liability was directly caused by a processing error on the part of the Service and would otherwise have been avoided. Compromise to remedy the mistake may be appropriate to the extent correction of the mistake (such as through abatements, reversal of credits, etc) does not put the taxpayer back in the same position that he or she would have occupied if the error had not been made.
Example:
The taxpayer is a closely-held corporation. The IRS audited the taxpayer’s tax returns for 2000, 2001, and 2002 and determined that the taxpayer was a personal holding company liable for personal holding company tax. The taxpayer agreed to immediate assessment of the tax, but attempted to take advantage of the deduction for deficiency dividends under section 547. Although the taxpayer made the distributions necessary to qualify for the deduction, the IRS made several errors in executing the required agreements and other paperwork. As a result, the taxpayer could not avail itself of the section 547 deduction. Under the statute, applicable regulations, and pertinent case law, there is no means by which the mistakes can be corrected to allow the taxpayer to take advantage of the deduction. There is documentary evidence that all of the required Service officials intended to complete the processing of the agreements and that, but for their failure to do so, the taxpayer would have qualified for the deduction. The taxpayer has no prior history of noncompliance.
Note:
The fact that the tax liability was caused solely by an error on the part of the Service supports the determination that collection in full would cause other taxpayers to question the fairness of the tax system. Furthermore, the policies underlying the imposition of the personal holding company tax and the rules regarding deficiency deductions are not undermined by compromise under these circumstances. The Service may consider accepting a compromise that would reflect the amount the taxpayer would now owe had the Service not made an error.
2. Compromise may promote ETA where the taxpayer incurred the liability because of having followed erroneous advice or instructions from the Service. The advice or instructions caused the taxpayer to incur a tax liability that would not otherwise have been incurred.
Example:
The taxpayer is a salaried sales manager at a department store who has been able to place $ 2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that a higher rate of interest can be earned on his IRA savings by moving the savings from a Money Management account to a Certificate of Deposit at a different financial institution. Prior to transferring the savings, the taxpayer submits an E-mail inquiry to the IRS at its Web Page, requesting information about the steps needed to preserve the tax benefits currently enjoyed and to avoid any penalty. The IRS responds in an answering E-mail that the taxpayer may withdraw the IRA savings from the neighborhood bank, but it must be redeposited in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and is now liable for additional taxes, penalties and interest for not redepositing the amount within 60 days. Had the advice provided been accurate, the taxpayer would have redeposited the funds in a timely manner. The taxpayer is able to provide documentation that demonstrates the taxpayer was provided incorrect information. . The taxpayers overall compliance history does not weigh against compromise.
Note:
Because the tax liability in this example was caused by relying on the Service's erroneous statement, and the taxpayer clearly could have avoided the liability had the Service given correct information, it is reasonable to conclude that collection in full would cause other taxpayers to question the fairness of the tax system. The Service may consider accepting a compromise that would reflect the amount the taxpayer would now owe had the Service not made an error.
3. If actions or inaction of the Service unreasonably delayed resolution of the taxpayer’s case and interest or penalty abatement is not available, compromise may still be warranted if the circumstances are sufficiently compelling. An OIC should not be accepted under ETA provisions, in lieu of abatement under IRC Section 6404(e), when appropriate.
4. These provisions may allow for relief if the taxpayer alleges that the criminal or fraudulent act of a third party is directly responsible for the tax liability. The taxpayer should be able to provide supporting documentation that the act occurred and was the direct cause of the delinquency. The taxpayer should also be able to show that the nature of the crime was such that even a prudent, responsible business owner would have been misled to believe the tax obligations were properly addressed. There should be evidence that the funds required for the payment of the taxes were segregated or otherwise identified and were available to pay the taxes in a timely manner. Compromise would promote ETA in such situations only where the failure to comply is directly attributable to intervention by a third party and where the taxpayer has made every effort to comply and taken reasonable precautions to prevent the criminal or fraudulent acts at issue. The taxpayer’s efforts to mitigate the damages by pursuing collection from the third party should also be considered. Compromise for this reason would only promote ETA where there is a very close nexus between the actions at issue and the failure to comply.
