- During the time an accepted offer is monitored, a determination to terminate or rescind an existing compromise agreement may need to be made. A determination whether to compromise an existing accepted offer may also be considered. This chapter addresses the situations which lead to the need for such decisions to be made and the procedures to follow.
- An offer is an agreement which is binding on both the government and the taxpayer, and precludes further inquiry into the matters to which it relates, unless fraud or a mutual mistake of fact is identified.
- An offer may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or a false representation that was made by one party.
- A "mutual mistake of fact" is defined as an erroneous belief held by both parties about the facts as they existed at the time the contract was entered into.
- The mere fact that both parties are mistaken with respect to the same basic assumption about an existing fact does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the offer in compromise.
- To constitute fraud or false representation, the following must be present:
- The representations related to material facts were false.
- The maker knew or should have known the facts to be false.
- The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.
- If the offer was accepted by Appeals, the offer should be sent to the appropriate Appeals office to make the determination that the offer should be rescinded.
- Rescind an offer in the following manner:
- Prepare a letter to the taxpayer identifying the offer by the day it was accepted, and advising that the acceptance of the offer is rescinded and the acceptance letter is revoked.
- Include in the letter the grounds for rescission in general terms with a demand for payment of the unpaid tax liability.
- All rescission determinations must be reviewed and approved by Counsel before a rescission letter is forwarded to the taxpayer.
Note:
The letter must be signed by the same level of approval that accepted the offer. - Document the basis for the decision to rescind and any taxpayer contact on AOIC.
- After all approvals have been received, notify the appropriate MOIC liaison of the rescission and request input of a TC 781 to ensure the case is reassigned to the field for appropriate collection action.
- An offer can reach a potential default status in one of three ways:
- The taxpayer failed to make timely payment of the amount due based on the terms of the offer or a related collateral agreement;
- The taxpayer has not adhered to the compliance provisions of the offer; or
- Taxpayer failed to return an erroneously issued refund.
Note:
Offers accepted after December 31, 1999 contain a clause relating to the severability of joint offer periods when a joint Form 656 is accepted. The severability clause will be applied to all joint offers, including those accepted prior to 1/1/2000. - Campus MOIC units have responsibility and authority to make determinations on potential offer default cases.
- The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns or payments, the MOIC unit will default the offer. After all appropriate letters have been sent, MOIC will input reversal codes to bring the liability back to the collection stream, as appropriate and close the case as a default. See IRM 5.8.7.10 for procedures on alternative resolutions.
- The compromise of a compromise should be rare in light of the investigation completed in connection with the original offer. However, in cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement and the investigation reveals that extreme hardship or special circumstances exist, which would justify that a default is not in the best interest of the government, the Service has the option to:
- Adjust the payment terms of the offer,
- Formally compromise the existing compromise, or
- Obtain managerial approval to settle the offer for the amount already paid and not default the offer.
- A Courtesy Investigation request will be made by the monitoring campuses to the office of jurisdiction (Appeals, Exam, COIC, Field OIC or DOJ) that accepted the offer only if a request to compromise an accepted offer is received. A request for Courtesy Investigation should be rare, but when issued, the courtesy investigation should be worked in an expeditious manner and if ICS is used, coded with a priority code 100.
Note:
A Courtesy Investigation to the field should only be issued by the MOIC function if a compromise on a compromise is received or the terms of an agreed collateral agreement cannot be properly monitored. - A proposal to compromise the balance of an accepted offer must rest on DATC, DATC with special circumstances, or effective tax administration (ETA).
- The office of jurisdiction (i.e. Field OIC, COIC, Appeals, Examination or DOJ), that initially accepted the offer will consider the taxpayer's proposal.
- No specific offer form (such as Form 656) is prescribed for use in submitting such a proposal. The proposal must be received in writing.
Note:
Taxpayers are not required to include a 20 percent payment or periodic payment with the proposal and the terms available are the same terms offered on Form 656 (rev 07-2007 or later), i.e. lump sum cash or periodic payment, regardless of the original offer IRS received date. - Upon receipt of the proposal, add a history entry to AOIC (if the offer is on AOIC) indicating that an offer to compromise the offer has been received and notify the MOIC unit that the offer should not be defaulted until the results of the investigation are known.
