4.18.1  Offers in Compromise Received in Exam

4.18.1.1  (01-07-2011)
Overview

  1. This section provides an introduction to offers in compromise received in Examination and initial processing procedures.

4.18.1.2  (01-07-2011)
Introduction

  1. The Service, like any business, encounters situations where an account receivable cannot be collected in full or there is a dispute regarding what is owed. It is accepted business practice to resolve collection and liability issues through compromise.

  2. Form 656, Offer in Compromise (OIC) and Form 656-L, Offer in Compromise (Doubt as to Liability), are forms used by taxpayers to propose to the Government a settlement of a tax liability for an amount less than previously determined and assessed. An offer, having been filed and accepted for processing will be acted upon by recommendation for acceptance, rejection, return, termination or it may be withdrawn by the taxpayer or the taxpayer's duly authorized agent.

  3. An accepted offer in compromise (OIC) is a legally binding agreement between the Service and the taxpayer, and is enforceable by either party. Contract law principles apply to compromise agreements. The compromise of a tax liability can rest upon:

    1. Doubt as to collectibility (DATC),

    2. Doubt as to liability (DATL),

    3. Doubt as to liability and collectibility (combination offers - some may still exist, if filed prior to July 16, 2006. After the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), effective on or after July 16, 2006, combination offers are not accepted. See IRM 4.18.4, Combination Offers), and

    4. Promotion of effective tax administration (ETA).

  4. Submission of an OIC stays collection of an account, unless the taxpayer waives the stay or the collection of tax is in jeopardy. Also, a liability may, in special circumstances, be compromised upon the grounds that the case is appealing from an equitable standpoint. The submission of an OIC does not serve to suspend interest and penalties from accruing on the outstanding tax liability.

  5. An offer filed for penalties and/or interest should generally be treated as not processable and the taxpayer should be instructed to request an abatement. A Form 843, Claim for Refund and Request for Abatement, should be filed for credit or claims pertaining to penalties and/or interest. If the taxpayer may not receive the requested relief under an abatement request and the offer is otherwise processable, then the offer should be considered.

  6. In general, Collection has jurisdiction over DATC offers, and Examination has jurisdictional responsibility for the investigation and processing of DATL offers. In certain circumstances, the Office of Appeals will have jurisdiction regarding an offer. (See IRM 4.18.7.4, Offers Under Office of Appeals Jurisdiction, and IRM 4.18.7.4.1, CDP and Equivalent Appeal Offer Processing, regarding Appeals's jurisdiction).

  7. Offers that do not meet the DATL or DATC criteria may be compromised under the criteria for the promotion of effective tax administration. Jurisdiction of these offers rests with Collection; however, some may be forwarded to Examination for consideration.

  8. The Brookhaven Campus, Collection Offer in Compromise (COIC) DATL Unit has the authority to consider penalty offers based upon DATL. Area office action or investigation is not necessary unless the offer is based on DATC or there are unusual circumstances or complex questions involved. Penalties that are not subject to reasonable cause determination are not subject to compromise based on DATL and should be returned.

  9. An OIC filed after July 16, 2006 is subject to the 24 month time constraints specified in IRC 7122(f). See IRM 4.18.1.4.

  10. Offers are identified on IDRS using the following transaction codes (TC):

    • TC 480 - Offer pending on all periods sought to be compromised

    • TC 481 - Offer rejected or returned

    • TC 482 - Offer withdrawn

    • TC 483 - Correction of TC 480

    • TC 780 - Account compromised

    • TC 781 - Defaulted OIC

    • TC 788 - All collateral conditions of the OIC completed

    Other indicators:

    • P - The primary TP submitted the offer

    • S - The secondary TP submitted the offer

    • B - Both TPs submitted the offer

4.18.1.3  (01-07-2011)
Classification and Screening Procedures

  1. Offer in compromise cases may be forwarded from the Campus DATL Unit for further investigation. Examination will make a determination whether the offer merits further consideration.