Example:
The taxpayer was using a payroll service provider (PSP) who deducted all tax payments from the taxpayer’s bank account, yet did not remit them to the Service. The taxpayer took all reasonable precautions to prevent this from occurring. The PSP also falsified documents to conceal the embezzlement. Since the abatement of interest is not available under 6404(e) on employment taxes, an offer in the amount of the tax balance may be accepted. The taxpayer’s overall compliance history does not weigh against acceptance of the offer.
Note:
The Service will not compromise on public policy or equity grounds solely on the argument that the acts of a third party caused the unpaid tax liability. Third parties include: Representatives, Partners, Agent, or Employee.
The actions of the third party may be part of a fact pattern that, viewed as a whole, present compelling public policy or equity concerns justifying compromise. As with all compromises based on public policy or equity, the taxpayer’s situations must be compelling enough to justify compromise even though similarly situated taxpayers may have paid in full.
This section does not apply to TEFRA liabilities. Refer to Example 2 under paragraph (7) in this subsection for discussion of TEFRA cases.
5. Compromise may be appropriate where there is clear and convincing evidence that rejecting the OIC, and pursuing other collection alternatives, would have a significantly negative impact on the community in which the taxpayer lives or does business, i.e. does the taxpayer provide essential services to the community that would be lost if the tax liability was collected in full? The taxpayer should be asked to provide documentation that full payment of the tax liabilities would likely result in the inability of the business to provide these essential services. The businesses that would typically qualify under this provision are not for profit, charitable, or exempt organizations.
Example:
A non-profit organization provides quality health and human services to indigent, low-income and under-served residents in two counties. Rejecting the offer and pursuing collection action for full payment would result in forcing the center to choose between paying the delinquent taxes or providing competent medical care.
After conducting a thorough review of the facts; it was determined that services would not be provided to the community if the taxpayer was no longer able to operate.
Since the taxpayer took all reasonable actions to prevent the delinquency from occurring and the taxpayer’s overall compliance history does not weigh against acceptance of the offer, an offer amount for less than the remaining tax balance may be considered.
6. Compromise may promote ETA where the taxpayer was incapacitated and thus unable to comply with the tax laws.
Example:
In October 2003, the taxpayer developed a serious illness that resulted in almost continuous hospitalization for a number of years. The medical condition was such that during this period, the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer’s health has now improved and has promptly begun to attend to tax matters. The taxpayer discovered that the IRS prepared a substitute for return for the 2003 tax year based on information documents it had received and assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill was more than three times the original tax liability. The taxpayer’s overall compliance history does not weigh against compromise.
Note:
In this situation, the Service should first work with the taxpayer and attempt to prepare an accurate return for the 2003 tax year and adjust the taxpayers account accordingly. The Service should also work with the taxpayer to secure the filing of any missing returns. Following that, the Service should consider accepting a compromise that would approximate the amount the taxpayer would have been assessed had he been able to comply with his filing and payment responsibilities in a timely manner. Such a compromise would be fair and equitable to the taxpayer and, under these circumstances, would advance the public policy of voluntary compliance with the tax laws.
Note:
It would not promote ETA to compromise with the taxpayer, if the investigation revealed that the taxpayer was able to attend to financial matters during the time of the illness. For example, assume the taxpayer, paid all other bills and continued to successfully operate a business during the illness. Under such circumstances, compromise would not promote ETA, and could serve to undermine compliance by other taxpayers.
7. Compromise on public policy or equity grounds is not authorized based solely on a taxpayer’s belief that a provision of the tax law is itself unfair. Where a taxpayer is clearly liable for taxes, penalties, or interest due to operation of law, a finding that the law is unfair would undermine the will of Congress in imposing liability under those circumstances.
Example:
The taxpayer argues that collection would be inequitable because the liability resulted from a discharge of indebtedness rather than from wages. Because Congress has clearly stated that a discharge of indebtedness results in taxable income to the taxpayer it would not promote ETA to compromise on these grounds. See Internal Revenue Code (IRC) 61(a)(12).
