4.18.7  Special Case Processing

4.18.7.1  (01-04-2011)
Offer-in-Compromise (OIC) Filed During the Audit

  1. This section provides procedures for consideration and processing of Form 656, Offers-in-Compromise, "Doubt as to Collectibility" or "Effective Tax Administration" filed during an examination.

  2. While Collection has jurisdictional responsibility for offers based on doubt as to collectibility and effective tax administration, examiners play a role in the processing of offers. Policy Statement P-5-100, IRM 1.2.14.1.17, Policy Statements for Collecting Process Activities. provides that in cases where an Offer-In-Compromise (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. This generally should not occur until the examiner has already made a determination of the proper amount of tax liability/deficiency.

  3. Examiners must exercise good judgment in identifying when an offer in compromise represents the best means to resolve a deficiency. The primary objective is to secure full payment of the deficiency. However, when the examiner identifies an offer as the best alternative for securing payment, a discussion of collectibility concerns will take place between the examiner and his/her group manager prior to initiating a discussion of the offer alternative with the taxpayer. A comment regarding this discussion and applicability of limited scope procedures will be made in the Risk Analysis workpapers.

  4. The taxpayer may submit an offer to the examiner during the course of the examination or at the conclusion of the examination. Upon receipt of the offer, the examiner will date stamp page 1 of Form 656 in the upper right-hand corner and will review all forms for completeness prior to forwarding to Centralized Offer in Compromise (COIC). The offer should be forwarded to the COIC unit within three calendar days of receipt. Form 656, instructions provide the mailing address.

    Note:

    The OIC should include the application fee and TIPRA payment or Form 656-A.

  5. The examiner will not sign the Offer in Compromise, Form 656.

  6. To provide better service to the taxpayer the examiner will perform a cursory review to expedite processing of the offer. The examiner should ensure the offer package is complete as required on Form 656, and includes the following:

    1. Full identification of taxpayer: name, address, social security number or employer identification number; both taxpayer names and signatures in instances of a joint liability offer;

    2. Identification of the liability (type of tax);

    3. Amount and terms of the offer;

    4. Appropriate signature(s);

    5. Basis for compromise;

    6. Completed Form 433-A, Collection Information Statement for Wage Earners & Self-Employed Individuals , and/or Form 433-B, Collection Information Statement for Businesses;

    7. Minimum of equity in assets offered;

    8. All outstanding liabilities and tax periods included.

    9. Application fee and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) payment or Form 656-A, Income Certification for Offer in Compromise Application Fee (For Individual Taxpayer Only).

      Note:

      The Tax Increase Prevention and Reconciliation Act of 2005, was signed into law on May 17, 2006. Section 509 of this law creates significant changes to the IRS Offer in Compromise (OIC) program by amending IRC 7122. The law became effective for all offers that are submitted to the IRS on, or after July 16, 2006.

  7. If the examination is not complete and the examiner and group manager concur that a legitimate collectibility concern exists, the limited scope examination procedures may be applied. Otherwise the examination should continue and issues resolved as normal.

  8. If agreement is obtained, the case will be closed following existing procedures. The Collection employee handling the OIC case will be provided a copy of the audit report.

  9. Examiners should not solicit and obtain conditional agreements wherein the taxpayer only agrees to the proposed tax with the condition that an offer in compromise simultaneously submitted (doubt as to collectibility) is accepted.

  10. If agreement is not obtained, the case will be closed following normal unagreed procedures. Such action must clearly be communicated to the Collection employee handling the OIC case. The taxpayer's submission of the offer should be postponed until final resolution of the issues and resulting liability; the taxpayer loses his right to appeal the issues if the offer is accepted by Collection.

  11. If the taxpayer submits the offer directly to Collection during the course of an audit, Collection should determine whether any years are being examined and if so, contact the examiner for further coordination.

  12. If an offer is to be accepted by Collection, an acceptance letter cannot be mailed to the taxpayer until an assessment of the liability has been made. To obtain a quick assessment of the liability, Form 3198, Special Handling Notice, must be annotated in the "other" section, "Prompt Assessment Request—Offer Pending in Collection" by the examiner in field exam.

  13. While the offer is under consideration, the taxpayer will not receive notices requesting payment.

4.18.7.2  (01-04-2011)
Federal Employees/Retiree Delinquency Initiative

  1. Offers in Compromise submitted by Federal retirees are considered and evaluated through normal offer processing.

  2. Offers submitted by Federal employees will be considered. However, due to the sensitivity associated with the acceptance of an offer in compromise from a Federal employee, public policy implications must be considered in all cases. Local management will make the determination based on the facts and circumstances of each case. See IRM 1.2.44.2, Delegation Order 5.1 (Rev. 3), regarding level of approval required to accept or reject an offer in compromise.

4.18.7.3  (01-04-2011)
Collateral Agreements

  1. When the Campus, Examination Branch, checks compliance with the terms of future income or other collateral agreements, the complete files with related returns may be referred to Area Examination for follow-up action to determine if the taxpayer has complied with the collateral agreement obtained as part of an OIC acceptance. A collateral agreement may involve a waiver of a future deduction arising from net operating losses or capital loss carryforward arising in prior years. See IRM 5.8.6, Collateral Agreements.

4.18.7.4  (01-04-2011)
Offers Under Office of Appeals Jurisdiction

  1. A taxpayer may submit an offer to the Appeals function during a Collection Due Process (CDP) or an equivalent proceeding, to exercise their rights granted under IRC 6330 and IRC 6320. The Office of Appeals has statutory jurisdiction of such offers, whether submitted on the basis of doubt as to liability, doubt as to collectibility, or effective tax administration.

  2. The Office of Appeals also has jurisdiction over doubt as to liability offers where the assessment was previously determined by Appeals. This includes Trust Fund Recovery Penalty and Personal Liability for Excise Taxes that were determined in Appeals. These offers should be forwarded to COIC for processing. COIC will forward the OIC to Appeals if Appeals has jurisdiction.

4.18.7.4.1  (01-04-2011)
CDP and Equivalent Hearing Appeal Offer Processing

  1. If an offer, regardless of the basis, is received in Appeals during a CDP or Equivalent Hearing (EH), the office of Appeals may request the Area Director to conduct any investigation deemed necessary to reach a conclusion on the merits of the case.

  2. An Appeals Referral Investigation (ARI) will be forwarded to the PSP OIC Coordinator for doubt as to liability offers submitted to Appeals under a CDP or an equivalent proceeding. The ARI will request Examination to verify the validity of the tax assessment. Examination action should be initiated within 30 days and monthly contact should be maintained with Appeals to inform them of the status and projected completion date.

  3. Area Examination will neither accept nor reject these offers and may not even receive a copy of the Form 656-L in question. Instead, Area Examination will provide a report of facts regarding the accuracy of the tax and include sufficient supporting documentation to enable Appeals to reach a determination as to whether the offer should be accepted or rejected.

  4. These cases are handled/controlled as referrals from Appeals rather than controlled as OIC Doubt as to Liability (DATL) cases.

  5. If information from the taxpayer is needed, and the taxpayer does not provide the information necessary to complete the investigation, he/she will be notified by letter that additional information is needed and allowed 14 days to respond. If no response to the request is received, a second request will be issued within 10 days of the initial response date, and the taxpayer will be allowed an additional 14 days for a response. If no response to the second request is received, the ARI will be returned to Appeals.


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