- When investigating any OIC, consideration should be given to the following issues when present, whether identified by the taxpayer or not:
- Economic Hardship – when a taxpayer is unable to pay necessary basic living expenses. Further defined in IRM 5.8.11, Economic Hardship.
- Public Policy or Equity – where, due to exceptional circumstances, collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner. Further defined in IRM 5.8.11, Public Policy or Equity Grounds.
Note:The OE/OS should review comments included on the Form 656 Section VI or any attachments to the Form 656 to determine if specific special circumstances or effective tax administration issues are discussed, which should be considered. Statements such as I cannot pay will be addressed with the determination of the taxpayer’s RCP.
- Offers can be considered under ETA criteria when:
- There is no doubt the tax is owed and no doubt that the full amount owed can be collected from the taxpayer,
- The taxpayer has a proven economic hardship or has presented facts that would support acceptance under the public policy/equity basis, and
- Compromise would not undermine compliance with tax laws.
- Offers can be considered under DCSC criteria when:
- The taxpayer cannot fully pay the tax due, and
- The taxpayer has proven special circumstances that warrant acceptance for less than the amount of the calculated RCP.
- Factors establishing special circumstances under DATC are the same as those considered under ETA.
- IRM 5.8.11, Effective Tax Administration, provides a list of factors to consider when determining if special circumstances exist and also includes a full discussion on how to investigate and determine acceptability of an offer under ETA or Doubt as to Collectibility Special Circumstance (DCSC) grounds.
- Doubt as to Collectibility (DATC) offers may be worked either in the COIC site by an OE or in Area offices by an OS. Cases assigned to an OE in COIC may be forwarded to Area offices for assignment to an OS if complex issues requiring a field investigation are identified.
- For DATC offers, the decision to accept or reject usually rests on whether the amount offered reflects the reasonable collection potential (RCP). The exception to this rule would be for offers not accepted based on public policy reasons. RCP is defined as the amount that can be collected from all available means, including administrative and judicial collection remedies. Generally, the components of collectibility outlined in IRM 184.108.40.206.1 below, will be included in calculating the total RCP. See IRM 5.8.5, Financial Analysis, for more detail on how to analyze the taxpayers financial condition to arrive at the value of each component. In determining the taxpayer's future ability to pay, full consideration must be given to the taxpayer's overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training and work experience.
- Offers should not be accepted where the tax can be paid in full as a lump sum or can be paid under current installment agreement guidelines, unless special circumstances are identified that warrant consideration of a lesser amount. Once the ability to make payments is established, the investigating employee must determine if a greater amount can be collected through current installment agreement guidelines than is being offered. If so, the offer should be recommended for rejection, unless special circumstances warrant acceptance.
- To determine if the taxpayer can full pay, the calculation must be based on the balance due at the time the offer was submitted.
- The following four components of collectibility will ordinarily be included in calculating the RCP for offer purposes:
Components Definition Assets The amount collectible from the taxpayer’s net realizable equity in assets. Future Income The amount collectible from the taxpayer’s expected future income after allowing for payment of necessary living expenses.
- For Lump Sum Cash offers, (1) if the offer is payable in 5 or fewer installments within 5 months – project for the next 48 months or the remaining statutory period, whichever is less; (2) If the offer is payable in 5 or fewer installments in more than 5 months and less than 24 months – project for the next 60 months or the remaining statutory period, whichever is less; (3) If the offer is payable in 5 or fewer installments in more than 24 months – project through the statutory period
- For Short Term Periodic Payment offers, it is the amount collectible over the next 60 months or the remaining statutory period, whichever is less.
- For Deferred Periodic Payment offers, it is the amount that is collectible over the life of the collection statute.
Amount Collectible from third parties The amount we could expect to collect from third parties through administrative or judicial action. For example, amounts collectible through a transferee assessment, nominee lien, or suit to set aside a fraudulent conveyance. Assets and/or income that are available to the taxpayer but are beyond the reach of the government Assets that the lien will not attach such as equity in assets located outside the country.
- Prior to the issuance of offer cases to the field, COIC will have made all processability determinations and completed initial internal case building actions. In some cases, no additional information will be needed from the taxpayer to complete the investigation. In these situations, the next appropriate action(s) should be scheduled in a manner that ensures the timely resolution of the case.
- Generally, the AOIC assignment date will be the assignment date of record.
- If assignment to an OS does not or will not take place within 45 days of the date the case was transferred to the Area on AOIC:
- Contact the taxpayer by telephone or in writing and advise of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the AOIC history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file and document the case history. Option "D" of the AOIC transfer letter may be used to meet the notification requirements.
- The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group
- The date COIC transferred the case on AOIC will be used as the start date for the 45-day calculation.
- Within five business days of receipt of the offer case file from the COIC site, the Area office will:
- Acknowledge receipt of the offer file(s) by signing and returning the acknowledgement copy of Form 3210, Document Transmittal
- Accept transfer of the offer record on AOIC.
- Determine the destination of the offer assignment and reassign the offer to the appropriate offer group on AOIC.
- Send the offer file to the appropriate group manager for assignment.
- If assignment to an OE does not or will not take place within 30 days of assignment to the 60XX hold file, the COIC site will:
- Contact the taxpayer (verbally or in writing) and advise of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the AOIC history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.
- The date the case is assigned to 60XX on AOIC will be used as the start date for the 30 day calculation.
- Below is a list of potential issues that, when identified during an investigation by COIC, indicate a case should be immediately transferred to the field.
- Income tax liabilities that cover a diversified spectrum of individual and business taxpayers (e.g. Schedule C with multiple and/or consecutive years of non-compliance requiring more analysis and evaluation to ascertain issues such as commingling of assets, income, expenses, etc.).
- Entity consists of a municipality and/or educational institution, which requires a more specialized knowledge of tax laws.
- Complexity of issues include, but are not limited to, valuation of on-going businesses; income determination when excessive accumulation of retained earnings is identified; closely held entities, specialized or very valuable assets.
- Presence of complex accounting practices, tax law, or investigative issues of more than usual difficulty or complexity.
- OICs filed by individuals and business taxpayers (e.g. partnerships, corporations) involved in complex activities or transactions designed or structured to hide or conceal income, such as offshore activities, disguised withdrawals in the form of shareholder loans, or multiple related entities, requiring a thorough knowledge of the different fraud indicators, as well as working knowledge on a wide range of financial and investigative skills.
- Need for comprehensive reviews to determine that other required returns such as Form 1040, excise, or specialty returns, are filed, and need to conduct thorough analysis of these returns to identify omitted assets, and/or improper transfers.
- Presence of tools used to conceal and/or cloud taxpayer’s true financial condition requiring the development of appropriate referrals once the indicators of fraudulent activity have been verified.
- Comprehensive and complex financial statements requiring knowledge of accounting and business principles in order to determine the taxpayer’s actual income and expense and thereby determine true reasonable collection potential.
- Need to gather, research, inspect, and validate data from a variety of sources through internal sources and personal contacts. The data may, in some instances, be unique to a particular trade or industry.
- Cases involving high profile taxpayer’s with potential for media scrutiny.
- When such issues are identified, consult the site RO to determine if the transfer is appropriate.
- The OE will verify the full pay worksheet in those cases where the PE has determined the taxpayer has the ability to full pay.
If... Then... The Screen for Obvious Full Pay shows the taxpayer can full pay based on CIS The rejection letter should be issued. (See IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing)
- OE – Initial offer actions must be completed within 15 calendar days of the date an offer is assigned to an OE in COIC.
- OS – Initial offer actions must be completed within 30 calendar days of the date an offer is assigned to an OS. In situations where the Field OS are not co-located with the group manager, an additional 5 days will be allowed from the assignment date to complete the initial case actions.
- The assigned employee must complete the following actions:
- Review the financial information submitted by the taxpayer.
- Prepare a preliminary AET/IET with available information to make a projected resolution to the case or to determine exactly what additional information is needed.
- If the initial analysis reflects the need for additional information, contact the taxpayer by telephone or in writing.
Note:There may be certain situations that require a request for additional information. However, if the information was current at the time of submission, it may not be necessary to require the taxpayer to update the information. For example, the information may become outdated due to processing delays caused by the Service and through no fault of the taxpayer. In those cases, it may be appropriate to rely on the outdated information if there is no indication the taxpayer's overall situation has significantly changed. Judgment should be exercised to determine if any, or to what extent, updated information may be necessary. If there is any reason to believe the taxpayer's situation may have significantly changed, secure a new CIS.
- Where necessary and appropriate, the OE/OS should also verify the taxpayer's compliance with the current year's ES tax payments and/or current quarter FTD payments. See IRM 5.8.7 for additional information on the calculation and determination of appropriate ES payments.
- If the taxpayer submitted a Form 656-A certification, the OE/OS will determine whether the household income and family unit size at the time the offer was submitted supported the decision not to pay the application fee or the required TIPRA payment. If the OE/OS concludes that the income for the family size exceeds the levels for which a Form 656-A certification was allowed (i.e. the taxpayer should have paid the application fee and/or the required TIPRA payment), contact the taxpayer by telephone and request the required initial payment and application fee be submitted. If the taxpayer does not respond in a reasonable amount of time, the offer will be returned. If the taxpayer cannot be reached by telephone, issue an additional information letter requesting the required payments.
- If the taxpayer failed to make the appropriate amount of the required lump sum cash payment (20% of the offered amount) or payments due under a deferred payment plan, when requesting additional information you must also request the remainder of the lump sum cash or required deferred payment(s).
- If no additional information is needed, proceed with the appropriate disposition of the offer.
- The initial lien determination should be made and documented. While the initial determination is required it may not be necessary to file the lien at this time, unless a jeopardy situation exists. For example, the taxpayer is threatening imminent bankruptcy.
Note:If a taxpayer has been identified as being located in a Combat Zone area, no liens should be filed unless extenuating circumstances exist. Document the case history.
- If the taxpayer submits delinquent tax returns with a balance due, the OE/OS will treat the liabilities as missing periods and process the return(s), add the missing periods on the AOIC MFT screen, include the periods on the original Form 656, and continue working the offer.