Example:
In 2000, the taxpayer invested in a nationally marketed partnership which promised the taxpayer tax benefits far exceeding the amount of the investment. Immediately upon investing, the taxpayer claimed investment tax credits that significantly reduced or eliminated the tax liabilities for the years 1997 through 2000. In 2001, the IRS opened an audit of the partnership under the provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). After issuance of the Final Partnership Administrative Adjustment (FPAA), but prior to any proceedings in Tax Court, the IRS made a global settlement offer in which it offered to concede a substantial portion of the interest and penalties that could be expected to be assessed if the IRS's determinations were upheld by the court. The taxpayer rejected the settlement offer. After several years of litigation, the partnership level proceeding eventually ended in Tax Court decisions upholding the vast majority of the deficiencies asserted in the FPAA on the grounds that the partnership's activities lacked economic substance. The taxpayer has now offered to compromise all the penalties and interest on terms more favorable than those contained in the prior settlement offer, arguing that TEFRA is unfair and that the liabilities accrued in large part due to the actions of the Tax Matters Partner (TMP) during the audit and litigation. Neither the operation of the TEFRA rules nor the TMP's actions on behalf of the taxpayer provide grounds to compromise under the equity provision of 5.8.11.2.2. Compromise on those grounds would undermine the purpose of both the penalty and interest provisions at issue and the consistent settlement principles of TEFRA. Furthermore, reducing the risks of participating in tax shelters would encourage more taxpayers to run those risks, which would undermine compliance. Depending on the taxpayers particular facts and circumstances, however, compromise may be authorized on the grounds of Doubt as to Collectibility (DATC), or because collection of the full liability would cause an economic hardship within the meaning of section 5.8.11.2.1.
Note:
In both of these examples, the taxpayers are essentially claiming that Congress enacted unfair statutes and are arguing that the Service should use its compromise authority to rewrite those statutes based on a perception of unfairness. Compromise for that reason would not promote ETA. The compromise authority under Section 7122 is not so broad as to allow the Service to disregard or override the judgments of Congress.
8. There may be other circumstances involved in a case that would lead a reasonable third party to conclude that acceptance of the OIC would be fair, equitable, and promote effective tax administration. Other factors not discussed above or in the IRM, may be present to support the conclusion that the case presents compelling public policy or equity considerations sufficient to justify compromise. Documentation of the presence of those factors which weigh in favor of compromise to promote effective tax administration must be thoroughly documented in the case file. Because these cases have the potential to establish new policy for the IRS in this area, offers recommended for acceptance under this paragraph should be routed through the National OIC Program Manager in order to obtain concurrence of the Director, Collection. The Office of Appeals should establish within their IRM a level of concurrence commensurate with the Director of Collection so the issue of establishing new policy is addressed.
9. Once it has been determined that a case raises compelling public policy or equity considerations, Refer to IRM 5.8.11.4.3, Determining Acceptable Offer Amount.
5.8.11.2.3 (09-23-2008)
Compromise Would Not Undermine Compliance With Tax Laws
1. Compromise under the ETA economic hardship or non-economic hardship provisions are permissible if acceptance does not undermine compliance. The public should not perceive that the taxpayer whose offer is accepted benefited by not complying with the tax laws.
2. Factors supporting (but not conclusive of), a determination that compromise would undermine compliance includes; but is not limited to:
• The taxpayer has an overall history of noncompliance with the filing and payment requirements of the Internal Revenue Code
• The taxpayer has taken deliberate actions to avoid the payment of taxes.
• The taxpayer has encouraged others to refuse to comply with the tax laws.
Note:
There may be other situations where compromise would be undermined.