    Note:

    Campus DATL determines the offer processibility and puts the TC 480 and STAUP 71 on the account on IDRS. If the DATL offer is transferred to an Exam Area Office the Campus DATL unit will input the Jurisdiction Code 2 (Exam) on IDRS; COIC will input the Jurisdiction Code.

  2. Upon receipt of offers in compromise in Exam, the OIC coordinator, generally located within Planning and Special Programs (PSP), will insure input of Transaction Code 480, Jurisdiction Code 2, if not already input.

  3. STAUP 71 should also be input and is necessary to suspend collection activity (offer merits consideration and there is no reason to believe that collection of the tax liability is in jeopardy).

    Note:

    In instances where the OIC coordinator is unable to input the STAUP and/or appropriate IDRS transaction codes, the Campus OIC Unit may be requested to do so.

  4. Offer receipts will fall into 3 categories:

    1. Processable offer Form 656 or Form 656-L is properly prepared and required documents are attached.

    2. Not processable offer Form 656 or Form 656-L may be returned immediately [6 below] or if not perfected within 14 days [ see paragraph 5 below].

    3. Offer must be perfected Form 656 or Form 656-L reflect omitted items and contact must be made with the taxpayer to obtain the information needed to make the offer processable.

  5. The Service should work with taxpayers to provide an opportunity to perfect defects or errors in the offers. A 14-day additional information letter may be used for this purpose, and may be issued a maximum of two times. See Exhibit 4.18.1-1, Pattern Letter-14 Day Additional Information Letter, and Exhibit 4.18.1-2, Pattern Letter-Follow-up 14 Day Additional Information Letter, for examples of letters which may be used for this purpose. Offers that are not perfected by the taxpayer within 14 days of request should be returned to the taxpayer as not processable; this time frame may be extended if warranted.

  6. The PSP OIC coordinator will analyze the offer to determine if it is not processable or may be returned without further investigation. Offers that are not processable (per IRM 5.19.7.2.2, Receipt and Screening of DATL Only Offers) will be returned to the taxpayer within 14 days. Offers may be immediately returned as not processable if the offer is frivolous, groundless, or has been submitted for the purpose of delaying collection (i.e. not raising a valid collectibility issue or liability issue or repetitive re-submission of offers which have already been rejected). In addition, if a taxpayer is in bankruptcy when the offer is received or files bankruptcy while the offer is under consideration, the offer must be returned. An offer should be terminated when the IRS is notified of the death of a taxpayer whose offer is under consideration, except if the OIC under consideration was submitted jointly by a husband and wife. In that case, see IRM 5.8.10.4, Death of Taxpayer. Appropriate managerial approval must be obtained before an offer can be returned on these grounds.

  7. If the offer is based solely on DATL and the liability has been finally determined by the Tax Court, other courts, or by a Final Closing Agreement, there is no DATL and the offer should be returned.

    Note:

    IDRS may reflect litigation/reversal of litigation when a case has been dismissed (and not considered by the Court). Coordination with Counsel and/or Appeals may be necessary to ensure a decision was actually made. In addition, an offer based on DATL may be considered based upon a computational error by the Service after the decision was entered-for example, the IRC 6662 penalty was assessed contrary to the decision.

  8. Failure to be in compliance in filing other required returns should not be used as a basis for returning or rejecting a DATL offer in compromise request. This is distinguished from DATC offers which may be returned for such purposes.

    Note:

    The 5 year compliance requirement is also not applicable for DATL offers.

  9. DATL offers may be considered on a tax period by period basis. If the taxpayer is submitting separate DATL offers for more than 1 period, they are not required to be considered simultaneously, but may be, particularly if the same issue applies in each tax period.

  10. Pattern Letter 2842(P) may be used for returning offers. See Exhibit 4.18.1-3.

  11. If it is evident that Appeals determined the liability, the offer should be forwarded directly to Appeals for consideration.

  12. The Service does not have the authority to accept an offer in compromise in the following cases under jurisdiction of the Department of Justice. Consult Area Counsel if the offer is otherwise acceptable.

