Thursday, August 1, 2013

Irs Offer in compromise

Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:
·         Ability to pay;
·         Income;
·         Expenses; and
·         Asset equity.
We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.

Make sure you are eligible

Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.

Submit your offer

You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF). You can also view the "Complete Form 656" video. Your completed offer package will include:
·         Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
·         Form 656(s) - individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
·         $150 application fee (non-refundable); and
·         Initial payment (non-refundable) for each Form 656.

Select a payment option

Your initial payment will vary based on your offer and the payment option you choose:
·         Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
·         Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.

Understand the process

While your offer is being evaluated:
·         Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
·         A Notice of Federal Tax Lien may be filed;
·         Other collection activities are suspended;
·         The legal assessment and collection period is extended;
·         Make all required payments associated with your offer;
·         You are not required to make payments on an existing installment agreement; and
·         Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If your offer is accepted
If your offer is rejected
·         You must meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
·         Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
·         Federal tax liens are not released until your offer terms are satisfied; and
·         Certain offer information is available for public review at designated IRS offices.

·         You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).  (02-26-2013)
1.     The government, like other creditors, encounters situations where an account receivable cannot be collected in full or there is a legitimate dispute as to what is owed. It is an accepted business practice to resolve these issues through negotiation and compromise.
2.     This IRM provides procedures for collection employees to follow when considering a taxpayer's proposal to compromise.
3.     See Exhibit 5.8.1–1 for a list of common abbreviations used throughout all sections 5.8.  (09-23-2008)
1.     An offer in compromise (OIC) is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed.  (02-26-2013)
1.     The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section § 7122.
2.     The Commissioner of Internal Revenue, under Treasury Regulation § 301.7122-1, is authorized to compromise a liability on any one of three grounds: Doubt as to Collectibility (DATC), Doubt as to Liability (DATL), or to promote Effective Tax Administration (ETA).
3.     Delegation Order No. 5–1 (Rev. 3) in IRM 1.2.44, Delegation of Authorities for the Collection Process, delegates the Commissioner's authority to accept, reject, terminate, or acknowledge withdrawals of offers in compromise.  (02-26-2013)
1.     Policy Statement P-5-100 in IRM, states:
The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or a protracted installment agreement.
The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.
A protracted installment agreement is one that extends beyond the Collection Statute Expiration Date.
2.     Offers to be accepted. In cases where an OIC appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise.
3.     The success of the OIC program will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay and the Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a compromise that is in the best interest of both the taxpayer and the government. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of a fresh start toward compliance with all future filing and payment requirements.
4.     Unless special circumstances exist, offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, or by installment payments extending through the remaining statutory period for collection, or other means of collection.
5.     Generally, a DATC offer amount must equal or exceed a taxpayer's reasonable collection potential (RCP) in order to be acceptable. In most cases, when the offered amount exceeds the RCP, the acceptance should be for the amount offered. The exceptions include special circumstances defined in IRM 5.8.4 and acceptance on the basis of hardship or effective tax administration (ETA) as defined in IRM 5.8.11.  (09-23-2008)
1.     The objectives of the OIC program are:
·         Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government.
·         Achieve a resolution that is in the best interests of both the individual taxpayer and the government.
·         Provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements.
·         Secure collection of revenue that may not be collected through any other means.  (02-26-2013)
1.     Revenue Procedure 2003-71, 2003-2 C.B. 517, defines the procedures applicable to the submission and processing of OIC tax liabilities. Notice 2006-68, 2006-2 C.B. 105, provides additional guidance regarding offers submitted on or after July 16, 2006. This handbook further describes, in detail, those procedures.  (02-26-2013)
Timeliness of Offer Investigations
1.     The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process but also is a key component of taxpayer satisfaction.
2.     The guidelines for timely case actions defined in this IRM are intended to provide structure for the overall offer process and to ensure investigations are completed in a responsive and efficient manner.
3.     Managers and employees must make sure communications from taxpayers are addressed in a timely manner. Timeliness of case actions ensures the length of the offer investigation process is appropriate given the taxpayer’s specific set of facts and circumstances.