5.8.11.3 (09-23-2008)
Initial Processing of Effective Tax Administration Offers
1. Offers submitted on the grounds of ETA will be worked either by the COIC units or field specialists.
2. Taxpayers seeking a compromise under ETA will submit the Form 656 selecting ETA along with the CIS (Form 433-A and/or Form 433-B). Taxpayers must complete Section 9 (or attach a separate statement) and document their special circumstances. The documentation should explain why collection of the liability in full would cause economic hardship, or the public policy/equity issues present that would justify compromising the liability. An attachment can be provided if additional space is needed. If the taxpayer does not submit a financial statement with the offer, normal correspondence activity should be undertaken to secure the financial statement, and any other data determined necessary for evaluation of the offer. If the taxpayer fails to provide the requested information, normal "return" procedures should be followed since ETA criteria can not be considered until all other bases have been addressed.
3. Like all other offers, the Service will only consider an ETA offer when taxpayers have met the processability criteria (e.g. paid the application fee or filed Form 656-A, submitted the required initial TIPRA payment with the offer or filed Form 656-A, and are not a debtor in bankruptcy.
Note:
Follow IRM 5.8.3 for initial processing of offers.
4. Elements necessary to perfect an OIC also apply to ETA offers. The requirement to submit complete financial statements for ETA offers is the same as for DATC offers.
Note:
Follow IRM 5.8.3.11 for procedures on perfecting offers.
5. ETA offers are initially added to AOIC as DATC offers. Once the offer investigation reveals that the taxpayers assets and future income exceed the tax liability thereby indicating no basis for a DATC, the offer should be considered under the ETA provisions. AOIC must be updated to reflect the correct basis for the compromise (e.g. ETA). Refer to IRM 5.8.11.6 below for a full discussion of requirements to update AOIC prior to final processing of ETA and DCSC offers.
5.8.11.4 (09-23-2008)
Evaluation of Offers
1. ETA offers cannot be considered if the taxpayer qualifies for DATC or DATL.
Note:
Follow IRM 5.8.4, Evaluation of Offers, for DATC issues and determining RCP.
2. If the assets and future income do not exceed the tax liability and special circumstances exist, the taxpayers offer must be considered under DCSC. The taxpayers may have checked the ETA box and given an explanation of circumstance on the Form 656, however unless they have the ability to full pay the liability, the offer would not meet the legal standard for ETA consideration. The offer must be considered under DCSC.
3. If the taxpayer submits an offer based on DATC but collection potential exceeds the liability and there are special circumstances, the offer should be considered on the basis of ETA. The employee that investigates the OIC is required to address any potential special circumstances during first contact with the taxpayer or POA. This will be accomplished in conjunction with the current requirement to verify receipt of Publication 1 and Publication 594 and must be documented in the OIC case history. This requirement does not apply where the only taxpayer contact is through correspondence.
4. If the offer is rejected, the narrative should describe the considerations of both bases. If the offer is accepted the offer report must reflect the basis upon which the offer is accepted.
5.8.11.4.1 (09-23-2008)
Public Policy/Equity Processing
1. OIC's submitted under the Public Policy/Equity provisions are authorized under these guidelines only when there are exceptional circumstances. While compromise under these guidelines is expected to be rare, appropriate recommendations for acceptance will be made.
2. In order to develop consistency in the interpretation and application of Treasury Regulations (TD 9007) published on July 22, 2002, a Specialty Group has been established in Austin, TX to work these offers.
3. Only after consideration has been given to all other potential bases for acceptance (e.g. DATL, DATC, DCSC, and/or ETA based on economic hardship) will ETA-Public Policy/Equity be considered. Therefore, all cases must have been completely developed under all other bases before transfer will be accepted by the Austin Group.
4. After all other potential bases have been considered; complete Exhibit 5.8.11-1 "Non-Economic Hardship Effective Tax Administration (NEH-ETA) OIC Check Sheet." The check sheet must be completed and sent to the Austin group before any cases are transferred. The purpose of the check sheet is to document that all issues other than Public Policy/Equity ETA have been evaluated and to provide information on the non-economic ETA factors present.
