Offer in Compromise
Ofer in Compromise Overview
Offer in Compromise Overview
|IRM Number||Description of Change|
|184.108.40.206(5)(d)||At the second note, clarified that Appeals has no authority to compromise a liability if the Department of Justice (DOJ) can settle the case.|
|220.127.116.11(6)||Clarified that, absent special circumstances, offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, or by installment payments extending through the remaining statutory period for collection, or other means of collection.|
|18.104.22.168(7)||Changed Form 656 third party waiver reference to section 8 (m) of the revised Form 656. Also added that the third party waiver is not a waiver of prohibited ex parte communications between Appeals and IRS Counsel.|
|22.214.171.124(8)||Reinforced language to make it clear IRM 5.8 is the primary resource for considering Offer in Compromise (OIC) cases in Appeals.|
|126.96.36.199(5)||At (5), editorial change to clarify the note with "collection statute expiration date (CSED)" . At "Note" , included Appeals Account Resolution Specialist/Collection Specialist with reference to Appeals Officer and Settlement Officer.|
|188.8.131.52(2)||At bullet 3 and "Note" , clarified language by adding that there will be a reasonable opportunity provided to the taxpayer to submit supplemental or documentation that is considered important by the taxpayer or the Appeals Officer/Settlement Officer or Appeals Account Resolution Specialist/Collection Specialist.|
|184.108.40.206(4)||Included Appeals Account Resolution Specialist/Collection Specialist with reference to Appeals Officer and Settlement Officer.|
|220.127.116.11(5)||Clarified by adding "non-CDP offer" .|
|18.104.22.168(6)||Added language for Appeals to consider a business approach when considering resolution by OIC, and provided a few examples of factors to consider when weighing the benefits of compromise.|
|22.214.171.124(2)||The note was clarified to state that a Form 656 need not be amended to add overlooked, assessed tax periods that were originally left off the Form 656. The Form 656, at Section 8 (a), allows for the Service to amend the Form 656 by including the overlooked periods. Added reference to IRM 126.96.36.199.|
|188.8.131.52(6)(b)||A note was added to state that a finding by Counsel that a proposed acceptance is not in keeping with Service policy is not a justification for withholding an opinion if all of the legal requirements for compromise have been met.|
|184.108.40.206(7)||Included reference to Chief Counsel Directives Manual (CCDM) 33.3.2, Offers in Compromise.|
|220.127.116.11.1||Throughout, other than at 18.104.22.168.1(2), removed references to Form 656-A. The Form 656-A waiver is obsolete and has been incorporated into the revised From 656 (March 2011).|
|22.214.171.124.1(1)(a)||Included an example to demonstrate language that should be used for the proposed "date" of payment(s) for an offer using payment option 1.|
|126.96.36.199.1(1)(b)||Included that if payments involving irregular dates and/or amounts are proposed under payment option 2, it will be necessary to include an attachment for the Form 656. Create and name a Word document as "Attachment 1" to specifically enumerate the date and amount of each payment and, at payment option 2, mark the Form 656 to "See Attachment 1" . The taxpayer and/or representative must sign and date the attachment.|
|188.8.131.52.1(2)||Included (2) to advise that the Form 656-A was/is required where the taxpayer uses the Form 656 (March 2009).|
|184.108.40.206.1(5)||Included an example to demonstrate that even though a deferred periodic payment offer may include future income that is calculated over the life of the collection statute, it may be paid in a shorter time frame.|
|220.127.116.11.1(10)||Added language to clarify that if an individual taxpayer is granted a low-income exemption, no application fee or 20% TIPRA payment will ever be required of the taxpayer, even if the offer is accepted.|
|18.104.22.168.1.1(4)||Added language to state that payments on accepted offers should be sent to the address shown on the offer acceptance letter. If that address cannot be readily identified, the payment may be processed through Appeals via the most convenient remittance drop point for Appeals (see IRM 22.214.171.124.1).|
|Additional Information||Minor editorial updates were made throughout.|
|Additional Information||Due to the above changes, some renumbering of this section has occurred. Become familiar with those sections you use most.|
Susan L. Latham,
Director, Tax Policy and Valuation
This IRM provides instructions for Appeals personnel for offer in compromise
(OIC) cases. The procedures in IRM 8.23 are intended to be consistent with the
procedures in IRM 5.8, Offer in Compromise ,
IRM 5.15, Financial Analysis, as well as with
other sections of IRM Part 8 - Appeals. Section
509 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)
significantly impacted the offer in compromise program. Appeals'
responsibilities under TIPRA differ between Collection Due Process (CDP) and
non-CDP offers. Guidance on CDP offers is available in IRM 8.22.2.
