5.8.7  Return, Terminate, Withdraw, and Reject Processing

Manual Transmittal

March 07, 2014

Purpose

(1) This transmits a revision for IRM 5.8, Offer in Compromise, Section 7- Return, Terminate, Withdraw, and Reject Processing.

Material Changes

(1) This IRM was updated to incorporate the following changes.

5.8.7.2.2 Updated to include reference to using the addendum to Form 656.
5.8.7.2.2.1 Added reference to look back period when taxpayer has unfiled returns. Updated Submission Processing Site information.
5.8.7.2.2.2 Updated to discuss certain issues relating to the taxpayer's failure to remain current on estimated tax payments.
5.8.7.3.1 Revised to discuss the process to use when reopening an offer based on IRS error.
5.8.7.3.4 Revised to include guidance that a copy of the Form 656 is not required to be sent to the taxpayer when closing return reconsideration cases.
5.8.7.3.4.3 Revised to discuss the process to use when reopening an offer based on IRS error.
5.8.7.4.1 Updated to include appropriate processing when only one taxpayer withdraws from a joint offer.
5.8.7.4.2.1 Added new subsection discussing issues when an amended offer is submitted after the taxpayer fails to make required periodic payments
5.8.7.4.3 Updated to incorporate the ability for certain documents to be signed via electronic methods.
5.8.7.5.1 Updated to incorporate the ability for certain documents to be signed via electronic methods.
5.8.7.7 Updated to remove references to "Screen for Obvious Full Pay" , updated form numbers, and updated discussion on the calculation of RCP..
5.8.7.7.1 Updated to incorporate guidance relative to calculation of RCP.
5.8.7.7.2 Updated to incorporate guidance relative to calculation of RCP.
5.8.7.7.3 Updated to incorporate the ability for certain documents to be signed via electronic methods.
5.8.7.7.5 Updated to provided guidance on when a request for mirroring of an account may be appropriate.
5.8.7.10 Updated to provide additional guidance relative to alternative resolution actions required by the offer specialist and offer examiner. New subsections were added to address specific types of actions.
5.8.7.12 Updated to reference Document 12990 Records and Information Management Record Control Schedules

(2) The reference to the specific $150 application fee was removed, since the application fee amount may be revised in the future. The application fee is now referred to without a dollar amount.

(3) Editorial changes were made throughout to update citations.

Effect on Other Documents

This material supersedes IRM 5.8.7, dated 08/05/2013. This revision incorporates the offer in compromise procedures outlined in interim guidance memorandum number SBSE-05-1213-0101 titled Reissuance of Procedures Relating to Electronic Signature Use on Offer in Compromise Forms and Letters, dated 12/23/2013 and interim guidance memorandum number SBSE-05–1013–0076, titled Offer Investigations - Rejections under Not in the Best Interest of the Government or Public Policy, dated 10/23/2013.

Audience

SB/SE Collection and Campus Compliance employees.

Effective Date

(03-07-2014)

Dretha Barham
Director Collection Policy

5.8.7.1  (09-23-2008)
Overview

  1. Offers that are not recommended for acceptance will be closed by return, rejection, withdrawal, or termination. This section defines the types of dispositions other than acceptance and describes the procedures for completing each type of closure.

5.8.7.2  (03-07-2014)
Returns

  1. An offer can be returned as either a "not processable return" or a "processable return" . It is important to note the distinction because the collection statute is not suspended for a "not processable return" , and the application fee will be refunded.

  2. Review the AOIC record to ensure the information is accurate.

5.8.7.2.1  (03-07-2014)
Not Processable Returns

  1. An offer is determined to be not processable if any of the "Not Processable" criteria listed in IRM 5.8.2.3.1, Determining Processability, is present. This decision is the sole responsibility of the Centralized OIC (COIC) sites located in the Brookhaven and Memphis Campus.

5.8.7.2.2  (03-07-2014)
Processable Returns

  1. Processable returns include all returns made after the offer has been determined to be processable.

  2. A processable return will result in suspension of the collection statute for the period of time the offer was considered processable and will result in the Service keeping the application fee and applicable TIPRA payment(s). A taxpayer whose offer is closed as a return does not receive appeal rights; however different levels of approval exist for some return situations. The Service's return of an offer may be reconsidered in limited situations. See IRM 5.8.7.3 below for reconsideration criteria.

  3. During the offer investigation, there are a number of situations that may result in a processable offer being returned to a taxpayer. During discussion with the taxpayer or if correspondence is sent, the taxpayer should be made aware of all issues which are preventing the offer investigation from proceeding, i.e. the taxpayer may have compliance issues and verification of an expense is required. The following chart lists the reasons a processable offer may be returned and who can authorize the return. Approval authority is outlined in Delegation Order No. 5-1.

    Reason for Return Who has delegated authority to sign the letter?
    Taxpayer filed bankruptcy during a pending investigation. Investigating Process Examiner (PE), Offer Examiner (OE), Offer Specialist (OS)
    Tax is paid, has been abated, or no tax can be identified as owing. Investigating PE, OE, OS
    Taxpayer failed to perfect offer forms necessary to process the offer for consideration. Investigating PE, OE, OS
    Taxpayer failed to perfect offer forms necessary to process the offer for acceptance, such as an amended or related Form 656 or an addendum. Investigating OE, OS
    Failure to remain in filing or payment compliance (including failure to make ES payments), failure to make FTDs during the investigation, failure to provide financial information, failure to make TIPRA payment(s) when submitting a revised offer, incorrectly claiming a waiver from application fee or TIPRA payments, and solely to delay collection considerations. Group Manager in area office and Unit Manager in COIC
    All other return reasons Investigating PE, OE, OS

5.8.7.2.2.1  (03-07-2014)
Return for Filing Compliance

  1. A processable offer must be returned when the investigation reveals the taxpayer has not remained in filing compliance. A reasonable attempt should be made to secure the delinquent return(s) (generally, per IRM 1.2.14.1.18, Policy Statement 5–133, this will not exceed a 6-year lookback period without managerial approval). One attempt should be made by telephone to secure the return(s). If the taxpayer or their representative cannot be reached by telephone a letter should be issued. If the taxpayer fails to submit the delinquent returns or provide a reason for not filing and internal research verifies the returns are not posted or pending, return the offer without further contact. Document the case history with attempts to secure the delinquent returns.

  2. If the current year return has not posted and there is no extension, TC 460, check FFINQ to verify if the return has been received or waiting to be processed. Do not return the offer for non-compliance if indicators on FFINQ show that the return has been received but not processed. If the return has not posted or is not pending and the offer is going to be accepted, schedule follow-ups during the eight week period after the due date of the return or extension and monitor for the posted return or extension. Submission Processing IRM 3.30.123.6.1.6, Domestic Form 1040 Series OTFP (AUSPC, FSPC, KCSPC Only) (Program #s 43110, 43130, 44110, and 47130) Processing Specifications , provides specific dates for the current year processing.

  3. If the AOIC remarks indicates that the processing examiner in COIC issued a Combo Letter requesting delinquent tax returns prior to assignment to the OE/OS and the taxpayer failed to file the requested return(s) or provide a reason for not filing and internal research verifies the returns are not posted or pending, the offer may be returned without any additional contact. See IRM 5.8.4.7 for further instruction. Document the case history.

5.8.7.2.2.2  (03-07-2014)
Return for Inadequate Estimated or Insufficient Withholding Tax Payments

  1. A processable offer must be returned when the investigation reveals the taxpayer does not have sufficient estimated tax paid or income tax withheld to cover the estimate of the current year's tax.

    Example:

    While investigating an OIC on July 16, 2013 which was submitted in January 2013, you should verify the taxpayer has made the required estimated tax payments for the first two quarters of the 2013 tax year.

  2. The requirement to have adequate estimated tax paid prior to acceptance of an offer applies to corporate as well as individual taxpayers.

  3. Who should make estimated tax payments (includes but not limited to)?

    1. A person that is considered to be self-employed is generally required to make estimated tax payments during the tax year. A self employed individual's required estimated tax payments are based on their anticipated tax liability which includes income tax plus self-employment tax based on the taxpayer's self-employment income.

      Note:

      See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.

    2. A person who receives retirement income (IRA, 401k, SSA, etc.), yet does not have sufficient withholding based on their anticipated tax liability.

  4. How much is due and when should the payment(s) be made?

    1. For individuals, if the taxpayer expects to owe at least $1,000, the amount of the payment will be based on 100% of the prior year's tax or 90% of the current year's tax due at the time of the offer, whichever is less. Current year's tax should be based on current income and all legally allowable expenses. The OE/OS may use the on-line calculator on www.irs.gov to calculate the ES payments due.

      Note:

      If the prior year's tax liability showed no estimated payments were due, then the taxpayer would not legally be required to make any payments for the current year. However, a taxpayer must be made aware the consequences of filing a return with a balance due would be a default in the offer terms if the offer is accepted.

    2. The amount of the estimated tax payment is generally based on the net taxable income, including the gross income earned, less allowable deductions. This includes depreciation, home office expenses, automobile expenses, and depletion from carrying on a trade or business.

    3. Generally, payments should be made quarterly and are due April 15th, June 15th, and September 15th of the current year in addition to January 15th of the following year.

    4. See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.

  5. The OE/OS should determine the appropriate amount due during the initial analysis of the case as defined in IRM 5.8.4.6, Initial Compliance Screening, and IRM 5.8.4.7, Initial Offer Actions.

  6. If it is determined that the taxpayer is delinquent in the payment of estimated tax and a previous request for estimated tax payments was not made, the OE/OS should calculate the required amount due and give the taxpayer up to 15 calendar days to make the payments. One attempt should be made by telephone to contact the taxpayer to request the necessary tax payment(s). Document the case history with the results of the phone contact attempt.

    Note:

    The OE/OS should provide the taxpayer/representative with the calculated ES payment. Allow the taxpayer/representative the ability to provide information which shows a different amount may be appropriate.

  7. If no telephone contact can be made, a letter must be prepared and mailed to the taxpayer requesting the payment. Allow 15 calendar days from the date of the letter for the taxpayer to respond (plus 15 calendar days for mailing for a total of 30 calendar days), before taking the next action. Document the case history.

    Note:

    If the OE/OS is preparing an additional information letter, the request for the ES payment may be included at that time. This is only after one phone contact has been attempted and the history appropriately reflects this action.

  8. If the taxpayer or their representative provides a legitimate reason for requesting additional time to make the payment(s), a reasonable deadline for responding must be given along with a warning that the offer will be returned if the payment is not received by the established deadline. This may be an additional 15 calendar days from the original established deadline. Barring any special circumstances such as, medical reasons that may extend the request beyond the additional 15 calendar days, the offer may be returned if the taxpayer fails to comply with the request for the payment(s). The case history must be sufficiently documented indicating the attempts made to secure the payment(s).

  9. Prior to returning an offer for this reason, the following actions must be taken:

    1. A determination must be made as to whether the taxpayer has earned sufficient taxable income to require ES payments or income tax withholding for the year(s) in question.