4.     These guidelines are not intended as absolute measures of performance for individual employees. Performance evaluations of individual employees must be based on reviews of actual work produced by the employees and must take into account any special circumstances that may have impacted the ability of the employees to meet the specified guidelines. In general, unwarranted inactivity gaps in an OIC investigation should be avoided, and offer managers should establish controls to ensure that cases with unwarranted inactivity gaps are identified and addressed appropriately.  (03-16-2010)
Functional Responsibilities
1.     The following list, while not all inclusive, provides a brief summary of various functions activities related to OIC processing.  (02-26-2013)
Tax Cases Controlled by Department of Justice
1.     The IRS may not have the authority to accept an OIC when:
A.     Questions concerning the amount of the taxpayer's liability or the collection of a liability for all or part of the periods the taxpayer owes are in litigation being handled by the Department of Justice (DOJ).
B.     The federal tax liability for all or part of the periods the taxpayer owes has been reduced to a judgment. See IRM 5.8.10, Special Case Processing, for additional information on DOJ and docketed cases.
C.    An offer is received that covers tax periods for which restitution was ordered. Refer to IRM, Balancing Civil and Criminal Cases - Offers in Compromise and Restitution. The Service cannot accept an OIC that in any way modifies the terms of a restitution order. The IRS may consider an OIC for periods for which restitution was ordered only if the defendant has paid or will pay the full amount of the restitution as part of the offer. If there is a closed Criminal Investigation (CI) indicator on the account, contact should be made with Advisory to verify if restitution was ordered. If restitution was ordered, the tax period may be under the control of the DOJ. In those cases, request the guidance of Area Counsel before proceeding. These cases may be identified by a TC 971 AC 180 - 189.
D.    The IRS has referred to the DOJ the taxpayer's civil or criminal case for prosecution or defense.
E.     Acceptance by the IRS is dependent upon the DOJ accepting a related offer or settlement.
2.     If the offer is returned based on paragraph (1) (a) through (d) above, all payments should be applied in accordance with guidelines established by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).
3.     In some instances, DOJ may request the case be forwarded to them for inclusion in pending litigation. However, in DATC offers, DOJ generally request that the field offer specialist conduct the investigation and make a recommendation to accept or reject the offer. In those cases, coordinate with Area Counsel to determine if the request should be worked as a courtesy investigation or if Collection has jurisdiction to process the offer.  (02-26-2013)
Docketed Tax Court Cases
1.     Area Counsel handles Tax Court cases. The IRS has the authority to accept offers where the liability is the subject of a pending Tax Court case. See IRM below for information on the consideration of offers relating to unassessed liabilities. Generally, DATC cases will be under the jurisdiction of Collection, unless the case is under Appeals jurisdiction. See IRM 5.8.10 for additional information on docketed court cases.
2.     All cases identified as docketed court cases will be immediately forwarded to a field offer group for investigation.
3.     Centralized Offer in Compromise (COIC) will be responsible for determining processability on these cases.  (03-16-2010)
Collection Function
1.     The Collection function is responsible for processing and investigating the following offers:
·         All offers based on DATC, including proposed liabilities still subject to settlement in Examination or Appeals.
·         All offers based on ETA.
·         All offers submitted under DATL for either a TFRP or PLET assessment.  (02-26-2013)
Examination Function
1.     Examination function is responsible for processing and investigating offers submitted based on DATL (excluding offers submitted to compromise a TFRP or PLET). See IRM, Jurisdiction—Doubt as to Liability.
2.     Examination function employees must also provide the Collection function with a recommendation on offers based on ETA with public policy/equity issues, when requested by Collection. See IRM 5.8.11, Effective Tax Administration, for public policy or equity grounds and IRM 4.18.2, Exam Offer-In-Compromise - Doubt as to Liability Offers. See IRM, Centralized Doubt as to Liability (DATL) Offers in Compromise, for more information.  (02-26-2013)
1.     Offers secured in Appeals offices in conjunction with related casework such as Collection Due Process (CDP) or Equivalent Hearing (EH), will be forwarded to the COIC sites for processability determination(s), processing of the application fee(s), deposit(s), required TIPRA payment(s), and mailing of processability letters provided by Appeals.
2.     COIC is responsible for the input of necessary transaction codes to IDRS. See IRM 5.8.2 for guidelines on determining processability for Appeals CDP offers.
3.     Appeals will normally develop their own offers, but if complex issues are identified, they may require the assistance of Field Collection or Examination sources through the issuance of an Appeal Referral Investigation (ARI).
Exceptions to development of OICs with an open CDP are those cases that fall under COIC casework criteria found in IRM 5.8.4.  (02-26-2013)
1.     Counsel attorneys provide opinions on OIC's recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater at the time of submission.

2.     Counsel attorneys, when requested, may also provide legal opinions for matters related to investigation and processing of offers. (212) 588-1113

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