5.8.1  Overview

Manual Transmittal

June 24, 2013

Purpose

(1) This transmits a revision for IRM 5.8, Offer in Compromise, Section 1 — Overview

Material Changes

(1) Throughout this section changed the reference to 656-A Waiver to Low Income Certification in alignment with the May 2012, revision of the Form 656.

(2) Revisions

IRM Reference Changes
5.8.1.5(1) (June 2013) Editorial change to correct IRM reference 5.8.4.21.2 to the correct reference of 5.8.4.23.
5.8.1.8(1) (June 2013) Editorial change - Idaho incorrectly listed in both bullets. Changed in 2nd bullet the reference to the State of Idaho to the State of Iowa.
5.8.1.1 (3) New paragraph referencing Exhibit 5.8.1-1 for a list of common abbreviations.
5.8.1.1.2 (3) Changed Delegation Order to Revision 3 and added a reference to the Delegation Order IRM 1.2.44, Delegation of Authorities for the Collection Process. Delegates the Commissioner's authority to accept, reject, terminate, or acknowledge withdrawals of OICs.
5.8.1.1.3 (1) Added a reference to IRM 1.2.14.1.17, Policy Statement P-5-100. Also, defined a protracted installment agreement as one that extends beyond the Collection Statute Expiration Date.
(2) Defines accepted offers as one that is a viable solution to a tax delinquency.
(3) Defines of a successful program as one where the taxpayer makes an adequate compromise proposal consistent with their ability to pay and the Service makes prompt and reasonable decisions.
(4) States that if it is believed that the liability can be paid in a lump sum or by installment agreement extending through the remaining statutory period or other means of collection, an offer will not be accepted. special circumstances.
(5) States that in most cases, when the offered amount exceeds the RCP, the acceptance should be for the amount offered.
5.8.1.1.5 (1) Changed the Notice 2006-31 I.R.C. 105 to Notice 2006–2 B. 105.
5.8.1.3.1 Changed all references to Technical Services to Advisory.
(1) c) Changed the reference to local Counsel to Area Counsel. Also corrected the reference to Closing Code (CC) 180 - 189 to Action Code (AC).
(1) d) Changed the language to state the IRS has referred to the DOJ for civil or criminal case for prosecution or defense.
(1) f) States if the offer is returned based on (a) through (d) above, all payments should be applied in accordance with guidelines established by TIPRA.
Eliminated (4) as this was a duplicate of prior language.
5.8.1.3.2 Changed the title to Docketed "Tax" Court Cases.
5.8.1.3.4 Removed language that DATL only offers are not controlled on AOIC. All DATL cases are now controlled and tracked on AOIC.
(1) Added a reference to IRM 4.18.2.3, Jurisdiction — Doubt as to Liability.
5.8.1.3.5 Changed all reference that Appeals investigates offers to "Appeals develop" offers.
5.8.1.3.6 (1) Added language that $50,000 or greater is at the time of submission.
5.8.1.3.7 (3) Changed the effective date of NTA and Commissioner agreement to May 31, 2011.
(4) a) Added language that the an OAR should include a requested completion date.
(5) e) States if the completion date cannot be met, refer to the SLA for how to proceed.
(6) Changed the website to http://tas.web.irs.gov located in the TAS favorite section to see the full SLA - Service Level Agreement.
5.8.1.4 (1) Added a reference to IRM 5.8.11 for a definition of ETA.
5.8.1.4.1 Changed the title from Taxes, Penalties, and Interest Constitute One Liability to "Definition of a Compromised Liability" .
5.8.1.5 Split this section out and added new references to exceptions to consideration of an offer. Title is now Exceptions to Liabilities to be Compromised.
5.8.1.5.1 (1) Defined an unassessed liability as one that has not been assessed due to non-filing situations. Added note stating that the Service will consider an offer with an open, unassessed liability under Examination or AUR.
(3) New paragraph stating that an OE/OS should continue to investigate and may accept an offer when the taxpayer has submitted a tax return for which there may be a refund or an assessment. Added a note that this only applies to tax years not listed on the Form 656.
5.8.1.5.3 (1) Added language that the Secretary of Treasury is not authorized to compromise non-tax liabilities. Also added a note that states consideration of the OIC may continue after removing the non-tax liability.
5.8.1.5.4 (4) Added a reference to IRM 21.4.5.4, Erroneous Refund Categories and Procedures. Added descriptions of the types of credits identified as a Category D erroneous refund
(5) Discusses how Category D refunds may be recovered.
5.8.1.5.5 New section identifying Child Support Obligations as a liability that cannot be compromised.
5.8.1.5.6 New section identifying offers from a minor child as a liability that cannot be compromised.
5.8.1.8 Changed the State realignment with the release of Form 656 (Rev. 5-2012).
5.8.1.8.1 (2) Removed the requirement to include ICS history in the case file.
5.8.1.8.2 (1) Corrected the PO Box number for submission of a DATL OIC for other than TFRP or PLET.
5.8.1.9 (2) Added a note defining the low income certification applies to individuals and sole proprietorships. Corporations, partnerships, or other non-individual entities are excluded.
5.8.1.9.2 (2) Defined when a taxpayer submits a Form 656-L, DATL will be the only basis considered.
(3) If a taxpayer submits a DATC/ETA and DATL offer concurrently, contact must be made to determine which one the taxpayer wants considered. Only one basis can be considered at a time.
5.8.1.9.4 (3) a) and b) Changed the definition of the payment terms to Lump Sum Offer and Periodic Payment Offer to coincide with the revision of the Form 656.
(3) b) Added an example of a periodic payment offer.
5.8.1.9.8 (3) Previously (6) states that the case file should include a copy of a properly executed form 2848, 8821, or verified CFINQ print.
(4) Added language that confirmation of the fax sender's identity may be verified after receipt of the Form 656.
5.8.1.10 Removed (1) as duplicate language.
(1) Added language in stating that collection by levy was prohibited while the offer is pending unless collection is in jeopardy and for 30 days thereafter if the offer is rejected, and while an appeal is pending.
(2) Added IRM reference 1.2.13.1.27, Policy Statement 4-88.
(5) Added a statement that a NFTL will not be filed until a final determination has been made, unless a jeopardy situation exists.
(7) Updated IRM reference for Combat Zone Freeze Codes (5.19.10.6.3).
5.8.1.12 (1) Corrected grammatical error.