Note:The Form 656 allows the Service to include any assessed liabilities that were not listed on the Form 656. Therefore, an amended Form 656 is not required to add the missing periods only.
- If the taxpayer indicates that they are no longer required to file a tax return, it will be the responsibility of the OE/OS to close the filing requirements or indicate no liability to file; that is, input of Transaction Code 590 or 591, as appropriate. Refer to Document 6209, Sections 8 and 11 for the appropriate transaction and closing codes and request input of the TC 590/591.
Example:The taxpayer is out of business and is no longer required to file. In the case of a business, if the taxpayer provides information that they are no longer required to file a return (e.g., Forms 941 or 940), close the filing requirements and work the offer.
- If a request for delinquent returns was made prior to assignment to the offer specialist/examiner and the taxpayer failed to file the requested returns or provide reason for not filing, the offer may be returned without any additional contact.
- The AOIC Decision Point tool is primarily used by the OE and may be accessed by an OS through the AOIC system. This tool may be used to assist with the RCP calculations and in making a final case decision. It is the responsibility of the user to ensure a final case decision is based on the facts and circumstances of the case. Decision Point should be used in conjunction with IRM 5.8 and 5.15 to ensure the correct case decision has been reached. There will be some cases that can not be loaded on Decision Point; therefore, it may be necessary for the OE/OS to manually calculate the RCP.
- COIC will generate the TC 480 and Status 71 through the AOIC system. However, there may be situations when the Status 71 will not generate (e.g., MFT 31 modules created prior to January 2005, imminent statute, etc.). It is the responsibility of the OS/OE to ensure the 480 is input and reflects the correct date. Any corrective action must be taken immediately.
Note:If a TC 480 is manually input, it must be manually reversed. Document the AOIC history that the 480 must be manually reversed.
- If initial analysis reveals additional information is required, contact the taxpayer or their representative by telephone or by letter.
- If the request for information is in person (e.g. by telephone, office, or field visit) the contact must include the following information:
- Verify receipt of Pub. 1 and Pub 594. If the first conversation is with the POA, verify that the taxpayer has received these publications. If the response from either the taxpayer or the POA is yes, ask if there are any questions and answer any questions they may have to ensure there is a clear understanding of their rights. If the taxpayer has not received the publications, offer to either explain their rights before proceeding or re-mail the publications to the taxpayer and postpone conversation until they have been received and read.
- Address and document any potential special circumstances (e.g. ETA or DCSC) identified during initial contact or initial review of documents submitted with the offer.
- If the request for information is in writing, the correspondence must include:
- A list of the specific items/information needed,
- A specific deadline for providing the information,
- A statement indicating that the offer will be returned without further consideration if all the information is not provided,
- The name, phone number, and employee number of the investigating employee,
- A statement regarding enclosure of Publication 1 and 594,
- A statement indicating that a NFTL will be filed if a decision has been made to file a lien, and
- A statement addressing any potential special circumstances (e.g. ETA or DCSC).
- If the taxpayer or their representative requests an extension of time to comply with the request for additional information, a reasonable amount of time should be granted. Generally, a minimum of 15 and a maximum of 30 calendar days should be allowed. If the taxpayer of representative requests more than 30 calendar days, the additional time should be allowed if the reason for the request is reasonable. However, if it appears that the representative or taxpayer are delaying the progress of the offer investigation or if the taxpayer or representative fails to meet the deadline, the offer may be returned. Document the ICS or AOIC history indicating the new deadline for the response.
- For offers where it is determined the taxpayer has substantially replied or adequately addressed the requested information or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, continue working the case.
- Issue a request for additional information when the taxpayer has completely omitted critical information and/or there are Form 656 perfection issues. Listed below are examples of critical, missing information requiring a request for additional information.
- Wage statements
- Bank statements
- Retirement accounts
- Missing Form 433 A/B
- Missing or zero offer amount, unless terms are present
- Taxpayer's name, physical address or TIN (if information cannot be located through internal sources or on submitted documents)
- Need for additional Forms 656 (including application fees and TIPRA payments)
- 20% TIPRA shortfall
- Unfiled tax returns (generally, this will not exceed a 6-year look-back period)
- Non-liable income when applicable (spouses income is critical income).
- Do not send a request for additional information if the information is not critical to making a case decision. For example, missing expense documentation, such as health care, child support, court ordered payments, etc or if the submission includes partial information (such as wage statements, bank statements, or retirement information).
- For an on-going business, field calls will be made to validate the existence and value of business assets and inventory. This may require an Other Investigation to a Collection Field revenue officer. If a field call has been previously made and assets have been valued and documented, a field call would not be required, unless the OS deems it necessary.
- If the OE/OS determines that the RCP calculation cannot be completed because of the missing information or documents, the OE/OS will attempt to telephone the taxpayer (or representative, if applicable) to secure any needed substantiation, explaining the information is needed in order to continue the offer investigation. If unable to contact the taxpayer by telephone after one attempt or if the taxpayer or representative is unable to provide the information to the OE/OS within a reasonable amount of time (fax transmission is preferable), document the AOIC history and return the offer for failure to provide necessary information.
- If any of the errors were not corrected to perfect the offer, the offer will be returned.
- If the taxpayer fails to submit the balance of the required initial TIPRA payment(s) (20% for a cash lump sum offer) within a reasonable amount of time, the offer will be considered withdrawn (mandatory withdrawal) without further contact. The OE/OS should issue the appropriate AOIC withdrawal letter and mail it to the taxpayer.
Note:If the taxpayer gives an explanation supporting special circumstances as a reason the funds were not available, the OE/OS will continue to work the offer as if the taxpayer had submitted the entire payment.
- Once the RCP has been calculated, process the case as follows:
If… Then… The offer must be increased before recommending for acceptance Contact the taxpayer by telephone to discuss amending the offer to the acceptable amount. If no telephone contact can be made, issue Letter 3498 (SC/CG). If the taxpayer’s response does not change the case determination, issue the rejection letter using the option to increase paragraph. If the taxpayer agrees, issue the appropriate letter with the amended Form 656 for signature. The analysis shows the taxpayer can fully pay the tax through liquidating assets and/or installment payments Contact the taxpayer by telephone to discuss withdrawing the offer and entering into an alternative resolution. If no telephone contact can be made, issue Letter 3499 (SC/CG). If the taxpayer’s response does not change the case determination, issue the rejection letter using the full pay paragraph. If additional information is provided, make the appropriate adjustment to the RCP and contact the taxpayer by telephone to discuss the case decision. The offer amount equals or exceeds the RCP and the offer is otherwise acceptable The acceptance letter should be issued. (See IRM 5.8.8, Acceptance Processing) Special circumstances are identified that warrant acceptance for less than the RCP Consider an ETA offer or DCSC. (See IRM 5.8.11, Effective Tax Administration)
- In order to ensure timely case processing, all in-process offers must have follow-up dates scheduled for the next appropriate action.
- Throughout the investigation, the scheduling of timely follow-up actions should be reasonable and appropriate, based on the facts of the case. In order to be considered timely, follow-up actions should be significant actions that can reasonably be expected to move the offer investigation toward resolution. Generally, follow-up actions should occur within 15 calendar days of an established deadline for taxpayer action.
Note:When the taxpayer provides requested information prior to the deadline established, the OS/OE should attempt to adjust their follow-up date and review the information as soon as possible to provide the taxpayer with quality customer service.
- Follow-up actions should occur within 30 calendar days in situations where no contact has been established with the taxpayer or no deadline has been given.
- Follow-up actions may include:
- Recommending acceptance or rejection if the information received is sufficient to make a decision regarding the offer.
- Recommending the case for closure when the taxpayer has clearly failed to provide the requested documents or information.
- Personal contact when the taxpayer has made an attempt to comply with the requested documentation but the provided information is incomplete, or needs clarification.
- Once the RCP has been calculated, timely actions should be taken to bring the case to closure.
- Case Recommendations
- The OE in COIC must submit all appropriate recommendation reports (i.e., Forms 1271/7249) within 10 calendar days from the date of the documented case decision.
- The OS must submit all appropriate recommendation reports within 15 calendar days from the date of the documented case decision.
- Closing Actions – Case must be submitted for closing actions (i.e. – dating/mailing of letters, closing on AOIC, ICS, etc.) within the defined 10 to 15 calendar days as described above.
- Documentation must include but is not limited to:
- The basis of the processability determination;
- Case actions;
- Requests for information/documentation;
- Conversations with taxpayers or representatives;
- Results of internal information analysis;
- Special issues or circumstances;
- Financial analysis, if applicable;
- Case decisions; and
- The source of the funds.
- Documentation should support and define differences and verification of the assets and expenses, including reasons for disallowance of income and expenses. It should also include a brief statement of evaluation of the income, allowable expenses, asset values, and encumbrances.
- COIC employees will use AOIC to document case actions.
- Field compliance employees will use ICS to document case actions. When ICS is used to record documentation, a closing summary history must be placed on AOIC prior to closing the case, indicating the basis for the closure and a statement that the complete history is available on ICS.
- As is the case with all compromise determinations, referrals, and acceptance/rejection decisions, employees must exercise good judgment. This good judgment needs to be clearly evident and articulated in the case file documentation and should be supported by the known case facts, circumstances, and supporting documents. There is no clearly defined formula to follow in ultimately making these decisions, and each case needs to be evaluated on its own set of facts and circumstances. Particularly in regard to acceptance/rejection decisions, the recommendation report must clearly explain the reasoning behind our actions.
- Prior to final processing, AOIC must be updated to indicate the correct basis for closing the offer. This will ensure that all final closing reports generated from AOIC reflect the correct basis. The approval levels indicated on closing reports and letters must be consistent with the basis for closure.
- Documentation must be recorded the day the action occurs or as soon as practical thereafter.
- It is the responsibility of the employee to safeguard the government's interest and taxpayer rights. Employees must exercise judgment in deciding whether or not a Notice of Federal Tax Lien (NFTL) should be filed. See IRM 5.12, Federal Tax Liens, for further discussion on the NFTL.