IRM 5.8 contains the primary policies and procedures for both Collection and
Appeals for processing, evaluating and making determinations on offers. In
addition to IRMs 5.8 and 8.23, other IRMs impacting Appeals' consideration of an
offer in compromise (OIC) include:
IRM 8.1.1, Appeals Operating Directives and
IRM 8.2, Pre-90-Day and 90-Day Cases
(contains general information for all Appeals cases)
IRM 8.6.1, Conference and Issue Resolution
IRM 8.6.4, Reaching Settlement and Securing an Appeals
IRM 8.7.6, Appeals Bankruptcy Cases
- IRM 8.21, Appeals Statute Responsibility
- IRM 8.1.1, Appeals Operating Directives and Guidelines
An OIC is an agreement between a taxpayer and the government that, generally,
settles a tax liability in exchange for payment of less than the full amount
owed. IRM 5.8.1 contains a general overview of the OIC program, including:
Bases of Compromise
- Fees and required initial payments
Per IRC 7122(f) and Notice 2006-68, an OIC shall be deemed accepted if it is
not rejected, returned, withdrawn or treated as withdrawn under section
7122(c)(1)(B)(ii), because the taxpayer failed to make the second or later
installment due on a periodic payment OIC (see IRM 126.96.36.199), before the date
which is 24 months after the date of the submission of the offer. Any period
during which any tax liability which is the subject of the OIC is in dispute in
any judicial proceeding shall not be taken into account in determining the
expiration of the 24-month period. Per Notice 2006-68, the date of submission of
an offer for purposes of IRC 7122(f), is the date on which the offer is received by the Service. The postmark date is
irrelevant in determining when an offer is submitted.
In general, Appeals has jurisdiction to make decisions on OIC cases in the
Offers appealed after being rejected by Collection or Examination.
Offers based on doubt as to liability (DATL) if the liability was previously
determined by Appeals.
Offers submitted as an alternative to the proposed collection action in a CDP
or equivalent hearing (EH) case before the CDP Notice of Determination or EH
Decision Letter is issued.
Offers being evaluated by Collection when a Notice of Federal Tax Lien (NFTL)
is filed and the taxpayer requests a CDP or equivalent hearing.
Note:Appeals will not accept jurisdiction over an OIC if the IRS does not have the authority to determine the type of tax that is being compromised, e.g. Alcohol, Tobacco and Firearm (ATF) taxes.
Note:Appeals has no authority to compromise a liability if the Department of Justice (DOJ) can settle the case. A transaction code (TC) 550 with definer code "04" indicates that a judgment was obtained. Also, a TC 520 with a Closing Code (cc) 70, 71, 73, 75, 80 or 82 may indicate that litigation is pending (see IRM 25.3.6-1 and IRM 5.8.1. Consult with Area Counsel if these codes are present.
Note:The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed unless the Integrated Data Retrieval System (IDRS) indicates a return was received or an assessment is pending. See IRM 188.8.131.52.2 .
- Offers appealed after being rejected by Collection or Examination.
Absent special circumstances, an OIC will not be accepted if it is believed
that the liability can be paid in full as a lump sum, or by installment payments
extending through the remaining statutory period for collection, or other means
of collection. See IRM 184.108.40.206.3.
Note:Other provisions may apply. See IRM 220.127.116.11.2.1.
Per Revenue Procedure 2000-43, OIC cases are subject to ex parte provisions.
The third party contact waiver provision found in paragraph (m) in Section 8 of
Form 656 pertains to non-IRS contacts only and is not a waiver of prohibited ex
parte communications between Appeals and other IRS functions such as
Examination, Collection, and IRS Counsel.