    2. A calculation should be made to determine the amount of tax that should have been paid in ES tax payments to date (or withheld) on the income earned.

    3. Document the case history with attempted contacts as defined in paragraphs (6) and (7) above (including any requested and/or granted extensions of time), the determination as to whether the taxpayer has earned sufficient taxable income to require ES payments, and the amount due.

      Note:

      A "no answer" contact does not meet the criteria as an attempt. If contact by telephone could not be made, a letter must be sent requesting payment and a copy must be retained in the case file.

    4. Additional verification of proof of payment(s). Proof of payment may be verified on IDRS or may include a copy of a cancelled check, a receipt issued by the Taxpayer Assistance Center that accepted the payment; certification of mailing to the appropriate Campus for processing, or a receipt from the bank that processed the payment.

    Note:

    If the taxpayer or representative provides information the required ES payments for the current year are substantially less than the prior year or the taxpayer may not incur any tax liability for the current year; the OE/OS should not return the offer for failure to make ES payments based on the prior year tax liability. However, a taxpayer must be made aware the consequences of filing a return with a balance due would be a default in the offer terms if the offer is accepted

  10. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into compliance. Prior to returning the offer, the OE/OS must verify through internal sources (IDRS) if any ES payments have posted to the taxpayer’s account, prior to returning the offer.

  11. In instances where the failure to remain in compliance with estimated tax payments was subsequent to a preliminary determination letter being issued to the taxpayer, the OE/OS may proceed with rejection of the offer without contacting the taxpayer to discuss the non-compliance.

    Document the case history thoroughly, including the date the preliminary determination letter was mailed and the timing of any subsequent non-compliance. In this case, issue a rejection letter, allowing the taxpayer appeal rights.

    Note:

    The taxpayer should be advised when personally contacted or in correspondence provided during the offer investigation that failure to remain in compliance with estimated tax payments may result in the offer being closed as a return.

  12. A return for failing to make required estimated tax payments or insufficient withheld tax requires approval of a Group Manager in the field or a Unit Manager in COIC. See Delegation Order 5-1 for details.

5.8.7.2.2.3  (03-07-2014)
Return for Failure to Make Timely Federal Tax Deposit

  1. A processable offer may be returned when the investigation reveals the taxpayer has not made federal tax deposits during the investigation.

  2. Who should make FTDs?

    1. Generally, every employer who pays wages to an employee must withhold income tax and the employee share of FICA (i.e., social security and Medicare) or RRTA taxes from the employee’s gross wages and report the tax liability on an employer's federal tax return (941, 943, 944, 945 or CT-1). Non-payroll income tax withholding must be reported on Form 945, Annual Return of Withheld Federal Income Tax. If the employer accumulates an employment tax liability for withheld taxes and the employer share of FICA or RRTA taxes of $2,500 or more during a quarter (for returns due quarterly) or a year (for returns due annually), this liability must be deposited monthly or semi-weekly depending upon the employer's deposit schedule.

    Note:

    The deposit rules for Form 941, Employer's Quarterly Federal Tax Return, also apply to tax liabilities for Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees; Form 944, Employer’s Annual Federal Tax Return; Form 945, Annual Return of Withheld Federal Income Tax; and Form CT-1, Employer’s Annual Railroad Retirement Tax Return. However, because Forms 943, 944, 945 and CT-1 are annual returns, the rules for determining the deposit schedule apply to a calendar year rather than a calendar quarter.

  3. How much is due and when should federal tax deposits be made?

    1. There are two deposit schedules: monthly and semi-weekly. The deposit schedule a taxpayer must use is based on the total tax liability the taxpayer reported during a look-back period. Generally, for Form 941 filers, the look-back period begins July 1 and ends June 30. However, the look-back period for 2011 Form 941 filers who filed Form 944 in either 2009 or 2010 is calendar year 2009. If the taxpayer reported $50,000 or less of employment taxes during the look-back period, they would be classified as a monthly depositor. If the taxpayer reported more than $50,000 of employment taxes in the look-back period, they would be classified as a semi-weekly depositor.

      Exception: If an employer’s total tax liability for any quarter is less than $2,500, payment may be made with the Form 941 on the due date of the return in lieu of making deposits.

    2. Use IDRS command code ENMOD to determine if the taxpayer has an open employment tax filing requirement. Use BMFOLK to determine if a taxpayer is a monthly or semi-weekly depositor for a particular quarter.

    3. Monthly depositors must deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month.

    4. Semi-weekly depositors must deposit accumulated taxes on payments using the following schedule:

      Payment Days Deposit By
      Wednesday, Thursday, and/or Friday Following Wednesday
      Saturday, Sunday, Monday, and/or Tuesday Following Friday

    5. Generally, the amount required to be deposited is comprised of the federal income tax withheld plus both the employee and employer Social Security and Medicare taxes.

      Note:

      For more information on federal tax deposit requirements, see IRM 20.1.4, Penalty Handbook — Failure to Deposit Penalty.

  4. The OS should determine the type of depositor (monthly or semi-weekly) and verify that deposits are being made, and should monitor compliance with FTDs throughout the offer investigation. The taxpayer will be asked to provide proof of each required deposit while the investigation remains open.

  5. Beginning January 1, 2011, all FTDs must be made by means of the Electronic Federal Tax Payment System (EFTPS). Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon. EFTPS is a system designed to use electronic funds transfer (EFT) to pay Federal taxes. The EFT number is shown..

  6. Most employers will also have an employment tax filing requirement for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. If an employers FUTA tax liability for any calendar quarter is over $500 (including any FUTA tax carried forward from an earlier quarter), the employer must deposit the tax (i.e., make an FTD) by electronic funds transfer (EFTPS). The employer must include liabilities owed for credit reduction with the 4th quarter FTD. If an employers FUTA tax liability for a quarter is $500 or less, the employer does not have to deposit the tax. Instead, it may be carried forward and added to the liability for the next quarter.

  7. The OS will review the taxpayer's account for FTD compliance during the quarter that the offer was submitted and any subsequent quarters. If it is determined at any time during the investigation that the taxpayer is missing or is not current with FTD(s), contact the taxpayer by telephone and request the missing deposits. Allow the taxpayer 15 calendar days to make the deposit(s). Advise the taxpayer that any future missed deposits will result in immediate return of the offer without appeal rights and with no additional contact. Document the case history with the results of the discussion or attempted contact.

    If telephone contact cannot be made, a letter must be prepared and mailed to the taxpayer requesting the missing FTD(s). Allow 15 calendar days from the date of the letter for the taxpayer to respond or make up the missed deposit(s) (plus 15 calendar days for mailing for a total of 30 calendar days), before taking the next action. Document the case history.

    Note:

    Beginning January 1, 2011, all deposits must be made using the Electronic Federal Tax Payment System (EFTPS). Missing deposits for quarters in which the due date for the return has passed should be forwarded directly to the OS for processing as a TC 670 (subsequent payment). Proof of deposit for the current quarter may be provided in the form of an EFTPS acknowledgement number.

  8. The taxpayer will be allowed only one opportunity to make up missed deposits, regardless of when the deposit was missed. Subsequent missed deposits will result in an immediate return of the offer.

  9. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into FTD compliance.

  10. A taxpayer whose offer is returned for failure to make FTDs will not include appeal rights. The application fee, as well as any TIPRA payments will also be retained.

  11. A return of an offer for failure to make required FTDs requires approval of the Group Manager.

5.8.7.2.2.4  (05-10-2011)
Return for Failure to Provide Information

  1. An offer may be returned at any time during processing if the taxpayer fails to provide information necessary to determine whether it should be accepted or rejected. The OE/OS should make every reasonable effort to secure sufficient information needed so a recommendation can be made.

  2. If the taxpayer has substantively complied or if only limited information is missing, the OE/OS will attempt to contact the taxpayer by telephone to secure the missing information prior to returning the offer. A "no answer" contact does not meet the criteria as an attempt.

  3. Prior to returning an offer for this reason the following actions must be taken:

    • A review must be made to determine if the missing information would prohibit the Service's ability to determine the RCP of the taxpayer. In situations where sufficient information has been provided to determine the RCP, do not return the offer.

    • A request for the needed information must be made by telephone, in person, and/or by letter. A reasonable deadline for responding must be given along with a warning that the offer will be returned if the information is not received by the deadline.

    • The above information must be clearly documented in the case history. A reasonable deadline should be determined by the amount of information required from the taxpayer.

  4. In those cases where the taxpayer or their representative have attempted to cooperate with any requests, the OE/OS will attempt a second telephone call to the taxpayer or their representative to request the additional information prior to returning the offer.

    Note:

    A "no answer" contact does not meet the criteria as an attempt.

  5. The history must be clearly documented to reflect the missing information requested and results of the telephone call.

  6. The return letter must be signed by the Group Manager in the field or a Unit Manager in COIC. See Delegation Order 5-1 for more detail.

5.8.7.2.2.5  (03-07-2014)
Return for Dishonored Payments

  1. Upon notification of a dishonored application fee and/or TIPRA payment, determine the current AOIC offer assignment by querying the offer number annotated on the upper left hand corner of the check.

  2. The offer will be immediately returned to the taxpayer with the appropriate notification for a dishonored check. Document the case history with which check(s) (application fee, TIPRA payment, or both) was returned and the date the check was dishonored.

  3. If the taxpayer or an authorized representative offers to replace the dishonored check and requests reconsideration of their offer, contact by the taxpayer or their representative must be made within 30 calendar days of the date of the initial return letter.

  4. The replacement payment must be in the form of certified funds (money order, cashier check, etc.) and received within a reasonable amount of time. See IRM 5.8.7.3, Return Reconsideration, below for reconsideration procedures.

    • Inform the taxpayer or the authorized representative that the offer will not be reconsidered if the payment is not made with certified funds.

    • Provide a reasonable due date for receipt of the payment to the taxpayer or the authorized representative.

    • Advise the taxpayer or their representative to submit the payment by overnight mail.

    • Document the case history.

  5. Inform the taxpayer or the authorized representative that the certified funds must be mailed to either of the following addresses:

    Brookhaven: Internal Revenue Service Center 1040 Waverly Ave Mail Stop 681, , Holtsville, NY 11742

    Memphis: Internal Revenue Service Center 5333 Getwell Rd AMC-Stop 880, Memphis, TN 38118

  6. To ensure proper handling, advise the taxpayer to include a letter requesting reconsideration of the offer.

  7. If the payment was dishonored with a TC 671 on the Master File, include information in the AOIC remarks.

  8. Upon receipt of the replacement payment, the case should be worked under reconsideration criteria, if appropriate. The employee should verify if the payment was received within the established deadline as annotated in the case history.

    If... Then...
    The payment was received within the established timeframes Use the reconsideration process defined in IRM 5.8.7.3, Return Reconsideration, and continue working the offer
    The payment was not received within the established timeframes Do not process the payment and do not reconsider the case

5.8.7.2.2.6  (03-07-2014)
Closing an Offer as a Processable Return

  1. Processable returns do not require preparation of the Form 1271, Rejection or Withdrawal Memorandum.

  2. The following actions should be taken to close a case as a processable return:

    1. Verify that the AOIC record reflects a "Y" in the Processable status field.

    2. Generate the "Return Letter" for the signature of the appropriate delegated official, listing the reason(s) the offer is no longer processable.