- Unless a jeopardy situation exists, the request for NFTL should be processed simultaneously with the mailing of the final determination letter to the taxpayer.
- A NFTL filing determination must be made and documented on all assigned cases as part of the initial offer actions.
Example:Your initial case analysis reveals that the taxpayer has an interest in real property and no indication that a NFTL is filed. Or, your initial case analysis indicates that there are no NFTL’s filed and the taxpayer indicates he/she is considering filing bankruptcy. You should immediately file the lien notice to safeguard the governments’ interest.
If... Then... No lien notice has been filed and a decision is made to not file a lien until the conclusion of the investigation Document the case file with the date the lien notice determination was made and include the basis for the decision to withhold filing. An additional determination will be required at the conclusion of the investigation. Generally, a lien notice will be filed if the offer is:
- Accepted as a deferred payment offer
Caution:Remember that an attempt must be made to contact the TP by phone, in person, or by letter to advise of the filing before requesting the lien. AOIC combo and rejection letters satisfy the notification requirement.
A determination is made to file a lien notice immediately Ensure that an attempt to notify the TP of the proposed filing (by phone, letter, or in person) has been made and documented before requesting the lien notice be filed. Provide the required appeal rights per IRM 5.12.1, Lien Appeals, if the taxpayer objects to the filing. If the lien notice is filed and a CDP request is received process it immediately following guidelines in IRM 5.1.9, Collection Appeal Rights. Lien notices were previously filed but in an incorrect jurisdiction Determine whether to file a NFTL in the correct jurisdiction or withhold filing until the conclusion of the investigation. Follow instructions above based on your decision. If the decision is made to withhold the filing until the conclusion of the investigation, an additional determination must be made at that time. Lien notices were filed but have expired Follow instructions in IRM 5.12, Federal Tax Liens. Lien notices were filed and are currently in the refile period Ensure that lien notices are correctly refiled in all required jurisdictions. An offer where the unpaid aggregate balance of assessment exceeds $10,000 and the offer is being rejected or accepted with deferred payment terms An NFTL will normally be filed on these cases. Circumstances warranting non-filing must be documented in case history.
- The initial review of any case must include an analysis of whether a NFTL has been correctly filed on all tax modules with a balance due, is filed in the correct jurisdiction, and whether or not any filed lien notices should be re-filed. If analysis indicates a lien was erroneously allowed to self-release, appropriate action must be taken to correct the problem.
- A NFTL will generally be filed whenever the unpaid aggregate balance of assessments exceeds $10,000, and an offer is recommended for rejection, return, withdrawal, or acceptance for the following:
- Lump sum cash offer (20%), and five or fewer installments paid in six months or more
- Short term periodic payment offer
- Deferred periodic payment offers
Example:The taxpayer submits an offer for $20,000. He pays 20% or $4,000. The remaining balance is $16,000. If the taxpayer offers to pay $2,000 12 months after the date of acceptance, and $2,000 every 12 months thereafter until paid in full, a notice of lien notice should be filed if it meets the IRM NFTL filing requirements as stated above.
- Circumstances warranting non-filing of a NFTL in the above situations should be clearly documented on AOIC or ICS.
- A lien notice will generally not be filed on accepted offers when the offer amount will be paid in 5 months or less.
Example:The taxpayer submits an offer for $20,000. He pays 20% or $4,000. The remaining balance is $16,000. If the taxpayer offers to pay the $16,000 within 5 months from the date of acceptance, a lien notice will not be filed.
Note:Inform the taxpayers that a NFTL may not be filed if they can make all payments on their lump sum offer within 5 months of acceptance.
- In those cases where an offer is being investigated and the taxpayer files a request for a CDP or EH during the investigation, the case then becomes the jurisdiction of Appeals. If a determination to accept the offer has been made, the OE/OS should contact Appeals to recommend the taxpayer withdraw the CDP or EH request. If a determination to reject the offer has been made, the offer file should be forwarded to the Appeals Officer handling the CDP or EH hearing before sending any rejection letters. Delete the offer from AOIC.
Exception:See IRM 220.127.116.11, Investigation of Offers under Appeals Jurisdiction (COIC ONLY), for CDP cases meeting COIC criteria and retained in COIC for processing and preliminary decision.
- All offers submitted during a CDP hearing or EH meeting COIC criteria will be investigated in a COIC site.
- COIC is responsible for making a processability determination. Once a determination is made, COIC will notify Appeals using the form provided in Exhibit 5.8.4-1.
- Procedures defined in this section apply only to those cases meeting COIC criteria, which consists of wage earners and self-employed taxpayers with gross receipts up to $500,000 and no employees. See IRM 18.104.22.168, Field Cases - Identification and Transfer, for the categories of cases to be worked by the field.
- All CDP cases investigated by COIC will be assigned to assignment code 9020 and loaded on AOIC using Offer Case Category code (OCC) 10.
- Before closing a case on AOIC, the case must be reassigned from 9020 to an established employee assignment number.
- COIC must return a CDP OIC to Appeals with no less than one-year (12 months) remaining on the 24-month timeframe in order for Appeals to make its final determination. If there is less than 12 months remaining on the 24-month period, COIC must contact the Appeals employee assigned the case and provide a status report on the anticipated completion of the investigation.
Note:COIC must not discuss the merits of the offer since this is prohibited under ex-parte communication.
- If Appeals cannot make a determination before the 24-month period expires, Appeals may ask COIC to delete the case from AOIC. In those cases, COIC must monitor IDRS for the TC 483. Once posted, manually input the TC 480 with jurisdiction code 3 to prevent collection activity during the transfer. Immediately transfer the entire case file to Appeals using overnight mail.
Note:Once mailed, notify the Appeals employee the date the case was mailed, either through encrypted e-mail or by telephone
- Both Appeals and Collection will be responsible for monitoring the 24-month time frame for mandatory acceptance. COIC should follow-up with Appeals on a regular basis for status updates.
- Appeals should suspend the CDP case while COIC completes their investigation and forward the case to the appropriate COIC site for processability determination. No letters will be generated by Appeals.
- If the offer is not processable, COIC will follow procedures in IRM 22.214.171.124, Not Processable, and mail the not processable letter, refund all applicable fees, and return the case to Appeals with no further action. Include a copy of the letter in the case file.
- If the offer is processable, COIC will:
- load the case on AOIC with jurisdiction code 1 (the jurisdiction code will not change, even though Appeals will be making the final determination),
- assign the case for investigation following current procedures in IRM 5.8,
- make a preliminary determination, and
Note:Procedures defined in 8.23 require Appeals APS Units to close cases on AOIC. If closure cannot be completed by the APS unit, COIC may need to assist in closing the case in a timely manner following procedures in 126.96.36.199.4 below.
- If the offer meets COIC criteria, COIC will:
- follow current procedures to forward the CDP to Appeals within 5 workdays,
- complete the Form 12153A or 12153B and e-mail Compliance Case Processing (CCP) for input of Stage 1 and 3 into the CDP Tracking System (CDPTS), following procedures in IRM 188.8.131.52.3.3(4).
Note:Stage 1 location code for Brookhaven is 0100 and Memphis is 0300
- If the CDP is withdrawn, request input of Stage 12 to reflect withdrawal of the CDP hearing request.
- If the hearing request is timely, Appeals will input the TC 520 cc 76/77, when needed, on COIC originated CDP cases
- If during the investigation COIC discovers complex issues that would normally be worked by the field, COIC will:
- document the case file regarding the complex issue;
- return the entire case file with all documentation to Appeals;
- delete the case form AOIC; and
- follow procedures in IRM 184.108.40.206.1, Determining Processability for Appeals Collection Due Process.
- All cases will be worked in the appropriate COIC site. If the case has complex issues that cannot be worked by COIC, Appeals will retain jurisdiction of the case, and may issue an ARI for a field investigation, when appropriate.
- All cases worked under this criterion should be assigned to 9020 prior to forwarding the case to Appeals.
- If COIC determines the offer should be rejected, returned or withdrawn (mandatory), COIC will:
- issue the pre-determination letter to the taxpayer (include the AET/IET, if completed), and
- immediately forward the entire case file with all supporting documentation (including a complete up-to-date history, a copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4-1) to Appeals using overnight mail
- If the offer is withdrawn voluntarily, COIC will:
- issue the AOIC Withdrawal Letter to the taxpayer,
- close the case as a withdrawal on AOIC, and
- immediately forward the entire case file with all supporting documentation (including a complete up-to-date history, a copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4-1) to Appeals using overnight mail.
- If the offer is to be accepted, COIC will:
- re-assign the case from 9020 to an employee number,
- issue the AOIC Acceptance Letter to the taxpayer (including the AET/IET if appropriate),
- close the case as an acceptance on AOIC,
- forward the case file to the appropriate MOIC function for acceptance monitoring with all required documentation, and
- forward copies of the acceptance letter, 7249, and amended Form 656, if applicable, to Appeals.
Note:On accepted offers Appeals will adopt the case decision to accept the offer in its entirety and close the CDP/EH.
- If COIC receives a request to close the case on AOIC from Appeals and there is an indication APS cannot complete the closing actions timely, the following final disposition codes should be used:
Code Disposition 1 Accept 5 Rejected (did not exercise appeal rights) 6 Withdrawn 8 Termination of consideration 10 Return
- When inputting a rejected offer, use the mail date of the Appeals Notice of Determination (NOD) or Decision Letter, minus 30 calendar days.
- All other cases will be closed using the mail date of the Appeals NOD or Decision Letter.
- It is important that only these codes be used to ensure accurate calculation of the collection statute.
- Coordination is sometimes required during offer investigations. The most common coordination occurs between Collection and Examination or Collection and Appeals offices.