- IRM 5.8 is the primary resource for Appeals in working OIC cases. However, while following the general OIC procedures found in IRM 5.8, Appeals exercises independent judgment concerning the disputed valuations and business decisions made by Collection. Appeals also makes independent determinations regarding offers based upon DATL.
IRC 6331(k) provides that no levy may be made
during the period that the offer is pending,
for an additional 30 days after the offer is rejected, and
- during the time any appeal of the rejection is pending.
- during the period that the offer is pending,
Treasury Regulation 301.7122-1(d)(2) states that an offer becomes pending
once it is accepted for processing. This is the date the Service official signs
the Form 656, Offer in Compromise and inputs
Transaction Code (TC) 480.
Note:The date an offer becomes pending (TC 480 date) is usually not the same as the offer submission date under TIPRA. Be aware of this important difference when determining the statute date under IRC 7122(f).
IRC 7122(e) states there must be an independent administrative review of any
rejection of an OIC before such rejection is communicated to the taxpayer, and
Treasury Regulation 301.7122-1(f)(1) provides that an offer in compromise has
not been rejected until IRS issues a written notice to the taxpayer or his
representative advising of:
The reason(s) for rejection, and
- The right to an appeal.
- The rejection,
Treasury Regulation 301.7122-1(f)(5) further provides that a taxpayer may
administratively appeal the rejection of an offer to the IRS Office of Appeals
if, within the 30-day period commencing the day after the date on the letter of
rejection, the taxpayer requests such an administrative review in the manner
provided by the Secretary.
IRC 6331(i)(5)provides that the period of limitations to collect the tax
under IRC 6502 shall be suspended for the period during which levy is
prohibited. See also Treasury Regulation 301.7122-1(i)(1).
Note:The suspension of the collection statute expiration date (CSED) was repealed by the Community Renewal Tax Relief Act, effective December 21, 2000. The Job Creation and Workers Assistance Act re-established the suspension of the CSED, effective March 9, 2002. Appeals Officers (AO), Settlement Officers (SO) and Appeals Account Resolution Specialist (AARS) / Collection Specialists considering cases involving older liabilities with multiple prior OICs must be aware of the proper CSED. IRM 5.8.10 and IRM 8.21 contain detailed information on CSED issues involving OICs.
As previously indicated, IRM 5.8 contains the primary policies and procedures
for processing, evaluating and making determinations on offers. Appeals does not
have the authority to disregard established policies or procedures. However, the
Appeals process in an OIC case is not merely an extension of the Small Business
Self Employed (SBSE) OIC process. The role and mission of Appeals are different
from that of SBSE. Appeals personnel must employ Appeals' standard conference
and settlement practices for all work streams, including OICs.
The primary obligations Appeals has in a non-CDP OIC appeal are to:
Provide the taxpayer with an opportunity for the Appeals conference he/she
asked for under IRC 7122(e)(2).
Determine whether SBSE was correct in rejecting the taxpayer's offer by
addressing the disputed issues that caused the offer to be rejected.
Advise the taxpayer of what's needed in order for the offer to be properly
evaluated and/or accepted and provide a reasonable opportunity to submit
supplemental information or documentation that the taxpayer or the AO, SO or
Appeals AARS / Collection Specialist believes is necessary to properly evaluate
the offer and/or may make the offer acceptable.
- If an offer cannot be accepted, communicate the reason(s) why and, when appropriate, possible alternative resolution options (see IRM 18.104.22.168, Alternative Resolutions for Offers, for applicability).
Note:It is important to note that general Appeals policy and procedures call for the AO, SO or AARS / Collection Specialist to offer the non-CDP OIC taxpayer an opportunity for the Appeals conference he/she asked for when the offer was rejected. IRM 8.6.1 discusses conference and settlement practices applicable to all Appeals cases and makes no exceptions to offering the taxpayer an opportunity for a conference. This applies even in cases in which the taxpayer is not in compliance with filing and/or payment requirements. Do not close out a non-CDP offer case as sustaining rejection of the offer without first offering the taxpayer an opportunity for a conference. See also IRM 22.214.171.124.
- Provide the taxpayer with an opportunity for the Appeals conference he/she asked for under IRC 7122(e)(2).
