8.23.1  Offer in Compromise Overview

Manual Transmittal

November 20, 2013


(1) This transmits revised IRM 8.23.1, Offer in Compromise, Offer in Compromise Overview.

Material Changes

(1) Revised to include Interim Guidance memorandum AP-08-0713-03, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project (Attachment 3), and the other editorial changes noted in the table below:

IRM Section Description of Change Restatement of Appeals' primary role and use of IRM 5.8 General restatement of conference and settlement practice in a non-CDP offer
In General Changed "SBSE" references to "Compliance"
In General Revised for grammar and other editorial changes
In General Updated IRM cross-references
In General Throughout, referred to Appeals Technical Employees (Appeals Officer, Settlement Officer, Appeals Account Resolution Specialists) as "Appeals hearing officer" .

Effect on Other Documents

This supersedes IRM 8.23.1, dated August 31, 2012. Incorporates Interim Guidance memorandum AP-08-0713-03, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project (attachment 3), and other editorial changes.


Appeals Employees

Effective Date


Susan L. Latham,
Director, Policy, Quality and Case Support  (11-20-2013)

  1. This IRM provides instructions for Appeals personnel for offer in compromise (OIC) cases. The procedures in IRM 8.23 are intended to be consistent with the procedures in IRM 5.8, Offer in Compromise , IRM 5.15, Financial Analysis, as well as with other sections of IRM Part 8 - Appeals. Section 509 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) significantly impacted the offer in compromise program. Appeals' responsibilities under TIPRA differ between Collection Due Process (CDP) and non-CDP offers. Guidance on CDP offers is available in IRM 8.22.2.

  2. Appeals researches IRM 5.8 and related interim guidance to evaluate Compliance actions, decisions and valuation methods for Offers in Compromise. In addition to IRM 8.23, other IRM sections impacting Appeals' consideration of an offer in compromise (OIC) include:

    • IRM 8.1.1, Appeals Operating Directives and Guidelines

    • IRM 8.2, Pre-90-Day and 90-Day Cases (contains general information for all Appeals cases)

    • IRM 8.6.1, Conference and Issue Resolution

    • IRM 8.6.4, Reaching Settlement and Securing an Appeals Agreement Form

    • IRM 8.7.6, Appeals Bankruptcy Cases

    • IRM 8.21, Appeals Statute Responsibility

  3. An OIC is an agreement between a taxpayer and the government that, generally, settles a tax liability in exchange for payment of less than the full amount owed. IRM 5.8.1 contains a general overview of the OIC program, including:

    • Authority

    • Policy

    • Objectives

    • Bases of Compromise

    • Payment terms

    • Fees and required initial payments

  4. Per IRC 7122(f) and Notice 2006-68, an OIC shall be deemed accepted if it is not rejected, returned, withdrawn or treated as withdrawn under IRC 7122(c)(1)(B)(ii), because the taxpayer failed to make the second or later installment due on a periodic payment OIC (see IRM 5.8.8), before the date which is 24 months after the date of the submission of the offer. Any period during which any tax liability which is the subject of the OIC is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period. Per Notice 2006-68, the date of submission of an offer for purposes of IRC 7122(f), is the date on which the offer is received by the Service. The postmark date is irrelevant in determining when an offer is submitted.

  5. In general, Appeals has jurisdiction to make decisions on OIC cases in the following circumstances:

    1. Offers appealed after being rejected by Collection or Examination.

    2. Offers based on doubt as to liability (DATL) if the liability was previously determined by Appeals.

    3. Offers submitted as an alternative to the proposed collection action in a CDP or equivalent hearing (EH) case before the CDP Notice of Determination or EH Decision Letter is issued.

    4. Offers being evaluated by Collection when a Notice of Federal Tax Lien (NFTL) is filed and the taxpayer requests a CDP or equivalent hearing.


      Appeals will not accept jurisdiction over an OIC if the IRS does not have the authority to determine the type of tax that is being compromised, e.g. Alcohol, Tobacco and Firearm (ATF) taxes.