- During initial analysis of an offer, IDRS should be checked to verify there are no actions for any periods either included or not included on the offer; such as, open audits, underreporter cases, TEFRA proceedings, pending TFRP assessments, or amended returns pending but not yet assessed. Pending examination cases and AUR may be identified by:
- TC 922 without a CP 2000 process code or TC 290/291
- TC 976 or 977 without a subsequent tax increase or decrease
- -L Freeze and/or an AMDIS record
- Partnership Investor Control File (PIFC) code on AMDIS of 5 indicating an investor with at least one open TEFRA key case linkage
- If any potential adjustments are identified the assigned employee should be contacted to determine the status of the potential assessment and informed that an offer based on DATC has been received. The decision on how to proceed with the offer should be based on the status of the potential adjustment/assessment. The table below provides some examples.
If… Then… The TP was involved in abusive tax avoidance transactions (ATAT), appears to have substantial unreported income (UIDIF), or there is another reasonable explanation given by the assigned Examination employee explaining why the audit should continue
- The TP should be advised that the offer investigation cannot proceed until the Exam issues have been resolved.
- Solicit a withdrawal explaining that it is in the taxpayer's best interest due to CSED suspension.
- If the TP refuses to withdraw, consider returning the offer using the AOIC reason that other investigations are pending, which may affect the liability sought to be compromised or the grounds upon which it was submitted.
The audit is routine and the assigned Exam employee has agreed to close the tax year(s) with no change Proceed with the offer investigation. The audit is routine, nearly concluded, and Examination wishes to conclude and assess the tax.
- Proceed with the offer investigation.
- Talk to the TP and the Revenue Agent (RA) to coordinate securing an agreement to the deficiency to expedite assessment.
- Include the tax year in the acceptance, but do not issue the acceptance letter until the tax is assessed.
The return has been selected for examination or Automated Under Reporter (AUR) consideration, but not yet assigned. Contact the controlling Examination or AUR function to advise that we are proceeding with the offer investigation. The Partnership Investor File Control (PIFC) code on AMDIS is a 5, indicating at least one open TEFRA key case linkage exists
- Advise the TP that we cannot consider an offer until all TEFRA partnership issues have been resolved.
- Attempt to secure a withdrawal.
- If the taxpayer refuses to withdraw, consider returning the offer using the AOIC Return Letter paragraph that other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.
The Partnership Investor File Control (PIFTD) code on AMDIS is a 7, the TEFRA case is closed
- Verify with the assigned Examination employee that the assessment was made.
- Include the additional liability(s) in the offer.
There is a pending TFRP
- The taxpayer should be advised that the offer investigation cannot proceed until the TFRP issues have been resolved.
- Secure a signed Form 2751.
- If the assessment is not imminent, solicit a withdrawal. If the taxpayer refuses to withdraw, consider returning the offer as other investigations pending.
- Within 7 to 14 calendar days prior to accepting an offer, IDRS should be rechecked to ensure that there are no new audit issues pending.
- During a CDP or equivalent hearing (EH) assigned to Appeals, an offer may be submitted by the taxpayer. Taxpayers also occasionally submit a DATC offer during an appeal of a proposed audit deficiency. Appeals retains jurisdiction of both these types of offers, but may send an Appeals Referral Investigation (ARI) to Collection.
Exception:For exceptions to Appeals jurisdiction for offers submitted with a CDP, see IRM 220.127.116.11 above.
- An ARI requesting CIS verification of a complex nature should be assigned to a field RO. The results of the investigation will be reported via memorandum to Appeals and Appeals will conclude the investigation. Requests for any expeditious treatment of an ARI will be decided on a case by case basis through a discussion between the two functional managers.
- Offers based on DATL on TFRP or PLET assessments must be reviewed upon receipt to ensure that the case is not pending or was not already heard in Appeals. If a DATL assessment had previously been determined in Appeals or is found to be currently assigned to an Appeals office, the offer should be removed from AOIC and transferred to Appeals. Coordination should be made with Appeals to ensure that the TC 480 (and if applicable Command Code STAUP to Status 71) is re-input with the proper Appeals jurisdiction code, since removing the offer from AOIC will reverse the TC 480.
- If an offer based on DATC only is received and there is an open case pending in Appeals, contact Appeals to determine who will have jurisdiction of the offer.
- Offers that are under the jurisdiction of Appeals must be immediately forwarded to Appeals and deleted from AOIC. The field OS does not have the authority to delete offers from the AOIC system. Therefore, it is necessary for the field OS to request COIC to delete the offer from AOIC.
- Document the AOIC history with the following information, then assigned back to the appropriate COIC site.
- Request deletion of the offer from AOIC.
- Request reversal of the fee screen.
- Reason for the request to delete the case from AOIC.
- The appeals office where the case is being assigned.
- The name and phone number of the assigned appeals officer, if available.
- E-mail the appropriate centralized site manager with the offer number of the offer that needs to be deleted off the AOIC system. Identify the action being requested in the Subject line of the e-mail. Send the e-mail to the appropriate site at the following e-mail address:
- *SBSE COIC Memphis
- *SBSE COIC Brookhaven
- Immediately ship the case to the appropriate appeals office following current procedures.
- Reverse the fee screen.
- Load the information on the Appeals fee screen.
- Document the DI/AMS history with the appropriate information.
- Notify the Fee Coordinator of the reversal on the fee screen by e-mail..
- Delete the offer record from AOIC.
- Responsibility of OS and Field revenue officers (RO) – When indicators of potential fraud arise during an offer investigation, the OS will:
- Work the case to the point where a decision regarding final disposition can be made. All requests for additional documentation should have been sent to the taxpayer and sufficient time allowed for the taxpayer to respond. Final action with respect to the determination will be taken if the case does not meet Fraud Technical Advisor (FTA) fraud referral criteria.
- Discuss the indicators of fraud with the group manager before proceeding.
If... Then... The group manager concurs with the fraud potential the OS will contact their local FTA and discuss the case. the FTA agrees that there is potential fraud the FTA will evaluate the case and determine if sufficient information is present to refer the case directly to Criminal Investigation (CI) or if further development is needed. additional development is needed
- the OS will issue an Other Investigation (OI) on ICS to the Collection group that covers the geographic area where the taxpayer resides and mail a copy of all supporting documentation to the Collection group. After the OI has been issued, the OS will request assignment of the case on AOIC to 9998 (Fraud) and input a follow-up date on the AOIC "Follow-up" screen
- the OS should indicate the 24-month mandatory acceptance date and that the investigation should be expedited.
Note:Territory Manager intervention may be necessary if the OI is not being worked.
- the revenue officer (RO) assigned the OI will work with their local FTA to gather the information required and determine if the case has potential to be developed as a fraud referral.
- the Area office assigned the offer investigation will retain the offer pending the concurrence or non-concurrence of the local ROs FTA.
the ROs local FTA does not concur with the potential for fraud development the RO will notify the OS and the OS will continue to work the offer investigation to resolution and request reassignment of the case on AOIC. the ROs local FTA concurs with the potential for fraud development
- the RO will prepare Form 11661-A, Fraud Development Recommendation - Collection. The FTA will denote their concurrence by signing the Form 11661-A.
- the RO will contact the OS as soon as their local FTA has signed Form 11661-A.
- the OS will then return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."
after 16 months from the IRS offer received date, the ROs local FTA has not made a decision whether the potential fraud development exists return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." the taxpayer submits a subsequent offer and the ROs fraud investigation is still open return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."
- Responsibility of the OE in COIC – When indicators of potential fraud arise during an offer investigation, the OE will:
- Work the case to the point where a decision regarding final disposition can be made. All requests for documentation should have been sent to the taxpayer and sufficient time allowed for the taxpayer to respond. Final action with respect to the determination will be taken if the case does not meet Fraud Technical Advisor (FTA) fraud referral criteria.
- Discuss the case with their group manager.
If... Then... the group manager concurs with the fraud potential contact the site’s Collection Functional Fraud Coordinator (CFFC) and discuss the case. the CFFC agrees that the potential for fraud development exists
- the CFFC will secure concurrence from the FTA assigned to the campus.
- the FTA will evaluate the case and determine if sufficient information is present to refer the case directly to Criminal Investigation (CI) or if further development is needed.
the CFFC and FTA determines that further development is needed.
- the CFFC will prepare Form 11661-A, Fraud Development Recommendation - Collection, and obtain FTA concurrence. The CFFC will initiate an outgoing Other Investigation (OI) on ICS (sub coded 106) to the field Collection group that covers the geographic area where the taxpayer is located and mail a copy of all supporting documentation and a copy of the signed Form 11661-A to the Collection group. After the OI has been issued, assign the case on AOIC to 9998 (Fraud) and input a follow-up date on the AOIC" Follow-up" screen.
- the OI should indicate the 24-month mandatory acceptance date and that the investigation should be expedited.
Note:Territory Manager intervention may be necessary if the OI is not being worked. The OI will be assigned to an RO who will work with their local FTA to develop the fraud referral and make a determination if the potential for fraud development exists.
the case does not need any further development. the CFFC will prepare Form 11661-A and secure campus FTA concurrence. The campus FTA will advise the OE how to refer directly to CI. the ROs local FTA concurs with the potential for fraud development the ROs local FTA will denote concurrence by signing Form 11661-A. The RO will notify the CFFC and the CFFC will request the offer be returned as "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." the ROs local FTA does not concur with the potential for fraud development the RO will notify the CFFC and the CFFC will reassign the offer on AOIC to the group manager of the originating OE, who will then assign the case for completion of the offer investigation. after 16 months from the IRS offer received date, the ROs local FTA has not made a decision whether the potential for fraud development exists return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." the taxpayer submits a subsequent offer and the ROs fraud investigation is still open
Note:The CFFC will monitor the OIs monthly and report to the Operations Manager the current status of all open OIs. Close monitoring is needed to ensure that the OIC is resolved prior to the 24-month mandatory acceptance period.
- Open criminal investigations can be identified on IDRS by an unreversed Transaction Code (TC) 914 or 916. When these TCs are discovered, contact must be made with the assigned Special Agent and procedures in IRM 5.1.5, Field Collecting Procedures, Balancing Civil and Criminal Cases, should be followed. It may be necessary for the group or unit managers to discuss with the Criminal Investigation (CI) manager to determine the next appropriate action. A decision will need to be made on the appropriate actions to take (including disposition of any application fee or deposit) and what may or may not be discussed with the taxpayer.