In a non-CDP OIC case, Appeals is not responsible to "re-work" the offer.
Requests for the taxpayer to provide supplemental information to Appeals should
clearly spell out:
precisely what is needed
that the information, documentation, unfiled return, payment, etc., is
necessary to enable Appeals to properly evaluate the offer
precisely when the requested items must be received in Appeals
- that Appeals must make its decision on the offer based upon available information (unless the conference has not yet been held) if all of the requested items are not received by the stated deadline
- precisely what is needed
A taxpayer appealing SBSE's rejection of his/her offer has already had an
opportunity to present to SBSE the issues and financial information or
documentation relevant to the acceptance of the offer; therefore, deadline
extensions by Appeals should not be granted routinely. Generally, an extension
is granted only if the AO, SO or AARS / Collection Specialist believes that it
may, ultimately, lead to an opportunity for settlement, and is appropriate given
the individual facts and circumstances of the case. Appeals should not generally
be looked upon to be the initial finders of fact or the first to consider
determinative information. The reason for granting the taxpayer an extension of
time to provide requested information/documentation or resolve a compliance
issue should be documented in the case activity record.
Note:Having found a basis to reject the offer, SBSE may have ceased its evaluation and simply rejected the offer without fully identifying or developing all reasonable collection potential (RCP) issues. As such, the taxpayer may not have had a full opportunity to present information and/or documentation to SBSE to address relevant RCP issues before the offer was rejected. If Appeals agrees with arguments made by the taxpayer, Appeals may need to address the issues not addressed by SBSE before accepting the offer. See also IRM 126.96.36.199.
IRM 8.1.1, Appeals Operating Directives and
Guidelines, IRM 8.6.1, Conference and Issue
Resolution, and IRM 8.6.4, Reaching Settlement
and Securing an Appeals Agreement Form, contain general guidance on
Appeals conference and settlement practices and other general Appeals
responsibilities. Because a taxpayer may not (generally) seek judicial review of
Appeals' decision to sustain Collection's rejection of a non-CDP offer, not all
of IRMs 8.1.1, 8.6.1 and 8.6.4 relate to OICs, but some sections that are
relevant are as follows:
Appeals is committed to the reduction of the
outstanding accounts receivable of the Service. Appeals Officers or Settlement
Officers can assist in this reduction by soliciting advance payments, using
offer in compromise and installment agreement procedures, and quickly resolving
problems with incorrect assessments. (See IRM 188.8.131.52.)
Conduct conferences in an open atmosphere that fosters
cooperation in the resolution of disputes. Above all, it is of utmost importance
to be a good listener. (See IRM 184.108.40.206.)
The judicial attitude is one which reasonably appraises
the facts, law, and litigating prospects; uses sound judgment and ability to see
both sides of a question; and is objective and impartial. Any approach that
contemplates a maximum possible result in favor of the Government or a
deficiency in every case is incompatible with a judicial attitude and the
Appeals mission. (See IRM 220.127.116.11.4).
- Do not take advantage of a taxpayer's lack of technical knowledge. The Appeals Officer or Settlement Officer will assist the pro se taxpayer in every way possible. In the absence of an agreement, ensure the taxpayer fully understands the appeal rights. (See IRM 18.104.22.168.4).
- Appeals is committed to the reduction of the outstanding accounts receivable of the Service. Appeals Officers or Settlement Officers can assist in this reduction by soliciting advance payments, using offer in compromise and installment agreement procedures, and quickly resolving problems with incorrect assessments. (See IRM 22.214.171.124.)
In consideration of the general Appeals tenets referred to in (5) above, as
well as those of IRM 126.96.36.199.4, it is important to take a pragmatic, business
approach when considering resolution of the case through an OIC. The Service
benefits through acceptance of an OIC not only through dollars collected through
compromise, but by reduction of the accounts receivable dollar inventory (ARDI),
through the elimination of bad debt. The elimination of bad debt can help the
Service to focus its limited resources on what are likely to be more collectible
liabilities. For taxpayers who have historically struggled with tax issues, the
path back to compliance is often found in Appeals. With this in mind, some
general factors to consider when evaluating an OIC are:
The age of the taxpayer's liability
The success, or lack thereof, of prior collection efforts against the
The benefit of increased future revenue to the government resulting from the
taxpayer's future tax compliance (achieved through acceptance of an OIC)
Note:Such factors are not stand-alone bases of acceptance of compromise, but should be used to develop a frame of mind that is geared toward compromise.
