5.8.9  Actions on Post-Accepted Offers

Manual Transmittal

July 14, 2015


(1) This transmits a revision for IRM 5.8.9, Offer in Compromise - Actions on Post-Accepted Offers.

Material Changes

(1) This IRM is revised to correct the IRM reference in from to, Legal Opinion of Counsel

Effect on Other Documents

IRM 5.8.9 published 10–31–2014 is superseded.


SB/SE Collection and Campus Compliance employees.

Effective Date


Kristen E. Bailey
Acting Director Collection Policy  (04-23-2015)

  1. Once an Offer in Compromise (OIC) is accepted, it may be necessary to consider a request to rescind or terminate an OIC or revise an existing OIC. This section provides guidance for these situations.  (04-23-2015)
Rescission of Accepted Offers

  1. An OIC is an agreement that is binding on both the government and the taxpayer, and precludes further inquiry into the matters to which it relates unless false information, fraud, a mutual mistake of fact is identified, or the taxpayer was ordered to pay restitution.

  2. The function that accepted the OIC is also responsible for making the determination to rescind the OIC and will also be responsible for completion of all required actions identified in IRM through below.  (04-23-2015)
Mutual Mistake of Fact and False Information/Representations

  1. An OIC may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or false information/representation that was made by one party.

  2. A "mutual mistake of fact" is defined as an erroneous belief held by both parties about the facts as they existed at the time the contract was entered into.

  3. The mere fact that both parties are "mistaken" with respect to the same basic assumption about an existing fact does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the OIC.

  4. To constitute false representation, the following must be present:

    1. The representation and/or information related to material facts were false.

    2. The maker knew or should have known the facts to be false.

    3. The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.  (04-23-2015)
Rescission Procedures

  1. Prior to rescinding an OIC based on mutual mistake or false information/representation, send a preliminary letter to the taxpayer advising of the proposed rescission of their offer.

    The letter will contain the grounds for the proposed rescindment and will give the taxpayer 15 days to respond and provide any additional information related to the proposed rescindment.


    AOIC Remarks must be noted with the date the initial proposal letter was mailed, the taxpayer's response and the analysis of any additional information provided.

  2. Rescind an OIC in the following manner:

    • Prepare a letter to the taxpayer identifying the OIC by the day it was accepted, and advising that the acceptance of the OIC is rescinded and the acceptance letter is revoked.

    • Include in the letter the grounds for rescission in general terms with a demand for payment of the unpaid tax liability.

    • All rescission determinations must be reviewed and approved by Counsel before a being sent to the taxpayer.


      The letter must be signed by the same level of approval that accepted the OIC.

    • Document the AOIC Remarks with the basis for the decision to rescind and any taxpayer contact.

    • After all approvals have been received, notify the appropriate MOIC liaison of the rescission and request input of a TC 781 to ensure the case is reassigned to the field for appropriate collection action.  (04-23-2015)
Department of Justice Controlled Cases

  1. Occasionally an OIC is purportedly accepted while a period is under the settlement jurisdiction of the DOJ. In these cases, although the OIC was processed as an acceptance, the IRS never actually accepted the OIC because it lacked the legal authority to do so. See IRM, Tax Cases Controlled by Department of Justice, for additional information.

  2. The OIC cannot be rescinded but must be returned as not processable because the IRS had no authority to accept an OIC on any period controlled by DOJ.

  3. All payments will be applied in accordance to TIPRA regulations for not processable offers.

  4. These offers will be returned to the COIC site to change the processability criteria, issue the not processable letter, and refund the application fee. See IRM, Erroneous Processability Determinations.

  5. If the not processable determination is within one year of acceptance, a copy of the not processable letter should be sent to the Public Inspection File to be associated with the acceptance letter.  (04-23-2015)
Potential Default Cases

  1. An OIC can reach a potential default status in one of three ways:

    1. The taxpayer failed to fulfill the payment terms of the OIC;

    2. The taxpayer failed to fulfill the terms of a related collateral agreement;

    3. The taxpayer failed to adhere to the compliance provisions; or

    4. Taxpayer failed to return an erroneously issued refund.


    MFT 35 — The taxpayer's failure to report or pay an individual shared responsibility payment (SRP) liability made under IRC § 5000A and/or any individual SRP liability assessment made after acceptance will not default the OIC.