    1. An offer covering a liability in "suit" ;

    2. Cases where the liability has been reduced to judgement;

    3. Cases referred for federal criminal prosecution;

      For a - c, send the offer directly to the centralized DATL processing unit located at the Brookhaven campus. See IRM 5.8.3.2, Routing Cases Based on Jurisdictional Responsibility.

    4. Cases in which acceptance is dependent upon acceptance of a related offer under the jurisdiction of the Department of Justice.

  13. When an offer is received in an area office and the taxpayer is not located within the receiving area, the offer will generally be forwarded to the PSP area office where the taxpayer resides using Form 3210, Document Transmittal through their local PSP office.

  14. DATL offers submitted without any consideration (zero dollar amount offered) should not be considered processable as an offer in compromise. The taxpayer should be advised to amend the offer to reflect what the taxpayer believes to be the correct liability. If the taxpayer does not amend or withdraw the offer, the request may be considered as an audit reconsideration or informal claim, but may not be considered as an offer in compromise.

    Note:

    The taxpayer should generally pay the tax and file a claim (or request an audit reconsideration) rather than submit an OIC if the liability in question originated from an examination assessment. However, this should not be used as the basis for returning or rejecting an offer.

  15. Offers that are deemed processable and not returned are generally sent to the field revenue agents, tax auditors, and tax compliance officers (hereinafter referenced as examiners) for further consideration. Pattern Letter 2843(P) may be used to notify the taxpayer of receipt and processability of the offer. See Exhibit 4.18.1-4, Pattern Letter 2843(P)-Processable Letter. There is no requirement that an offer be sent to field examiner at the group level, particularly when the determination may readily be made by the PSP OIC coordinator. However, as with all offers, an Independent Administrative Review (IAR) is required for proposed rejections. IRC 7122(e) requires review of all proposed rejections of taxpayer offers in compromise prior to the rejection being communicated to the taxpayer.

  16. Offers in Compromise, Form 656 and Form 656-L, are not controlled on AIMS (although the associated return generally should be). Form 3210, Document Transmittal, should always be used for transmitting Form 656 and Form 656-L between functions, offices, and groups.

  17. Because OICs are priority cases, the OIC coordinator, in the area PSP, should effectively monitor OIC cases assigned to the field and in process. Monthly status updates should be obtained on offers in process over 6 months.

4.18.1.4  (01-07-2011)
Changes Effective July 16, 2006

  1. Effective for offers filed after July 16, 2006, payment must accompany certain offers. See IRC 7122(c)(1). Offers that are solely DATL are exempt from the payment criteria. See Notice 2006-68; 2006-2 C.B. 105, Downpayments for Offers in Compromise, for interim guidance.

  2. Effective July 16, 2006, IRC 7122(f) provides that if an offer in compromise is not returned to the taxpayer, withdrawn, terminated or rejected within 24 months after submission of the offer, the offer shall be deemed accepted. It is critical that offers in compromise receive priority treatment.

Exhibit 4.18.1-1 
Pattern Letter - 14 Day Additional Information Letter

Return Address:
Person to Contact:
Employee ID Number:
Telephone Number:
Refer Reply to:
Taxpayer ID Number:
Tax Period:
Type of Tax:
Date:
 
[Salutation]
  We have received your Offer in Compromise, but we cannot proceed with our investigation for the following reason(s):
 
[Insert reason(s) A thru G.; must be one or more.]
 
  Please make the necessary corrections or provide the missing information within 14 days from the date of this letter. Include a copy of this letter with your reply.
 
  If you do not send the requested information within 14 days from the date of this letter, your offer may be returned as not processable. We have included blank forms, if applicable, for use in resubmitting the offer. If you resubmit it and include payment, please write a new check with a current date.
 
  If you have any questions, please contact the person whose name and telephone number are shown above.
 
Sincerely,
 
[Signature]
[Title]
Optional Reasons
   
A. The Form 656/656-L is:
A1. an obsolete Form 656/656-L. The most current version of Form 656/656-L must be used.
A2. not a verbatim duplicate of the official Form 656/656-L.
   