- The age of the taxpayer's liability
This IRM section contains only the most basic compromise requirement details
plus some information that's unique to Appeals. Appeals personnel considering
offers must be familiar with the revised guidelines in IRM 5.8, which contain
numerous post-TIPRA changes. To avoid duplication of procedures, the bulk of the
most necessary information in terms of OIC processability, perfecting and
payment requirements, is found in IRM 5.8.2, Offer in
Compromise, Offer Receipts, and IRM 5.8.3, Offer in Compromise, Processability .
Except as indicated below, an offer must be filed on the current revision of
Form 656 to be accepted. The Form 656 instruction booklet provides specific
details for completing the offer.
Note:Collection will process an offer even if the Form 656 does not list all outstanding tax debts. However, an amended Form 656 listing all known tax debts need not be secured prior to accepting the offer because Section 8 (a) of the Form 656 allows the Service to include any assessed liabilities on the form, even after its submission by the taxpayer. New, related offers, however, may need to be secured. See IRM 188.8.131.52.
If an OIC case is under consideration where the original offer was mailed
before July 16, 2006, the offer may be accepted using the July 2004 revision of
Form 656. This is a pre-TIPRA offer. If an amendment is needed on a pre-TIPRA
offer, the July 2004 revision of Form 656 may be used, as the taxpayer is not
required to make a TIPRA payment with the amended offer.
A Form 656-L, Offer in Compromise (Doubt as to
Liability), is used for an offer based upon doubt as to liability. A
DATL offer must be submitted using Form 656-L. There is no provision on the Form
656 or 656-B for DATL offers. No TIPRA payment(s) are required for DATL offers.
Each separate tax period and type of tax must be listed on the Form 656. If
an offer involving a Trust Fund Recovery Penalty (TFRP) assessment is accepted,
the case file must include information identifying the Business Master File
(BMF) periods comprising the TFRP assessment(s). A TFRP assessed prior to August
of 2000 reflects only the last quarterly period that was the subject of the
TFRP. In August of 2000, IRS began assessing TFRPs for each respective quarter.
Verification on IDRS is required to determine how the assessment was completed.
See also IRM 184.108.40.206, concerning amended offers and the periods to be listed on
the amended Form 656.
IRC 7122(b) requires an opinion from the Office of Chief Counsel on all
offers recommended for acceptance in which the unpaid liability (including tax,
penalties and interest) is $50,000 or more. Counsel's review of a proposed
acceptance has two separate and distinct components:
Certification that the legal requirements for compromise were met.
Review of the proposed compromise for consistent application of the Service's
Note:A finding by Counsel that a proposed acceptance is not in keeping with Service policy is not a justification for withholding an opinion if all of the legal requirements for compromise have been met.
- Certification that the legal requirements for compromise were met.
- Further details concerning Counsel's review and statutorily required opinion are in IRM 220.127.116.11.2, Counsel Review of Acceptance Recommendations, and Chief Counsel Directives Memorandum (CCDM) 33.3.2, Offers in Compromise.
On May 17, 2006, TIPRA was signed into law. Offers received on or after July
16, 2006, must include the applicable user fee and an additional partial payment
under TIPRA. The offer terms and associated initial partial payment requirements
Payment Option 1 - Lump Sum Cash Offer:
Payable in five or fewer installments beginning on or after notice of
acceptance. The Form 656 must be accompanied by payment of 20% of the amount of
the proposed offer, unless Low Income Certification Guidelines are met. See
Section 4 of the Form 656. Section 5 of the Form 656 (Rev. March 2011) asks for
specific dates for payments made under payment option 1, but since the date of
acceptance is not known at the time an offer is submitted, exact payment dates
cannot be used. In section 5, where the exact date of payment is not known, use
less specific language for the "date" (see the example below).
Example:If the offer will have payment(s) made on the 10th day of the month, use the following language for the "date" : "Day 10 of the first month following the date of acceptance of the offer" . Subsequent dates will simply repeat the language using "second month" , "third month" , etc.
