Offer in Compromise http://www.irs.gov/pub/irs-pdf/f656a.pdf http://www.irs.gov/pub/irs-pdf/f656b.pdf http://www.irs.gov/pub/irs-pdf/f656l.pdf An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses. Taxpayers should beware of promoters’ claims that tax debts can be settled through the offer in compromise program for "pennies on the dollar." Three Types of OICs The IRS may accept an offer in compromise based on three grounds: 1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection. Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments. 2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence. Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct. 3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable. Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct. OIC Payment Options In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Taxpayers may choose to pay their offer in compromise in one of three payment options: 1. Lump Sum Cash Offer - Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656. If the offer will be paid in 5 or fewer installments in 5 months or less, the offer amount must include the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the statute, whichever is less. If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the statute, whichever is less. If the offer will be paid in 5 or fewer installments in more than 24 months, the offer amount must include the realizable value of assets plus the amount that could be collected over the time remaining on the statute. 2. Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation. The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less. 3. Deferred Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation. The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection. The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance. Payments and Application Fees When filing an offer in compromise, two separate remittance documents should be sent, one for the application fee and the other for the required offer payment. All payments should be made by check or money order made payable to the United States Treasury. Practitioners who file multiple OICs at the same time should not combine application fees for multiple clients. The Form 656-PPV, Offer in Compromise Payment Voucher, included in the Form 656, should be completed and attached to any periodic payment(s) that becomes due. Failure to submit any required periodic payments, after the initial payment has been submitted, will result in the offer being declared withdrawn. For offers originally sent to Holtsville, NY, send payments to: P.O. Box 9011, Holtsville, NY 11742. For offers originally sent to Memphis, TN, send payments to: AMC Stop 880, P.O. Box 30834, Memphis, TN 38130-0634. The OIC application fee reduces the assessed tax or other amounts due. The application fee will be returned if the OIC is deemed not to be processable. Unless the offer in compromise has been submitted under doubt as to liability or a completed Form 656-A is included with the Form 656, the $150 application fee must be included with the offer or the IRS will return the offer. What You Must Know Before You File an Offer in Compromise All Taxpayers Do Not Qualify for an Offer in Compromise Absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an offer in compromise will not be accepted. Offer in Compromise Payments are Non-refundable The IRS considers the 20 percent payment for a lump sum offer and any periodic payments as “payments on tax” and are not refundable, regardless of whether the offer is declared not-processable or is later returned, withdrawn, rejected or terminated by the IRS. Federal Tax Liens are Not Released If there is a Notice of Federal Tax Lien on record prior to acceptance of the offer, the lien is not released until the OIC terms are satisfied or until the liability is paid, whichever comes first. A Notice of Federal Tax Lien may be filed during the course of the OIC investigation. Payments May be Designated You may designate in writing how the IRS should apply payments made with the filing of the offer and while an offer is under investigation. Without a written designation, payments will be applied to the tax liability and in the government’s best interest. The $150 application fee cannot be designated, but is applied to the tax liability and in the government’s best interest. Refunds The IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts the OIC. Exception: Offers submitted under the basis of doubt as to liability. Levies The IRS will keep all payments and credits made, received or applied to the total original tax liability before the OIC was submitted. The IRS may also keep any proceeds from a levy that was served prior to the submission of an OIC, but which were not received at the time the OIC was submitted. Statutory Period for Collection Suspended The statutory period for collection is suspended during the period that the OIC is under