      Appeals has no authority to compromise a liability if the Department of Justice (DOJ) can settle the case. A transaction code (TC) 550 with definer code "04" indicates that a judgment was obtained. Also, a TC 520 with a Closing Code (cc) 70, 71, 73, 75, 80 or 82 may indicate that litigation is pending (see IRM 25.3.6-1 and IRM 5.8.1. Consult with Area Counsel if these codes are present.


      The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed unless the Integrated Data Retrieval System (IDRS) indicates a return was received or an assessment is pending. See IRM 5.8.1.

  6. Absent special circumstances, an OIC will not be accepted if it is believed that the liability can be paid in full as a lump sum, or by installment payments extending through the remaining statutory period for collection, or other means of collection. See IRM 5.8.1.


    Other provisions may apply. See IRM

  7. Per Revenue Procedure 2012-18, OIC cases are subject to ex parte provisions. The third party contact waiver provision found in Section 8 of Form 656 pertains to non-IRS contacts only and is not a waiver of prohibited ex parte communications between Appeals and other IRS functions such as Examination, Collection, and IRS Counsel.

  8. IRM 5.8 is the primary resource for Appeals in working OIC cases. However, while following the general OIC procedures found in IRM 5.8, Appeals exercises independent judgment concerning the disputed valuations and business decisions made by Collection. Appeals also makes independent determinations regarding offers based upon DATL.  (11-20-2013)
Suspension of Levy While Offer is Pending

  1. IRC 6331(k) provides that no levy may be made

    • during the period that the offer is pending,

    • for an additional 30 days after the offer is rejected, and

    • during the time any appeal of the rejection is pending.

  2. Treasury Regulation 301.7122-1(d)(2) states that an offer becomes pending once it is accepted for processing. This is the date the Service official signs the Form 656, Offer in Compromise and inputs Transaction Code (TC) 480.


    The date an offer becomes pending (TC 480 date) is usually not the same as the offer submission date under TIPRA. Be aware of this important difference when determining the statute date under IRC 7122(f).

  3. IRC 7122(e) states there must be an independent administrative review of any rejection of an OIC before such rejection is communicated to the taxpayer, and Treasury Regulation 301.7122-1(f)(1) provides that an offer in compromise has not been rejected until IRS issues a written notice to the taxpayer or his representative advising of:

    • The rejection,

    • The reason(s) for rejection, and

    • The right to an appeal.

  4. Treasury Regulation 301.7122-1(f)(5) further provides that a taxpayer may administratively appeal the rejection of an offer to the IRS Office of Appeals if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary.

  5. IRC 6331(i)(5)provides that the period of limitations to collect the tax under IRC 6502 shall be suspended for the period during which levy is prohibited. See also Treasury Regulation 301.7122-1(i)(1).


    The suspension of the collection statute expiration date (CSED) was repealed by the Community Renewal Tax Relief Act, effective December 21, 2000. The Job Creation and Workers Assistance Act re-established the suspension of the CSED, effective March 9, 2002. Appeals hearing officers considering cases involving older liabilities with multiple prior OICs must be aware of the proper CSED. IRM 5.8.10 and IRM 8.21 contain detailed information on CSED issues involving OICs.  (11-20-2013)
Conference and Settlement Practices

  1. The Appeals process in an OIC case is not an extension of the Compliance OIC process. The role and mission of Appeals are different from that of Compliance. Appeals' personnel must employ Appeals' standard conference and settlement practices for all work streams, including OICs.

  2. The primary obligations Appeals has in a non-CDP OIC appeal are to:

    • Provide the taxpayer with an opportunity for the Appeals conference he/she asked for under IRC 7122(e)(2).

    • Determine whether Compliance was correct in rejecting the taxpayer's offer by addressing the disputed issues that caused the offer to be rejected.

    • Advise the taxpayer of what is needed in order for the offer to be properly evaluated and/or accepted and provide a reasonable opportunity to submit supplemental information or documentation that the taxpayer or the Appeals hearing officer believes is necessary to properly evaluate the offer and/or may make the offer acceptable.

