4.18.6  Case Processing and Controls

4.18.6.1  (12-28-2010)
Overview

  1. This section provides guidance for various processing issues and controls on an Exam Offer in Compromise (OIC).

4.18.6.2  (12-28-2010)
Payments Made with Form 656

  1. Form 656, Offer in Compromise, which applies to offers based on Doubt as to Collectibility (DATC) and Effective Tax Administration (ETA), filed after the Tax Increase Prevention and Reconciliation Act (TIPRA) (July 16, 2006) requires "payment" of 20% of the offer or the first installment of the proposed offer to be filed with the OIC. These payments are not deposits and will not be refunded to the taxpayer. They will be applied to the outstanding tax liability. The application of this payment may be specified by the taxpayer. See IRB 2006-31, Form 656, Offer in Compromise, Form 656-B, Offer in Compromise (Booklet). Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, is inapplicable after TIPRA (effective on July 16, 2006). No payment is required with the submission of Form 656-L, Offer in Compromise (Doubt as to Liability).

4.18.6.3  (12-28-2010)
Statutory Period of Limitation

  1. The normal statutory period for collection purposes is ten years from the assessment of the tax liability.

  2. The filing of an Offer in Compromise extends the statute for additional tax assessments in accord with the terms of the waiver provisions of the Form 656 or Form 656-L which was filed by the taxpayer. Steps should be taken to protect the interest of the government before the recalculated statutory period for assessment expires. The recalculated period of time for assessment can be extended by consent before the recalculated period expires. See IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent, for preparing and processing consents.

  3. IRC 6511(a) prescribes the period of limitation for a refund of tax. Offers in Compromise are not applicable to tax amounts that have already been paid.

4.18.6.4  (12-28-2010)
Innocent Spouse Procedures

  1. If the sole issue is relief from joint and several liability, the taxpayer should withdraw their OIC and file Form 8857, Request for Innocent Spouse Relief. In most instances, this will expedite the processing of their claim.

    Note:

    Once a taxpayer’s offer in compromise is accepted, the taxpayer is precluded by the terms of the offer to raise any issue related to the liability of the tax period compromised. Therefore, the taxpayer is ineligible to file an innocent spouse claim for that tax period.

4.18.6.5  (12-28-2010)
Examiner's Time Charges

  1. Offer in Compromise cases are received in Planning and Special Programs (PSP) for control (by the PSP OIC Coordinator) and are then sent to the examination group.

  2. Time applied to investigating an OIC is charged (below the line) to Activity Code (AC) 720. If it is determined that a tax adjustment should be made, time spent examining books/records and preparing the report is charged directly to the case (return). Time spent preparing the rejection/withdrawal memorandum and taxpayer letters is charged to AC 720.

  3. If all time was charged to indirect exam time AC 720:

    1. Return not on Audit Information Management System (AIMS) and ordered under Source Code 45, Form 5344, Examination Closing Record, is not submitted when the case is closed from the group; return is surveyed using Disposal Code 45.

    2. Return on AIMS-Close using Form 5344 and original source code.

4.18.6.6  (12-28-2010)
Return Controls

  1. For AIMS purposes, the return is requested using source code 45. If the ASED is either expired or will expire in 210 days, the ASED may be alpha coded "FF" .

  2. In some situations, the case file may not include the administrative file and tax return. A copy of the return should be secured from the taxpayer or internally.

  3. If the return is still reflected on AIMS in status code 90 when the offer in compromise is received, command codes ESTAB and AMSTUR should be used to order and establish the return. The AIMS source code is to be updated to 45. ERCS controls must be reopened manually.

4.18.6.7  (12-28-2010)
Dual Notice Requirement

  1. Section 3201(d) of the IRS Restructuring and Reform Act of 1998 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return.

  2. This requirement also applies to offers in compromise filed on joint liabilities. See IRM 4.10.1.6.8,Separate Notice Requirements for Joint Returns for more information.

4.18.6.8  (12-28-2010)
Fraudulent and False Statements

  1. IRC 7206(5) provides for penalties (imprisonment and fines) for fraudulent and false statements applicable to compromise (and closing agreements). If an examiner believes fraudulent and false statements were made in submission of the offer, the Fraud Referral Specialist should be consulted.


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