consideration (pending) and is further suspended if the OIC is rejected by the IRS and you appeal the rejection. Five Year Compliance If your offer is accepted, you must timely file all tax returns and timely pay all tax for five years or until the offered amount is paid in full, whichever period is longer. Failure to adhere to these terms will result in default of the offer and the IRS may then collect the amounts originally owed plus penalties and interest. OIC Payment and Application Fee Exceptions If you qualify for a low-income exception waiver or you submit a doubt as to liability offer you are exempt from the $150 application fee and any OIC payments due upon submission of the OIC or during the course of the investigation. The low income waiver does not apply to businesses. Appeal If your OIC is rejected, you will have the opportunity to file an appeal which will be heard by the IRS Office of Appeals. There are no appeal rights associated with offers that are returned, withdrawn or terminated. Approved Installment Agreement If you have an approved installment agreement and submit a periodic payment offer, you are not required to continue to make the installment agreement payments while the offer is being investigated. You will, however, be required to make the OIC periodic payments as they become due. Mandatory Acceptance Per IRC 7122(f), the IRS will deem an offer “accepted” if it is not withdrawn, returned or rejected within 24 months of the IRS receipt date. If a liability included in the offer amount is disputed in any judicial proceeding, that time period is omitted from calculating the 24-month time frame. Do You Qualify for an Offer in Compromise? The objective of the Offer in Compromise (OIC) program is to accept an OIC when it is in the best interest of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements. If you are unable to pay your tax liability in a lump sum or through an installment agreement and you have exhausted your search for other payment arrangements, you may be a candidate for an offer in compromise. In order for your offer in compromise to be considered, you must meet the following requirements: • You are not a debtor in an open bankruptcy proceeding • Include the $150 application fee, or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment (PDF) • Submit one of the following payments with the offer: o Lump Sum Offer- 20 percent payment or a signed From 656-A, Income Certification for Offer in Compromise Application Fee and Payment o Periodic Payment Offer- The first installment or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment. Low Income Exemption and Guidelines The application fee is waived if an individual (not a corporation, partnership or other entity) taxpayer’s income falls at or below IRS Low Income Guidelines. The Form 656-B, Offer in Compromise Booklet (PDF), contains a worksheet titled “IRS Monthly Low Income Guidelines Worksheet” designed to assist taxpayers in determining whether they are eligible for the low income exemption. Qualifying taxpayers are also exempt from making any OIC payments while the offer is being investigated. Once you have determined that you are eligible for the low income exemption, you must submit Form 656-A, Offer Certification for Offer in Compromise Application Fee and Payment. The Form 656-A must be attached to the Form 656 application and mailed to the IRS for consideration. How to File an Offer in Compromise The Form 656-B, Offer in Compromise Booklet (PDF) contains information about filing an offer in compromise, worksheets, and all forms necessary to file an offer in compromise. When submitting an offer in compromise (OIC), taxpayers must use the most current version of Form 656, Offer in Compromise , or Form 656-L, Offer in Compromise (Doubt as to Liability) , depending on the basis of the offer in compromise. Taxpayers should file Form 656 when there is doubt that the liability could be collected in full through a lump sum or an installment agreement and file Form 656-L when it is believed that the tax liability is incorrect. Taxpayers may not file offers concurrently claiming both that the tax liability is incorrect along with an inability to pay the liability. In most cases, taxpayers must submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses. Neither the Form 433-A nor Form 433-B is required when a taxpayer submits an OIC based solely as to doubt as to liability. How Many Forms 656 and Application Fees are Required? The general rule when determining how many offers and application fees are necessary is "one fee and form per entity". The Form 656-B contains an Offer in Compromise Application Fee and Payments matrix to assist you in determining the number of Forms 656 and application fees required. Examples: A married couple owing the same joint income tax liability may file only one Form 656 listing the joint liability. One fee of $150 should be attached to the Form 656. A married couple