Effect on Other Documents

This material supersedes IRM 5.8.1, dated 03–16–2010.

Audience

SB/SE Collection and Campus Compliance employees.

Effective Date

(06-24-2013)


Scott D. Reisher
Director Collection Policy

5.8.1.1  (02-26-2013)
Introduction

  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.

5.8.1.1.1  (09-23-2008)
Definition

  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.

5.8.1.1.2  (02-26-2013)
Authority

  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.

5.8.1.1.3  (02-26-2013)
Policy

  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.

5.8.1.1.4  (09-23-2008)
Objectives

  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.

5.8.1.1.5  (02-26-2013)
Process

  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.

5.8.1.2  (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.

5.8.1.3  (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.

5.8.1.3.1  (02-26-2013)
Tax Cases Controlled by Department of Justice

  1. The IRS may not have the authority to accept an OIC when:

    1. 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).

    2. 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.

    3. 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.

    4. The IRS has referred to the DOJ the taxpayer's civil or criminal case for prosecution or defense.

    5. 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.

5.8.1.3.2  (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 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.

5.8.1.3.3  (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.

5.8.1.3.4  (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 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.

5.8.1.3.5  (02-26-2013)
Appeals

  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.

5.8.1.3.6  (02-26-2013)
Counsel

  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.

5.8.1.3.7  (02-26-2013)
Taxpayer Advocate Service

  1. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

  2. The National Taxpayer Advocate and the Commissioner, SB/SE Division have reached an agreement (effective May 31, 2011) outlining the procedures and responsibilities for processing TAS casework when either the statutory or delegated authority to complete a case transaction rests with the SB/SE Division. The agreement is known as a Service Level Agreement (SLA).

  3. In preparation for a case being referred to a SB/SE Division function, the TAS employee is responsible for:

    1. Preparing Form 12412, Operations Assistance Request (OAR). The form should include a requested completion date.

    2. Securing all necessary supporting documentation.

    3. Identifying cases that require expedite processing. No case will automatically receive expedite processing; requests for expedite processing will be made on a case-by-case basis.

    4. Forwarding Form 12412 and documentation to the SB/SE Business Unit Liaison.

  4. SB/SE Division is responsible for:

    1. Assisting a liaison in each office or Campus where a Taxpayer Advocate is located.

    2. Acknowledging receipt of the case within one workday for cases requiring expedite processing or within three workdays for all other cases.