    3. If a POA indicator exists, verify a POA letter is provided. If a disclosure issue exists, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.

    4. Stamp the Form 656 "RETURN" , Cross out the IRS received date(s) with a "X" .

    5. Document the case history, indicating the reason(s) the offer is no longer processable and with any other pertinent information regarding the case.

    6. Attach a copy of the offer to the taxpayer's letter and submit the letter(s) for approval and required signature.

    7. Keep the original offer, any amended offers, the closing letter(s), the CIS, all supporting documentation, and all internal documentation secured in connection with the investigation in the case file. For space saving purposes, delete any unnecessary documentation.

      Note:

      See IRM 5.8.7.11, Destruction of Credit Reports, for information on the purging and destruction of credit reports.

    8. Close the case on AOIC as a "return" once the letter is signed.

    9. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 481 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.

    10. If the file or case history reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

    11. See IRM 5.8.7.10, Alternative Resolutions, for procedures on forwarding the case for the next appropriate collection action.

  3. See IRM 5.8.7.7.3.1, Notification of Dishonored Check After Issuance of the Rejection Letter, for procedures to close the offer as a return based on notification of a dishonored check after issuance of a rejection letter.

5.8.7.3  (09-23-2008)
Return Reconsideration

  1. This section does not apply to the return of offers deemed not processable. It also does not apply to processable offers returned for any of the following reason codes, unless the return was determined to have been in error.

    • P — filed bankruptcy after offer submission

    • Q — non-compliance after offer submission

    • R, V, W — "solely to delay" submissions

    • S — collection is in jeopardy

    • X — "other investigations are pending that may effect …"

    • Y — original assessment fully abated

  2. Situations may arise when the reconsideration of a returned offer would best serve the interests of both the Service and the taxpayer. Generally, an additional application fee and mandatory payment will not be required. Upon receipt of a return letter, taxpayers may telephone to object to the return of an offer. Below are the criteria for possible reconsideration.

5.8.7.3.1  (03-07-2014)
Criteria for Return Reconsideration

  1. Generally, the taxpayer or the representative must contact the Service to raise objections and provide an explanation for failure to provide the requested items. The objection must be raised within 30 calendar days from the date of the return letter (unless the condition that caused the failure to supply the substantiation continued for a prolonged period).

  2. Acceptable criteria for potential situations where return reconsideration may be applicable based on IRS error are listed below. These are not all inclusive.

    1. The offer was closed as a return in error by the field or the COIC site.

    2. The information was sent timely, but it was not associated with the case.

      Note:

      Special rules apply in determining the postmark date for documents sent by private delivery services. See IRM 3.10.72.2.4.3, Private Delivery Services (PDS), and IRM 3.10.72.6.2.4, Determining Postmark Date.

    3. The taxpayer was affected by a federally declared disaster as defined in IRC § 7508A.

    4. The taxpayer is in a combat zone as defined in IRC § 7508.

    5. The taxpayer provided proof that the required TIPRA payments were made, but not posted.

  3. Acceptable criteria for potential situations where return reconsideration may be applicable based on specific taxpayer issues are listed below. These are not all inclusive.

    1. Serious illness or injury prevented the taxpayer from submitting the information timely.

      Note:

      Serious illness or injury may not apply to the taxpayer's representative, if the taxpayer controlling the information receives a copy of the combo or additional information letter and is aware he or she should respond directly. Inquire with the representative and/or use POA bypass procedures if necessary. See IRM 5.1.23, Taxpayer Representation, for bypass procedures.

    2. There was a death in the taxpayer's immediate family that prevented timely mailing of the information.

    3. The failure to perfect by providing a required additional Form 656, required TIPRA payment (i.e., remainder of 20% of the amount of a lump sum cash offer), and application fee when the original Form 656 included both joint and separate liabilities or individual or joint and corporation or partnership liabilities.

    4. The taxpayer requests a low income certification waiver instead of paying the application fee and required TIPRA payment, and then provides proof that an incorrect conclusion was made.

    5. The taxpayer failed to make ES payments but provides proof that ES payments or withheld taxes are not due.

    6. The taxpayer provided proof of ES payments, but it was not received until after the deadline.

    7. The taxpayer submitted certified funds (e.g., money order, cashiers check, etc.) within the required timeframes to replace previously dishonored check(s).

5.8.7.3.2  (05-10-2011)
Conditions for Return Reconsiderations

  1. Before reconsidering the closed offer, the taxpayer or authorized representative must have requested return reconsideration within 30 calendar days from the date of the return letter.

  2. The following would not be acceptable reasons for return reconsideration:

    1. Lack of availability of either the taxpayer or representative, absent circumstances identified in IRM 5.8.7.3.1, above;

    2. Representatives’ filing season activity, unless the representative made reasonable requests for an extension prior to return of the OIC.

5.8.7.3.3  (09-23-2008)
Approval Authority for Return Reconsideration

  1. Approval to reconsider a returned, processable offer(s) will be obtained from COIC Department Managers or field Group Managers before requesting the taxpayer or authorized representative to send any missing documentation, payments or fees. This authority may not be re-delegated.

  2. The manager will indicate approval or denial of the request by making a history entry on AOIC or ICS.

5.8.7.3.4  (03-07-2014)
Reconsideration Procedures

  1. If the employee receiving a telephone request from a taxpayer or authorized representative for reconsideration determines the request does not have merit, based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will advise the taxpayer or their authorized representative of the decision and the taxpayer's right to discuss the issue with the employee's manager. Annotate the closed offer record history on AOIC.

  2. If the employee receiving a telephone request for reconsideration determines that the request does have merit based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will:

    • Contact the taxpayer or their representative and request additional information to support the reconsideration request, if applicable.

    • The information must be received within 10 calendar days of the contact. Fax is the preferred method of receipt.

    • Annotate the closed AOIC or ICS offer history.

  3. If the taxpayer or their representative fails to provide the requested information, annotate the closed AOIC remarks that there will be no reconsideration.

  4. If the taxpayer or their representative provides the requested information, the recommending employee will:

    • Annotate the closed AOIC remarks and request the reconsideration by making a history entry on the closed offer record on AOIC (not ICS), describing the taxpayer's claim or supporting verification and why the reconsideration request is justified.

    • Submit the closed offer case file, along with any verification submitted by the taxpayer to support the reconsideration request, through the appropriate management channels to the approving official.

  5. Retain the original Form(s) 656 in the case file and take the following actions on the original Form 656 retained in the case file:

    • Sign and insert the employees title in Item 11 of the Form 656 for the authorized Service official. This information is to be inserted alongside the entries on the original offer.

    • Enter on the date line of AOIC "Pending Dt" used for the new offer record.

5.8.7.3.4.1  (05-10-2011)
Denial of the Reconsideration

  1. If the approving official denies the reconsideration request, the employee assigned the case should clearly communicate by telephone to the taxpayer or their representative that the request for reconsideration was denied and that the matter is closed. Document the AOIC remarks with the information.

5.8.7.3.4.2  (05-10-2011)
Approval of the Reconsideration

  1. If the approving official agrees that a returned offer should be reconsidered, the employee assigned the case will telephone the taxpayer or their representative and advise that the offer is being reconsidered. They should also be advised that they must be able to provide the missing or required information, substantiation, Forms 656, and/or applicable fees within 10 calendar days of the telephonic communication of the reconsideration approval.

  2. The offer information will not be reloaded to AOIC or worked until receipt of any required information or substantiation, Forms 656, and/or applicable fees. If the taxpayer fails to submit the promised items within the agreed timeframe, document the AOIC remarks of the closed offer and take no further action.

5.8.7.3.4.2.1  (05-10-2011)
Additional Form(s) 656 and Application Fee(s) Received as Condition for Reconsideration

  1. Some reconsideration situations may involve an original offer that included either joint and individual tax liabilities, or joint or individual and corporation or partnership liabilities on one Form 656. The offer may have been returned because the taxpayers failed to perfect the offer by submitting additional Forms 656 and the applicable application fee and required TIPRA payments for each. Since the taxpayers met the fee and payment requirement for the original, returned Form 656 they must submit and meet the fee requirement for each additional Form 656 before the original offer can be reloaded under return reconsideration procedures. Therefore, both the "Amended/Revised" and "Related to" offers that were previously provided with the Combo letter, must be loaded to AOIC, but not until the application fee is received for the "Related to" offer along with any additional substantiation that was required.

5.8.7.3.4.3  (03-07-2014)
Reloading the Reconsideration Offer (COIC ONLY)

  1. The field does not have the authority to reopen an offer record on AOIC. If reconsideration has been approved by the field manager, the field must notify the respective COIC site. Field offices should fax a copy of the front page of the original Form 656 along with the cover sheet in Exhibit 1 below. Be sure the offer number and received date of the requested information and/or substantiation is on the cover sheet. This will enable the COIC sites to create the new offer record.

  2. For purposes of an approved "return reconsideration," take the following actions:

    • If the offer is being reloaded due to" IRS error " then create a new AOIC offer record by reloading the same AOIC data as the returned offer.

      Note:

      AOIC will allow an offer to be reopened, if it is within a certain timeframe (This is normally 30 calendar days). If the offer is being reopened based on " IRS error " , then the closed offer record may be reopened on AOIC and would not require the creation of a new offer record.

    • If the offer is not being reopened based on " IRS error " then create a new AOIC offer record by reloading the same AOIC data as the returned offer, except for "IRS Rcvd Dt," "AO Rcvd Dt" and "Pend Dt" fields which will contain the date any missing information, substantiation, Forms 656, and/or applicable fees was received.

    • Associate the documents from the closed offer with the new, reloaded offer folder.

    • Enter an AOIC remarks notation in the closed offer record to indicate the documents were refiled with the reloaded offer.

    • Place a hard copy of the AOIC remarks in the closed offer folder.

5.8.7.3.4.3.1  (05-10-2011)
Reloading Offers with a Previously Submitted Application Fee (COIC ONLY)

  1. If the taxpayer paid the application fee with the original returned offer, for the new AOIC offer record enter:

    • "N" in the "Fee Due" field

    • "ME" in the "Waiver Criteria" field

    • The number of the original, returned offer in the "Master Offer #" field of AOIC Application Fee screen

5.8.7.3.4.3.2  (03-07-2014)
Reloading Offers with a Previous Low Income Certification (COIC ONLY)

  1. If the taxpayer previously checked low income certification on the returned offer, enter the following for the new AOIC offer record:

    • "N" in the "Fee Due" field.

    • "ME" in the "Waiver Criteria" field of AOIC Application Fee Screen.

    • The number of the original, returned offer in the Master Offer number field of AOIC Application Fee Screen.