- Payment Option 2 - Periodic Payment Offer: Payable in more than five months but before the end of the statutory period for collection, beginning with the date the offer is received by the Service. The Form 656 must be accompanied by the first proposed installment payment unless Low Income Certification Guidelines are met. See Section 4 of the Form 656. Additional installments must be paid in accordance with the taxpayer's proposed terms while the offer is being considered, unless the offer is based upon DATL or the taxpayer meets the low-income exemption under Section 4 of Form 656 (Rev. March 2011). See paragraph (4) below for information on the low-income exemption.
Note:If payments involving irregular dates and/or amounts are proposed under payment option 2, it will be necessary to include an attachment for the Form 656. Create and name a Word document as "Attachment 1" to specifically enumerate the date and amount of each payment and, at payment option 2, mark the Form 656 to "See Attachment 1" . Include on the attachment the taxpayer's SSN/EIN. The taxpayer and/or representative must sign and date the attachment.
- Payment Option 1 - Lump Sum Cash Offer: Payable in five or fewer installments beginning on or after notice of acceptance. The Form 656 must be accompanied by payment of 20% of the amount of the proposed offer, unless Low Income Certification Guidelines are met. See Section 4 of the Form 656. Section 5 of the Form 656 (Rev. March 2011) asks for specific dates for payments made under payment option 1, but since the date of acceptance is not known at the time an offer is submitted, exact payment dates cannot be used. In section 5, where the exact date of payment is not known, use less specific language for the "date" (see the example below).
The Form 656-A, Income Certification for Offer in
Compromise Application Fee and Payment, was made obsolete when the
Form 656 was revised in March 2011. For offers submitted on the earlier Form 656
(March 2009), the Form 656-A was required for requesting a waiver of the TIPRA
application fee and payment.
If an amended Short Term Periodic Payment Offer is secured, the 24-month
period during which the taxpayer must pay the Short Term Periodic Payment Offer
begins the date the amended offer is accepted. The taxpayer is still required to
make the proposed periodic payments while the amended offer is being considered,
but the 24-month period to make such payments doesn't begin until the date the
offer is accepted. See IRM 18.104.22.168.4.
The 24-month time period during which the taxpayer must pay the Short Term
Periodic Payment Offer also begins the date such offer is accepted if the Short
Term Periodic Payment Offer is based upon DATL, the taxpayer qualifies for the
waiver under Section 4 of the Form 656, or if Appeals accepts the original
Short-Term Periodic Payment Offer that was rejected by SBSE, without amendments.
Example:As a collection alternative in a CDP case, on May 15, 2011, Appeals received a Short Term Periodic Payment OIC based upon doubt as to collectibility. The taxpayer made the required monthly periodic payments, and on January 18, 2012, submitted an amended Short Term Periodic Payment Offer. The amended offer was accepted February 15, 2012. The amended offer is payable in six or more installments before February 15, 2014.
Section 7122 does not require the taxpayer to make periodic payments on
either a regular basis or in equal amounts, although the revised Form 656 is set
up for the taxpayer to make such a proposal. Also, the payment terms under
Payment Option 2 do not have to be over the entire length of the collection
statute, but may be paid in fewer months. However, the amounts and due dates of
payments must be specified.
Example:A taxpayer has income and assets valued at $21,000.00. The value of future income is $200.00 per month for the 100 months remaining on the collection statute ($20,000.00), and equity in assets of $1,000.00. The taxpayer proposes to adjust some expenses and pay the offer in 70 payments of $300.00. This arrangement is acceptable. Payments do not need to be over the entire length of the collection statute, even though future income value is calculated over that period.
If the offer is accepted and is either based
upon DATL or the taxpayer qualified for the waiver under Section 4 of the Form
656, the taxpayer must begin making periodic payments in accordance with the
terms of the accepted offer after Appeals issues the written notice of
The TIPRA requirement for a taxpayer to make proposed periodic installment
payments while a periodic payment offer is being considered ends when SBSE
rejects the offer. Taxpayers are not required to continue making periodic
installment payments while a rejected offer is being considered by Appeals unless Appeals secures an amended offer. See IRM
22.214.171.124 for additional guidance on amended offers secured by Appeals.