    3. Responding to TAS within three (3) workdays in writing, via facsimile, secure messaging email, or hand delivery of resolution.

    4. Providing TAS with the name and telephone number of the SB/SE group manager or employee assigned the case.

    5. If the requested completion date cannot be met, refer to the SLA for how to proceed.

    6. Upon closing of the Operations Assistance Request (OAR), the SB/SE employee assigned the OAR will complete Section VI of Form 12412, Operations Assistance Request, and return it to the TAS employee assigned the case. The Form 12412 must be returned within three workdays from the date that all actions have been completed and transactions input.

  5. To see the full SLA, click on the link SLA - Service Level Agreements found at http://tas.web.irs.gov in the TAS Favorites section of the page.

5.8.1.4  (02-26-2013)
Liabilities to be Compromised

  1. Offers accepted based on DATC or ETA should include all unpaid tax liabilities and periods for which the taxpayer is liable. See IRM 5.8.11 for a definition of ETA.

  2. Offers accepted based on DATL should only include the tax years or periods in question. Liabilities for other tax periods should not be included in the offer.

5.8.1.4.1  (02-26-2013)
Definition of a Compromised Liability

  1. An OIC is effective for the entire assessed liability for tax, penalties, and interest for the years or periods covered by the offer. All questions of tax liability for the years or periods covered by the agreement are conclusively settled. Neither the taxpayer nor the government can reopen a compromised tax year or period unless there was falsification of information or documents, concealment of ability to pay and/or assets, or a mutual mistake of a material fact that would be sufficient to cause the agreement to be set aside or reformed.

5.8.1.5  (06-24-2013)
Exceptions to Liabilities to be Compromised

  1. An OIC may not be appropriate in the following situations. As always, each case must be evaluated on its own merit before returning an offer under the identified basis. If appropriate, the offer may be returned without further consideration or investigation. See IRM 5.8.4.23, Other Cases, for additional information on liabilities that may be considered during an offer investigation.

5.8.1.5.1  (02-26-2013)
Unassessed Liability

  1. The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed due to non-filing situations, unless IDRS indicates a return has been received or an assessment is pending.

    Note:

    The Service may consider an offer with an open, unassessed liability(ies) under Examination or Automated Underreporter (AUR). See IRM 5.8.4.15, Coordination of Offer Investigations, for additional instruction.

  2. Taxpayers may submit, and the Service will consider, an offer to compromise taxes due on tax returns that have been filed but have not yet been assessed when unpaid liabilities already exist on IDRS. However, before the offer can be accepted, unassessed taxes should be assessed.

  3. OE/OS should continue to investigate, and may accept, an offer when the taxpayer has submitted a tax return for which there may be a refund or an assessment. If the offer is accepted, document the AOIC Remarks to alert MOIC of the possible assessment or refund.

    Note:

    This only applies to tax years not listed on the Form 656.

  4. If IDRS does not indicate a return has been received, an assessment or refund is pending, or unpaid liabilities already exist, the offer should be returned to the taxpayer.

5.8.1.5.2  (02-26-2013)
Expired Liability

  1. An OIC will not be accepted on any tax liability that has become unenforceable due to the expiration of the statutory period for collecting the debt.

  2. If a taxpayer makes a voluntary payment to a liability barred by statute, inform the taxpayer that the payment is not required and ask if they want the payment applied to the account or returned. The taxpayer must be advised that the payment is purely voluntary. If the taxpayer’s intentions cannot be determined, return the payment to the taxpayer.

  3. Document the case history.

5.8.1.5.3  (02-26-2013)
Non-Tax Liability

  1. IRC Section § 6305 requires the Secretary of the Treasury to assess and collect certain child support obligations certified by the Secretary of Health and Human Services. These liabilities are identified on the non-master file with a master file tax code (MFT) of 59. The Secretary of the Treasury is not authorized to compromise these liabilities.

    Note:

    Consideration of the OIC may continue after removing the non-tax liability (from AOIC) under IRC Section § 6305 MFT 59.

  2. The individual may seek to pursue any available, equitable, or administrative action in a state court or before a state agency to determine the correct liability or to recover an amount collected under this section.

