The IRS frequently returns an Offer in Compromise on the excuse that it was filed solely to delay collection. That return is wrong in most cases because the justification in the IRM is limited to situations where a prior offer in compromise was filed. When it is determined that an offer is submitted solely to delay collection, the offer should be returned to the taxpayer without further consideration. The term solely to delay collection means an offer was submitted for the sole purpose of avoiding or delaying collection activity. A determination that an offer is submitted solely for the purpose of delaying collection should be apparent to an impartial observer. The Field OIC group manager and the COIC Unit Manager have delegated authority to approve returns based on solely to delay collection. An offer is not considered submitted solely to delay collection just because there is an imminent CSED issue or if an offer has been investigated and rejected and the taxpayer exercises appeal rights. When a taxpayer submits an offer that is not materially different from a previous offer that was considered and rejected with appeal rights, the offer may be returned as solely to delay collection. When a taxpayer submits an offer that is not materially different from a previous offer that was considered and returned and cause of the prior return has not been addressed, the offer may be returned as solely to delay collection. Example: The taxpayer fails to address the issues or defects of the previously submitted offer. Note: This does not include those offers previously returned for failure to pay estimated tax payments and/or federal tax deposits. See IRM 5.8.7 for returns for failure to make ES or FTDs. 6. The offer may be considered as materially different when the amount reflected on the re-submission is substantially similar to, less than, or the same as the prior offer and the following exists: A. The taxpayer’s financial situation has changed. A change in the taxpayer’s financial situation may include: (1) A change in employment and/or income, (2) A change in marital status affecting future ability to pay, (3) A change in ownership of assets or significant decline in the value of any assets, (4) The loss of an asset that was included in the original offer investigation, (5) A Change in circumstances that would affect allowable expenses and future ability to pay. B. The taxpayer has raised special circumstances that were not considered during the prior investigation. 7. Although no provisions are provided for any formal appeal of a decision to return an offer submitted solely to delay collection, all employees must honor any taxpayer's request for a review of this decision with their immediate manager. 8. In some situations, it may be determined that an offer is submitted as solely to delay collection when no prior offer has been submitted. When a collection employee has contacted the taxpayer and determined that the next action necessary is to enforce collection through levy or seizure, but the taxpayer files an offer to delay this enforcement action, the offer may be returned as solely to delay collection, unless there is a change of circumstances not considered by the collection employee. Note: This may include situations involving OICs from entities (subject to the assertion of the trust fund recovery penalty under IRC 6672) attempting to compromise trust fund taxes where any trust fund portion has not been paid or the applicable trust fund recovery penalty has not been previously assessed against all responsible persons, and the Service has previously explained to the principals that an offer will not be investigated unless the TFRP has been assessed or the trust fund paid. See IRM 5.8.4.15.1. 5.8.4.18.1 (06-01-2010) Procedures for Return of Offers Submitted Solely to Delay Collection 1. The determination that an offer was submitted solely to delay collection may be made immediately after the offer is deemed processable or at any time during the offer investigation when the facts support the decision. 2. The determination that an offer was submitted after a prior reject or default can be supported by reviewing records on AOIC and IDRS transactions: If... Then... AOIC indicates that prior offer records exist Determine the type of disposition used to close the prior submissions AOIC indicates the prior offer submission was rejected with appeal rights The re-submission requires review to determine if it was submitted solely to delay collection The prior offer was defaulted within the past year The re-submission requires review to determine if it was submitted solely to delay collection 3. To determine if the re-submission is materially different from the prior rejected or defaulted offer: A. Review any AOIC and/or ICS history to establish that an offer is a re-submission solely to delay collection. B. Compare the information contained in the prior history with the resubmitted offer package to determine if the offer was submitted solely to delay collection. Note: This does not include those offers previously returned for failure to pay estimated tax payments and/or federal tax deposits. The taxpayer must be contacted, preferably by telephone, and given a reasonable time to submit the required payments prior to returning the offer for compliance. Do not return the offer as solely to delay. 4. Cases assigned to an OS – When an OS identifies that an offer was submitted solely to delay collection, Form 657, Revenue Officer Report, must be completed and submitted to the OS group manager for approval. If the OS group manager concurs, the case will be closed immediately as a return. A copy of Form 657 will be forwarded to the appropriate RO group manager to explain why the offer was not investigated and to refer the balance due accounts for appropriate collection activity. It is important that coordination between the field OS and the RO occur to ensure that no levy is issued until after the return letter is sent by the OS. 5. Cases assigned to a COIC OE – COIC OEs will not be required to complete a Form 657, but will be required to document the AOIC history that the offer was determined to be a re-submission solely to delay collection. If the COIC Unit manager concurs, the offer will be closed immediately as a return. 6. Cases assigned to a field RO – When the field RO receives an offer, or is notified that the taxpayer submitted an offer to COIC, the RO will complete Form 657, Revenue Officer Report, and submit it to the RO group manager for approval. Form 657 must provide detailed reasons supporting any solely to delay collection decision. The RO will fax the Form 657 to either the field OS group manager or COIC Unit Manager, depending on where the offer is assigned at that time. The RO will also provide copies of current ICS history sheet (prior 12 months of activity) to the appropriate COIC site. However, if the RO feels that the ICS history sheets older than 12 months would also benefit the COIC sites, the RO should then determine what information would be pertinent to the decision. 