5. The completed check sheet and a copy of the entire Form 656 should be faxed to offer Group Manager in Austin. The sender should include a copy of any letter or document presented by the taxpayer to support the special circumstances. The group will evaluate the information and respond to the sender within 10 workdays. This response will either be an explanation of why the taxpayers offer cannot be investigated under Public Policy/Equity ETA provisions, or a request to transfer the offer to the Austin group.
6. If the Austin group determines that the offer cannot be investigated under the Public Policy/Equity ETA provisions, the information will be faxed back to the sender who will be responsible for issuing the proposed rejection letter to the taxpayer, covering all factors considered.
7. If the Austin group determines that the information presented requires further analysis, the sender will be notified to transfer the case to the Austin group. Referrals of cases to the ETA group should include the OI’s recommendation as to what would constitute an acceptable compromise amount.
• The sender should contact the taxpayer by telephone and advise the taxpayer of the results of the collectibility and liability portions of the offer investigation prior to transfer. If the taxpayer cannot be reached by phone then a standard transfer letter should be sent.
• The file should be sent by overnight mail on a Form 3210 to the Austin group.
• At the time of mailing, the case should be transferred on AOIC to Area 05 (Gulf States).
• A history item should be added to AOIC to show the case is being sent to the Austin group, Area 05 (Gulf States).
• The Austin group will maintain the faxed copies of all check sheets received and appropriate documentation on all offers accepted for transfer. This documentation will provide a historical record to support a decision to accept or reject the offer.
Note:
The OI may also seek guidance from the Austin group on a DCSC offers that involve Public Policy/Equity issues. The guidance should be solicited by preparing the check sheet and documenting the issues involved in the case. However, these cases will not be transferred to the Austin group.
5.8.11.4.2 (09-23-2008)
Financial Statement Analysis
1. Offers submitted under ETA require the same full financial analysis as DATC offers in order to determine RCP and to determine an acceptable offer amount. Procedures for financial analysis are contained in IRM 5.8.5, Financial Analysis.
2. Once the RCP is completed, a determination can be made as to whether the OIC qualifies for consideration under ETA or DATC.
3. If the taxpayers assets and future income exceed the tax liability, the taxpayers OIC can be considered under the ETA basis.
5.8.11.4.3 (09-23-2008)
Determining an Acceptable Offer Amount
1. An acceptable offer amount, based on economic hardship, is determined by analyzing the financial information and the hardship that would be created if certain assets, or a portion of certain assets, were used to pay the liability.
Example:
The taxpayer has a $100,000 liability and a RCP of $125,000. To avoid economic hardship, it is determined that the taxpayer will need $75,000. The remaining $50,000 should be considered the acceptable offer amount.
2. In OIC's based on Public Policy/Equity, the Service would expect the taxpayer to offer an amount that is fair and equitable under the circumstances. The Service does not anticipate accepting compromises offering only nominal or token funds. Rather, the amount accepted should be determined by reference to the factors giving rise to the decision that compromise is appropriate. For example:
A. In cases compromised under IRM 5.8.11.2.2.1 above, paragraphs 1, 2, and 3, an acceptable offer would be expected to result in the taxpayer being placed in the same position as if the error or delay on the part of the Service had not occurred.
B. In cases compromised under IRM 5.8.11.2.2.1 above. paragraphs 4 and 5, the taxpayer’s financial condition may be a relevant consideration, after considering all other facts and circumstances. The justification for a particular amount to be accepted should be clearly documented.
C. When compromising based on IRM 5.8.11.2.2.1 paragraphs 4, 5, and 8, in business cases in particular, the Service must be cautious to avoid providing financial advantages through the forgiveness of tax debt. This may create the appearance that the delinquent business has been able to profit from its failure to pay, giving it a competitive advantage over other, fully compliant businesses. For this reason, the Service will generally insist that a compromise with an operating business provide for payment of the full amount of tax, exclusive of interest and penalties.