5.8.1.5.4  (02-26-2013)
Erroneous Refund (Category D)

  1. IRM 21.4.5.1 defines an erroneous refund as "the receipt of any money from the Service to which the recipient is not entitled" . Definitions of the categories of an erroneous refund may be found in IRM 21.4.5.4. These cases may be identified by the following transaction codes:

    • Transaction code 844 (generates the –U freeze)

    • Transaction code 700 with a document code 58 and blocking series 950 – 999

    • Transaction code 470 closing code 93

  2. If an erroneous refund is discovered and there are less than two years remaining on the collection statute, COIC should prepare a Form 4844 to forward to Accounts Management. Field offer groups should contact Collection Case Processing (CCP), to ensure the appropriate codes are input and the modules are referred to Accounting.

  3. If an OIC is submitted, the offer will be returned to the taxpayer and closed as a processable return. See IRM 5.8.7 for additional information on closing a case as a processable return.

  4. These refunds are defined as erroneous refunds that do not fall under any other category where the ASED has expired but the ERSED remains open.

    Example:

    (1) Misapplied Payments: A payment is misapplied to the wrong TIN, overpays the account and generates an erroneous refund; (2) A taxpayer receives both a manual refund (TC 840) and generated refund (TC 846); (3) A taxpayer files a non-receipt claim on a refund check and receives a replacement check. The taxpayer cashes both checks; (4) A direct deposit is applied to the wrong taxpayer's bank account (unintended recipient) due to IRS error; (5) A refund of court ordered restitution.

  5. These refunds can only be recovered by an erroneous refund lawsuit, refund offset or voluntary repayment. Administrative collection actions such as the issuance of a lien or a levy cannot be taken to recover Category D erroneous refunds. If an OIC is submitted, the offer will be returned to the taxpayer and closed as a processable return.

  6. All fees and payments received should be applied to the liability(s) in accordance to current TIPRA procedures. See IRM 5.8.4 for additional information.

  7. If the erroneous refund was due to identity theft or practitioner fraud or misconduct, refer to IRM 5.8.4.23.8, Identity Theft, and IRM 5.8.4.23.9, Return Preparer Fraud or Misconduct, for additional information.

5.8.1.5.5  (02-26-2013)
Child Support Obligations

  1. While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise them. These accounts are identified on the Non-Master-File with an MFT code of 59.

  2. If a taxpayer proposes a compromise that includes a child support liability, Service employees should request that the offer be amended to remove the child support obligation. If the offer is to be accepted, the liabilities can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be rejected using the public policy reason and the open paragraph stating that, "We do not have authority to compromise child support obligations" and close the case as a processable return following procedures defined in IRM 5.8.7.

5.8.1.5.6  (02-26-2013)
Offers from a Minor Child

  1. Section § 7122 and the regulations govern the formation and legal effect of OICs. The courts also apply generally applicable principles of contract law. Under these principles, a minor child does not possess the legal capacity to form a binding contract and in turn has the power to repudiate or disaffirm most contractual obligations. A minor child would also have the ability to repudiate or disaffirm a compromise signed on behalf of the minor child by a parent or power of attorney. Notice 89-7 states, "a parent or guardian named in Form 2848-D may not legally bind the child with respect to a tax liability unless authorized to do so by the law of the state in which the child resides" .

  2. Because a compromise under Section § 7122 may not legally bind a minor, it is recommended that the Service not enter into compromises with minors or with a parent on behalf of a minor. In these cases, the offer will be returned as a processable return as defined in IRM 5.8.7.

5.8.1.6  (03-16-2010)
Application Fee

  1. Effective November 1, 2003, the Service began charging an application fee for offers submitted after that date.

  2. The application fee applies only to certain offers processed under Section § 7122. It does not apply to offers in settlement under the jurisdiction of the DOJ.

5.8.1.7  (02-26-2013)
The Tax Increase Prevention and Reconciliation Act of 2005

  1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted on May 17, 2006. TIPRA made major changes to the OIC program effective for all OICs received by the IRS on or after July 16, 2006.

  2. Taxpayers submitting requests for lump sum cash offers must include with the offer a payment equal to 20% of the offer amount. The payment is treated as a payment of tax and is nonrefundable. That is, it will not be returned even if the offer is deemed to be not processable, later returned, withdrawn, terminated, or rejected. A lump sum cash offer means any offer of payments made in five or fewer installments.

  3. Taxpayers submitting requests for periodic payment offers must include the first proposed installment payment with their offer. A periodic payment offer is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. All installment payments are nonrefundable, even if the offer is deemed not processable, later returned or rejected.

  4. Under TIPRA, taxpayers who qualify as low-income, based on current criteria, and check the box in Section 4 on Form 656, are not required to submit the application fee or any TIPRA payment(s) while the OIC is being investigated.