5.8.7.4  (09-23-2008)
Withdrawal

  1. There are two kinds of withdrawn offers; they are (1) Voluntary and (2) Mandatory.

  2. Voluntary Withdrawal of Offers – An action that may be taken by the taxpayer at any time during the offer investigation. See IRM 5.8.7.4.1 below for more information.

  3. Mandatory Withdrawn Offers – An action that may be taken by an OE/OS during the offer investigation. See IRM 5.8.7.4.2 below for more information.

5.8.7.4.1  (03-07-2014)
Voluntary Withdrawal

  1. Taxpayers may voluntarily withdraw their OIC at any time after the offer has been submitted. A withdrawal must never be solicited merely to avoid a complete investigation or deny taxpayers access to Appeals.

  2. When an OIC cannot be recommended for acceptance the OE/OS should give the taxpayer an opportunity to voluntarily withdraw the offer and at the same time inform the taxpayer that withdrawing the offer forfeits their appeal rights.

    Note:

    If a joint offer is withdrawn and only one spouse signs the withdrawal request, an effort should be made to perfect the request. Contact the taxpayers and have the other spouse sign the withdrawal request, secure verbal approval to withdraw the offer, or continue the offer investigation on the remaining spouse. The spouse who initially signed the withdrawal may provide a statement affirming that they are withdrawing on their spouse’s behalf. If there is no response to the request for perfection, then the withdrawal will only be considered for the spouse who signed the withdrawal request. Input TC 482 for "B" and reinput TC 480 for "P" or "S" , as needed, using the same date as the original TC 480. Change the AOIC entity to the name of the spouse who did not request the withdrawal. An amended Form 656 will be required if the offer is ultimately accepted.

    Note:

    If only one spouse submits a withdrawal, a request for mirroring the accounts should be processed, in accordance with current procedures, at the conclusion of the offer investigation

  3. Document the case history or correspondence that the taxpayer was informed that a withdrawal forfeits their appeal rights.

  4. A voluntary withdrawal request may be made orally, by fax, or in writing. The Letter 3504 (SC/CG) is available for taxpayers to request a withdrawal. Receipt of a withdrawal request (either in writing or orally) must be clearly documented in the case file indicating how the request was received.

  5. If a request for a voluntary withdrawal is made and a deposit has been received the taxpayer should be asked to:

    • Provide a request in writing clearly indicating a desire to withdraw the offer.

    • Include a statement indicating that it is understood that rights to appeal are forfeited by a withdrawal.

    • Include a statement indicating how any deposit made (if any) should be disposed (i.e. should it be refunded or applied to the tax debt).

    • Sign and date the request.

5.8.7.4.2  (03-07-2014)
Mandatory Withdrawal

  1. If during the investigation the taxpayer fails to make the required subsequent periodic payments as required by TIPRA, the offer may be considered withdrawn.

  2. One request for the missed payment(s) must be made by telephone. If the taxpayer or their representative cannot be contacted by telephone, issue a letter requesting the missed payment(s). If the contact is by telephone, allow the taxpayer 15 calendar days to submit the payment(s) before taking the next action. If the contact is written, allow 15 calendar days from the date of the letter for the taxpayer to submit the payment(s) (plus 15 calendar days for mailing for a total of 30 calendar days), before taking the next action. Document the case history.

    Note:

    If documentation is in the offer file that a previous request was made for the missed payment(s) and the payment(s) has not been made, the OE/OS is not required to re-request.

  3. If the taxpayer provides a reasonable explanation for missing the payment(s) (i.e. special circumstances exist) the investigation of the offer should continue.

  4. Issue the withdrawal letter indicating that the taxpayer failed to comply with the request for the required payment(s), therefore the offer is withdrawn.

  5. The letter must include the following information:

    • A statement indicating that the taxpayer failed to respond to the request for the remainder of the required periodic payments.

    • A statement indicating how any deposit made is being disposed of (i.e., refunded or applied to the tax deposit).

  6. Close the offer as withdrawn as defined in IRM 5.8.7.4.3 below.

  7. Document the case history, thoroughly describing the attempts to secure the funds and the decision to consider the offer withdrawn.

    Note:

    The taxpayer should be advised, whether personally contacted or in correspondence provided during the offer investigation, that failure to remain in compliance with periodic payments may result in the offer being closed as a return or mandatory withdrawal with no appeal rights.

  8. In instances where the failure to remain in compliance with periodic payments was subsequent to a preliminary discussion with or letter being issued to the taxpayer advising that the OIC would be rejected, the OE/OS may proceed with rejection of the offer without contacting the taxpayer to discuss the non-compliance.

    Note:

    Document the case history thoroughly, including the date the preliminary determination letter was mailed or discussion took place and the timing of any subsequent non-compliance. In this case, issue a rejection letter so the taxpayer will receive appeal rights

5.8.7.4.2.1  (03-07-2014)
Amended Offer after Failure to Make Required Periodic Payments

  1. The offer examiner/offer specialists (OE/OS) will follow the provisions of IRM 5.8.7.4.2, Mandatory Withdrawal, and close an offer as a mandatory withdrawal if the taxpayer fails to remain in compliance with periodic payments required based on the terms of the offer under investigation. The submission of an amended offer, unless requested by the OE/OS, will not change the determination to process a mandatory withdrawal, if any required TIPRA payments based on the terms of the original offer are not paid.

    Example:

    The taxpayer submits an amended offer in which the payment terms under periodic payment provisions are for a lesser amount than required under the original offer amount. The taxpayer is unable or unwilling to make up the payments required under the original terms through the date of the amended original offer ($12,000) which provided for the TP to submit periodic payments on a monthly basis equal to $ 500 per month for 24 months. After four months the taxpayer has submitted two payments totaling $1,000 and submits an amended periodic payment offer in the amount of $5,000 with the periodic payment terms being $1,000 already paid and $200 per month for 20 months. In this instance, the taxpayer would be required to submit the missing required periodic payments of $1,000 for the offer investigation to continue.

    Example:

    The amended offer is for a lesser amount than the previous offer and has lump sum payment terms (five or fewer payments in five months or less). The taxpayer requests any previous periodic payments be applied toward the 20% required TIPRA payment for a lump sum offer.

    Exception:

    If the OE/OS has determined reasonable collection potential (RCP) and requests the taxpayer submit an amended offer equal to or greater than RCP and the taxpayer submits any required TIPRA payment(s) with the amended offer, the OE/OS may proceed with recommending acceptance of the amended offer, even though previously required periodic payments were missed.

  2. If the taxpayer has made all payments required under TIPRA at the time an amended offer is received, the OE/OS should begin to monitor required TIPRA payments based on the amended offer and will make a determination on the acceptability of the amended offer based on the revised terms.

5.8.7.4.3  (03-07-2014)
Closing an Offer as a Withdrawal

  1. Offers closed as withdrawals do not require preparation of Form 1271, Rejection or Withdrawal Memorandum.

  2. The effective date of the withdrawal will depend on the method of receipt of the request to withdraw. The following chart shows the correct date to use as the withdrawal date:

    If taxpayer withdraws an offer in compromise by… Then the offer will be considered withdrawn …
    phone on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.
    non-certified mail or fax on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.
    mailing written notification of the withdrawal via U.S. certified mail on the date the Service receives the certified mail.
    personal delivery when notification of the withdrawal is received by the Service.
  3. The following actions should be taken to close an offer as a withdrawal:

    1. Review the AOIC record to ensure the information is accurate.

    2. Generate the AOIC "Withdrawal Letter" for the signature of the authorized delegated employee. Use the chart above to determine the correct date to use as the effective date of the withdrawal.

      • Voluntary withdrawal – Use the chart above to determine the correct date to use as the effective date of the withdrawal.

      • Mandatory withdrawal – The date of the withdrawal is the date of the "Withdrawal Letter."

    3. Generate the POA letter for any authorized representative, if applicable.

    4. Document the AOIC remarks, indicating the date, method of receipt, and type of withdrawal (e.g., voluntary or mandatory).

    5. Submit the file for approval and signature of the letter(s).

      Note:

      The approval signature may be secured via electronic methods, in accordance with the current security and verification standards of the Internal Revenue Service. In all instances, a printed copy of the electronically executed document, form/letter, must be included in the offer case file.

    6. Close the case on AOIC as withdrawn after approval has been received. If there is a deposit and the taxpayer has requested that the deposit be applied to the tax, input "A" and mail a copy of the taxpayer's written request for application of the funds to the appropriate MOIC Unit. If there is a deposit and the taxpayer has asked for a refund or provided no instructions for disposition, input "R" to refund the deposit.

    7. Keep a copy of the letter(s) with the closed offer file.

    8. Prepare a Form 3177, Notice of Action for Entry on Master File, to request input of a Transaction Code (TC) 482 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.

    9. If the file or case history reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

    10. See IRM 5.8.7.10, Alternative Resolutions, for procedures on forwarding the case for the next appropriate collection action.

5.8.7.5  (09-23-2008)
Termination of Consideration

  1. Consideration of an offer must be terminated upon the death of a single proponent. The date of termination is the taxpayer's date of death and the date used for the TC 482. Offers that are terminated do not receive appeal rights. See IRM 5.8.10.4, Death of a Taxpayer, for instructions on actions to take prior to termination when advised that one party to a joint offer has died.

5.8.7.5.1  (03-07-2014)
Closing an Offer as a Termination

  1. Offers closed as terminations do not require preparation of Form 1271, Rejection or Withdrawal Memorandum.

  2. The following actions should be taken to close an offer as a termination:

    1. Generate the AOIC "Termination Letter" for the signature of the authorized delegated employee. On the salutation line of the letter, enter the "Estate of" and the taxpayer's name.

    2. Generate a copy of the letter for any authorized representative.

    3. Document the history indicating the date of death and how notification was received.

    4. Check INOLE to determine if a TC 540 has been input, if no TC 540 is present, then request input of TC 540 to IDRS if the exact date of death is confirmed.

    5. Submit the package for approval and signature of the letter(s).

      Note:

      The approval signature may be secured via electronic methods, in accordance with the current security and verification standards of the Internal Revenue Service. In all instances, a printed copy of the electronically executed document, form/letter, must be included in the offer case file.

    6. Close the case on AOIC as a "Termination" after approval and document the date of death in the case history.

      Note:

      If the date of death is prior to the TC480, when closing the offer on AOIC, use the pending date of the TC480.

    7. Keep a copy of the letter(s) with the closed offer file.

    8. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 482 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.

    9. If the file or case history reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

5.8.7.6  (09-23-2008)
Fast Track Mediation for Offer in Compromise

  1. IRM 8.26.3, Alternative Dispute Resolution (ADR) Program - Small Business Self-Employed (SB/SE) Fast Track Mediation, was issued October 24, 2007. The goal of Fast Track Mediation (FTM) is to help taxpayers resolve disputes arising in examination and collection source work without having to send the case to Appeals.

    Note:

    This program is not available for any work in the COIC sites.

5.8.7.6.1  (03-07-2014)
Criteria for Fast Track Mediation

  1. Mediation may only be considered after the OS has fully developed the case facts and made a reasonable attempt to negotiate an acceptable offer.

