An offer to compromise a tax liability must be submitted according to the procedures, and in the form and manner, prescribed by the IRS. The offer must be made in writing, must be signed by the taxpayer under penalty of perjury and must contain all of the information prescribed or requested by the IRS. Reg §301.7122-1(d)(1) . For general standards IRS applies in evaluating compromise offers. A compromise offer is made on Form 656 (in duplicate), whether the taxpayer wishes to pay the entire amount of his offer at once, or in installments. Reg §601.203(b) . None of the standard terms may be stricken or altered. Rev. Proc. 2003-71, 2003-2 CB 517 . Offers, other than those based solely on doubt as to liability, Code Sec. 7122(d)(3)(B)(ii) , Reg §301.7122-1(d)(1) , must be accompanied by a financial statement made on Form 433-A (wage earners, self-employeds and certain corporate officers and individual partners) and/or Form 433-B (corporations or other businesses). Statement of Procedural Rules Reg §601.203(b) ; Rev. Proc. 2003-71, 2003-2 CB 517 . The offer must be accompanied by a partial payment. Code Sec. 7122(c)(1) . Any offer (whether lump-sum or periodic payment that isn't accompanied by the required payment will be returned to the taxpayer as unprocessable. Code Sec. 7122(d)(3)(C) . Before filing a formal offer in compromise, a taxpayer may request a conference to explore the possibility of reaching a compromise with IRS. After all investigations have been made, the taxpayer may request a meeting in the office having jurisdiction of the offer to determine the amount which may be accepted as a compromise. If agreement is not reached at the meeting and the district director has processing jurisdiction over the offer, the taxpayer will be informed that the taxpayer may request consideration of the case by an appeals office. The request may be in writing or oral. If the tax, penalty, and assessed (but not accrued) interest sought to be compromised exceeds $2,500 for any return, tax year or tax period, a written protest is required. Reg §601.203(d) . The offer should be mailed to the appropriate address listed on Form 656. Rev. Proc. 2003-71, 2003-2 CB 517 . IRS may not accept for processing any offer to compromise a liability following reference of a case involving such liability to the Department of Justice for prosecution or defense. Reg §301.7122-1(d)(2) . An offer in compromise becomes pending when it is accepted for processing. A determination is made to accept an offer in compromise for processing when an IRS official with delegated authority to accept an offer for processing signs the Form 656 (above). The date the IRS official signs is recorded on IRS's computers. As of this date, levy is prohibited unless IRS determines that collection is in jeopardy. Rev. Proc. 2003-71, 2003-2 CB 517 . As additional consideration for the acceptance of an offer in compromise, IRS may request that a taxpayer enter into any collateral agreement or post any security which is deemed necessary for the protection of the interests of the U.S. Reg §301.7122-1(e)(2) . And for any offer in compromise, IRS may require that the taxpayer extend the statute of limitations on assessment. But IRS must notify the taxpayer that he has the right to refuse to extend the limitations period or to limit the extension to particular issues or time periods. Reg §301.7122-1(i)(2) . If an offer accepted for processing doesn't contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. If the taxpayer doesn't submit the additional information within a reasonable time after the request, the IRS may return the offer to the taxpayer. Reg §301.7122-1(d)(2) . An offer won't be returned for failure to submit requested financial information until a managerial review of the proposed return (i.e., review by an IRS manager) is completed. Reg §301.7122-1(f)(5)(ii) . IRS may also return an offer if IRS determines: • the offer was submitted solely to delay collection; Reg §301.7122-1(d)(2) . • the taxpayer fails to file a return or pay a liability; • the taxpayer files for bankruptcy; • the offer is no longer processable; or • the offer was accepted for processing in error. Rev. Proc. 2003-71, 2003-2 CB 517 . An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted and the date the IRS returns the offer to the taxpayer. Reg §301.7122-1(d)(2) . An offer is considered to be returned on the day the IRS mails, or personally delivers, a written letter to the taxpayer informing the taxpayer of the decision to return the offer. Rev. Proc. 2003-71, 2003-2 CB 517 . A compromise offer can be withdrawn by the taxpayer or the taxpayer's representative at any time before the IRS's acceptance (see below) of the offer. Reg §301.7122-1(d)(3) . The taxpayer may withdraw an offer by delivery of written notification in person, by mail, by fax, or telephonically. The offer will be considered withdrawn when written notification is received by the IRS, if withdrawn by personal delivery or by certified mail, or, in all other cases, including withdrawal by noncertified mail, fax, or phone, on the date the IRS mails or personally delivers a written letter to the taxpayer acknowledging the withdrawal. An offer that has been withdrawn is no longer pending and the IRS may levy to collect the liability that was the subject of the offer. Rev. Proc. 2003-71, 2003-2 CB 517 . The decision when to accept an offer in compromise is within IRS's discretion. Rev. Proc. 2003-71, Sec. 6.03, 2003-2 CB 517 . However, if IRS doesn't reject an offer within 24 months after it's submitted, the offer is deemed to be accepted. For this purpose, any period during which any