3. Generally, it is the responsibility of the taxpayer to make decisions and take the appropriate actions needed to fund the acceptable offer amount. However, due consideration of these funding options is often needed for the Service to arrive at an acceptable offer amount. For example, based on the taxpayer’s situation and geographic location, funding options may allow the taxpayer to tap into available equity without creating economic hardship. When appropriate, these options should be taken into consideration in determining an acceptable offer amount for an ETA offer based on economic hardship.
5.8.11.5 (09-23-2008)
Documentation and Verification
1. To verify the taxpayers special circumstances and support a basis of ETA:
A. Request supporting documentation of the taxpayers situation. Exercise sound judgement in determining the degree of verification necessary. For example, verification of a health problem could be a doctor’s letter or copies of medical expenses.
B. When special circumstances are found to exist, the amount offered will be less than RCP. For ETA, the RCP is always greater than the full liability. In the report narrative, explain clearly the rationale for acceptance of the amount offered. The documentation must include reasons why some or all of the equity in certain assets is not being offered, how the offer amount is being funded, and any other pertinent information that indicates how the amount offered was determined to be acceptable.
2. As is the case with all compromise determinations, referrals, and acceptance/rejection decisions, employees need to exercise good judgment. This good judgment needs to be clearly evident and articulated in the case file documentation and should be supported by the known case facts, circumstances, and supporting documents. There is no clearly defined formula to follow in ultimately making these decisions, and each case needs to be evaluated on its own particular set of facts and circumstances. Particularly in regard to acceptance/rejection decisions, the recommendation report must clearly explain the reasoning behind our actions.
5.8.11.6 (09-23-2008)
Final Processing
1. Prior to final processing, AOIC must be updated to indicate the correct basis for closing the offer. This will ensure that all final closing reports generated from AOIC reflect the correct basis. The approval levels indicated on closing reports and letters must be consistent with the basis for closure.
2. The following is a guide to these determinations:
If… And… Then…
The offer was submitted under ETA An economic hardship has been determined to exist, but the RCP is less than the liability balance due 1. Update the AOIC offer screen to indicate a "C" under the offer type.
2. Generate all closing reports with the proper approving official for DCSC.
The offer was submitted under DCSC An economic hardship has been determined to exist, and the RCP is greater than the liability balance due 3. Update AOIC offer screen to indicate "A" under offer type.
4. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under ETA The offer is being recommended for acceptance under DATC with the offer exceeding the RCP 5. AOIC offer screen does not require updating for special circumstances. The type of offer on AOIC should reflect "C" for DATC.
6. Generate closing reports with the proper approving official for DATC without special circumstances.
The offer was submitted under Doubt as to Collectibility with item 9 of Form 656 completed with circumstances that do not meet any of the elements that define economic hardship, or Public Policy/Equity criteria The offer cannot be recommended for acceptance under DATC. 7. Generate closing reports with the proper approving official for DATC without special circumstances.
8. Address in the history, why the circumstances described in item 9 do not meet defined economic hardship, or Public Policy/Equity criteria.
The offer was submitted under ETA with item 9 of Form 656 completed with circumstances that do not meet ETA criteria The taxpayer does not qualify for ETA because the RCP is less than the liability and the offer cannot be recommended for acceptance under DCSC. 9. Update AOIC offer screen to indicate a "C" under special circumstances.
10. Generate closing reports with the proper approving official for DCSC.
The offer was submitted under ETA with item 9 of the Form 656 completed with circumstances that the investigation reveals do not meet ETA criteria The offer cannot be recommended for acceptance and the RCP exceeds the liability 11. Update AOIC offer screen to indicate "A" under offer type.
12. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under ETA The special circumstances meet economic hardship, or Public Policy/Equity criteria and the RCP exceeds the tax liability. However, the offer cannot be recommended for acceptance. 13. Update AOIC offer screen to indicate "A" under offer type.
14. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under DCSC The special circumstances meet economic hardship, or Public Policy/Equity criteria and the RCP is less than the tax liability, however, the offer cannot be recommended for acceptance. Generate closing reports with the proper approving official for DCSC.