    Note:

    Mediation is not a substitute for the taxpayer's or the taxpayer's representative's right to a conference with the manager.

  2. Taxpayers or the taxpayer's representative who express an interest in mediating must first request a conference with the manager.

  3. The opportunity to mediate should only be granted after the first level manager has reviewed the case and determined that the issues in dispute may be resolved in mediation.

  4. When appropriate, mediation should be offered before the case is forwarded to the IAR for approval.

  5. Below are some examples of when it would be appropriate or inappropriate to offer mediation. The examples are not all inclusive.

    Example:

    Appropriate — valuations of ongoing business' goodwill; artwork with collector or sentimental value; valuation of assets including real property.

    Example:

    Inappropriate — taxpayer has ability to full pay based on financial data; taxpayer declines to increase the amount offered and does not disagree with the values; rejection is based on public policy.

5.8.7.6.2  (03-07-2014)
Processing Granted Requests for Fast Track Mediation

  1. When the request for mediation is granted, the OS will complete the following actions:

    • Complete the Form 13369, Agreement to Mediate

    • Complete a summary of issues

    • Within three business days of securing the taxpayer's or their representative's signature, follow local established procedures to submit the request to Appeals.

    • Provide a copy of the Form 13369 to the taxpayer or their representative.

    • The OS will represent Collection in the mediation session.

    Note:

    Collection retains jurisdiction of the offer throughout the mediation process.

5.8.7.6.3  (03-07-2014)
Processing Granted Requests for Fast Track Mediation

  1. If the taxpayer or their representative's request is denied, document the case file with the reason for the denial, including how it was relayed to the taxpayer and/or their representative.

  2. Secure the approval of the first and second level manager.

5.8.7.7  (03-07-2014)
Rejection

  1. When the facts of the case do not support acceptance and the taxpayer will not agree to an acceptable offer or an alternative resolution of the delinquency and withdraw the offer, the taxpayer should be informed that the offer will be recommended for rejection.

  2. When the offer is rejected, the taxpayer will be notified in writing and the letter will explain how the taxpayer may exercise their appeal rights. Information received from the taxpayer in response to a conversation or letter must be considered before proceeding with the rejection.

  3. Generally, rejections on offers based on DATL are because the liability is believed to be correct as assessed or the taxpayer will not withdraw the offer after the account has been adjusted.

  4. The most common reason for rejecting an offer based on Doubt as to Collectibility (DATC) is because it has been determined that more can be collected than was offered. In all cases, the taxpayer should be informed prior to the issuance of the rejection letter that an acceptance cannot be recommended. This communication should be by telephone.

    When the taxpayer is contacted, the OE/OS should explain the computation of the RCP, offer to provide the taxpayer with a copy of the financial analysis, and give the taxpayer an opportunity to submit any additional financial information. If no conversation can be held with the taxpayer to convey this information, the OE/OS should send the taxpayer/poa a quicknote to request contact. A PD 3500 may be used when a quicknote is not appropriate, yet correspondence is required.

    Note:

    Whether the communication is by telephone or letter, the taxpayer should be informed of the necessity to remain in compliance with their estimated tax or periodic payments while the offer is being investigated to avoid their offer being returned or closed as a mandatory withdrawal. Refer to IRM 5.8.7.2.2.2, Return for Inadequate Estimated or Insufficient Withholding Tax Payments, or IRM 5.8.7.4.2, Mandatory Withdrawal, which discusses the appropriate closing actions to take if the taxpayer’s failure to remain in compliance occurs subsequent to a preliminary rejection letter.

    The calculation of RCP should be completed in all instances. This includes offers being rejected under, not in the "best interest of the government" (NIBIG) and "Public Policy" .

    Note:

    When providing information on the taxpayer's ability to pay prior to the offer being rejected under NIBIG or Public Policy, the taxpayer should be advised, "although the financial information may show the offer might be acceptable under DATC, the offer is being rejected based on the fact it is either not in the best interest of the government or contrary to public policy (also insert specific issues identified, if taxpayer has not been made aware of the reasons in prior discussions)."

  5. When discussing the potential rejection or preparing the potential rejection letter requesting an increased offer amount, the calculation should reflect any payments made during the offer investigation.

    Example:

    The taxpayer submitted a $1,000 short term periodic payment offer. The balance due is $10,000. The RCP was determined to be $4,400, so when providing the RCP information to the taxpayer, the OE/OS should include the following information: “To date you have made four (this number will reflect actual number of payments made) payments totaling $400. Your balance of $4,000 must be paid in 20 months (remaining maximum term of the periodic payment offer) at $200 per month.

  6. If the taxpayer or their representative presents new information, it must be considered and addressed in the history. If the information does not change the decision to reject, contact the POA/TP by telephone to discuss the new information and inform them that the information submitted did not change the rejection determination. If no telephone contact can be made, issue the appropriate AOIC rejection letter and document the AOIC or ICS history.

  7. When an offer is rejected, there is no obligation on the part of the taxpayer to continue to make periodic payments pursuant to the offer schedule, even if the taxpayer has appealed the rejection.

  8. If the taxpayer is not in compliance, the offer should be returned, not rejected. See IRM 5.8.7.2.2 for complete instructions.

5.8.7.7.1  (03-07-2014)
Not in the Best Interest of the Government Rejection

  1. An offer rejection may also be based on a determination that acceptance of the specific offer at hand is not in the "best interest of the government" as discussed in Revenue Procedure 2003-71, SECTION 6.03 which states: "The decision whether and when to accept an offer to compromise a liability is within the discretion of the Service. In keeping with Policy Statement P-5-100, an offer will only be accepted if it is determined to be in the best interest of both the taxpayer and the Service. In addition to the criteria discussed in Section 4.02, the Service may take into account public policy and tax administration concerns in determining whether an offer to compromise is acceptable" .

    Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative. Offers rejected under this section require the review and approval of the second level manager; that is, Territory Manager for the field or Department Manager for COIC.

  2. Once a determination is made that a rejection under this basis is appropriate, a calculation of the taxpayer's ability to pay should still be computed. The preliminary asset/equity and income/expense tables as discussed in IRM 5.8.4.7, Initial Offer Actions should be completed and provided to the taxpayer. The extent of additional verification, if required, should be based on the facts of the case. The preliminary tables and the basis for the rejection should be discussed with the taxpayer/representative to allow for submission of additional information for consideration

  3. Below are situations that may warrant rejection as not being in the "best interest of the government" (not all inclusive).

    • The taxpayer's offer meets processability criteria however; the taxpayer has an egregious history of past noncompliance, as evidenced by the taxpayer's failure to voluntarily file correct returns.

      Note:

      Future collection potential and the ability to secure a collateral agreement should be considerations prior to recommending an offer for rejection under NIBIG.

      Example:

      An offer in compromise in the amount of $ 100 is submitted by a taxpayer who has a history of filing frivolous returns. The OIC includes tax assessments which were completed by the IRS under substitute for return procedures. The financial statements submitted with the offer include very little income on which minimal estimate tax payments have been made. Information from internal sources reveals the taxpayer has additional income not being reported on the financial statement. It is not in the Government's interest to investigate an OIC until the taxpayer demonstrates compliance with filing and payment of the appropriate tax. Referral of the taxpayer should also be considered based on available information.

    • The taxpayer is the primary responsible party for a related entity, i.e. corporation, partnership, etc., that is not in compliance with it's filing and/or paying requirements, has not entered into an agreement to resolve the compliance or balances due, or does not have an offer pending.

    • An in-business taxpayer compromising employment taxes, where financial analysis indicates the business does not have the ability to fund the offer, remain current with future tax obligations, and meet the business's normal operating expenses.

    • The offer is from an ongoing business that appears to be insolvent, will remain insolvent, even if the offer is accepted, and it appears that the Government's position would be better protected through a formal insolvency proceeding. Refer to IRM 5.8.10.2.2.1, Consideration of a Potential Bankruptcy Filing on the Calculation of RCP in an OIC Investigation

    • The taxpayer does not have the ability to fully pay the liability via an installment agreement, yet based on the evaluation of the taxpayer's financial situation and after consideration of all factors, the offer may be recommended for rejection as not in the government's interest, when the calculated amount potentially received through a PPIA, does not fully pay the liability, yet approximates the outstanding balance. The taxpayer should be provided the opportunity to enter into a PPIA. Refer to IRM 5.8.4.3 (4).

  4. In each of the situations listed, a review of the taxpayer's financial situation should be completed prior to a final determination that a rejection under NIBIG is the appropriate course of action.

    Exception:

    In circumstances where the potential for a fraud referral exists, the financial evaluation conducted and verified should be based on the facts and circumstances of the case. Refer to IRM 5.8.4.18, Potential Fraud Referrals.

    The taxpayer should also be provided the opportunity to withdraw the offer prior to submission of the offer rejection recommendation, advised of the reason(s) the offer is being recommended for rejection under NIBIG criteria, and alternatives available to the taxpayer

    If the offer is not withdrawn, the offer examiner/offer specialist should proceed with rejection in accordance with IRM 5.8.7.7.3, Closing an Offer as a Rejection. The rejection letter will provide the taxpayer appeal rights in accordance with Treasury Regulation 301.7122-1 (f) (5).

5.8.7.7.2  (03-07-2014)
Public Policy Rejection

  1. Policy Statement P-5-89 (IRM 1.2.14.1.15) establishes that offers may be rejected on the basis of public policy if acceptance might in any way be detrimental to the interests of fair tax administration, even though it is shown conclusively that the amount offered is greater than could be collected by any other means, provided no ETA issues exist.

    Note:

    This section should not be confused with IRM 5.8.11.2.2 under ETA offers.

  2. Offer acceptance reports are open to public inspection in accordance with Internal Revenue Code § 6103(k)(1), so the general public may be aware of any offer acceptance. A decision to reject an offer for public policy reason(s) should be based on the fact that public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance by the general public. Decisions to reject offers for this reason should be rare.

    Note:

    Once a determination is made that a rejection under this basis is appropriate, a calculation of the taxpayer's ability to pay is still computed. The preliminary asset/equity and income/expense tables should be completed as discussed in IRM 5.8.5.7, Initial Offer Actions.
    The extent of additional verification requested from the taxpayer should be based on the facts of the case. The preliminary tables and the basis for the rejection should be discussed with the taxpayer/representative to allow for submission of additional information for consideration.

    After discussion with the taxpayer/representative, if the decision to reject the offer is appropriate, the offer examiner/offer specialist should proceed with rejection in accordance with IRM 5.8.7.7.3, Closing an Offer as a Rejection. The rejection letter will provide the taxpayer appeal rights in accordance with Treasury Regulation 301.7122-1 (f) (5).

  3. Below are some examples of situations that may warrant rejection based on a public policy decision.

    • The taxpayer has in the past, and continues to openly encourage others to refuse to comply with the tax laws.

    • Indicators exist showing that the financial benefits of a criminal activity are concealed or the criminal activity is continuing.

    • The taxpayer engaged in a pattern of conduct suggesting intentional dissipation of assets.