opting to file separate offers to compromise the same joint liability may do so, but two $150 application fees will be required. When a married couple owes a joint liability and one spouse also owes an individual (non-joint) liability, two OICs and two application fees are needed. A divorced, separated or married couple living apart may still file one From 656 listing their joint liability and pay only one $150 fee as long as all the taxes owed are joint liabilities. Taxpayers in these situations that opt to file separate offers must pay a $150 application fee for each offer that is submitted for consideration. Note: These examples assume that the taxpayers do not meet one of the exceptions for paying the application fee: the OIC is filed under doubt as to liability or the taxpayer has completed and attached Form 656-A to Form 656. Keys to Success in the Offer in Compromise Program: 1. Explore all collection options before submitting an offer in compromise 2. Complete the "Is Your Offer in Compromise Processable?" checklist located in the Form 656-B, Offer in Compromise Booklet. 3. Submit all required documentation 4. Complete all items on Form 656, Offer in Compromise 5. Include all required fees and payments 6. Be current with all filing and paying requirements (estimated taxes and federal tax deposits) and remain current 7. Respond promptly to all requests for additional information 8. Complete all items on Form 433-A or Form 433-B Where to File Form 656 Residents of: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin or Wyoming: If you are a wage earner, retiree, or a self-employed individual without employees; then mail Form 656 and all attachments to: Memphis Internal Revenue Service Center COIC Unit PO Box 30803 AMC Memphis, TN 38130-0804 If you are other than a wage earner, retiree, or self-employed individual without employees; then mail Form 656 and all attachments to: Memphis Internal Revenue Service Center COIC Unit PO Box 30804, AMC Memphis, TN 38130-0804 Residents of: 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 have a foreign address: If you are a wage earner, retiree, or a self-employed individual without employees; then mail Form 656 and all attachments to: Brookhaven Internal Revenue Service Center COIC Unit PO Box 9007 Holtsville, NY 11742-9007 If you are other than a wage earner, retiree, or a self-employed individual without employees; then mail form 656 and all attachments to: Brookhaven Internal Revenue Service Center COIC Unit PO Box 9008 Holtsville, NY 11742-9008 Where to File Form 656-L (Doubt as to Liability) Brookhaven Internal Revenue Service COIC Unit PO Box 9008 Holtsville, NY 11742-9008 IRS Policy Statement P-5-100 1. Offers will be accepted: 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 offer in compromise 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. 2. In cases where an offer in compromise 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. 3. The success of the compromise 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 which is in the best interest of both the taxpayer and the Service. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements. Revamped Offer in Compromise Program Plays New Role in Collection Process FS-2006-22, July 2006 Effective July 16, 2006, a new federal law will change the way the offer in compromise (OIC) program operates and its role in the Internal Revenue Service collection process. In general, this means that: • Taxpayers submitting lump-sum offers must make a 20 percent nonrefundable, up-front payment to the IRS; • Taxpayers submitting a periodic-payment OIC must make a nonrefundable, up-front payment, plus any other proposed payments that may be due, while the IRS is evaluating the offer; and • An OIC application is deemed accepted if the IRS fails to act upon it within two years. The Collection Process Most taxpayers file tax returns and pay what they owe on time. If a taxpayer does not pay, the IRS sends the taxpayer a bill. This begins the collection process. Along with the bill, which is called a notice, the IRS automatically sends Publication 1, Your Rights as a Taxpayer, and Publication 594, Understanding the Collection Process. These publications explain the various options and rights taxpayers have in dealing with the IRS. Some taxpayers believe they cannot pay what they owe. However, taxpayers should consider liquidating assets (such as bank accounts, financial investment accounts, cars, boats, real estate, life insurance and 401(k) plans) to satisfy their tax debts. Taxpayers should also attempt to get a loan, if possible, to pay what they owe. Loan costs may be lower than the combination of interest and penalties imposed by the Internal Revenue Code (IRC). See “How Can I Save Money by Paying My Taxes." The IRS recognizes that sometimes taxpayers are unable to pay. Taxpayers who are unable to pay what they owe should contact the IRS as soon as possible. There are a number