5.8.11.6.1 (09-23-2008)
Rejection/Return/Withdrawal Processing
1. The procedures in IRM 5.8.7 should be followed when processing ETA rejected, withdrawn or returned offers.
2. IRM 5.8.12 provides instructions for IAR review of rejected offers.
3. See IRM 1.2.44.2 – Delegation Order No. 5-1 for the official with delegated authority based on ETA. The delegated official’s signature is required on the Form 1271 and the closing letter
5.8.11.6.2 (09-23-2008)
Acceptance Processing
1. The procedures in IRM 5.8.8, Acceptance Processing, should be followed when processing accepted ETA offers.
2. Area Counsel’s opinion is required on ETA offers where the unpaid amount of tax assessed (including any interest, addition to the tax, or assessable penalty) is $50,000 or more.
3. See IRM 1.2.44.2 – Delegation Order No. 5-1 for the official with delegated authority based on ETA. The delegated official’s signature is required on the Form 1271 and the closing letter
Exhibit 5.8.11-1 (09-23-2008)
Effective Tax Administration Non-Hardship OIC Check Sheet
This is a two-page check sheet used for ETA Non-hardship OIC's.
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.8.12 Independent Administrative Review
• 5.8.12.1 Overview
• 5.8.12.2 Role of the Independent Administrative Reviewer
• 5.8.12.3 The Review
• 5.8.12.4 Independent Review Process
5.8.12.1 (09-23-2008)
Overview
1. IRC Section § 7122(d)(1) requires the Service to conduct an independent administrative review of all proposed OIC rejections. The review must be conducted prior to the rejection being communicated to the taxpayer.
2. The IAR is responsible for conducting this review. Generally, the IAR should report to the Technical Services manager.
5.8.12.2 (09-23-2008)
Role of the Independent Administrative Reviewer
1. The IAR is responsible for reviewing each case to determine if the proposed rejection is reasonable based on the taxpayer's facts and circumstances. The IAR is not responsible for conducting a quality analysis of completeness, and accuracy of the documents used to support the case.
5.8.12.3 (09-23-2008)
The Review
1. The OI's analysis of the taxpayers offer should be reviewed to determine if the basis for the rejection determination was appropriate.
2. The IAR should consider if the taxpayers rights have been observed during the offer investigation and during communication and discussions with the taxpayer or POA. These considerations should be based on issues that would impact the recommended rejection.
3. The IAR should compare the amount that the taxpayer offered with the RCP in order to determine if the rejection determination is reasonable. If the file indicates any circumstances that could impact either future earning potential or allowable expenses, the file should document this information and the determinations relating to the taxpayers circumstances.
4. If the case file indicates issues are raised that meet either ETA or DCSC criteria, as defined in IRM 5.8.11 the case history must address these issues and discuss the determinations made.
5. The IAR should ensure that all of the facts and circumstances of the case were considered during the investigation and that the decision to reject the offer is reasonable, based on the case analysis.
Note:
The IAR is not responsible for conducting a quality analysis of completeness and accuracy of the documents used to support the case decision. That is the responsibility of the manager.
6. The case file should indicate an attempt to communicate the results of the offer investigation with the taxpayer or POA, prior to recommending the rejection. This communication can be accomplished by personal contact or by letter.
Exception:
The only exception is for those cases rejected based on the Screen for Obvious Full Pay criteria as outlined in IRM 5.8.4.5.
5.8.12.3.1 (09-23-2008)
Case File
1. The following items should be present in the file and used as an aid for the IAR to ensure the decision was appropriate.
A. Form 656, Offer in Compromise
B. Form 1271, Rejection or Withdrawal memorandum
C. Rejection letter
D. Asset/Equity Table (AET)
E. Income/Expense Table (IET)
F. Rejection summary
G. Collection Information Statements (CIS)
H. Case history
I. Any pertinent supporting documents
2. If any information is missing or unavailable that hinders the IAR in making a determination that the decision was appropriate, the case file should be returned or a memorandum sent to the OI or the manager requesting the missing documentation or supporting information. In the case where the IAR is located off-site, the information needed may be faxed to the IAR for inclusion in the analysis.