    Example:

    The taxpayer, a payroll service provider, has received from its clients payments of employment taxes in the amount of $10 million. The taxpayer remits to the Service an amount equal to the trust fund portion of the employment taxes and designates the payment for application to the trust fund portion of the tax. The taxpayer pays no more of the employment tax. Meanwhile, the taxpayer dissipates all of its remaining assets, reducing its reasonable collection potential to $0. The taxpayer then submits an OIC for $10,000. Because the OIC exceeds reasonable collection potential, the taxpayer would qualify for the OIC on the grounds of doubt as to collectability. Nevertheless, the OIC should be rejected on public policy grounds.

  4. An offer will not be rejected on public policy grounds solely because:

    • It would generate considerable public interest, some of it critical.

    • A taxpayer was criminally prosecuted for a tax or non-tax violation.

  5. The rejection narrative should discuss the specific public policy issues.

  6. Rejections of this type require the approval of the SB/SE Collection, Territory Managers (2nd level) in the field or SB/SE Compliance Services Operations Managers for COIC. Refer to Delegation Order 5-1 for approval authority.

5.8.7.7.3  (03-07-2014)
Closing an Offer as a Rejection

  1. The following actions should be taken to close an offer as a rejection:

    1. Analyze accounts on AOIC and IDRS systems to resolve issues involving misapplied or un-refunded payments/deposits.

    2. Update the MFT screen with assessment dates, if necessary, and balance due.

    3. Update AOIC to reflect the computed RCP.

    4. Update AOIC screen with current AGI.

    5. Generate the AOIC "Rejection Letter" using the appropriate optional paragraph(s) for the signature of the authorized delegated official. Attach the IET and AET to the letter when the offer is based on DATC.

    6. Generate the POA letter, if applicable.

    7. Generate Form 1271, Rejection or Withdrawal Memorandum, for signature by the appropriate delegated officials. The Reviewer on Form 1271 must be the Independent Administrative Reviewer (IAR).

    8. Document the ICS history or AOIC remarks regarding the decision. Include the following:

      • Amount of the RCP

      • Attempts to negotiate an alternative resolution

      • Key issues in the disagreement

      • Discussion of any special circumstances noted

    9. Print the AOIC remarks or ICS history and include it in the offer file.

    10. Prepare a supplemental memorandum to report any rare facts of a confidential nature that should not be disclosed through a Freedom of Information Act (FOIA) request and include it in the file clearly identifying it as "Confidential Information– Not to be Disclosed" .

    11. Place Tabs (Document 9600B) in the case file for ease in review or if the decision is appealed. The use of labeled dividers is required.

    12. Ensure that the Recommendation Report clearly explains the rationale for the rejection. IMFOLI and SUMRY should be the top pages under the "Account Transcript" tab, followed by the balance of current transcripts. Credit Report, Power of Attorney, and Form 3040 should be the first 3 pages under the "Miscellaneous" Tab, followed by current additional miscellaneous information.

    13. Submit the package for managerial approval and signing of Form 1271.

      Note:

      The approval signature may be secured via electronic methods, in accordance with the current security and verification standards of the Internal Revenue Service. In all instances, a printed copy of the electronically executed document, form/letter, must be included in the offer case file.

    14. After approval, route the file to the IAR.

    15. After approval of the IAR, route the offer for signature, dating, and mailing of the letter(s).

      Note:

      The approval signature may be secured via electronic methods, in accordance with the current security and verification standards of the Internal Revenue Service. In all instances, a printed copy of the electronically executed document, form/letter, must be included in the offer case file.

    16. Assign the case on AOIC to the designated "30-day hold (xx99)" assignment number and route the case file to the hold file for monitoring of the appeal period.

    17. Prepare Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 or 481 (whichever is appropriate) to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.

    18. If the file or case AOIC remarks reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

    19. See IRM 5.8.7.10 below for procedures on forwarding the case for the next appropriate collection action.

  2. See IRM 5.8.7.7.3.1, Notification of Dishonored Check after Issuance of the Rejection Letter, (below) for procedures to close the offer as a return based on notification of a dishonored check after issuance of a rejection letter.

5.8.7.7.3.1  (05-10-2011)
Notification of Dishonored Check After Issuance of the Rejection Letter

  1. If notification of the dishonored check occurred after issuance of a rejection letter, the employee should:

    • Date the return letter 31 days from the date of the rejection letter.

    • Include the open paragraph "RET-M" with the following language: "As a result, your request for appeal has been dismissed" .

      Note:

      This should only be used in those cases where a request for an appeal was received within the 30-day appeal period.

    • Close the case on AOIC as a return using the mail date of the return letter and AOIC final disposition code 10.

5.8.7.7.4  (05-10-2011)
Rejection Not Appealed

  1. Treasury Regulation 301.7122-1 (f) (5) provides that the 30-day period to request an appeal starts the day after the date on the rejection letter. The rejected offer must be suspended during this 30-day period to allow the taxpayer an opportunity to request an appeal, even if the taxpayer advises the Service that no appeal is desired. These cases should be monitored for receipt of a request for appeal.

    Note:

    IRC 7508 provides for postponement of certain acts, including submission of an appeal in OIC cases, during the period of time a taxpayer is in a combat zone (CZ) plus 180 days. This postponement would be in addition to the 30 days allowed in the rejection letter. If the taxpayer enters a CZ during the appeal period, the appeal period would be the time the taxpayer is in the CZ, plus any remaining time in the appeal period, plus 180 days.

  2. Rejected offers should be held in the suspense file for 15 calendar days past the 30-day deadline to allow time for an appeal request to be received and associated with the offer file.

    Note:

    If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 7, 2010. The request for the appeal is dated Monday, August 9, 2010. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.

    Note:

    Special rules apply in determining the postmark date for documents sent by private delivery service. See IRM 3.10.72.6.2.3, What is a Designated Private Delivery Service (PDS)?, or IRM 3.10.72.6.2.4, Determining Postmark Date.

  3. If no appeal request is received by the 45th day from the day of the rejection letter, the following actions should be taken:

    1. Close the offer record as a rejection with no appeal on AOIC.

    2. If warranted, take action to return the accounts to the Field Compliance function for immediate resumption of collection activities. See IRM 5.8.7.10, Alternative Resolutions, for procedures on forwarding the case for the next appropriate collection action.

    3. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.

    4. If the file, or case history reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (1st 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

    5. Route the offer file to the closed files.

5.8.7.7.5  (03-07-2014)
Rejection Appealed

  1. If a request for an appeal is received that is postmarked no later than 30 calendar days following the date of the rejection letter, the case must be forwarded to Appeals function for consideration.

    Note:

    If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 7, 2010. The request for the appeal is dated Monday, August 9, 2010. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.

    Note:

    Special rules apply in determining the postmark date for documents sent by private delivery service. See IRM 3.10.72.6.2.3, What is a Designated Private Delivery Service (PDS)?, or IRM 3.10.72.6.2.4, Determining Postmark Date.

    • Timely appeals — Upon transfer of the case to Appeals, notify the taxpayer that the case is being transferred and provide the telephone number of Appeals Customer Service. Notification may be verbal or in writing but should be documented. Written notification may be completed using the AOIC transfer letter, paragraph B.

    • Untimely appeals — Notify the taxpayer that the appeal was not timely and will not be forwarded to Appeals for consideration. Notification may be verbal or in writing but should be documented. Written notification may be completed using AOIC transfer letter, paragraph C.

  2. If the request for appeal is unsigned, the request will not be considered timely and the taxpayer should be notified appropriately.

    Note:

    If you receive an unsigned request for appeal, you would give the taxpayer or POA 15 calendar days from the date the request was received. This is may be in addition to the 30 calendar days initially provided for by the appeal. The 15 days may begin before the 30 days expires, so it is not always an additional 15 days and 30 days.

  3. If a joint offer is rejected and only one spouse signs the request for appeal, an effort should be made to perfect the request. Contact the taxpayers and have the other spouse sign the request for appeal. The spouse who initially signed the appeal may provide a statement affirming that they are appealing on their spouse’s behalf. If there is no response to the request for perfection, then the appeal will only be considered for the spouse who signed the request for appeal. Input TC 481 for "B" and reinput TC 480 for "P" or "S" , as needed, using the same date as the original TC 480. Change the AOIC entity to the name of the spouse who requested the appeal. Appeals will secure an amended Form 656 if the offer is ultimately accepted.

    Note:

    If only one spouse requests appeals consideration, at the conclusion of the offer investigation, a request for mirroring the accounts should be submitted based on current procedures.

  4. The taxpayer should provide specific information with the appeal letter, including a list of items of disagreement and evidence to support any of those items. If the letter provides new information not previously considered, the case should be reassigned to an OE/OS for reconsideration.

    Note:

    Caution must be exercised when reviewing a case where new information is received and the offer reconsidered following issuance of a rejection letter. If the taxpayer's letter requested an appeal, the offer must still be forwarded to Appeals if this reconsideration of the offer results in no change to the initial decision to reject. A new rejection letter should not be sent.

  5. The taxpayer is entitled to an appeal of the offer rejection, even if items of disagreement are not provided or argued. If it can reasonably be determined that the letter is a request for an appeal, the taxpayer should be afforded that right.

5.8.7.7.6  (08-05-2013)
Ex Parte Issues when Rejected Offer Appealed

  1. Upon receipt of the taxpayer's appeal, the OE/OS will review the information provided to determine if any new information is identified or additional documentation has been submitted. If after review, the OE/OS determines rejection of the offer is still appropriate, additional discussion with the taxpayer may be necessary. New information is information that was not previously discussed with or raised by the taxpayer, or not previously investigated and documented by the OE/OS.

    Example:

    A taxpayer's appeal states that their actual housing expense, which is higher than the local standard, should be allowed. The OE/OS had previously documented the basis for not allowing the actual expense and determined the local standard was appropriate for the taxpayer. This is not new information.

    Example:

    A taxpayer submits an appeal that includes additional documentation of the taxpayer's current income. Since this documentation was not previously considered, this is new information that requires additional investigation or consideration by the OE/OS.

  2. If the taxpayer appeal does not include new information requiring additional investigation or consideration by the OE/OS, the OE/OS will:

    1. Document receipt of the appeal in the AOIC remarks or ICS case history with a statement that the taxpayer appeal was received on (date), did not contain new information and the case is being forwarded to the group manager for review prior to transmission to Appeals.

    2. Submit the OIC case file for managerial review.

    3. The manager must ensure that no prohibited ex parte communications are included in the offer case file or the case history before approving the transmittal of the case to Appeals.

      Note:

      The OE/OS should not make any commentary in the AOIC remarks or ICS histories regarding the merits of the appeal and should not prepare any memorandum discussing the issues or the basis for the original determination.

  3. If the taxpayer appeal includes new information requiring additional investigation by the OE/OS, the OE/OS will:

    1. Document receipt of the appeal in the AOIC remarks or ICS case history. Annotate history with a statement that the taxpayer's appeal was received on (date), and include only the facts concerning the new information requiring additional investigation.

