.8.7.1 (09-23-2008) Overview 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 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 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 See IRM 5.8.3.9 for complete procedures. 5.8.7.2.2 (09-23-2008) Processable Returns Processable returns include all returns made after the offer has been determined to be processable. 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. 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 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 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. Who should make estimated tax payments? A person that is considered to be self-employed is generally required to make estimated tax payments during the tax year. Self-employment tax is based on the taxpayer's net self-employment income or earnings. 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. How much is due and when should the payment(s) be made? 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. 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. Generally, payments should be made quarterly and are due April 15th, June 15th, September 15th, and January 15th of the following year. 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. The OI should determine the appropriate amount due during the initial analysis of the case as defined in IRM 5.8.4.7.1. 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. 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. Prior to returning an offer for this reason, the following actions must be taken: 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. 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. 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. 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. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into compliance. 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 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. Initial review by field OS 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. 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. Who should make FTDs? 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. How much is due and when should federal tax deposits be made? 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. 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. Monthly depositors must deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month. 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 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. 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. 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. 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. The taxpayer will be allowed one opportunity to make up missed deposits. Subsequent missed deposits will result in immediate return of the offer. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into FTD compliance. A return of an offer for failure to make required FTDs requires approval of the Group Manager. 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 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. 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. 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. 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. The history should be clearly documented to reflect the missing information requested and results of the telephone call. 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 Processable returns do not require preparation of the Form 1271. The following actions should be taken to close a case as a processable return: Verify that the AOIC record reflects a "Y" in the Processable status field. Generate the AOIC "Return Letter" for the signature of the appropriate delegated official, listing the reason(s) the offer is no longer processable. 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. Stamp the Form 656 "RETURN" in red, or circle in red ink. Cross out the IRS received date(s) with a red "X" . Document the history, indicating the reason(s) the offer is no longer processable and with any other pertinent information regarding the case. Attach a copy of the offer to the taxpayer's letter and submit the letter(s) for approval and required signature. 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. Close the case on AOIC as a "return" once the letter is signed. 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. 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 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) 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 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). 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. The offer was returned in error by either the field or the COIC site. 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). 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. There was a death in the taxpayer's immediate family that prevented timely mailing of the information. The taxpayer suffered a disaster, such as a fire or flood, or any other disaster, that prevented timely mailing of the information. 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. 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. The taxpayer failed to make estimated payments but provides proof that estimated payments or withheld taxes were not due. The taxpayer provided proof of estimated payments, but it was not received until after the deadline. The taxpayer provided proof that the required TIPRA payments were made, but not posted. 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 Before reconsidering the closed offer, the following conditions must be met: The total offer amount must be equal to the amount offered on the returned Form(s) 656; The taxpayer or authorized representative must have requested return reconsideration within 30 calendar days from the date of the return letter The following would not be acceptable reasons for return reconsideration: "Unavailable absence" of either the taxpayer or representative, since they control the timing of the filing of the offer; 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 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 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. 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. If the taxpayer or their representative fails to provide the requested information, annotate the closed AOIC history that there will be no reconsideration. 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. 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. 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. 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: "N" in the "Fee Due" field "ME" in the "Waiver Criteria" field 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: "N" in the "Fee Due" field "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. 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 There are now two kinds of withdrawn offers; they are (1) Voluntary and (2) Mandatory. 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. 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 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. 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. Document the case history or correspondence must document that the taxpayer was informed of these rights. 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. 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 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. 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. 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. 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. Issue the withdrawal letter indicating that the taxpayer failed to comply with the request for the required payment(s), therefore the offer is withdrawn. 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). Close the offer as withdrawn as defined in IRM 5.8.7.4.3 below. 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 Offers closed as a withdrawals do not require preparation of Form 1271, Rejection or Memorandum. 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. The following actions should be taken to close an offer as a withdrawal: 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." Generate the POA letter for any authorized representative. Document the history, indicating the date, method of receipt, and type of withdrawal (e.g., voluntary or mandatory). Submit the file for approval and signature of the letter(s). 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. Keep a copy of the letter(s) with the closed offer file. 5.8.7.5 (09-23-2008) Termination of Consideration 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 Offers closed as terminations do not require preparation of Form 1271. The following actions should be taken to close an offer as a Termination: Generate the AOIC Termination Letter for the signature of the authorized delegated employee. Generate a copy of the letter for any authorized representative. Document the history indicating the date of death and how notification was received. Request input of TC 540 to IDRS if the exact date of death is confirmed. Submit the package for approval and signature of the letter(s). Close the case on AOIC as a "Termination" after approval and document the date of death in the case history. Keep a copy of the letter(s) with the closed offer file. 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 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. 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. Generally, rejections on offers based on DATL are because the tax is believed to be correct as assessed. 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." 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. 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. 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 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. 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. 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. 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. The rejection narrative should discuss the specific public policy issues. 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 The following actions should be taken to close an offer as a rejection: Update the balance for all modules on the MFT screen by pressing "I" . Enter the proposed disposition code"2" . 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. Generate the POA letter, if applicable. Generate Form 1271 for signature by the appropriate delegated officials. The Reviewer on Form 1271 must be the Independent Administrative Reviewer (IAR). 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 Print the AOIC or ICS history and include it in the offer file. 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" . Place Tabs (Document 9600B) in the case file for ease in review or if the decision is appealed. Submit the package for approval and signing of Form 1271. After approval, route the file to the IAR. After approval of the IAR, route the offer for signature, dating, and mailing of the letter(s). 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. 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. 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 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 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. 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). If no appeal request is received by the 45th day from the dy of the rejection letter, the following actions should be taken: Close the offer record as a rejection with no appeal on AOIC. If warranted, take action to return the accounts to the Field Compliance function for immediate resumption of collection activities. 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. Route the offer file to the closed files. 5.8.7.6.4 (09-23-2008) Fast Track Mediation for Offers in Compromise 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 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. Taxpayers, or representatives who express an interest in mediating must first request a conference with the manager. 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. When appropriate, mediation should be offered before the case is forwarded to the IAR for approval. 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 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 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. Secure the approval of the first and second level manager. 5.8.7.6.5 (09-23-2008) Rejection Appealed 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. 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. 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. If an appeal is received that includes additional information to reconsider but it does not change the rejection determination: 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. Document any rebuttal to arguments the taxpayer raised in the rejection letter. Print the additional case history and include it in the offer file. Transfer the case to 90XX on AOIC. Mail the case to the appropriate Appeals Area office based on the taxpayer's zip code. 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. 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. If warranted, take action to return the offer to the Field Compliance function for immediate resumption of collection activities. Route the offer file to the closed files. 5.8.7.7 (09-23-2008) Authorization to Apply Deposit 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. 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. If a taxpayer does not authorize application of the deposit to a tax liability it will be returned to the taxpayer. 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 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. 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 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. The appropriate IRM Part V Chapter should be followed to process an installment agreement, report an account uncollectible, or process a request for adjustment. To assign a case to ACS or an RO follow locally established guidelines. 5.8.7.9 (09-23-2008) Closed File Retention 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. 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. 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