Note:
For ICS, create an OI or CIP to control the taxpayer's proposal. When closing, (if the offer is on AOIC) be sure to note the results in the AOIC history. - The proposal letter should be addressed to the Commissioner of Internal Revenue Service and must conform to pattern Letter 1603(P), shown in Exhibit 5.8.9-1 below.
- The taxpayer must submit a current financial statement(s) and all required supporting documentation.
- The consideration of such a proposal will be made by the office of jurisdiction that originally accepted the offer. Acceptance will depend on:
- If it is in the best interest of the Government; and
- If the same considerations and merits were applied as if it were submitted on a Form 656.
- The information required to support the proposal should fit the case. Such as:
- Copy of the taxpayer's most recent income tax return or Command Code (CC) RTVUE/BRTVU print.
- Estimate of the remaining liability under the terms of the future income collateral agreement, if applicable.
- Reasons why the request is being made to compromise the existing agreement.
- Full compliance check.
- Statement of current financial condition.
- Description of future prospects and any other information which might have a bearing upon the acceptability of the offer.
- Estimated and projected amount of future income over the period covered by the remaining terms of the original offer in compromise agreement.
- When the investigation is complete, the taxpayer's proposal, investigative report, and memorandum containing a complete statement of the facts in the case including the recommendation should be forwarded to the next level of authority for approval.
- An acceptance or denial letter should be prepared for the delegated official. See Exhibits 5.8.9–2 and 5.8.9–3.
If… Then… The taxpayer's proposal is acceptable The procedures for acceptance of original offers will be followed which include an opinion of Counsel as set forth in IRM 5.8.8.5, Legal Opinion of Counsel. The offer is accepted The acceptance file will contain the following: - Copy of Acceptance Letter
- Taxpayer's proposal
- Memorandum supporting the compromise of a compromise
- Work papers and financial information
- Original acceptance recommendation, if available
The proposal is notacceptable Forward to the delegated official for approval and signature. Include: - Denial Letter (return without appeals)
- Taxpayer's proposal
- Memorandum supporting the recommendation
- Offer case file
Note:
No appeal rights are granted to the taxpayer. - Update the AOIC history, if the offer is on AOIC, and the ICS history with the results of the investigation. If the proposal is accepted, include in the AOIC history and ICS the amount of the accepted proposal and the terms for payment.
- Once the decision letter has been signed and mailed, the Other Investigation or CIP should be closed. There is no open AOIC record.
- Document the case history indicating that the OI is closed and the final resolution of the offer.
- The closed file should be mailed to the appropriate MOIC unit for monitoring, if accepted, or defaulting if it was not accepted.
- Occasionally, additional periods or years are discovered subsequent to the acceptance of an offer. When such liabilities are discovered, the offer agreement may be modified to include the additional period(s) as long as both the Service and the taxpayer are in agreement. The tax must have been assessed prior to the issuance of the notice of acceptance. Such modification would not require a determination of "mutual mistake of material fact."
- If the overlooked periods are discovered by the local office then they should secure the original offer file and add the omitted period(s) to the original offer. A pen and ink change should be made to the Form 7249 including the additional period(s). The appropriate officials must initial the recommended changes to the Form 7249.
- Document the AOIC history indicating the period(s) added.
- Return the case file to the MOIC unit.
- If the overlooked periods are discovered by MOIC they will update AOIC to add a history narrative referencing the overlooked periods, and send the file back to the original appropriate Area office or COIC site for consideration of whether to include the periods, per (2) above via Form 3210.
This is an example of a proposal letter to compromise a balance due on an OIC or to compromise future income collateral agreements.