tax liability that's the subject of an offer in compromise is in dispute in any judicial proceeding isn't taken into account in determining the expiration of the 24-month period. Code Sec. 7122(f) . Before the 24-month time limit expires, an offer in compromise hasn't been accepted until IRS issues a written notification of acceptance to the taxpayer or the taxpayer's representative. Reg §301.7122-1(e)(1) . Taxpayers' attempts to have acceptance of tax payments or deposits, or other acts by the IRS, considered to be an acceptance of compromise offers, have been generally unsuccessful. Except as otherwise provided below, when a compromise is made by the IRS, the opinion of the General Counsel for the IRS or his delegate must be placed on file, along with his reasons for the compromise and a statement of: • the amount of tax assessed, • the amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed, and • the amount actually paid in accordance with the terms of the compromise. Code Sec. 7122(b) ; Reg §301.7122-1(e)(6) . The Counsel opinion described above isn't required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to tax, or assessable penalty) is less than $50,000. However, compromises below this $50,000 threshold are subject to continuing quality review by IRS. Code Sec. 7122(b) . A user fee is imposed for processing an offer in compromise. Reg §300.0(b)(3) . The fee is $150 ( Reg §300.3(b)(1) ) and applies to all offers in compromise accepted for processing ( Reg §300.3(a) ), except that no fee will be charged if an offer is: (1) based solely on doubt as to liability (as defined in Reg §301.7122-1(b)(1) , see ¶71,224.02 ) ( Reg §300.3(b)(1)(i) ); or (2) made by a low-income taxpayer, defined as an individual who falls at or below the dollar criteria established by the poverty guidelines updated annually in the Federal Register by the Department of Health and Human Services (DHHS) under section 673(2) of the Omnibus Budget Reconciliation Act of 1981 (95 Stat. 357, 511) or such other measure that is adopted by IRS. Reg §300.3(b)(1)(ii) . The taxpayer whose tax liabilities are the subject of the offer is liable for the fee. Reg §300.3(c) . Taxpayers who claim the poverty guideline exception in (2), above, must certify their eligibility using Form 656-A . IR 2003-99, 8/15/2003. Taxpayers with offers that don't fall within (1) or (2), above, must submit the user fee along with the offer in compromise. Preamble to TD 9086, 8/14/2003 . Any assessed tax or other amounts (i.e., interest or penalties) imposed with respect to a tax that is the subject of an offer in compromise subject to the above rules will be reduced by any user fee imposed with respect to that offer in compromise. Code Sec. 7122(c)(2)(B) . Thus, the fee will be applied against the amount of the offer, unless the taxpayer requests that it be refunded if the offer is: • accepted to promote effective tax administration (under Reg §301.7122-1(b)(3) , see ¶71,224.02 ) ( Reg §300.3(b)(2)(i) ); or • accepted based on doubt as to collectibility (see ¶71,224.02 ) and a determination that collection of an amount greater than the amount offered would create economic hardship (within the meaning of Reg §301.6343-1 ). Reg §300.3(b)(2)(ii) . Except as provided above, the fee won't be refunded to the taxpayer if the offer is accepted, rejected, withdrawn, or returned as nonprocessable after acceptance for processing. Reg §300.3(b)(3) . No additional fee will be charged if a taxpayer resubmits an offer IRS determines to have been rejected in error or returned in error after acceptance for processing. Reg §300.3(b)(4) . The IRS may treat any portion of an application for an offer in compromise or installment agreement as if it had never been submitted if the IRS determines that the portion either (a) is based on a position that IRS has identified as frivolous, or (b) reflects a desire to delay or impede the administration of federal tax law. The portion will not be subject to any further administrative or judicial review. Code Sec. 7122(f) . A $5,000 penalty applies on any person who submits an application for an offer in compromise or installment agreement if any portion of the submission either is based on a position which the IRS has identified as frivolous, or reflects a desire to delay or impede the administration of federal tax laws. For details on the penalty, see ¶67,024 . For submissions made and issues raised before Mar. 16, 2007, the above frivolous submission rules didn't apply. Sec. 407(f), PL 109-432, 12/20/2006 ; Code Sec. 6702 before amend by Sec. 407(a), PL 109-432, 12/20/2006 Code Sec. 7122 before amend by Sec. 407(d), PL 109-432, 12/20/2006 . Sec. 407(f), PL 109-432, 12/20/2006 actually provides that the frivolous submission rules apply for submissions made and issues raised after the date on which the IRS first prescribes a list of frivolous positions under Code Sec. 6702(c) . Such a list was first prescribed on Mar. 15, 2007. For offers in compromise submitted before July 16, 2006, ( Sec. 509(d), PL 109-222, 5/17/2006 ) an offer in compromise didn't expire no matter how long the IRS took in deciding whether to accept or reject it. Hence, the limitations period remained suspended while the offer was pending. U.S. v. Mortell, Charles, (1965, DC IL) 16 AFTR 2d 6047 , 248 F Supp 706 , 66-1 USTC ¶9111 . And the rule that any assessed tax or other amounts (i.e., interest or penalties) imposed with respect to a tax that is the subject of an offer in compromise subject to the above rules will be reduced by any user fee imposed with respect to that offer in compromise didn't apply. www.irstaxattorney.com 888-712-7690