  2. Campus MOIC units have responsibility and authority to make determinations on potential defaulted OICs.

  3. The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns or payments, the MOIC unit will default the OIC. After all appropriate letters have been sent, MOIC will input reversal codes to bring the liability back to the collection stream, as appropriate, and close the case as a default.  (04-23-2015)
Compromise of a Compromise

  1. The compromise of a compromise should be rare in light of the investigation completed in connection with the original offer. In some cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement and the investigation reveals that extreme hardship or special circumstances exist, the Service may determine that the Government would better benefit to not accept a compromise on a compromise but it may be in the best interest of the government to:

    1. Adjust the payment terms of the OIC,

    2. Formally compromise the existing compromise, or

    3. Obtain managerial approval to settle the OIC for the amount already paid and not default the OIC.

  2. A Form 2209, Courtesy Investigation, request will be issued by MOIC to the office that accepted the OIC when a request to compromise a previously accepted OIC is received. A request for a courtesy investigation should be rare, but when issued the courtesy investigation should be worked in an expeditious manner and if ICS is used, coded with a priority code 100.


    A Courtesy Investigation should only be issued by the MOIC function if a compromise on a compromise is received or the terms of an agreed collateral agreement cannot be properly monitored.

  3. A proposal to compromise the balance of an accepted offer must rest on Doubt as to Collectibility (DATC), DATC with special circumstances (DATCSC), or effective tax administration (ETA).  (04-23-2015)
Receipt and Processing

  1. The office that initially accepted the OIC will consider the taxpayer's proposal. The proposal must be in writing and in the form of a letter.


    Do not secure a new Form 656. No Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) payments are required if the terms (lump sum cash or periodic payment) of the new proposal are the same as the original, accepted offer.

  2. Upon receipt of the proposal:

    • COIC will add a history entry to AOIC indicating that an offer on an offer has been received.

    • The field should create an Other Investigation (OI) or Collection Initiative Program (CIP) on Integrated Collection System (ICS) to open a control until the taxpayer's proposal has been considered.

    • Both the field and COIC should notify the appropriate MOIC unit that the OIC should not be defaulted until the investigation has been completed.

  3. When closing, AOIC must be noted with the results of the investigation.

  4. The proposal letter submitted by the taxpayer should be addressed to the Commissioner of Internal Revenue Service and include language shown in Pattern Letter 1603(P). See Exhibit 5.8.9–1 below.


    The OE or OS should share a copy of the required language, an example, or copy of Exhibit 5.8.9–1 with the taxpayer.

  5. The taxpayer must submit a current financial statement(s) and all required supporting documentation.  (04-23-2015)
Consideration of Proposal

  1. The consideration of such a proposal will be made by the office of jurisdiction that originally accepted the OIC. Acceptance will depend on:

    1. If it is in the best interest of the Government; and

    2. If the same considerations and merits were applied as if it were submitted on a Form 656.

  2. The information required to support the proposal should fit the case. Such as:

    • Copy of the taxpayer's most recent income tax return or Command Code (CC) RTVUE/BRTVU print.


      Generally, this information may be secured through internal sources such as AMS and EUP. A request for a copy from the taxpayer should be rare. A tax return should never be requested if it is not legally due, including any extension of time to file.

    • Estimate of the remaining liability under the terms of the future income collateral agreement, if applicable.

    • Reasons why the request is being made to compromise the existing agreement.

    • Full compliance check.

    • Statement of current financial condition.

    • Description of future prospects and any other information which might have a bearing upon the acceptability of the OIC.

    • Estimated and projected amount of future income over the period covered by the remaining terms of the original agreement.  (07-14-2015)
Processing Completed Investigations

  1. When the investigation is complete, the taxpayer's proposal, investigative report, and memorandum containing a complete statement of the facts in the case, including the recommendation, should be forwarded to the next level of authority for approval.

  2. An acceptance or denial letter should be prepared for the delegated official. See Exhibits 5.8.9–2 and 5.8.9–3 below.

  3. If the taxpayer's proposal is acceptable, the procedures for acceptance of the original OIC will be followed which include an opinion of Counsel as set forth in IRM, Legal Opinion of Counsel.

  4. Follow the below "If/Then" chart for preparation of the file.

    If... Then...
    The proposal is acceptable Forward the case file to the delegated official for approval and signature. Include:
    • Copy of the Acceptance Letter

    • Taxpayer's proposal

    • Memorandum supporting the compromise of a compromise

    • Work papers and financial information

    • Original acceptance recommendation, if available

    • Generate a new Form 7249


    Include a copy of the Form 7249 and acceptance letter in the Public Inspection File. See IRM, Public Inspection File, for additional information.

    The proposal is not acceptable Forward the case file to the delegated official for approval and signature. Include:
    • Copy of the Denial Letter

    • Taxpayer's proposal

    • Memorandum supporting the recommendation


    No appeal rights are granted to the taxpayer.

  5. Update the AOIC history and the ICS history, if it is a field OIC, with the results of the investigation. If the proposal is accepted, include the amount of the accepted proposal and the terms for payment in the AOIC history and ICS, if appropriate .

  6. Once the decision letter has been signed and mailed, the OI or CIP should be closed.


    There will be no open AOIC record. The new Form 7249 and acceptance letter must be redacted and included in the Public Inspection File.