    • Accept offers improperly rejected by Compliance.

    • If an offer cannot be accepted, communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status) that can be pursued with Compliance, including explaining any forms or documentation required for consideration of these alternatives.


    IRM 8.6.1 discusses conference and settlement practices applicable to all Appeals cases and makes no exceptions to offering the taxpayer an opportunity for a conference. This applies even in cases in which the taxpayer is not in compliance with filing and/or payment requirements. Do not close a non-CDP offer case as sustaining rejection of the offer without first offering the taxpayer an opportunity for a conference. See also IRM

  3. In a non-CDP OIC case, Appeals is not responsible to "re-work" the offer rejected by Compliance. Appeals will consider those items in dispute at the time of rejection. Requests for the taxpayer to provide supplemental information to Appeals should clearly indicate:

    • precisely what is needed, and when

    • that the information, documentation, unfiled return, payment, etc., is necessary

    • that Appeals will make its decision based upon available information if all of the requested items are not received by the due date provided. See IRM

  4. Any reason for granting the taxpayer an extension of time to provide information, documentation or to resolve a compliance issue, should be documented in the case activity record.


    Ensure that the taxpayer had a full opportunity to present information and/or documentation to Collection to address relevant RCP issues before the offer was rejected. Refer to IRM for Appeals OIC evaluation procedures.

  5. IRM 8.1.1, Appeals Operating Directives and Guidelines, IRM 8.6.1, Conference and Issue Resolution, and IRM 8.6.4 , Reaching Settlement and Securing an Appeals Agreement Form, contains general guidance on Appeals conference and settlement practices and other general Appeals responsibilities. Appeals' decision to sustain a rejection of a non-CDP offer is not subject to judicial review, therefore, not all of IRMs 8.1.1, 8.6.1 and 8.6.4 relate to OICs, but some sections that are relevant include:

    1. Conduct conferences in an open atmosphere that fosters cooperation in the resolution of disputes. Above all, it is of utmost importance to be a good listener. (See IRM and IRM

    2. Consider whether the taxpayer demonstrates a lack of technical knowledge. The appeals hearing officer will assist the pro se taxpayer to an appropriate extent. Assistance should be consistent with the Appeals role of impartiality. In the absence of an agreement, ensure the taxpayer fully understands their appeal rights.

  6. Consideration of certain issues, as well as an overall judgment as to the appropriateness of compromise often requires subjective judgments to be made by the Appeals hearing officer. With this in mind, some general factors to consider when evaluating an OIC are:

    • The success, or lack thereof, of prior collection efforts against the taxpayer

    • The advantage of the taxpayer's future compliance, secured through acceptance of an OIC


      Such factors are not stand-alone bases of acceptance of compromise, but should be considered in developing a frame of mind that is open to compromise.  (09-13-2011)
Requirements for Compromise

  1. This IRM section contains only the most basic compromise requirement details plus some information that's unique to Appeals. Appeals personnel considering offers must be familiar with the revised guidelines in IRM 5.8, which contain numerous post-TIPRA changes. To avoid duplication of procedures, the bulk of the most necessary information in terms of OIC processability, perfecting and payment requirements, is found in IRM 5.8.2, Offer in Compromise, Offer Receipts, and IRM 5.8.3, Offer in Compromise, Processability .

  2. Except as indicated below, an offer must be filed on the current revision of Form 656 to be accepted. The Form 656 instruction booklet provides specific details for completing the offer.


    Collection will process an offer even if the Form 656 does not list all outstanding tax debts. However, an amended Form 656 listing all known tax debts need not be secured prior to accepting the offer because Section 8 of the Form 656 allows the Service to include any assessed liabilities on the form, even after its submission by the taxpayer. New, related offers, however, may need to be secured. See IRM

  3. If an OIC case is under consideration where the original offer was mailed before July 16, 2006, the offer may be accepted using the July 2004 revision of Form 656. This is a pre-TIPRA offer. If an amendment is needed on a pre-TIPRA offer, the July 2004 revision of Form 656 may be used, as the taxpayer is not required to make a TIPRA payment with the amended offer.