| The information that is printed in bold letters is to be included if there was a collateral agreement with the original offer or if the original offer had an attached collateral agreement. |
| Commissioner of Internal Revenue |
| Washington, DC 20224 |
| On [enter date from upper right corner of acceptance letter] you accepted [my/our] offer in compromise and the related Form [2261, Collateral Agreement, Future Income –Individual; or 2261–A, Collateral Agreement, Future Income–Corporation]. [I/we] agreed to pay $[enter amount from Form 656, Offer in Compromise; if you amended Form 656, you must take this information from the latest amendment] to compromise the tax liability(s) listed below: |
| [List type(s) of tax and period(s) from Form 656 or the latest amendment, if applicable.] |
| Instead of future payments specified in Form [2261; or 2261–A], [I/we] propose to pay [enter amount you are offering to pay] in full settlement of the original offer and the collateral agreement. [Also select one of the following sentences to describe how you will pay the amount you entered in the previous sentence: |
| [I/we] have enclosed full payment of the proposed amount. |
| [I/we] will make full payment of the proposed amount when you notify [me/us] that you have accepted [my/our] proposal. |
| [I/we] have enclosed $[enter amount you are sending with this letter] and will pay the balance when you notify [me/us] that you have accepted [my/our] proposal.] |
| If your original offer was submitted on a Form 656, Offer in Compromise, with a revision date of February, 1992, or later, please insert the following sentence: [I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years from [enter the date from the upper right corner of the acceptance letter]. |
| [I/we] agree to waive any and all claims to overpayments of tax or other liabilities, including interest on those payments, that [I/we] may be entitled to receive under the Internal Revenue Code. This waiver is limited to overpayments which haven't already been refunded to me for any years or tax periods which end before or during the year you accept this proposal. |
| [I/we] have enclosed a letter with this proposal which contains the detailed reasons for submitting this offer and a completed financial statement showing [my/our] current financial condition. |
| [Enter your signature and today's date] |
| Each person who is submitting this proposal must sign here. |
| Enclosure: |
This is an example of an acceptance letter for a compromise of a compromise.
| Acceptance letter for proposal to compromise balance due on offer in compromise and/or collateral agreement. The information that is printed in boldletters is to be added for a collateral agreement. | |
| Date: | Social Security or Employer |
| Identification Number: | |
| Person to Contact: | |
| Telephone Number: | |
| Salutation | |
| We accept your proposal to pay $---- to settle the remaining liability under the offer in compromise accepted on Enter Dateand/or the related collateral agreement. | |
| Since you have paid the amount proposed, you do not need to take further action. (or: Since you enclosed $---- with your proposal, please send the balance of $---- by Enter Date) (or: Since payment was to be made on notice of acceptance of your proposal, please send $---- by Enter Date.) | |
| Your check or money order should be made payable to the United States Treasury and sent to (service center address Attn.: Collection Offer Unit). | |
| If you receive a refund that you specifically waived under the terms of your proposal, please return it promptly to the service center, to the attention of the Offer Unit. | |
| If you have any questions, please contact the person whose name and telephone number are shown above. | |
| Sincerely yours, | |
| (Signature and title) | |
This is an example of a denial of a proposal of an offer on an offer.
| Denial of proposal to compromise balance due on offer in compromise and/ or collateral agreement. The information that is printed in bold letters should be added for a collateral agreement. | |
| Salutation | |
| We are sorry, but we cannot accept your proposal dated ---- to compromise the remaining liability under the offer in compromise accepted on Enter Date(and/or related collateral agreement). | |
| (Explain reasons) | |
| We must, therefore, ask you to comply with the terms of the offer in compromise including any collateral agreement. If you have any questions, please contact (name, Internal Revenue Service Center, address, telephone number). | |
| Sincerely yours, | |
| (Signature and title) | |
This is an example of a default of an offer for failure to meet the agreed terms.
| Failure to comply with the terms of an accepted offer in compromise and/or related collateral agreement. The information that is printed in bold letters should be added for a collateral agreement. | |
| Salutation: | |
| This refers to our letter of [date], accepting your offer of $[amount], in compromise of your [kind of tax] tax liability, plus statutory additions, for [years or tax periods]. Your offer included your agreement to the default provisions, waiver of refunds, payment of interest, and other terms provided on the Form 656. | |
| Also included was a related collateral agreement(s) you submitted as additional consideration for acceptance of your offer. | |
| Under the terms of your offer, $[amount] was to be paid as follows: [Quote terms of payment shown on Form 656] | |
| The collateral agreement(s) provide that you must file annual income statements and pay graduated percentages of annual income for the years [date] through [date]. | |
| Our records show that you did not comply with the terms of the offer and collateral agreement(s) [specify reason for non-compliance], therefore your offer in compromise is declared in default and the agreement to compromise the original liability is terminated. All payments on the offer and collateral agreement(s) will be applied to the original liability. | |
| Please contact [name, address, and telephone number] if you have any questions and to discuss payment of the remaining amount of the original liability. | |
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