Note:CI should be advised of the TIPRA law, which includes a provision for automatic acceptance of the offer if a decision has not been reached within 24 months of receipt. We can no longer hold offers open indefinitely pending a decision regarding the potential criminal investigation.
- Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer, return the offer to the taxpayer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." If the Special Agent objects to asking the taxpayer to withdraw the offer or contacting the taxpayer, remind the Special Agent of the 24-month mandatory acceptance requirement. If the Special Agent continues to request that the taxpayer not be contacted, reassign the case on AOIC to 9999. Monitor the case and contact the Special Agent monthly to determine if and when taxpayer contact can be made. If, after six months from the IRS received date CI has not made a decision about what may or may not be discussed with the taxpayer, return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted. "
- 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.
- 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:
- 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.
- The taxpayer has raised special circumstances that were not considered during the prior investigation.
- 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.
- 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 18.104.22.168.1.
- 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.
- 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
- To determine if the re-submission is materially different from the prior rejected or defaulted offer:
- Review any AOIC and/or ICS history to establish that an offer is a re-submission solely to delay collection.
- 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.
- 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.
- 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.
- 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.
- 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
- 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.
- 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.
- The OE/OS are responsible for working only offer aspects of an investigation. During the offer process employees may discover collection issues that require traditional RO investigation.
- If the issues are initially identified by an OE in COIC, the OE must first discuss the issue with their manager and site RO, to confirm that the issues require traditional RO investigation.
- In the situations below, except in the case of TFRP or PLET investigations, an Other Investigation (OI) will be initiated only after the COIC or field manager and RO manager have discussed the issue and agree that the situation warrants the issuance of the OI.
Issue Procedure Transferee, Nominee or Alter Ego When these issues arise during an offer investigation, the OE/OS should establish a valuation for the involved asset or income stream. The OE/OS should include the value in computing the RCP but not actually complete the administrative actions required to establish the liability or secure a lien against the third party. If the value of the involved asset or income stream will be obtained through an accepted offer, that fact should be clearly documented and any transferee, nominee or alter ego remedy not pursued through administrative or judicial action. If the offer is rejected or moving toward rejection and time is of the essence due to the dissipation/transfer of assets or statute expiration, a Form 2209, Courtesy Investigation, or OI should be initiated to request the assignment of a RO to complete the required action to establish the transferee, nominee or alter ego liability or lien. Levy or seizure related actions If during the course of an offer investigation an OE/OS determines that immediate levy or seizure action may be needed, the case will be referred to the Collection field function. The OE/OS will initiate an Other Investigation request to an RO group outlining the actions needed and providing any additional information that would assist the RO. Upon notification that a jeopardy levy has been approved the OE/OS will follow the procedures to close the offer outlined in IRM 22.214.171.124, Offers Submitted Solely to Delay Collection, if the field RO and their manager determine that the offer was filed to hinder or delay collection. Suit recommendations The OE/OS should consider the value of any recovery that may be made through a suit when determining the RCP. If the anticipated recovery amount is obtained through an accepted offer this fact should be clearly documented and the suit recommendation not pursued. If the offer is rejected or moving toward rejection and time is of the essence due to the statute expiration for filing suit, an OI should be initiated to request the assignment of a RO to complete the suit recommendation. Continuing action on In Business Trust Fund (IBTF) cases Due to the potential for the pyramiding of liabilities and dissipation of assets in IBTF cases, the OS will initiate an OI on rejected or returned offers involving ongoing businesses with employment tax liabilities. Because rejected, returned, and withdrawn offers do not systemically revert to Status 26 (field assignment), the OI serves as an open assignment until the case is systemically assigned to Status 24 (queue), at which time the collection group manager can assign the case to an RO and close the OI. This process will generally take about 30 days. Trust Fund Recovery Penalty (TFRP) and Personal Liability for Excise Tax (PLET) cases It is the responsibility of the traditional RO to complete the TFRP or PLET investigation and make a determination regarding personal responsibility and willfulness in these cases. The RO will follow the provisions in IRM 5.7.4, Investigation and Recommendation of TFRP. For all offers received after February 4, 2008, the TFRP must be assessed, the outstanding trust fund amounts paid, the TFRP package forwarded for assessment or a determination made by an RO to not assert prior to consideration of the offer. See IRM 126.96.36.199.1 below for instructions on processing these investigations in conjunction with open offers.
Note:OIs referred per these instructions should be considered high risk cases (i.e., risk code 100) and processed accordingly.
- Certain types of taxpayers and/or liabilities require unique considerations. The instructions described below should be followed when considering cases of this nature.
- Before an offer to compromise trust fund tax will be investigated, for entities in which the trust fund recovery penalty is applicable (in business or out of business) all the issues outlined in IRM 188.8.131.52 above should be considered. In addition, as a prerequisite, the trust fund portion of the taxes must be paid; the TFRP must be assessed against all responsible persons, a determination made by an RO to not assert due to collectibility or dollar criteria, or the trust fund package forwarded for assessment.
- It is the Service's policy that the amount offered to compromise a liability subject to assertion of the TFRP will represent what can be collected from the employer. If the Service enters into a compromise with an employer for a portion of the trust fund tax liability, the remainder of the trust fund taxes may still be collected from a responsible person pursuant to Section 6672 of the Internal Revenue Code.
- Revenue officers have two options when they negotiate with the entity principals. This applies to trust fund liabilities in status 26 or other assessments in notice status related to the Status 26 or other assessments in notice status related to the Status 26 entity, which have any unpaid trust fund amount still within the TFRP Assessment Statute Expiration Date (ASED). They are:
- If the entity wishes to file an offer, generally, all responsible persons must first agree to the assessment of the TFRP. Both responsibility and willfulness must be present to assert the TFRP and/or request signature of Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. This requires the field RO to secure basic documentary evidence to support assertion and that all responsible persons sign Form 2751. The signing of the Form 2751 does not preclude the responsible person from challenging this assessment by paying a divisible portion of the tax, filing a refund claim and if unsuccessful, a refund suit. The responsible person should be advised of the right to file a refund claim when the Form 2751 is provided to the responsible person.
- Alternatively, the responsible parties can personally full pay the trust fund amount on behalf of the entity. IRM 184.108.40.206, Payments by Responsible Party on Behalf of the Employer, contains instructions when a responsible person chooses to pay on behalf of the entity. Absent a non-assertion determination, failure to pay the trust fund or sign the Form 2751 will result in a solely to delay determination if the entity files an offer. See IRM 220.127.116.11 above. In addition, a formal appeal of the proposed TFRP will result in the offer being returned as solely to delay.
Note:If extenuating circumstances are present that prevent the assessment of the TFRP against all responsible persons, the RO, after consulting with a manager, may consider processing the OIC without the assessment of all potential responsible persons. For example, a potential responsible person cannot be located. The RO may allow the OIC to be investigated if the government’s interests are sufficiently protected and if the other responsible persons have agreed to assessment of the TFRP.
- Only the amount that can be collected from the entity (including dissipated assets) will be considered in the RCP calculation of an acceptable offer. The Service will pursue collection of the TFRP assessed against the responsible person(s), unless the trust fund portion has been full paid.
Note:A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund liabilities. Once the offer has been accepted, the funds will be applied in the government’s best interest and the taxpayer no longer has the right to designate the offer payments.
- During initial analysis of an offer received from an entity subject to the assertion of the TFRP and involving unpaid trust fund tax, the offer specialist must determine the ASED of each period and take immediate steps to protect it if expiration is imminent.
- When the TFRP is below the criteria for assessment or a decision has been made by the RO not to assess the TFRP due to collectibility, the OS should take the following actions:
If... Then... the OS determines the responsible parties have the ability to immediately full pay the trust fund due to information not previously considered by the RO and the TP is willing to submit the payment
- Secure the payment.
Note:The immediate full pay determination does not include amounts payable via an installment agreement.
- Continue the OIC investigation.
the OS determines the responsible parties do not have the ability to immediately full pay the trust fund Continue the OIC investigation the responsible parties have the ability to immediately full pay due to information not previously considered by the RO and are unwilling or fail to pay the trust fund Return the offer as solely to delay and provide the RO with the information not previously considered via Form 657.
Note:Do not include the responsible parties' potential trust fund liability in the calculation of the corporate RCP.
- Secure the payment.
- The following actions should be taken based on the facts of the case:
If... Then the RO will... Then the OS will... The TFRP has been completed and the assessment processed prior to the time the corporate offer is filed Document this fact in the ICS history and on the Form 657 and forward to COIC. Obtain a copy of the Form 4183 and the CIS for each responsible person and proceed with the OI. The account is in status 26, the TFRP has not been assessed, but the taxpayer was advised that an offer will not be investigated until the TFRP is assessed or full paid and submitted an OIC anyway Document this fact in the ICS history. Complete Form 657 requesting the case be returned as solely to delay. Advise the taxpayer that an OIC will not be considered until the trust fund is paid or the TFRP assessed. If the trust fund is not paid, complete the TFRP investigation. Return the case as solely to delay. The account is not in status 26 and/or the responsible person(s) were not previously advised that an offer will not be investigated until the trust fund is paid or the TFRP assessed Complete the TFRP investigation .Trust fund OIC investigations are considered mandatory OIs and must be assigned by the group manager. See IRM 18.104.22.168, Mandatory Assignments. The OI should be completed within 90 days and must be assessed prior to acceptance of the OIC. Retain the offer and generate an outgoing OI (coded 100) to the field to complete the TFRP investigation. If the account was assigned to an RO at the time the OIC was received but the taxpayer had not been advised of the trust fund policy, generate an outgoing OI to the manager of the RO who was assigned the account when the offer was received. If the account was not assigned to an RO when the offer was received, send the OI to the group that works the taxpayer's zip code. Coordinate with the assigned RO to ensure the TFRP is assessed, a determination made to not assert, or the trust fund fully paid. The ASED has expired without any TFRP assessment Annotate the expiration in the case history and continue processing the OIC determining only the corporation’s RCP. Prepare an expired statute notification and submit to the OIC group manager for processing.