7. If an offer, application fee, and 20% payment or first initial installment were submitted to the RO by the taxpayer, then the RO group manager will immediately over night express the offer, application fee, the 20% payment or first initial installment payment, current ICS history sheets, and Form 657 to the COIC Unit Manager. • COIC Memphis IRS, 5333 Getwell Road, Stop 880, Memphis, TN 38118 • COIC Brookhaven IRS, 1040 Waverly Ave, Stop 680, Holtsville, NY 11742 5.8.4.18.2 (06-01-2010) Solely to Delay Examples and Discussion 1. The following are examples of offers considered submitted solely to delay collection based on re-submission after a prior rejection or return: Example: (1) During initial analysis by an OE/OS, it is discovered on AOIC that the taxpayer had a previous offer returned six months ago as part of the No Reply process. A review of the AOIC case history indicated the taxpayer did not provide any bank statements with the first offer and did not respond to the combo letter requesting the necessary documentation to determine an accurate RCP. The initial analysis indicated bank statements are required to determine an accurate RCP; however, none was provided with the new offer and there was no indication from the taxpayer the accounts were closed. No special circumstances were indicated. Example: Example: (2) The taxpayer submitted an offer for $10,000. The OE/OS computed the RCP to be $20,000. The taxpayer refused to increase the offer to the computed RCP. A rejection letter was issued, and the taxpayer did not appeal. One month later, the taxpayer resubmitted an offer for $10,100. A thorough analysis indicated there is no change in taxpayer’s financial condition and no special circumstances were indicated. Example: Example: (3) A taxpayer submits an offer for $3,000 to be paid within 90 days of acceptance. A prior offer was submitted for $10,000 to be paid within 90 days. The investigation of the initial offer submission resulted in the offer being rejected with appeal rights. During that offer investigation it was determined that a piece of property was transferred to a non-liable spouse for no consideration and that a clear transferee issue exists. The value placed on the transferred property was $30,000, and was included in the reasonable collection potential (RCP). The taxpayer failed to request a timely appeal on the rejected offer. There were no special circumstances indicated. Example: Example: (4) During initial processing of an OIC, AOIC indicates there have been three offers submitted by the taxpayer over the past 18 months. All three were returned for failure to provide requested CIS information. The closed return file indicates the taxpayer was asked to provide a financial statement for a closely held corporation, which the taxpayer holds 75% interest in and is the corporate president. A Form 433-B for this corporation was requested during the offer investigation. The offer specialist clearly documented in the file the taxpayer's interest and position in this corporation. The request was clear and specific and the taxpayer refused to provide this information, claiming the IRS has no right to place a value on the corporation when determining his ability to pay on personal tax liabilities. The newly submitted offer package does not include a Form 433-B for the corporation and the Form 433-A indicates the same corporation is the taxpayer’s current employer. Example: (5) An offer is submitted for $30,000 payable within 90 days of acceptance. Research on AOIC indicates the second offer submitted by the taxpayer. A prior offer was submitted for $20,000 payable within 90 days of acceptance. The original offer was rejected with appeal rights, the taxpayer filed a timely appeal, and Appeals sustained the rejection. A review of the prior offer file indicates the taxpayer has the ability to full pay the outstanding liability through an installment agreement. The total liability is for $40,000. A review of the financial information indicates the taxpayer still has the ability to full pay the liability. The original offer was received 18 months ago and no payments have been made during this period. There is no change indicated on the financial statement, except the taxpayer has a new employer. The taxpayer's income remained the same. There are no special circumstances indicated. 2. The following are examples of offers considered solely to delay collection based on a prior collection analysis and determination of ability to pay: Example: (6) Taxpayer owes $500,000. An offer is submitted for $15,000. The CIS, as submitted by the taxpayer, indicates the taxpayer has recently been fired from his job where he had been earning $200,000 a year. The CIS also reflects a personal residence with a fair market value of $1.5 million and outstanding mortgage of $750,000 leaving equity of $750,000; a piece of property owned free and clear valued at $60,000, a large boat with a value of $140,000 which is unencumbered. Final demand has been made and a collection employee has indicated to the taxpayer that a Notice of Federal Tax Lien will be filed and possible enforcement action if the taxpayer does not full pay the liability. The investigation has shown that there are no special circumstances to be considered. Example: (7) Taxpayers owe a joint 1040 liability for 1997 of $139,854 and submitted an offer for $250. Both taxpayers are self-employed: The husband is a painter and the wife is a real estate sales person. They have no future income potential. They own an unimproved lot valued at $14,700, a personal residence valued at $177,500, six automobiles and two horse trailers valued at $20,775. Their total reasonable collection potential (RCP) is $127,191 based on the equity in the assets. The balance due period was in active collection inventory prior to the offer submission. The collection employee advised the taxpayer to secure a loan on their equity or levy action would be initiated. The taxpayer refused to pay more than the proposed $250 and submitted the offer instead of making any payment to their tax liability. The collection employee completed the Form 657 indicating the case should be returned as solely to delay based on the prior collection history and recent taxpayer cooperation to resolve the balance due. It was agreed and approved by the collection manager. The investigation has shown that there are no special circumstances to be considered. Example: (8) A corporation owes Form 941 employment taxes which include the unpaid trust fund portion. The revenue officer previously advised the corporate principals that the Service would not consider an offer in compromise for this tax liability unless they personally full paid the trust fund portion or the trust fund recovery penalty (TFRP) was assessed against all responsible persons. The principals did not pay the trust fund portion and the corporation submitted an offer in compromise before the revenue officer assessed the TFRP against all responsible parties. See IRM 5.8.18 (06-01-2010) www.irstaxattorney.com 888-712-7690