B. The Taxpayer is not identified because:
B1. the name(s) is omitted.
B2. the name(s) does not match our records.
   
C. The Tax Identification Number(s) required on Form 656/656-L needs clarification for the following reason:
C1. the Social Security Number is missing.
C2. the Employer Identification Number is missing.
C3. the number does not match our records.
   
D. The Offer amount/terms is not entered on Form 656/656-L.
   
E. The Signature(s) is:
E1. missing on the form.
E2. not the signature of the person making the offer.
E3. not the signature of the authorized representative.
   
F. The Contract Terms and Conditions:
F1. are altered on Form 656/656-L.
F2. are deleted from Form 656/656-L.
   
G. We are also returning your offer deposit in the amount of $__.

Exhibit 4.18.1-2 
Pattern Letter - Follow-up 14 Day Additional Information Letter

Return Address:
Person to Contact:
Employee ID Number:
Telephone Number:
Refer Reply to:
Taxpayer ID Number:
Tax Period:
Type of Tax:
Date:
 
[Salutation]
  We previously sent you a letter advising you to correct or provide missing information for your Offer in Compromise, but we have not received your response. We cannot proceed with our investigation for the following reason(s):
 
[Insert reason(s) as shown in Exhibit 4.18.1–1]
 
  Please make the necessary corrections or provide the missing information within 14 days from the date of this letter. Include a copy of this letter with your reply.
 
  If you do not send the requested information within 14 days from the date of this letter, your offer will be returned as not processable. We have enclosed blank forms, if applicable, for use in resubmitting the offer. If you resubmit it and include payment, please write a new check with a current date.
 
  If you have any questions, please contact the person whose name and telephone number are shown above.
 
Sincerely,
 
[Signature]
[Title]

Exhibit 4.18.1-3 
Pattern Letter 2842(P) - Not Processable Letter

Return Address:
Person to Contact:
Employee ID Number:
Telephone Number:
Refer Reply to:
Taxpayer ID Number:
Tax Period:
Type of Tax:
Date:
 
[Salutation]
  We are returning your Form 656/656-L, Offer in Compromise, and any documents sent to us. We cannot process and/or further investigate your offer for the following reason(s):
 
[Insert reason(s) A thru G.; must be one or more.]
 
  We have enclosed blank forms, if applicable, for use in resubmitting the offer. If you resubmit it and include payment, please write a new check with a current date.
 
  If you have any questions, please contact the person whose name and telephone number are shown above.
 
Sincerely,
 
[Signature]
[Title]
Optional Reasons
   
A. The Form 656/656-L is:
A1. an obsolete Form 656/656-L. The most current version of Form 656/656-L must be used.
A2. not a verbatim duplicate of the official Form 656/656-L.
   
B. The Taxpayer is not identified because:
B1. the name(s) is omitted.
B2. the name(s) does not match our records.
   
C. The Tax Identification Number(s) required on Form 656/656-L needs clarification for the following reason:
C1. the Social Security Number is missing.
C2. the Employer Identification Number is missing.
C3. the number does not match our records.
   
D. The Offer amount/terms is not entered on Form 656/656-L.
   
E. The Signature(s) is:
E1. missing on the form.
E2. not the signature of the person making the offer.
E3. not the signature of the authorized representative.
   
F. The Contract Terms and Conditions:
F1. are altered on Form 656/656-L.
F2. are deleted from Form 656/656-L.
   
G. Other.
   
H. We are also returning your offer deposit in the amount of $__.

Exhibit 4.18.1-4 
Pattern Letter 2843(P) - Processable Letter

Return Address:
Person to Contact:
Employee ID Number:
Telephone Number:
Refer Reply to:
Taxpayer ID Number:
Tax Period:
Type of Tax:
Date:
 
[Salutation]
  We have received your Offer in Compromise and determined that we can process it. We will investigate your offer and an offer investigator will contact you by (date within 30 days) with any questions or to ask for additional information.
 
  If you have any questions, please contact the person whose name and telephone number are shown above.
 
Sincerely,
 
[Signature]
[Title]

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