  5. If the IRS does not make a determination on an OIC within 24 months, the OIC will be deemed accepted. If a liability included in the offer amount is disputed in any court proceeding, that time period is omitted from the calculation of the two-year period. Once a determination letter is issued by the offer examiner or offer specialist, the 24-month time frame will be considered stopped.

5.8.1.8  (06-24-2013)
Initial Receipt of Offers

  1. All initial offer receipts that are submitted based on DATC, ETA, or DATL for either TFRP or PLET must be processed by the appropriate COIC site, based on the taxpayer's state of residence.

    • If the taxpayer resides in Alaska, Alabama, Arkansas, Arizona, Colorado, Florida, Georgia, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, North Carolina, New Mexico, Nevada, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin, or Wyoming, the offer will be processed by the Memphis COIC Unit.

    • If the taxpayer resides in California, Connecticut, Delaware, Iowa, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, North Dakota, Nebraska, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Dakota, Vermont, Virginia, West Virginia, District of Columbia, Puerto Rico, or a foreign address the offer will be processed by the Brookhaven COIC Unit.

5.8.1.8.1  (02-26-2013)
Initial Receipts of Offers Received Elsewhere in the Service

  1. Offers that are received elsewhere by a Service employee must be immediately date stamped and forwarded to their respective COIC site for processing within 24 hours of receipt of the Form 656, Offer in Compromise.

  2. When an offer is received on an assigned case by a field revenue officer (RO), Form 657, Offer in Compromise Revenue Officer Report, must be completed and attached to the offer package. This form is to be signed by the RO and approved by the manager. The RO should retain all information related to the collection case and forward only the following information to COIC:

    • Form 656, Offer in Compromise

    • Form 657, Offer in Compromise/Revenue Officer Report

    • Collection Information Statement (CIS) with attached substantiation

    • Current Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization, if applicable

    • Any information gathered during the field investigation that verifies or refutes amounts claimed on the CIS submitted with the offer

    • Application fee and any applicable TIPRA payments (20% of offer amount for lump sum cash offers or first proposed payment for periodic payment offers)

  3. The above information should be transmitted to the appropriate COIC site using Form 3210, Document Transmittal, and must be sent by traceable methods if an application fee and/or payment is attached.

5.8.1.8.2  (02-26-2013)
Receipt of Doubt as to Liability Offers (Other than PLET or TFRP)

  1. DATL offers, other than for PLET or TFRP, must be submitted on a Form 656-L, Offer in Compromise (Doubt as to Liability), and forwarded to the centralized DATL processing unit located at the Brookhaven campus for screening and processing. The offer should be immediately forwarded using the Form 3210, Document Transmittal, to:

    Internal Revenue Service
    Centralized DATL Unit
    P.O. Box 480 Stop 662
    Holtsville, NY 11742–0480

5.8.1.9  (02-26-2013)
Form 656, Offer in Compromise

  1. OIC requests are submitted on Form 656, Offer in Compromise, using the most current version. Computer generated or photocopied versions of Form 656, Offer in Compromise, are also acceptable provided they contain the following statement: "I/we affirm that this form is a verbatim duplicate of the official Form 656, and I/we agree to be bound by all terms and conditions set forth in the official Form 656."

  2. The Form 656-B (Booklet), Offer in Compromise, provides detailed instructions for completing an offer and includes all of the necessary financial forms. When submitting Form 656, taxpayers must include an application fee of $150 and the required TIPRA payment, depending on the type of offer, unless they qualify for the low-income certification or are filing a DATL offer.

    Note:

    Low income certification applies to individuals and sole proprietorships. Corporations, partnerships, or other non-individual entities are excluded.

  3. Offers submitted on the basis of DATC or ETA should include a current version of the collection information statement. For offers based solely on DATL, no collection information statement is required. However, the taxpayer must include a written statement explaining why the liability is incorrect and must include a statement addressing the validity of the actual assessment(s) or a portion of the assessment(s).

5.8.1.9.1  (03-16-2010)
Name and Address of Taxpayer

  1. The full name, address, Social Security Number, Employer Identification Number, and/or Individual Taxpayer Identification Number (ITIN) of the taxpayer must be entered on Form 656. If the taxpayer(s) uses a mailing address that is different from the street address, the physical address must be included as well.