  7. Document the case history indicating that the OI is closed and the final resolution.

  8. The closed file should be mailed to the appropriate MOIC unit with instruction to either monitor if it is to be accepted, or default if it is not accepted.

Exhibit 5.8.9-1 
Pattern Letter 1603(P)

This is an example of a proposal letter to compromise a balance due on an OIC or to compromise future income collateral agreements. This letter should be provided to the taxpayer as an example.


This letter format must be shared with the taxpayer and/or POA.

The information that is printed in bold letters should be included if there was a collateral agreement with the original offer or if the original offer had an attached collateral agreement.
Date Name
  City, State Zip
Commissioner of Internal Revenue
Washington, DC 20224
On [enter date of acceptance letter] you accepted [my/our] offer in compromise and the related Form 2261, Collateral Agreement, Future Income – Individual; or 2261 – A, Collateral Agreement, Future Income – Corporation. [I/we] agreed to pay $[enter the agreed offer amount from the signed, dated Form 656, Offer in Compromise] to compromise the tax liability(s) listed below:
[List type(s) of tax and period(s) ]
Instead of future payments specified in Form 2261, Collateral Agreement, Future Income – Individual; or 2261 – A, Collateral Agreement, Future Income – Corporation [I/we] propose to pay $[enter amount you are offering to pay] in full settlement of the original offer and the collateral agreement.
[Also select one of the following sentences to describe how you will pay the amount you entered in the previous sentence:]
[I/we] have enclosed full payment of the proposed amount.
[I/we] will make full payment of the proposed amount when you notify [me/us] that you have accepted [my/our] proposal.
[I/we] have enclosed a payment of $[Enter Amount] as the initial payment with the balance of $[Enter Amount] paid over [Enter number 1-23 months] when you notify [me/us] that you have accepted [my/our] proposal.
[I/we] have enclosed $[Enter amount you are sending with this letter] and will pay the balance when you notify [me/us] that you have accepted [my/our] proposal.
[The below paragraphs must be included in all proposal letters.]
 [I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years from the date of acceptance of the proposed, revised offer. [I/we] further agree to promptly pay any liabilities assessed after acceptance of this revised offer for tax years ending prior to acceptance that are not otherwise included in the revised offer.
[I/we] agree to waive any and all claims to overpayments of tax or other liabilities, including interest on those payments, that [I/we] may be entitled to receive under the Internal Revenue Code. This waiver is limited to overpayments which haven't already been refunded to me for any years or tax periods which end before or during the year you accept this proposal.
[I/we] have enclosed a letter with this proposal which contains the detailed reasons for submitting this offer and a completed financial statement showing [my/our] current financial condition.
[Sign and Date]
[Each person who is submitting this proposal must sign and date the letter.]

Exhibit 5.8.9-2 
Pattern Letter 1604(P)

This is an example of an acceptance letter for a compromise of a compromise.

Acceptance letter for proposal to compromise balance due on offer in compromise and/or collateral agreement. The information that is printed in bold should be added for a collateral agreement.
Date: Person to Contact:
  Telephone Number:
We accept your proposal to pay $[Enter Amount] to settle the remaining liability under the offer in compromise accepted on [Enter Date]and/or the related collateral agreement.
[Pick one]  
Since you have paid the amount proposed, you do not need to take further action.
Since you enclosed $[Enter Amount] with your proposal, please send the balance of $[Enter Amount] by [Enter Date].
Since your payment was to be made on notice of acceptance of your proposal, please send $[Enter Amount] by [Enter Date].
Since you chose to pay your proposed amount over [Enter number of months] months, you must make the payments on the [Enter the day of the month each payment is due] of each month until the accepted offer amount is paid in full.
Make your check or money order payable to the "United States Treasury" and mail to [enter the service center address "Attn.: Collection Offer Unit" ].
If you receive a refund that you specifically waived under the terms of your proposal, please return it promptly to the address above.
If you have any questions, please contact the person whose name and telephone number are shown above.
  Sincerely yours,
  (Signature and title)

Exhibit 5.8.9-3 
Pattern Letter 1607(P)

This is an example of a denial of a proposal of an offer on an offer.

Denial of proposal to compromise balance due on offer in compromise and/ or collateral agreement. The information that is printed in bold letters should be added for a collateral agreement.
Date: Person to Contact
  Telephone Number
We are sorry, but we cannot accept your proposal dated [Enter Date] to compromise the remaining liability under the offer in compromise accepted on [Enter Date] and/or related collateral agreement.
[Explain reasons]  
We must, therefore, ask you to comply with the terms of the offer in compromise including any collateral agreement. If you have any questions, please contact the person whose name and telephone number are shown above.
  Sincerely yours,
  (Signature and title)

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