    2. Conduct additional investigation of the new information as appropriate, and document the AOIC remarks or ICS history with the investigation actions and results of the investigation.

    3. If the additional investigation results in a decision to change the recommendation to an acceptance, follow the procedures in IRM 5.8.8.3, Closing a Case as an Acceptance.

    4. If the additional investigation does not result in a decision to change the recommendation to an acceptance, the OE/OS will take the following actions:

      1. Attempt to make telephone contact with the taxpayer to explain the results of the additional investigation.

      2. Document the AOIC remarks or ICS history, notating if contact was made with the taxpayer and the details of the discussion.

      3. If the OE/OS is unable to make contact with the taxpayer within a reasonable time period, forward the offer case file to the group manager.

  4. The group manager will take the following actions:

    1. Review the OIC case file, AOIC remarks or ICS history to determine if the new information has been sufficiently addressed and documented.

    2. If the new information requires additional investigation, the group manager will return the offer file to the OE/OS.

    3. If the new information has been sufficiently addressed and documented, the group manager will issue the AOIC transfer letter to the taxpayer. The manager will use the "open" paragraph to provide the taxpayer with a brief summary of the results of the additional investigation.

      Note:

      Suggested language for open paragraph:

      "After review of the expense documentation provided, a determination was made that the rejection of your offer is still appropriate because (insert explanation). Your offer will be forwarded to the Appeals Division per your request" or

      "After review of the additional information provided relative to the value of your real property, a determination was made that the rejection of your offer is still appropriate because (insert explanation). Your offer will be forwarded to the Appeals Division per your request."

    4. Document issuance of the letter to the taxpayer in the ICS history, and place a copy of the letter in the offer case file.

    5. The manager must ensure that no prohibited ex parte communications are included in the offer case file or the case history before approving the transmittal of the case to Appeals. If the case history contains commentary that is determined to violate the ex parte communication rules, the manager will take appropriate action, which could include sharing the information with the taxpayer, or following ICS history removal procedures detailed in IRM 5.1.10.8, Case Histories.

      Note:

      The administrative OIC case file transmitted to Appeals is not an ex parte communication since it sets forth the boundaries of the dispute between the taxpayer and the Internal Revenue Service and forms the basis for Appeals to assume jurisdiction. The OIC case file should include all information that supports the original determination.

      Example:

      An OE/OS received an appeal from a taxpayer appealing the offer rejection and documents AOIC remarks or ICS history as appropriate. The OE/OS determined the appeal contains new information. The OE/OS reviews the new information provided, contacts the taxpayer by telephone to discuss their investigation of the new information, and advises the taxpayer the determination to reject the OIC will not change. The discussion with the taxpayer is documented in the AOIC remarks or ICS history. Since the additional investigation was discussed with the taxpayer, there is no prohibited ex parte communication. The OE/OS forwarded the offer case file to the group manager, who reviewed it to determine if the new information had been sufficiently addressed and documented that no prohibited ex parte communications were included in the offer case file or the case history before approving the transmittal of the case to Appeals.

      Example:

      An OE/OS received an appeal from a taxpayer appealing the rejection of their OIC. The OE/OS documented the ICS case history that the appeal contained new information. The OE/OS conducted additional investigation of the new information and concluded that the determination to reject the OIC remained appropriate. The OE/OS attempted to contact the taxpayer by telephone to advise the taxpayer of the results of the investigation, but was unable to reach the taxpayer and documented the AOIC remarks or ICS history. The OE/OS submitted the offer case file to the group manager, who after reviewing the case file to determine if the new information issue had been sufficiently addressed and documented, issued the taxpayer an AOIC transfer letter advising of the transfer of the offer to Appeals and discussing the new information in the "open" paragraph. The final determination was documented in AOIC remarks or ICS history, and a copy of the letter was included in the offer case file. No ex parte communication rules were violated in transmitting the administrative file to Appeals because the additional investigation results were shared with the taxpayer in the AOIC transfer letter.

      Example:

      An OE/OS received an appeal of the offer rejection from a taxpayer. The OE/OS documented the AOIC remarks or ICS case history that the appeal contained new information. The OE/OS conducted additional investigation of the new information and concluded that the determination to reject the OIC remained appropriate. The OE/OS documented the results of the additional investigation, but did not contact the taxpayer by telephone to advise the taxpayer of the results of the investigation, and his or her manager did not send a letter to the taxpayer containing the results of the additional investigation. The OE/OS violated the ex parte communication rules because he communicated with Appeals through the AOIC remarks or ICS case history, which contained documentation regarding the results of the additional investigation of the new information that was not shared with the taxpayer.

      Note:

      The communication to the taxpayer should include a brief summary of the additional investigation and must be at least as detailed about the reason for the rejection as the communication to Appeals. Appeals may not receive details about the basis for the determination that are not provided to the taxpayer.

  5. After review of taxpayer's appeal:

    1. Transfer the case to 90XX on AOIC.

    2. Mail the case to the appropriate Appeals Area office based on the taxpayer's zip code.

  6. If an offer previously forwarded to Appeals is returned as a premature referral, the originating function may not communicate ex parte with Appeals while reconsidering the case, other than with respect to ministerial, administrative, or procedural matters, without offering the taxpayer or representative an opportunity to participate in the discussion because Appeals may ultimately review the case. If necessary, the taxpayer should be contacted to discuss the results of any additional investigation or be provided with information by the group manager relative to the results of any additional investigation that was not discussed with the taxpayer via correspondence, prior to the offer being returned to Appeals.

  7. Fast Track Mediation (FTM) in accordance with IRM 5.8.7.6, Fast Track Mediation for Offers in Compromise, may be utilized prior to the issuance of the rejection letter. This program is designed to expedite case resolution since the entire process normally takes 30-40 days to complete. Fast Track Mediation involves Appeals employees serving as mediators and facilitating settlement discussions while jurisdiction of the case is still with Collection. The prohibition against ex parte communications between Appeals employees and originating function employees does not apply to FTM because the Appeals employees are not acting in their traditional Appeals settlement role. Ex parte communications, such as a private caucus between the Appeals mediator and Collection employees during the course of the mediation session, is permissible under the ex parte communication rules.

5.8.7.7.7  (08-05-2013)
Closing of Offer After Appeal's Consideration

  1. If Appeals sustains the rejection determination or the taxpayer withdraws the offer in Appeals:

    1. Close the offer record on AOIC as:

      • Closing code "9" if withdrawn in Appeals.

      • Closing code "3" if Appeals sustained the rejection.

      Note:

      The offer may be closed on AOIC by Appeals Processing (APS).

    2. If the file or case history reflects a TC 480 was manually input, it must be manually reversed by the field or COIC person inputting closing actions on AOIC. Ensure all TC 480s are reversed.

      Note:

      At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XX88888884 (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There may be a delay from the time the error is reflected on the AOIC transaction listing to when the control base is opened on IDRS.

    3. See IRM 5.8.7.10, Alternative Resolutions, for procedures on forwarding the case for the next appropriate collection action.

    4. Route the offer file to the closed files.

5.8.7.8  (09-23-2008)
Authorization to Apply Deposit

  1. When a deposit is made with an offer, Service employees should ask taxpayers if they wish to have the funds applied to the delinquent tax debt whenever a withdrawal is solicited or when advising taxpayers that acceptance cannot be recommended.

  2. If a taxpayer agrees to the application of the deposit to a tax liability, a written authorization or Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, should be completed, signed, and submitted to the MOIC unit when the case is closed. A copy of the withdrawal or rejection letter must be included with the Form 3040 and forwarded to the appropriate Monitoring OIC (MOIC) unit for processing.

    Note:

    When closing the AOIC record, input "A" in the pop up screen to alert MOIC that the funds are to be applied and immediately mail the written authorization to that unit. The Accounting Branch requires written authorization from the taxpayer before the funds can be applied to any tax period.

  3. If a taxpayer does not authorize application of the deposit to a tax liability it will be returned to the taxpayer.

  4. Occasionally requests for a discharge or subordination are received while an offer is pending. See IRM 5.8.10 for instructions on processing the Form 3040 received in conjunction with issuance of the lien certificates.

5.8.7.9  (05-10-2011)
Potential Subsequent Actions

  1. If the following issues are present, refer to the IRM references listed below for appropriate actions:

    1. Solely to Delay Collection – IRM 5.8.4.20, Offers Submitted Solely to Delay Collection.

    2. In-business Trust Fund – IRM 5.8.4.21, Responsibility of Offer Examiners, Offer Specialist, and Field Revenue Officers [Continuing Action on In Business Trust Fund (IBTF) cases].

    3. Levy/Seizure related action – IRM 5.8.4.21, Responsibility of Offer Examiners, Offer Specialist, and Field Revenue Officers (Levy or seizure related actions).

    4. Protection of the Government’s interest required (Notice of Federal Tax Lien (NFTL), nominee NFTL/levy, suit recommendation, etc.) – IRM 5.8.4.21, Responsibility of Offer Examiners, Offer Specialist, and Field Revenue Officers.

      Exception:

      If a taxpayer has been identified as being located in a Combat Zone area, no NFTL should be filed unless extenuating circumstances exist.

    5. Development of Potential Fraud – IRM 5.8.4.19, Responsibility of Offer Specialist and Field Revenue Officers. The fraud referral specialist should be consulted and agreement is reached that a more thorough field investigation is required. See IRM 5.8.10.10, Indicators of Taxpayer Fraud, for more information.

5.8.7.10  (03-07-2014)
Alternative Resolutions

  1. When an offer in compromise investigation is being closed as other than an acceptance, the Offer Examiner(OE)/Offer Specialist(OS) should have discussed alternative resolutions with the taxpayer. Additionally, if an agreement is not reached with the taxpayer on an alternative resolution to the balance due accounts, the OE/OS should take the appropriate actions to assign the balance due account to the appropriate function.

  2. The OE should document the AOIC remarks and the OS should document the ICS history with the proposed actions to be taken on the taxpayer's account, if there remains a liability.

  3. No action will be required on the following cases:

    • Cases in Status 12. These cases can go to closed files.

    • Cases in Status 60, 43, 26, and 72 will not be updated. After the financial screens are updated or a history entry discussing reasonable collection potential is input to AMS, the OIC case file should be forwarded to the closed files.

    Note:

    Refer to IRM Exhibit 5.8.4-4, COIC Procedures for Status 60/Status 71 Changes and IRM Exhibit 5.8.4-5, Field Procedures for OIC in Lieu of Installment Agreement for updating modules which were in status 60 when the offer was submitted.

  4. If the offer file was received from Appeals and the rejection was sustained, review the AOIC remarks to determine if a recommendation was made to assign the case to a field RO. If the offer should be assigned to a field RO, follow the procedures in 5.8.7.10.4.

5.8.7.10.1  (03-07-2014)
Alternative Resolution Procedures - Installment Agreement

  1. If an agreement is reached to have the taxpayer resolve the liability via an installment agreement, the processing of the Form 433-D, Installment Agreement, to full pay the tax due or Form 9465, Installment Agreement Request, should be completed and processed, as appropriate.