5.8.1.9.2  (02-26-2013)
Basis for Compromise

  1. When submitting an offer, taxpayers must indicate the basis(es) upon which they propose to compromise: DATC and/or to promote ETA.

  2. If the taxpayer submits a Form 656-L, the basis for compromise will be DATL only.

  3. If a taxpayer submits a DATC/ETA and DATL offer concurrently, contact must be made to ask the taxpayer which offer they would like considered. Only one basis can be considered at a time. The OE/OS will consider the DATL or the DATC/ETA offer but not both concurrently. See IRM 5.8.10.13 if a taxpayer submits a DATC/ETA and DATL offer concurrently.

5.8.1.9.3  (03-16-2010)
Amount Offered

  1. The total amount of money offered must be indicated and must be more than zero. The amount offered may not include money already paid, expected future refunds, funds attached by levy, or anticipated benefits from capital/net operating losses.

5.8.1.9.4  (02-26-2013)
Payments

  1. Taxpayers are expected to pay the entire amount offered in as short a time as reasonably possible. Acceptable offer payment terms should be determined by the OE or the OS and should not be limited to the proposal of the taxpayer.

  2. The amounts and due dates of payments must be specified.

  3. There are two types of payment terms offered on the Form 656 that the Service and the taxpayer may agree to:

    1. Lump Sum Offer — As amended, Section § 7122 provides that a lump-sum offer (one payable in five or fewer installments) must be accompanied by the payment of 20% of the amount of the offer.

    2. Periodic Payment Offer — Section § 7122 also provides that a periodic payment offer (one payable in six or more installments) must be accompanied by the payment of the amount of the first proposed installment and additional installments must be paid while the offer is being evaluated by the Internal Revenue Service. The total installments may not exceed 24 months.

      Note:

      If an amended offer is secured, the 24-month installment period begins the date the offer is accepted.

      Example:

      A taxpayer submits an offer for $10,000, payable in installments of $100 every month with the balance due on the 24th month after acceptance. The IRS received date is January 15, 2010. The taxpayer’s offer was accepted in November 2010, and the taxpayer remained current on all required payments during the investigation. The taxpayer has 24 months from the date of acceptance to complete the terms of the offer. The accepted terms were for $100 due on the 24th of every month for 23 months and the balance of $6,200 due the 24th month ($10,000 less $3,800 [$3,300 in installments plus $500 paid during the investigation]). No adjustments to the terms would be required.

  4. A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund. Once the offer has been accepted, the funds are applied in the governments best interest and the taxpayer no longer has the right to designate payments.

    Note:

    Pre-acceptance payments designated to the trust fund portion of a liability must be posted using Designated Payment Code (DPC) 02.

  5. The application fee may not be designated.

5.8.1.9.5  (03-16-2010)
Standard Conditions

  1. Taxpayers must agree to all the standard conditions of the agreement as they are printed on the Form 656.

  2. Offers accepted under DATL or ETA based on Public Policy/Equity are not subject to the waiver of refund condition. See IRM 5.8.11, Effective Tax Administration, discussing public policy/equity offers.

  3. If the taxpayer submitted the Form 656 altering any of the provisions of Form 656, Section 8, the offer should be immediately deemed a processable return based on an altered Form 656.

5.8.1.9.6  (03-16-2010)
Total Liability

  1. Each separate tax period and type of tax must be indicated on the Form 656. TFRP assessments made prior to August 2000, will be assessed on the last quarter only, while those made after August 2000, will include an assessment for each quarter. Verification on IDRS will be required to determine how the assessment was completed.

  2. Taxpayer may submit an offer that does not include all outstanding liabilities. Prior to accepting the offer, the OE/OS must include all outstanding liabilities on the Form 656 and make sure they are included on AOIC. No amended Form 656 is required.

  3. An offer submitted on Form 656-L, under DATL criteria, will be accepted for only the tax periods that are in question.

5.8.1.9.7  (03-16-2010)
Explanation of Circumstances

  1. Taxpayers may use the designated space on the Form 656, Offer in Compromise, or attach a separate statement to explain why they are submitting the offer.

  2. If a special circumstance exists, the taxpayer should explain the situation and include all supporting documents to assist in verification of the special circumstance that is being claimed.

5.8.1.9.8  (02-26-2013)
Signatures

  1. Each taxpayer that is party to an OIC should personally sign the Form 656. When unusual circumstances prevent this (e.g., the taxpayer is incapacitated), an authorized representative may sign for the taxpayer.