of payment solutions the IRS may be able to offer to the taxpayer including: • Extension of Time to Pay — Taxpayers may be eligible for a short extension of time to pay of up to 120 days. Taxpayers should request an extension if they would be able to pay their taxes in full within the extended timeframe. • Installment Agreement — In FY 2005, 2.6 million taxpayers paid their tax bills in monthly payments. Installment agreements paid directly from a bank account or payroll deduction from wages eliminate the need to mail payments and save postage costs, as well. By insuring that the IRS receives payments on time, these automatic payment methods also help taxpayers avoid defaulting on their installment agreements. • Delaying Collection — If the IRS determines that a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. • Offer in Compromise — Some taxpayers are able to settle their tax bill for less than the amount they owe by submitting an offer in compromise. However, the criteria for accepting an offer are strict and relatively few offers are accepted each year. An offer in compromise may be considered only after all other payment options have been exhausted. Taxpayers who are unable to pay their taxes in full and who have explored the various options should use the checklist in the Form 656, Offer in Compromise, package to determine if they are eligible for an offer in compromise. New Law The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), section 509, made major changes to the IRS OIC program. These changes affect all offers received by the IRS on or after July 16, 2006. The postmark date on the offer is irrelevant. TIPRA section 509 amends IRC section 7122 by adding a new subsection (c) “Rules for Submission of Offers-in-Compromise.” A taxpayer filing a lump-sum offer must pay 20% of the offer amount with the application (IRC 7122(c)(1)(A)). A lump-sum offer means any offer of payments made in five or fewer installments. A taxpayer filing a periodic-payment offer must pay the first proposed installment payment with the application and pay additional installments while the IRS is evaluating the offer (IRC section 7122(c)(1)(B)). A periodic-payment offer means any offer of payments made in six or more installments. Taxpayers can avoid delays in processing their OIC applications by making all required payments in full and on time. Failure to pay the 20 percent on a lump-sum offer, or the first installment payment on a periodic-payment offer, will result in the IRS returning the offer to the taxpayer as nonprocessable (IRC section 7122(d)(3)(C) as amended by TIPRA). The 20 percent payment for a lump-sum offer and the installment payments on a periodic-payment offer are “payments on tax” and are not refundable deposits (IRC section 7809(b) and Treasury Regulation 301.7122-1(h)). Taxpayers must specify in writing when submitting their offers how to apply the payments to the tax, penalty and interest due. Otherwise, the IRS will apply the payments in the best interest of the government (IRC section 7122(c)(2)(A)). The OIC application fee reduces the assessed tax or other amounts due. A taxpayer may not specify how to apply the $150 application fee. Taxpayers failing to make installment payments on periodic-payment offers after providing the initial payment will cause the IRS to treat the offer as a withdrawal. The IRS will return the offer application to the taxpayer (IRC section 7122(c)(1)(B)(ii)). A lump-sum offer accompanied by a payment that is below the required 20 percent threshold will be deemed processable. However, the taxpayer will be asked to pay the remaining balance in order to avoid having the offer returned. Failure to submit the remaining balance will cause the IRS to return the offer and retain the $150 application fee. Taxpayers filing periodic-payment offers must submit the full amount of their first installment payment in order to meet the processability criteria. Otherwise, the IRS will deem the offer as unprocessable and will return the application to the taxpayer along with the $150 fee. Under the new law, taxpayers qualifying as low-income or filing an offer solely based on doubt as to liability qualify for a waiver of the new partial payment requirements. Taxpayers qualifying for the low-income exemption or filing a doubt-as-to- liability offer only are not liable for paying the application fee, or the payments imposed by TIPRA section 509. A low-income taxpayer is an individual whose income falls at or below poverty levels based on guidelines established by the U.S. Department of Health and Human Services (HHS). Taxpayers claiming the low-income exception must complete and submit the Income Certification for Offer in Compromise Application Fee worksheet, along with their Form 656 application package. The IRS will deem an OIC “accepted” that is not withdrawn, returned, or rejected within 24 months after IRS receipt. When calculating the 24-month timeframe, the IRS will disregard any time periods during which a liability included in the OIC is the subject of a dispute in any judicial proceeding (IRC section 7122(f) as amended by FAQs for New Offer in Compromise Rules 1. What is the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)? The Tax Increase Prevention and Reconciliation Act of 2005 was signed into law on May 17, 2006. Section 509 of this law creates significant changes to the IRS Offer in Compromise (OIC) program by amending IRC 7122. 