- In the situation where the amount offered by a corporation combined with the payments already made on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax periods, take the following actions:
- Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP accounts to the related corporation liability.
- Complete and process Form 3870 to transfer the credit(s).
- Secure full payment of the balance due from the corporation.
- Secure a withdrawal of the offer.
- When corporate offers are being considered, corporate officers, shareholders, or others determined to be responsible for a TFRP may be required to submit a Form 433-A. When partnership or LLC offers are being considered, the general partners and the LLC's owners may be required to submit a Form 433-A as well. In certain instances, since the RCP for a corporate offer is based on the amount collectible and equity in assets of the corporation, it may be unnecessary to secure a 433-A from individual shareholders, corporate officers, or other parties, who hold only a minimal interest in the corporation and/or have no control over the corporation’s activities.
- Partnership employment tax liabilities are not joint and several as in the case of joint income tax assessments. The Service's ability to collect from the partners is based on state law.
- When a partnership liability is compromised for any individual general partner our ability to collect from all other general partners may be affected. Therefore, the amount offered to compromise a partnership tax liability must include what we can collect from the partnership plus what can be collected from each of the general partners. No offer should be accepted to compromise only one partner’s individual liability for the partnership debt.
- When investigating partnership offers a CIS should be secured from the partnership and from all general partners. The RCP for the partnership must equal what could be collected from the partnership plus what could be collected from all general partners. Generally, an offer based on DATC from a partnership will not be accepted when the RCP of one or more of the general partners cannot be determined. When it is not possible to secure a CIS from one or more of the general partners, because they cannot be located or they refuse to cooperate or join in the offer, the offer may still be accepted if the investigation is able to establish that there is no collection potential from the non-participating partner(s).
- After initial processing, offers based on DATL of a TFRP or PLET are transferred to Area offices for assignment to an OS. All other DATL offers should be forwarded with no initial processing, to the centralized DATL processing unit located at the Brookhaven campus.
- For offers based on DATL of a TFRP or PLET, the decision to accept or reject rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay over the subject tax. Offers on assessments of this nature that were determined by Appeals or that received an Appeal hearing should be transferred to Appeals for consideration.
- The taxpayer must offer a dollar amount. An offer for zero dollars on this basis is not acceptable and is subject to perfection requirements. The amount may be a cash or deferred offer, but must be payable within 90 days of acceptance.
- The administrative file should be secured and reviewed to examine the evidence that supported the assessment. New information, testimony or documents presented by the taxpayer should be considered. Refer to IRM 5.7, Trust Fund Compliance Handbook, for a discussion of the factors and evidence that support an assessment of a TFRP or PLET.
- A DATL offer should be resolved in one of the following ways:
If... Then... No new information is available and the TFRP or PLET file supports the original assessment Reject the offer. Another amount of liability is determined and the taxpayer agrees to the finding Prepare and submit Form 3870, Request for Adjustment, to correct the assessment and secure a withdrawal of the offer or recommend acceptance of the offer for the correct amount. Another amount of liability is determined and the taxpayer still does not agree Submit Form 3870 to correct the assessment and recommend rejection of the offer. The Administrative file does not support the assessment Abate the assessment in full and secure a withdrawal of the offer. The TFRP files cannot be located and/or reconstructed Consult with Counsel to make a determination if the offer should be accepted.
Note:If new information is presented that raises doubt or the existing information supports the fact that the assessment is weak, consider accepting an offer to avoid the hazards of litigation.
- Before considering a DATL offer, first screen the Form 656-L to determine if it can be considered and if all required documentation is attached. DATL offers cannot be considered if any of the following conditions exist:
- It is clearly not the taxpayer’s intention to compromise the tax liability based on the belief that it is not incorrect. For example, taxpayers may erroneously submit the Form 656-L when the intent, based on the entries in Section 7 or in attachments, is to request an installment agreement to pay the existing liability or to compromise the liability on the basis that they can not pay.
- The liabilities involve Bureau of Alcohol, Tobacco, and Firearms (BATF) penalties. Forward to BATF Regional Office.
- The taxpayer seeks to compromise a tax period for an unassessed liability, pending in Automated Underreporter (AUR), Substitute for Return (SFR/ASFR), Combined Annual Wage Reporting (CAWR), or Federal Unemployment Tax Adjustment (FUTA).
- Still under examination (-L freeze, CC AMDISA area office status codes 10 – 56).
- The 30-day letter reporting the examination changes or statutory notice of deficiency has been issued.
- If a determination is pending before the Tax Court.
- Examples of DATL offers that may be returned as solely to delay collection are:
- Resubmission of offers that are based on offer explanations that have previously been rejected or previously returned offers for which the taxpayer has not provided any new information.
- Claims that the liability stems from the operation of a law that is unfair (e.g., liability based on withdrawing funds from a 401(k) plan).
- Claims based on a divorce decree which stipulates the spouses each owe certain portions of a joint liability (the government is not party to such agreements).
- Those that do not raise a valid liability issue or that give no reason for DATL basis.
- Frivolous or patently groundless offers such as those that assert the types of tax arguments listed in IRS Notice 2008-14 http://www.irs.gov/irb/2008-04 IRB.12.html and http://www.irs.gov.pub.irs-drop/n-06-31.pdf. In egregious situations, assertion of the penalty for a frivolous submission may be appropriate.
- Those for which an RO has submitted a Form 657, Offer in Compromise – Revenue Officer Report, with the "Yes" block checked for item 9.
Note:If the liabilities covered by Form 656-L are in IDRS Status 26 and a Form 657 was not received, contact the RO assigned the balance due account to advise of the receipt of the DATL offer. Request a Form 657 to determine whether to consider the OIC.
- An OIC may not be appropriate in the following situations – restitution, child support obligations, erroneous refund (category D), innocent spouse, and others. As always, each case must be evaluated on its own merit before returning an offer under the identified basis. If appropriate, the offer may be returned without further consideration or investigation.
- When one spouse files a claim for relief from joint and several liability and the other spouse submits an OIC, the Service employee considering the section 6015 claim should be contacted prior to proceeding to ensure there are no reasons to delay the investigation of the OIC until the section 6015 claim is resolved.
- If a taxpayer files a DATC offer but raises relief from joint and several liability issues during the investigation, the issue should be discussed with the taxpayer. If appropriate, the offer should be withdrawn and the claim should be forwarded to the Cincinnati Centralized Innocent Spouse Operations Unit (CCISO).
- If IDRS indicates the taxpayer has an open claim for relief from a joint and several liability, or if a DATC offer and a claim for joint and several liability are filed simultaneously the taxpayer should be requested to withdraw the offer unless CCISO advises that the claim will be closed immediately with no change. If CCISO indicates the claim appears valid and the taxpayer will not withdraw the offer, it should be suspended pending disposition of the section 6015 claim.
- While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise them. These accounts are identified on the Non-Master-File with an MFT code of 59.
- If a taxpayer proposes a compromise that includes a child support liability, Service employees should request that the offer be amended to remove the child support obligation. If the offer is to be accepted, the liabilities can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be rejected using the public policy reason and the open paragraph stating that, "We do not have authority to compromise child support obligations."
- The IRS may not accept an OIC that in any way modifies the terms of a restitution order. Any changes to the terms of a restitution payment schedule in a Judgment and Commitment Order must be made pursuant to the direction of the court.
- The defendant must notify the court and the Department of Justice of any material change in the defendant’s economic circumstances that might affect the defendant’s ability to pay. The U.S. may also notify the court of a change in the defendant’s economic circumstances. Upon receiving notice of such change, the court may, on motion of a party or on its own motion, adjust a restitution payment schedule or require immediate payment in full, as the interests of justice require. See 18 USC 3644(k). A defendant seeking to adjust a restitution order or payment schedule should consult with his or her probation officer.
- There may be situations where the IRS has assessed civil tax liabilities, interests and penalties in excess of the amount that was awarded as restitution. In this situation, the IRS may consider an OIC to pay the additional taxes, penalties, and interest for the same tax periods for which restitution was ordered only if the defendant has paid or will pay as part of the offer the full amount of the restitution.
Example:The court orders payment of restitution to the IRS for the 2000 tax year in the amount of $50,000. The IRS assesses civil tax liabilities, interest, and penalties in the amount of $80,000 for the same tax year. The IRS may compromise the additional assessed as civil tax liabilities ($30,000), only if the defendant has paid or will pay the full amount of the restitution ($50,000).
- The IRS also will not consider an offer based on Doubt as to Collectibility or Effective Tax Administration for "non-restitution" taxes or years because those offers must include a compromise of all unpaid taxes.
Example:The court awards restitution payable to the IRS in the amount of $50,000 for the tax years 2000 and 2001. The IRS assesses civil tax liabilities in the amount of $25,000 for tax year 2002. The IRS may not compromise the civil tax liability for the 2002 tax year based on doubt as to collectibility or effective tax administration because the offer would have to include tax years for which restitution was ordered payable to the IRS.
- If an OIC is submitted by a taxpayer that includes tax periods for which criminal restitution was ordered payable to the IRS, the offer should not be considered unless it provides for full payment of the amount of restitution. Taxpayers submitting such offers should be informed that only the district court that entered the restitution order can modify the order.
- Questions relating to the terms of a restitution order (e.g. amount awarded, tax periods covered) should be directed to the special agent assigned to the case or the Advisory probation liaison. Defendants seeking to modify a restitution order should be directed to contact their probation officer. See IRM 22.214.171.124, Collecting Process – Restitution, for more information.
- OICs submitted to compromise liabilities as a result of a non-rebate erroneous refund, can not be considered. There are three ways the assessments can be collected. They are:
- Voluntary payment (in full)
- Refund offset
- IRS can file suit to recover the refund
- IRM 126.96.36.199.5 – Customer Account Services – Overview of Category D Erroneous Refunds, may be reviewed for clarification on what constitutes a Category D assessment. This may be identified on IDRS by a:
- Transaction Code (TC) 844, which generated a –U freeze,
- TC 700 with document code 58 and blocking series 950 – 999, or
- TC 470 cc 93.