5.8.12.3.2 (09-23-2008)
Communication
1. The IAR should consider if required communication with the taxpayer or POA was attempted and if these communications were reasonable based on the facts of the case. The case file should indicate an attempt to communicate the results of the offer investigation with the taxpayer prior to recommending the rejection.
2. Communications need not necessarily include phone calls. They may be conducted entirely in the form of letters to the taxpayer or their authorized representative.
3. The case file should document these communications and any specific issues that are in dispute.
5.8.12.4 (09-23-2008)
Independent Review Process
1. Prior to the proposed rejection being submitted to the IAR, the authorized official must have reviewed the file and signed the Form 1271 indicating concurrence with the proposed disposition.
2. Once the approving official has signed the Form 1271, the offer must be re-assigned to the IAR pool on AOIC. The file is then forwarded to an IAR for review using the Form 3210.
3. Upon receipt of the file by the IAR, AOIC should be updated to reflect the individual IAR assignment number. The IAR should create an Other Investigation on ICS and document receipt of the offer file into their inventory.
4. Once the offer is reviewed by the IAR, AOIC must be updated to reflect the results of the review. The IAR must also document the results of the review on ICS, and complete the disposition of the assigned Other Investigation.
5.8.12.4.1 (09-23-2008)
Rejections Sustained by the Independent Administrative Review
1. If the proposed rejection of the offer is sustained by the IAR, the reviewer will:
A. Update the IAR "Main Screen" on AOIC indicating the appropriate disposition.
B. Sign the Form 1271 as the reviewer, indicating concurrence with the proposed disposition.
C. Document the results of their review on ICS indicating concurrence with the proposed disposition and close the OI assignment.
D. Return the case file to the originator using a Form 3210.
5.8.12.4.2 (09-23-2008)
Rejections Not Sustained by the Independent Administrative Reviewer
1. If the proposed rejection is not sustained by the IAR, the reviewer will:
A. Update the IAR "Main Screen" on AOIC indicating the appropriate IAR disposition.
B. Document the results would not support sustaining the rejection recommendation, and the specifics of the review were noted on the Form 5942, Reviewers Report, on ICS and close the Other Investigation assignment on ICS.
C. Prepare the Form 5942 providing an explanation of why the determination was not sustained and indicating additional actions necessary by the investigating employee.
D. Route the Form 5942 and the offer case file to the IAR Manager for approval.
2. After the IAR Manager approves the Form 5942, the case will be routed as follows:
A. The original Form 5942 and the offer file will be returned to the OI's manager.
B. A copy of the Form 5942 will be sent to the OI's second level manager.
C. A copy of the 5942 will be retained by the IAR group manager.
3. The following procedures describe necessary actions once the offer file is received by the originating office:
If… Then…
Reconsideration of the offer based on recommendations from the IAR results in a determination to accept the offer Process the acceptance recommendation following procedures defined in IRM 5.8.8
Reconsideration of the offer based on recommendations from the IAR results in a determination to continue to recommend rejection of the offer Update the case file with the additional case actions and any new information and re-submit to the IAR for a second review.
The investigating employee determines that the rejection is the correct action without further development, after reviewing the Form 5942 The offer file will be returned to the IAR for reconsideration. If necessary, additional history should be included to further support the offer rejection.
After a second review by the IAR, the rejection is still not sustained by the IAR and the Offer Investigator and the IAR disagree with the decision of the IAR The decision will be raised to the second level manager for resolution.
• The IAR Manager will forward a memorandum to the Offer Manager with an explanation of why the rejection cannot be sustained.
• A copy of the memorandum will be forwarded to the second level manager.
• The IAR manager and the second level manager will discuss the issues to reach a resolution.
• The final decision will be made by the field second level manager for cases assigned to the field and the second level manager for those cases decided by the COIC sites.
4. The original Form 5942 and any other documentation regarding second level management involvement and decisions must be retained in the offer file as a record of actions taken during the IAR process.