2. When did the TIPRA law go into effect? The law went into effect for all offers that are submitted to the IRS on or after July 16, 2006. 3. How did TIPRA, Section 509, impact the OIC program? TIPRA, Section 509, amends IRC 7122 by creating a new subsection (c), titled “Rules for Submission of Offers in Compromise.” The new subsection (c) requires that offers submitted on or after July 16, 2006, (and not subject to the waiver with respect to low-income taxpayers or offers filed under doubt as to liability only) must be accompanied by partial payments of the proposed offer amount. The form of these partial payments depends on the taxpayer’s proposed offer and terms of payment. The law also establishes a time period after which an offer would be deemed accepted by the IRS. 4. What are the proposed offer terms that became effective as of July 16, 2006? Taxpayers filing offers (excluding doubt as to liability offers) will have to specify whether they are filing a lump sum or "periodic payment" offer. The new IRC 7122(c)(1)(A) subsection requires that a taxpayer filing a lump sum offer must pay 20 percent of the offer amount with the application. A lump sum offer means any offer of payments made in five or fewer installments. The new IRC 7122(c)(1)(B) subsection requires that a taxpayer filing a periodic payment offer pay the first proposed installment payment with the offer application and pay additional installments while the IRS is evaluating the offer. A periodic payment offer means any offer of payments made in six or more installments. 5. What time period has been established by TIPRA in relation to declaring offers accepted? IRC 7122(f), as amended by the TIPRA legislation, will cause the IRS to deem an offer “accepted” if it is not withdrawn, returned or rejected within 24 months after the IRS receipt date. If a liability included in the offer amount is disputed in any judicial proceeding, that time period is omitted from calculating the 24-month time frame. 6. Are all taxpayers required to pay the payments imposed by TIPRA in order for the IRS to evaluate their offer in compromise? No. Taxpayers qualifying as low-income or filing a doubt as to liability offer are not required to pay the $150 application fee, the 20 percent payment on a lump sum offer, or the initial partial payments on a periodic short term or deferred payment offer. 7. What is a low-income taxpayer? For offer purposes, and as redefined with the release of Form 656 (Revision February 2007), a low income taxpayer is an individual whose income is 250 percent of the 2006 HHS Poverty Guidelines. These new standards are incorporated into the IRS OIC Monthly Low Income Guidelines that went into effect with the release of Form 656 (Revision February 2007). 8. What does a taxpayer need to submit in order to claim to qualify as a low-income taxpayer who is not be required to pay the payments imposed by TIPRA? As is the case when claiming exemption from payment of the $150 application fee, the taxpayer will need to complete the OIC Application Fee and Payment Worksheet and Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment. Both the worksheet and Form 656-A must be submitted with the Form 656 application. 9. Does a taxpayer need to submit two Form 656-A forms to claim exemption from the application fee and the TIPRA payments? No, only one Form 656-A will be required and it will apply to both the application fee and the required TIPRA payments. 10. What happens if the taxpayer submits a Form 656-A claiming to qualify as low-income and the IRS later determines that the taxpayer did not qualify? If the OIC investigator determines that the taxpayer’s income for the family size exceeds the levels for which a Form 656-A certification is allowed (e.g. the taxpayer should have paid the application fee and the partial offer payments), the offer investigation will immediately cease and the offer will be returned to the taxpayer. The taxpayer will not have appeal rights to this decision. 11. What happens if the taxpayer, who is not filing a doubt as to liability offer, does not submit the payment imposed by TIPRA and does not qualify as low-income? Failure to pay the 20 percent payment on a lump sum offer or the first installment payment on a periodic payment offer will cause the IRS to return the offer back to the taxpayer as not processable. See FAQ #14 if the taxpayer submits only a portion of the 20 percent payment on a lump sum offer. 