  2. Refer to IRM 5.15, Financial Analysis, when determining the appropriate payment amount.

  3. The OS should refer to IRM 5.14.2, Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED), for PPIA procedures

  4. Streamlined installment agreement (SIA) processing may be used in offer cases if the taxpayer proposes an amount equal to or greater than the amount required under SIA provisions. Refer to IRM 5.14.5, Streamlined, Guaranteed and In-Business Trust Fund Express Installment, to determine if the taxpayer qualifies for certain types of agreements..

  5. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post (manual reversals should only be input if the TC 480 was manually input). If the actions are to be processed by another Service function, the request should not be mailed until the TC 48X transactions have posted and all compliance and freeze code conditions have been addressed.

5.8.7.10.2  (05-10-2011)
Alternative Resolution Procedures - Currently Not Collectible

  1. The Form 53, Report of Currently Not Collectible Taxes, should be completed to report the account uncollectible when requesting current payment would create an undue hardship, the taxpayer is deceased and there is no probate, or the taxpayer is now unable to be located.

  2. If a TC 530 is within one year of offer submission, return the account to Status 53. If the TC 530 is over one year old, and the taxpayer has the ability to full pay through an installment agreement or has substantial equity in assets, which were not considered when the account was reported CNC, reverse the TC 530 with the input of a TC 531 using REQ77/FRM77. Accelerate the modules to Status 22 00 using Command Code STAUP after financial screens are updated or a history entry discussing reasonable collection potential is input to AMS. The above actions cannot be processed on IDRS until the TC 48X posts.

  3. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post (manual reversals should only be input if the TC 480 was manually input), If the actions are to be processed by another Service function, the request should not be mailed until the TC 48X transactions have posted and all compliance and freeze code conditions have been addressed.

5.8.7.10.3  (03-07-2014)
Alternative Resolution Procedures - Assignment to ACS

  1. Subsequent to AOIC closing action by COIC and the field offer groups, with the exception of cases noted in IRM 5.8.7.10(3), cases in which an installment agreement will be processed, cases in which a CNC is processed, or cases assigned to the field, all other closures meeting the below criteria will be accelerated to ACS and the financial information will be documented on Account Management Services (AMS) Financial Screens or AMS history.

  2. If the prior status was 24 or 26 and a Form 657 is not in the offer file or the Form 657 states the RO does not wish to have the case returned to their inventory, the case should be accelerated to Status 22, unless the case is Status 12, 60, 43, or 72. This may be accomplished by inputting a STAUP 22 00 with an assignment code of 0605.

  3. All other Status cases will be accelerated to Status 22 on IDRS by inputting Command Code STAUP 22 00.

  4. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post (manual reversals should only be input if the TC 480 was manually input). If the actions are to be processed by another Service function, the request should not be mailed until the TC 48X transactions have posted and all compliance and freeze code conditions have been addressed.

  5. The financial information will be input into Financial Statement under the Bal Due icon in AMS. The account does not have to be accelerated to ACS status prior to the AMS financial screen input.

  6. If the financial information cannot be input, include a history statement in AMS. Examples of good history statements are: (1) OIC returned because the taxpayer failed to provide bank statements, (2) OIC rejected, the RCP totaled $_____, and the taxpayer failed to increase their offer and Appeal Rights were not exercised, (3) OIC rejected because the taxpayer RCP totaled $_____, which exceeds their liability. The taxpayer appealed and Appeals concurred with the rejection recommendation.

5.8.7.10.4  (03-07-2014)
Alternative Resolution Procedures - Assignment to Field

  1. If immediate field assignment is being recommended, the history should be documented even if the offer is going to Appeals, so expeditious assignment can be made if Appeals sustains the rejection.

    Types of cases where accelerated assignment to a Collection field revenue officer may be necessary include:

    • A specific asset(s) with equity of $50,000 or greater was identified during the offer investigation and/or,

    • A taxpayer's ability to full pay is apparent and the taxpayer refused to fully pay the liability or enter into an installment agreement to resolve the outstanding balance

  2. The closing narrative in the AOIC remarks should be documented by the OE relative to whether immediate field action should take place. When reviewing the closing narrative, if the COIC manager agrees that immediate field action is warranted, the manager should state their concurrence in the AOIC remarks. If the offer is not appealed, COIC will process the closing actions on AOIC and forward the offer file to the site RO.

  3. The closing narrative by the OS in the ICS history should include a statement relative to whether immediate field action should take place. When reviewing the closing narrative, if the field offer manager agrees that immediate field action is warranted, the manager should state their concurrence in the AOIC remarks. If the offer is not appealed, the field offer group will process the closing actions on AOIC, as appropriate.

  4. Either the field offer manager or site RO will contact the Field RO Manager to discuss the potential other investigation (OI) issuance.

    If after discussion with the field Manager a decision is reached not to issue an OI to the field, the OIC Field Manager or site RO will notate the ICS history or AOIC remarks and forward the case file for any remaining closing actions. NOTE: If possible, bal due modules may be created on ICS by the site RO or field offer group and transferred to the receiving field RO group.

    If the field RO Manager states they agree with the assignment of the case, an OI will be issued to the field RO group or bal due modules will be created and transferred to the field RO group. The following information should be included in the ICS history:

    • Basis for the immediate assignment determination and

    • Equity determination on specific asset/levy source(s) located.

    The OI or bal due modules will be created on ICS by the COIC site RO or the field offer group. The ICS parameter tables and SERP zip code assignment list are available to determine the appropriate field group. The ICS modules should be updated or the history should include a statement that the case should be treated as sub-code 604 (Large $ Asset Case); copies of the Form 433-A(OIC) and 433-B(OIC) along with any relevant research documents will be provided to the Field RO Manager. Additional documents from the offer case file may be secured by the RO, if necessary, once the case is assigned.

    Either the site RO or field offer group contact (as determined by the site or group procedures) name and phone number should be listed for the field RO to secure pertinent documents from the offer file, if necessary.

  5. If a Form 657, Revenue Officer Report, is present in the case file and the RO requested on Form 657, contact with the RO should be made to advise of the offer rejection and that the RO may initiate action to accelerate the case to Status 26, if they wish to have the case returned to their inventory expeditiously.

  6. The above actions cannot be processed on IDRS until the TC 48X posts. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post (manual reversals should only be input if the TC 480 was manually input). If the actions are to be processed by another Service function, the request should not be mailed until the TC 48X transactions have posted and all compliance and freeze code conditions have been addressed.

  7. Once received by the Field RO Manager, the case will be transferred to the RO pending reversal of the TC 480 (usually one full cycle).

    Note:

    No enforcement action(s) should be taken by the RO until the TC 480 has been reversed or the RO has verified the offer closing letter has been issued

    .

    The OI serves as an open assignment until the case is systemically assigned to Status 24 (QUEUE), at which time the RO Manager will assign the case to the RO using ENTITY GM Case Assignment. This process usually takes about 30 days. The RO Manager may use expedited STAUP/TSIGN procedures to assign the case to the RO on IDRS, if necessary.

5.8.7.11  (05-10-2011)
Destruction of Credit Reports

  1. Procedures for destruction of credit reports for OICs should be as follows:

    1. For rejected cases, all credit reports should be destroyed upon closure of the case after the 45-day period for appeal has passed. If the taxpayer files for appeal, the credit report should remain with the file and forwarded to Appeals. Appeals will then be responsible for pulling and destroying the report. This is in accordance with IRM 5.1.18.17.2.8 Disposal of Credit Information.

    2. For returned, withdrawn, and terminated offers all credit reports should be pulled and destroyed after the managerial review and approval.

    3. For accepted offers, see IRM 5.8.8, Acceptance Processing.

5.8.7.12  (03-07-2014)
Closed File Retention

  1. Closed cases (other than acceptances) are to be retained in closed files in the Area or COIC offices. Document 12990 Records and Information Management Record Control Schedules, directs that the Area and COIC offices may retire the closed files to the Federal Records Center (FRC) when it is determined they are no longer needed for current business. See IRM 5.8.7.12.1 below for instructions on shipping closed cases to the FRC.

  2. As space dictates in the offices, the files should be prepared to be retired to the FRC. Instructions for shipping files should be secured from the appropriate AWSS area Records Manager. A record of the cases shipped, including taxpayers name, TIN, and year closed, with a cross reference to the FRC box number and locations should be maintained in the Area or COIC office so the closed case file can be retrieved, if necessary, for litigation or other necessary action. This information should also be input into AOIC under FRC Tracking located on the AO-AOIC Main Menu page under maintenance.

  3. Prior to shipping these cases they should be purged so that only the following documents are shipped:

    If... Then ship ...
    Returned, Terminated or Withdrawn Return, Termination or Withdrawal letter to the taxpayer (and POA letter if applicable)
    • All Forms 656 received

    • Form 2848, if applicable

    • CIS

    • Case history sheets

    • Other significant correspondence/ documents

    Rejected Rejection letter to taxpayer (and POA letter if applicable)
    • All Forms 656 received

    • Form 2848, if applicable

    • Form 1271

    • Narrative report

    • CIS with supporting verification/documentation

    • Case history sheets

    • Other significant correspondence/documents

5.8.7.12.1  (05-10-2011)
Shipment of Closed Cases to Federal Records Center (FRC)

  1. Document 12990 Records and Information Management Record Control Schedules, R , allows local offices to retain closed files until “there is no longer a business need” to retain them at the local level.

  2. Follow procedures in IRM 1.15.4, Retiring and Requesting Records, when mailing closed cases to the FRC.

5.8.7.12.2  (05-10-2011)
Loading FRC Information on AOIC

  1. COIC and field Area offices are required to load the FRC information on the AOIC FRC Tracking screen, for each case, prior to mailing the closed file(s) to the FRC. This screen includes the offer number, accession number, box number, FRC date and location. Refer to the AOIC Course User’s Guide for instructions on loading information on the AOIC FRC Tracking screen.

  2. Cases shipped to FRC prior to the inclusion on AOIC, will not be grandfathered into AOIC; therefore, paper documents must be retained.

5.8.7.13  (05-10-2011)
Requesting a Closed Case from FRC

  1. The AOIC FRC Tracking screen provides information to locate a closed offer file previously shipped to the FRC by entering either the TIN, accession number and/or the FRC date. Refer to the AOIC Course User’s Guide for instructions on how to locate a closed offer using the AOIC FRC Tracking Option.

    Note:

    If information is not available on the AOIC FRC Tracking screen or the AOIC remarks, refer to the Area designee responsible for maintaining the SF 135, Records Transmittal and Receipt, to locate the information.

  2. If retrieval of a case is needed from FRC, a Form 2275, Records Request, Charge and Recharge, or optional Form OF 11, Reference Request – Federal Records Center, sheet must be completed. Follow procedures in IRM 1.15.4, Retiring and Requesting Records, when requesting closed cases from FRC.

Exhibit 5.8.7-1 
Field Cover Sheet for Reloading an OIC under Reconsideration Procedures

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