IRC 7122 provides that the Secretary may issue regulations waiving any
partial payments required with the submission of the offer. The only available
waivers per Notice 2006–68 are for offers based upon doubt as to liability and
offers received from low-income taxpayers. Such taxpayers are not required to
pay the $150 processing fee, initial payment, or periodic installment payments.
The IRS OIC Monthly Low Income Guidelines found in the Form 656 information
booklet were recently increased, so an increased number of taxpayers will likely
be exempt from the user fee and TIPRA payment requirements. A taxpayer seeking a
low-income exemption must complete Section 4 of the Form 656 when submitting the
offer. The low-income exemption applies only to individuals.
If an individual taxpayer is granted a low-income exemption, the taxpayer is
exempted from payment of the application fee as well as the 20% TIPRA payment,
and any proposed periodic monthly payments, unless the offer is formally
accepted. Once formally accepted, the taxpayer will be responsible for payment,
subject to the terms on the accepted offer. However, no application fee or 20%
TIPRA payment will ever be required of the taxpayer, even if the offer is
The IRS no longer requires that installment agreements in effect prior to
receipt of an OIC remain in effect while an offer is being considered.
- IRMs 126.96.36.199.4 and 188.8.131.52 contain detailed information concerning OIC payment terms, processability issues and initial payment requirements for offers. See also IRM 184.108.40.206.1.1.
Appeals may process all "pre-acceptance" TIPRA payments using a Form 3244,
Payment Posting Voucher, except for the payment that's due with the
original Form 656. The user fee and initial payment are part of the overall
processability determination so they must be forwarded to the appropriate
Centralized Offer in Compromise (COIC) site. Subsequent periodic installment
payments made prior to acceptance of the offer may be processed by Appeals as
For tax debts other than employment or excise taxes, apply designated
payments per the written designation using Designated Payment Code (DPC) 35.
For tax debts other than employment or excise taxes, apply undesignated
payments to the liability with the earliest CSED using DPC 35.
For tax debts other than employment or excise taxes, apply designated
payments received with an amended Form 656 per the written designation using DPC
For tax debts other than employment or excise taxes, apply undesignated
payments received with an amended Form 656 to the liability with the earliest
CSED using DPC 34.
For employment or excise tax (trust fund) debts, apply payments designated to
trust fund taxes per the written designation using DPC 02.
For employment or excise tax debts, apply undesignated payments to all unpaid
Forms 1120 and 940 liabilities, and then to other non-trust fund liabilities
beginning with the liability with the earliest CSED using DPC 35.
Note:This is different than the standard TFRP payment application procedures outlined in IRM 220.127.116.11, Trust Fund Compliance - Investigation and Recommendation of the Trust Fund Recovery Penalty, Calculating the TFRP, because offer payments are applied in the best interest of the government, unless otherwise designated.
Apply payments designated to trust fund taxes that are received with an
amended Form 656 per the written designation using DPC 02.
- Apply undesignated payments for employment or excise tax debts that are received with an amended Form 656, to all unpaid non-trust fund liabilities beginning with the liability with the earliest CSED using DPC 34.
- For tax debts other than employment or excise taxes, apply designated payments per the written designation using Designated Payment Code (DPC) 35.
Per IRC 7122(c)(2)(A) and Notice 2006-68, taxpayers are entitled to designate
all payments required under TIPRA while the offer is under consideration. The
designation must be made in writing at the time the payment is made. Absent a
written designation, the payments will be applied in the best interest of the
government. Once the taxpayer designates application of a payment, it cannot be
changed at a later date.
Note:The OIC user fee cannot be designated and will be applied to the taxpayer's liability in the best interest of the government.
Once the offer is accepted, the taxpayer no longer has the right to designate
subsequent offer payments. All post-acceptance payments should be processed by
the Monitoring Offer in Compromise (MOIC) unit.
- Payments received for offers that have been accepted should be sent to the payment address that is shown on the taxpayer's offer acceptance letter. If the address is not known or cannot be readily identified, the payment may be routed to the most convenient remittance drop point in Appeals (see IRM 18.104.22.168.1).
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