  2. In the case of joint OICs, all parties, or their designated representative as explained above, must sign the Form 656 to ensure the provisions of the agreement bind all parties.

  3. The case file should include a copy of the properly executed Form 2848, Power of Attorney and Declaration of Representative, Form 8821, Tax Information Authorization; or verified CFINQ print as verification of the representative's authority.

    Note:

    Geographic distance between the representative and the taxpayer is not an acceptable reason for a representative to sign on the taxpayer's behalf.

  4. The Form 656 may be accepted by fax if there is an open offer and if contact has been made with the taxpayer by phone or in-person and the taxpayer history file is documented with the date of contact and notation is made that the taxpayer wishes to send the document/form/letter by fax. Confirmation of the fax sender's identity may be verified after receipt of the Form 656.

  5. A Form 656 signed with an "X " must also include signature of a witness.

  6. A Form 656 digitally signed may be worked through evaluation; however, an original signature must be secured prior to acceptance.

  7. Since the CIS requires certification under penalty of perjury, the taxpayer(s) must personally sign the Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or 433-B (OIC), Collection Information Statement for Businesses.

  8. Offers submitted for corporations should reflect the corporate name on the first signature line of the Form 656. The signature name and title of the authorized officer should be reflected on the second line of the Form 656.

  9. An offer submitted by the fiduciary of an estate of a deceased taxpayer will be binding on the taxpayer's estate to the extent that it would be binding on a taxpayer who submits an offer on their own behalf. Include in the case file a copy of the fiduciary's appointment document.

  10. If an offer is submitted on behalf of a deceased taxpayer, when there is no estate, the individual who signs the offer must have authority. This authority can be designated by a will appointing that individual as the executor or by written authorization from the probate court.

5.8.1.10  (02-26-2013)
Withholding Collection

  1. For offers pending on or after December 31, 1999, collection by levy on property owned by the offer taxpayer is prohibited while the offer is pending unless collection is in jeopardy and for 30 days thereafter if the offer is rejected. If the taxpayer appeals the rejection of the offer, levy is also prohibited while the appeal is pending.

  2. The term jeopardy is defined in Policy Statement P-4-88. Collection is not considered to be in jeopardy because an undisclosed asset was discovered during the investigation. See IRM 1.2.13.1.27, Policy Statement 4–88.

  3. Upon receiving information that a jeopardy levy has been approved, contact the employee issuing the levy. If it is agreed that the offer was filed to hinder or delay collection, follow procedures in IRM 5.8.4 (Solely to Delay) to return the offer.

  4. The prohibition on levy does not require release of a levy that was served prior to the offer submission. The taxpayer's circumstances should be considered when making a determination to release a levy or keep it in place while the offer is pending.

    Note:

    Collection by levy is not prohibited (and the collection statute is not suspended) if the taxpayer has filed a written notice waiving the restrictions on levy. However, if the taxpayer submitted the Form 656 altering any of the provisions of Form 656, Section 8, the offer should be immediately deemed a processable return based on an altered Form 656.

  5. While an offer is pending there is no prohibition on filing Notices of Federal Tax Lien. See IRM 5.8.4.13, Notice of Federal Tax Lien Filing, for a discussion of filing a Notice of Federal Tax Lien while an offer is pending. However, unless a jeopardy situation exists, a request for Notice of Federal Tax Lien will usually not be made until a final determination has been made on the offer.

  6. All collection action must be suspended when a taxpayer is identified as being located in a Combat Zone (CZ) area. This action includes filing of a Notice of Federal Tax Lien. See IRM 5.8.3 for Combat Zone processing and IRM 5.19.10.6.3 Combat Zone Freeze Codes, for additional information.

5.8.1.11  (03-16-2010)
Interest on Compromise Amount

  1. For all offers accepted after December 31, 1999, interest on the compromise amount is also compromised.

  2. For all offers accepted before January 1, 2000, on Form 656 revisions prior to 1-2000, interest continues to accrue until the compromise amount is paid in full.

5.8.1.12  (03-16-2010)
Effect on Previous Offers on Collection Statute

  1. Over the years various changes in the tax law have had an effect on the statutory collection period. See IRM 5.8.10, Special Case Processing, for additional guidance.

Exhibit 5.8.1-1 
Common Abbreviations Used in the IRM

Below is a list of common abbreviations used throughout this IRM.

AET – Asset Equity Table – A table listing all the taxpayers assets, encumbrances, and exemptions. It then calculates the equity which is included in the reasonable collection potential (RCP) calculation.