- If a non-rebate assessment is the only liability, return the offer. Apply all fees and TIPRA payments to the taxpayer’s account in accordance with current IRM procedures. Use the following language in the open paragraph portion of the return letter;"We cannot consider your offer in compromise for a non-rebate erroneous refund. This liability will need to be paid in full or a suit to recover may be initiated."
- If during the investigation the liability is identified as a non-rebate erroneous refund, take the following actions:
- If the discovery is by an OE, prepare a Form 4844 and forward it to Accounts Management to have the appropriate transaction codes input to the taxpayer’s account.
- If it is discovered by an OS, the employee should contact Collection Case Processing (CCP) and request a review of the liability to ensure the transaction codes are input and refer the liability to Accounting.
- Section 7122 and the regulations thereunder govern the formation and legal effect of OICs. The courts also apply generally applicable principles of contract law. Under these principles, a minor child does not possess the legal capacity to form a binding contract and in turn has the power to repudiate or disaffirm most contractual obligations. A minor child would also have the ability to repudiate or disaffirm a compromise signed on behalf of the minor child by a parent or power of attorney. Notice 89-7 states, "a parent or guardian named in Form 2848-D may not legally bind the child with respect to a tax liability unless authorized to do so by the law of the state in which the child resides" .
- Because a compromise under section 7122 may not legally bind a minor, it is recommended that the Service not enter into compromises with minors or with a parent on behalf of a minor.
- Trust fund taxes are taxes withheld or collected from an individual and paid over to the government on that person’s behalf. See IRM 5.7.3, Establishing Responsibility and Willfulness for the Trust Fund Recovery Penalty (TFRP), for a list of tax returns used to report trust fund taxes and where assessment of the TFRP based on the liabilities reported on the returns is possible.
- When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer is relieved of a significant operating expense. The effect is to grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of fairness to all taxpayers the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. The following procedures apply to all In Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, limited liability companies, as well as corporations.
- These taxpayers must remain in compliance while the offer is being considered. See IRM 5.8.7 for required actions prior to returning the offer.
- For offers received after February 4, 2008, involving corporate entities, or any entity in which assertion of the TFRP is applicable, the trust fund portion of the tax liabilities must be paid, the TFRP assessed against all responsible persons or the TFRP package forwarded for assessment before the Service will investigate an offer. See IRM 188.8.131.52.1 above.
- If financial analysis reveals that the taxpayer cannot pay operating expenses and remain current with taxes (i.e. the business is operating at a loss), all business assets should be valued rather than valuing the income stream. The value of the business as a going concern should also be evaluated. Close review should be conducted as well to see whether the offer meets the criteria for rejection as not in the best interest of the government. See IRM 5.8.7.
- If 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, consideration should be given to the rejection as not in the best interest of the government. See IRM 5.8.7.
- Business tax returns (Schedule C, Form 1120, and Form 1065), the taxpayer’s balance sheet, income statements, and the Form 433-B need to be carefully analyzed to arrive at the correct RCP.
- The following issues should be carefully reviewed and/or considered:
- Depreciation – Do not allow depreciation. Instead allow necessary actual monthly obligations paid to secured creditors on depreciable assets (i.e. autos, equipment, or real estate loans).
- Accounts Receivable – Accounts receivable that are current (i.e. normally less than 90 days past due) generally should not be discounted at Quick Sale Value (QSV). Value all accounts receivable at 100% of the balance due, unless the taxpayer can substantiate the account has been delinquent over 90 days. If the account is determined to be delinquent, it may be discounted up to a maximum of 50%. However, supporting documentation is required to substantiate accounts the taxpayer claims are delinquent over 90 days; such as a request for the taxpayer to provide an aging report. If the account is over 90 days and the taxpayer fails to provide substantiation, it will be valued at 100%.
Note:A delinquent account is defined as an uncollectible account that has been delinquent for more than 90 days. A collectible account is defined as one that may be considered to be past due, but is still an active client.
- Personal Expenses Paid by the Business – Financial statements must be reviewed to ensure expenses such as car payments, insurance, utilities, etc. are not claimed on both the Form 433-A and the Form 433-B.
- Compensation to Corporate Officers – Wages and/or other compensation paid to corporate officers in excess of applicable expenses allowable per National and Local standards should generally not be allowed as business expenses.
- Stock Holder Distributions and Repayment of Loans to Officers – These expenses are discretionary in nature. Distributions of this nature made after the incurrence of the employment tax delinquency should be factored into the RCP analysis as dissipated assets. Loans to officers should be considered an account receivable and valued according to their collectibility.
- Potential Recovery of Priority Taxes – Trust fund tax plus associated interest is classified as a priority tax in the U.S. Bankruptcy Code. As such, this tax must be paid in full under a Chapter 11 or 13 payment plan. If it is probable that the taxpayer will file under a Chapter 11 or 13 if the offer is returned or rejected, then an offer should not be considered for less than what would be recovered through the bankruptcy proceeding.
- Field Visits to Evaluate Business Assets – A field call may be made to validate the existence and value of business assets and inventory for all offers involving an operating business and that will be recommended for acceptance. The offer specialist should make the call, if practical, or initiate an OI to request that a call be made by another RO if the taxpayer operates in a remote location.
- See IRM 5.8.5 for information on handling LLC entities.
Note:OIs referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
- In some cases, it may be necessary to verify income and expenses through copies of cancelled checks. The OS should use good judgment and common sense when requesting a taxpayer to provide such documentation since this type of request may put a significant cost and burden on the taxpayer. Generally, requests for cancelled checks should be limited to the most recent months.
- For an on-going business, field calls must be made to validate the existence and value of business assets and inventory, in accordance to current guidelines. This may require an OI to a Collection Field RO. If a field call has been previously made and assets have been valued and documented, a field call would not be required.
- IRC Section 7122(c), as amended by the TIPRA, requires OIC’s submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount. These payments are applied to the tax liabilities included on the offer and are in addition to any application fee imposed.
- The form of these partial payments depends on the taxpayer’s proposed offer and its terms.
- A lump sum cash offer (defined as payable in five or fewer payments) must be accompanied by a payment of 20% of the offered amount.
- A periodic payment (defined as payable in six or more installments or through the statutory period) must be accompanied by payment of the first proposed installment, and additional payments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer.
- If the taxpayer qualifies for the Form 656-A waiver, the taxpayer is not required to pay the application fee, or TIPRA payment(s), including any future payments, until accepted.
- If a short-term offer is accepted, the 24-month timeframe for paying the accepted offer amount will start on the date of written notice of acceptance. At that time, the taxpayer will begin making the payments in accordance to the terms of the accepted offer.
- While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed payments as they become due. There is no requirement that the payments be made monthly or in equal amounts.
- The Service is not bound by either the offer amount or the terms. The offer examiner/specialist may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the offer investigator may advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance.
- Taxpayers who qualify for waiver of the $150 application fee based on their income level at the time they submit an offer are also exempt from making the required TIPRA payment(s). If during the investigation it is discovered that the taxpayer does not qualify for the waiver, contact the taxpayer and make one request by telephone for the required payment(s) and the application fee. Allow 15 calendar days for the taxpayer to submit the payment(s) and fee. If the taxpayer cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s). If the taxpayer or POA fails to submit the payment or request an extension of time within 30 days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history. See IRM 5.8.7, Mandatory Withdrawal.
- If the taxpayer submitted the application fee, and TIPRA payment in addition to the Form 656-A Waiver, and it is discovered that the taxpayer does not qualify for the waiver, the offer investigator will:
- Request the money be moved to the appropriate account and/or liability(s), and
- Continue working the offer.
- If the taxpayer submitted a periodic payment offer, the offer specialist/examiner will make one request by telephone for the taxpayer to make up the past due TIPRA payment(s) from the date of submission to the date of discovery. Allow 15 calendar days for the taxpayer to submit the payment(s). The taxpayer will then be required to make payments in accordance to the terms of the offer when submitted during the remainder of the investigation. If the taxpayer cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s). If the taxpayer or POA fails to submit the payment or request an extension of time within 30 calendar days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history. See IRM 5.8.7, Mandatory Withdrawal.
- Situations may exist where the offer investigation has been completed and it has been determined the offer will not be accepted prior to determining the taxpayer has missed an installment of their periodic payment offer. In these instances, when contact is made with the taxpayer to secure the missed installment(s), whether by telephone or correspondence, in addition to advising the taxpayer the offer will be processed as a mandatory withdrawal if the installment is not paid, the OE/OS should also advise the taxpayer that even if the taxpayer makes the required installments, the offer will be recommended for rejection. Providing a copy of the IET and AET may also be appropriate. The appropriate next action should be taken based on the taxpayer/POA response.
- Taxpayers may designate how the required TIPRA payments are to be applied to the taxpayer’s liabilities. The request for designation must be made in writing when the offer is submitted (in the case of the initial partial payments) or when the payment is made (in the case of subsequent installment payments made for a periodic payment offer). Once a designation of payment is made, it cannot be changed at a later time. The written payment designation must clearly explain how these payments are to be applied to specific tax periods or liabilities (e.g., income taxes, employment taxes, trust fund portions of employment or excise taxes, etc.). This written payment designation must become part of, and remain with, the offer case file.
- In the absence of any written payment designation by the taxpayer when the offer was submitted or when the payment is made, the Service will apply the payments in the best interest of the Government.
- COIC will process the required initial TIPRA payment accompanying periodic payment offers prior to transferring an offer to an OS. For offers submitted by corporations to compromise trust fund taxes, COIC will apply the initial payment(s) to the tax liability with the earliest unexpired CSED. OS’s assigned to investigate these offers are responsible for transferring the partial payment(s), if necessary, in the best interest of the government as defined in 184.108.40.206.1 below.
