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.
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If your offer is accepted
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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).
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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.
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.
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.
1. Policy Statement P-5-100 in
IRM 1.2.14.1.17, 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.
Note:
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.
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.
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.
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.
1. The following list, while
not all inclusive, provides a brief summary of various functions activities
related to OIC processing.
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 5.1.5.24.5, 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.
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 5.8.1.5.1 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.
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.
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 4.18.2.3, 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 5.19.7.2, Centralized
Doubt as to Liability (DATL) Offers in Compromise, for more information.
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).
Exception:
Exceptions to development
of OICs with an open CDP are those cases that fall under COIC casework criteria
found in IRM 5.8.4.
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.
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