12. Has the impact of TIPRA caused the IRS to change its processability criteria for offer submissions? Yes. As a result of TIPRA, offers will be deemed not processable and will be returned to the taxpayer along with the $150 application fee in the following situations: • Taxpayer is a debtor in an open bankruptcy proceeding • Taxpayer does not submit the $150 application fee or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment • Taxpayer does not submit the 20 percent payment with the lump sum offer, or a signed Form 656-A • Taxpayer does not submit the initial payment with the periodic payment offer or a signed Form 656-A 13. What happens if a taxpayer only submits the $150 application fee with the offer? If a taxpayer submits only the application fee and does not submit either the 20 percent payment or the first installment payment, the offer will be deemed not processable and the $150 application fee will be returned to the taxpayer. 15. Is compliance no longer a processability criterion for OIC submissions? Correct. Compliance is not considered to be a processability criterion for OIC initial submissions. If compliance is the only issue, the offer will be deemed processable. However, IRS will contact the taxpayer by either telephone or correspondence requesting the delinquent return(s), federal tax deposits or required estimated tax payment(s). A reasonable amount of time will be provided to the taxpayer to comply. Failure to comply will cause the IRS to return the offer to the taxpayer and retain the application fee, along with all TIPRA payments previously paid. The taxpayer will not have appeal rights to this decision. 16. Does the taxpayer need to submit two separate remittance documents when filing an offer (e.g., one for the application fee and another for the required payments)? Yes. The taxpayer should remit two checks, one for the application fee and the other one for the required TIPRA payment. If only one check is received, the IRS will apply the application fee first and then the remainder as the payment amount. 17. Are the payments imposed by TIPRA refundable to the taxpayer if the IRS later returns the offer back to the taxpayer? No, the TIPRA payments are not refundable. Based on IRC 7122(c), the 20 percent payment on a lump sum offer and the periodic payments on a short term or deferred payment offer are considered “payments on tax” and are not refundable. 18. Does TIPRA allow the taxpayer to designate how these payments should be applied? Yes. Taxpayers are not required to but may designate the application of the TIPRA payments. The designation must be made in writing when the offer is submitted or when the required payment is made 19. What happens if the taxpayer does not submit a written request stating how the payments should be applied? In the absence of any written request by the taxpayer when the offer is submitted or when the required payment is made, the IRS will apply the partial payment(s) in the best interest of the government. 20. Can a taxpayer designate how the $150 application fee is applied? No. A taxpayer may not designate how the application fee is applied. The OIC application fee reduces the assessed tax or other amounts due. 21. What happens if a taxpayer who has paid the initial payment on a periodic payment offer fails to submit subsequent payments while the offer is under investigation? The IRS will contact the taxpayer and provide one opportunity to pay the missing amount. The offer will be declared withdrawn and returned back to the taxpayer if the taxpayer fails to submit the required amount. All payment(s) previously made will be applied to the taxpayer’s account. The IRS will retain the application fee and the taxpayer will not have appeal rights to this decision. 22. Is the IRS bound by the offer amount and terms submitted by the taxpayer in determining an acceptable offer? No. The IRS is not bound by either the offer amount or the terms. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance. 23. What will happen to payments the taxpayer makes during the offer investigation if the IRS later rejects the offer? The IRS will credit the taxpayer’s account(s) with any payment(s) submitted with the original offer, as well as any payments that were made during the course of the offer investigation. 24. Will a taxpayer be able to designate any partial payments in excess of the 20 percent paid with a lump sum offer, or in excess of the proposed installments paid under a periodic payment offer? Yes, if the taxpayer submits the request in writing. All payments will be treated as payments of tax including any overpayments, and applied to the Government's best interest unless designated by the taxpayer. If the taxpayer requests the overpayment be considered a deposit, the overpayment cannot be designated, but may be refunded if the offer is rejected or returned by the IRS or is withdrawn by the taxpayer. The IRS will not pay interest on the deposit.