- It is the responsibility of the OE/OS assigned the case to ensure that taxpayers make the proposed installments during the offer investigation. In addition, the OE/OS must also ensure that required additional amounts are paid if the taxpayer submits a revised OIC reflecting a larger proposed offer amount and/or changes the offer from a periodic payment to a lump sum cash offer.
- If a subsequent payment is received by an OE/OS with a Form 656-PPV, forward the payment with the Form 656-PPV to the appropriate COIC address shown on the form. An OS may process payments on Form 795 using ICS and document the AOIC history with the payment amount, MFT, period and where the payment was applied.
- Upon receipt of a subsequent payment received by the COIC site while the offer is assigned to an OE/OS, COIC must annotate the AOIC history with the following information:
- Date(s) of receipt
- Amount of the payment(s)
- Location (MFT and period) applied
- It is the responsibility of the OE/OS to check the AOIC history and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.
- If a subsequent payment is received by the OE/OS, the OE/OS will use Form 3244 to apply the payment(s) directly to the tax liability in accordance with the taxpayer’s written payment designation, if any, submitted with the offer.
- If no written payment designation was submitted with the offer, apply the payment(s) directly to a tax liability to the best interest of the Government.
- For offers submitted from entities other than corporations, apply the payment(s) to the tax liability(ies) with the earliest expired CSED(s).
- For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order):
- Non-trust fund portion of tax (employer's share of FICA)
- Assessed lien fees and collection costs
- Assessed penalty
- Assessed interest
- Accrued penalty to the date of payment
- Accrued interest to date of payment
- Trust fund portion of the Form 941 (employee's and withholding share of FICA)
- Annotate the AOIC history with the amount(s) and date(s) of receipt.
Note:Use DPC 02 when posting subsequent periodic offer payments specified to the trust fund portion when the offer was submitted by a corporate taxpayer. In all other situations, use DPC 35.
- If the taxpayer fails to make a proposed installment for a periodic payment offer, the OE/OS will allow one opportunity to pay the missing amount(s). Attempt to contact the taxpayer by telephone, and allow 15 calendar days for the taxpayer to submit the payment(s). If the taxpayer or the representative cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s).
- If the taxpayer submits the payment(s) within 30 calendar days from the date of the letter (allowing 15 calendar days for mail), continue the offer investigation. In some cases, it may be necessary to allow additional time for the taxpayer to submit the payments. Document the ICS or AOIC history with the reason for the delay.
- If the taxpayer fails to submit the payment or request an extension of time within 30 calendar days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history.
Note:Taxpayers will be afforded one opportunity to make up the missed payment(s) for a periodic payment offer, including any amended offers, unless special circumstances exist.
- The proposed offer amounts and terms submitted by a taxpayer dictate the required partial offer payments. The Service is not bound by those same terms in determining an acceptable offer. Therefore, OE/OS’s may negotiate different offer terms, when appropriate.
- During evaluation of an offer, the OE/OS may determine that the proposed offer is too low or the payment terms too protracted to recommend acceptance. In this situation, the OE/OS will advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance. If the taxpayer submits a revised offer reflecting a larger proposed offer amount or changing the terms, one or more additional payments may be required, unless the taxpayer qualified for the waiver. The taxpayer will be given credit for partial payments already made with respect to the original offer.
If... And... Then... Original offer was a lump sum cash offer Revised offer is a lump sum with a greater proposed offer amount Taxpayer must pay 20% of the revised amount, less the partial payment made with the original offer, with the revised OIC. Original offer was a periodic payment Revised offer is a lump sum cash Taxpayer must pay 20% of revised offer amount, less any installment payments already paid toward the original offer, with the revised OIC. Original offer was periodic payment Revised offer is periodic payment with greater proposed offer amount and/or different proposed installment amounts or schedule Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the OIC. Original offer was lump sum cash offer Revised offer is periodic payment with greater proposed offer amount Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the revised OIC.
- IRC Section 7122(c), as amended by the TIPRA, requires that offers in compromise submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount.
- If the taxpayer submitting a revised or amended offer does not make the additional required payment(s), the OE/OS will return the offer as a processable return using the appropriate AOIC generated letter.
Note:The exceptions to this rule are if the taxpayer was not subject to the waiver with respect to low income taxpayers for offers submitted based solely on DATL. These taxpayers are not required to submit payments with an amended OIC.
- If the taxpayer fails to submit the revised offer, prepare the rejection letter.
- The OE/OS is responsible for ensuring TIPRA payments are made during the investigation. Once the final determination letter has been issued, the OE/OS is no longer required to monitor for payments.
- A taxpayer's installment agreement remains in effect while the offer is pending if the taxpayer submits a lump sum cash offer only while the offer is pending. If the OIC was submitted as a periodic payment offer, the taxpayer will only be required to make the TIPRA payments. The cases submitted under periodic payment criteria will be changed to Status 71.
- See Exhibit 5.8.4-4 (COIC) and Exhibit 5.8.4-5 (Field) below for step-by-step instructions to take a taxpayer’s account from Status 60 to Status 71.
- If the offer is rejected, returned, withdrawn, or terminated, return the account back to Status 60 by following the procedures in Exhibit 5.8.4-4 and Exhibit 5.8.4-5 below.
- Taxpayers who wish to be represented must submit a properly executed Form 2848, Power of Attorney and Declaration of Representative. If POA information is located on CFINQ, load the information on the AOIC POA Screen and follow procedures as defined below. Input the representative's information on AOIC and retain a copy of the form in the paper case file. Forward the original for recording on the Centralized Authorization File (CAF).
- Send all original correspondence to the taxpayer and provide a copy to the representative unless the taxpayer has indicated otherwise by checking item b on line 7 of Form 2848.
- Individuals who are not entitled to practice before the IRS with respect to a collection matter (such as unenrolled return prepares) may accompany taxpayers to meetings with a completed Form 8821, Taxpayer Information Authorization, or other proper authorization, and receive and provide information that relates to the offer investigation. They are not authorized to represent the taxpayers or sign documents relating to offers in compromise.
- If the Form 2848 does not include liabilities that are included on the offer, send a redacted letter to the representative. The letter sent to the taxpayer can request completion of a Form 8821 or a Form 2848 to cover the missing periods.
- If during the investigation it is discovered that the POA no longer represents the taxpayer, secure a letter revoking the POA and document the case history. Remove the POA information from AOIC.
- Attorneys, Certified Public Accountants (CPA), enrolled agents, or enrolled actuaries are generally the only practitioners authorized to represent taxpayers before the IRS on collection matters.
Note:An unenrolled return preparer is an individual, other than an attorney, CPA, enrolled agent, or enrolled actuary, who prepares and signs a taxpayer’s return as a preparer, or who prepared a return but is not required to sign the return. An unenrolled return preparer cannot represent a taxpayer before the IRS on any collection matter. An unenrolled return preparer, however, may represent a taxpayer before the IRS in certain other limited situations. See IRM 220.127.116.11.2, Right to Representation.
- During the course of the investigation, a taxpayer may submit a Form 2848 designating a third-party as their representative or power of attorney, or the taxpayer may submit a Form 8821 designating an appointee or may complete the third party designee section on the Form 656, Offer in Compromise. When properly completed and filed by the taxpayer, each of these documents should be recognized during an investigation, and interaction with the third party should be governed by the parameters allowed within each of these authorization forms.
- Form 2848 - authorizes an eligible individual (e.g. attorney, CPA, enrolled agent, or enrolled actuary) to represent as well as receive confidential information.
- Form 8821 and third party designee on the Form 656.
- If Form 8821 is missing critical information that can only be provided by the taxpayer (e.g., tax years, type of tax, missing taxpayer signature, date) it will be returned to the taxpayer.
- Information that may be disclosed to the designee is limited to the type of tax, tax form number, tax years or periods, or specific tax matter that is listed on the Form 8821, item 3.
- If Form 8821, item 5a is checked, the designee is also entitled to receive copies of tax information, notices, and other written communication on an ongoing basis for the type of tax, tax form number, tax years, or specific tax matter listed under item 3.
- The designee is not authorized to respond to any type of correspondence on behalf of the taxpayer if the response advocates a position that would indicate that the designee is taking on a representational role.
- Where a recognized representative has unreasonably delayed or hindered an examination, collection, or investigation by failing to furnish, after repeated request, non-privileged information necessary to the examination, collection or investigation, the Internal Revenue Service employee conducting the examination, collection, or investigation may be given permission to bypass the representative and contact the taxpayer directly for such information. 26 C.F.R. § 601.506(b) (Statement of Procedural Rules). Prior to contacting the taxpayer directly, the IRS employee must first initiate bypass procedures. See IRM 18.104.22.168.7.1 for procedures to bypass a POA.
- There may occasions where a taxpayer or representative may request expedited processing of their OIC due to an emergency or perceived emergency situation. Situations that may warrant expedited case processing include:
- A contract or business agreement requiring the taxpayer, as a condition of the contract or agreement, to resolve the tax liability by a specific date.
- Availability of the money to fund the offer is limited to a certain time.
- A terminal illness may affect the ability to complete the payment terms.
Note:Situations may arise that were not initiated by the taxpayer either via phone contact, fax or mail. Once identified that expedite processing may become necessary, follow (3) and (4) below and discuss with your manager.
- Processing of Forms 656 must given priority consideration and handled expeditiously due to pending collection action.
- Offers received with a request for expedited processing should be referred to management for a decision on whether or not expedited treatment is warranted.
- If a decision is made to expedite offer processing, the manager should document the AOIC history, indicating the basis for the decision. The Form 656 should be clearly labeled at the top Emergency Processing Requested, and an immediate processability determination and assignment for investigation should be made. Every effort should be made to close the offer within 90 calendar days of receipt. In an attempt to bring the case to a prompt and timely resolution and to meet the special needs of the taxpayer, immediate contact should be made with the taxpayer to request any additional information needed.
- If a decision is made not to expedite the case, the manager should document the basis for the decision on the AOIC history. Contact the taxpayer by telephone or correspondence explaining the basis for the decision. The case should be worked under routine processing.
www.irstaxattorney.com (212) 588-1113 firstname.lastname@example.org