AOIC – Automated Offer in Compromise – Computer application where offers in compromise are recorded and monitored from receipt to closure. History of the offer investigations conducted by COIC employees and of actions taken by Monitoring OIC (MOIC) units are also maintained on this system.

ARI – Appeals Referral Investigation – A request from Appeals for assistance from the appropriate Collection function on verifying the accuracy of information reported on a CIS or assistance in completing the offers investigation.

ASED – Assessment Statute Expiration Date – The date the statutory period for assessing tax expires.

ATAT – Abusive Tax Avoidance Transactions – Abusive transactions taken by taxpayers to avoid paying, such as creating trusts, using off shore credit cards, etc.

CDP – Collection Due Process - Allows taxpayers a right to a hearing before Appeals regarding proposed collection enforcement actions or filed Notice of Federal Tax Lien.

CIS – Collection Information Statement – A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer. This financial statement can be submitted on Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B (OIC), Collection Information Statement for Businesses.

COIC – Centralized Offer in Compromise – Units located in Brookhaven and Memphis campus that complete initial processing and work less complicated offers to completion. Do not confuse this with MOIC – COIC units do not monitor or default accepted offers.

CSED – Collection Statute Expiration Date – The date the statutory period for collecting the tax expires.

DATC – Doubt as to Collectibility – Basis for acceptance of an offer where there is doubt that the tax can be paid in full.

DATL – Doubt as to Liability – Basis for acceptance of an offer where there is doubt that the liability is correct.

DCSC – Doubt as to Collectibility with Special Circumstance – Basis for acceptance of an offer where there is doubt that the tax can be paid in full and special circumstances exist that warrants accepting the offer for less than the reasonable collection potential (RCP).

ETA – Effective Tax Administration – Basis for acceptance of an offer where this is no doubt that the liability is correct or can be paid in full. However, requiring the taxpayer to fully pay the tax would either create an economic hardship or be a public policy/equity issue.

FICA – Future Income Collateral Agreement – An agreement secured in connection with an accepted offer that requires a taxpayer to pay a percentage of future income for a set number of years as additional consideration for acceptance of the offer.

FMV – Fair Market Value – The value a taxpayer would receive if an asset was sold to a willing buyer given time to obtain the best and highest possible price.

IA – Installment Agreement – An agreement under I.R.C. § 6159 to pay the liability over an established period of time.

IAR – Independent Administrative Reviewer – An independent third party who reviews a decision to reject an offer prior to that decision being conveyed to a taxpayer. This person is not in the chain of command of the employees responsible for the rejection of the offer.

IBTF – In Business Trust Fund – A taxpayer who is in business and owes trust fund (e.g. – Form 941) taxes.

ICS – Integrated Collection System – Computer application used by Compliance employees to monitor inventory. Histories of OIC investigations conducted by area office employees are maintained on this system.

IET – Income/Expense Table – A table that lists the income and expenses both claimed and allowed for purposes of calculating reasonable collection potential (RCP).

MOIC – Monitoring OIC Unit – Unit in Compliance Services located in a campus that completes end processing and monitoring of accepted offers.

NFTL – Notice of Federal Tax Lien - The notice of the filed Federal Tax Lien

NRE – Net Realizable Equity – Quick sale value less the amount owed on an asset.

OE – Offer Examiner – A tax examiner appointed as an offer investigator and located in COIC.

OI– Other Investigation – Form 2209, Courtesy Investigation, is used for District investigations in locating taxpayers or to gather information in collecting on assigned cases.

OS – Offer Specialist – A revenue officer appointed as an offer investigator, generally located in an area office.

PE – Process Examiner – A tax examiner who completes initial processability determinations on offers and is located in COIC.

PLET — Personal Liability for Excise Tax – Assessments made on individual taxpayers for withheld excise taxes.

POD – Post of Duty – Internal Revenue Service local office(s).

QSV – Quick Sale Value – The amount that could be obtained if an asset is sold quickly, usually less than FMV.

RCP – Reasonable Collection Potential – The amount that could reasonably be collected from the taxpayer.

TFRP – Trust Fund Recovery Penalty – Assessments made on individual taxpayers for the withheld or trust fund portion of delinquent employment taxes.

TIPRA – Tax Increase Prevention and Reconciliation Act of 2005 – Section 509 – Legislation enacted in May, 2006, which made major changes to the OIC program.


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