  4. A Form 656-L, Offer in Compromise (Doubt as to Liability), is used for an offer based upon doubt as to liability. A DATL offer must be submitted using Form 656-L. There is no provision on the Form 656 or 656-B for DATL offers. No TIPRA payment(s) are required for DATL offers.

  5. Each separate tax period and type of tax must be listed on the Form 656. If an offer involving a Trust Fund Recovery Penalty (TFRP) assessment is accepted, the case file must include information identifying the Business Master File (BMF) periods comprising the TFRP assessment(s). A TFRP assessed prior to August of 2000 reflects only the last quarterly period that was the subject of the TFRP. In August of 2000, IRS began assessing TFRPs for each respective quarter. Verification on IDRS is required to determine how the assessment was completed. See also IRM, concerning amended offers and the periods to be listed on the amended Form 656.

  6. IRC 7122(b) requires an opinion from the Office of Chief Counsel on all offers recommended for acceptance in which the unpaid liability (including tax, penalties and interest) is $50,000 or more. Counsel's review of a proposed acceptance has two separate and distinct components:

    1. Certification that the legal requirements for compromise were met.

    2. Review of the proposed compromise for consistent application of the Service's acceptance policies.


      A finding by Counsel that a proposed acceptance is not in keeping with Service policy is not a justification for withholding an opinion if all of the legal requirements for compromise have been met.

  7. Further details concerning Counsel's review and statutorily required opinion are in IRM, Counsel Review of Acceptance Recommendations, and Chief Counsel Directives Memorandum (CCDM) 33.3.2, Offers in Compromise.  (11-20-2013)
Application Fees, Offer Terms, Payments and Deposits

  1. On May 17, 2006, TIPRA was signed into law. Offers received on or after July 16, 2006, must include the applicable user fee and an additional partial payment under TIPRA. The offer terms and associated initial partial payment requirements are:

    1. Payment Option 1 - Lump Sum Cash Offer: Payable in five or fewer installments beginning on or after notice of acceptance. The Form 656 must be accompanied by payment of 20% of the amount of the proposed offer, unless Low Income Certification Guidelines are met. See Section 4 of the Form 656. Section 5 of the Form 656 (Rev. March 2011) asks for specific dates for payments made under payment option 1, but since the date of acceptance is not known at the time an offer is submitted, exact payment dates cannot be used. In section 5, where the exact date of payment is not known, use less specific language for the "date" (see the example below).


      If the offer will have payment(s) made on the 10th day of the month, use the following language for the "date" : "Day 10 of the first month following the date of acceptance of the offer" . Subsequent dates will simply repeat the language using "second month" , "third month" , etc.

    2. Payment Option 2 - Periodic Payment Offer: Payable in more than five installments, beginning with the date the offer is received by the Service. The Form 656 must be accompanied by the first proposed installment payment unless Low Income Certification Guidelines are met. See Section 4 of the Form 656. Additional installments must be paid in accordance with the taxpayer's proposed terms while the offer is being considered, unless the offer is based upon DATL or the taxpayer meets the low-income exemption under Section 4 of Form 656. See paragraph (4) below for information on the low-income exemption.


    If payments involving irregular dates and/or amounts are proposed under payment option 2, it will be necessary to include an attachment for the Form 656. Create and name a Word document as "Attachment 1" to specifically enumerate the date and amount of each payment and, at payment option 2, mark the Form 656 to "See Attachment 1" . Include on the attachment the taxpayer's SSN/EIN. The taxpayer and/or representative must sign and date the attachment.

  2. The Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment, was made obsolete when the Form 656 was revised in March 2011. For offers submitted on the earlier Form 656 (March 2009), the Form 656-A was required for requesting a waiver of the TIPRA application fee and payment.

  3. If an amended Short Term Periodic Payment Offer is secured, the 24-month period during which the taxpayer must pay the Short Term Periodic Payment Offer begins the date the amended offer is accepted. The taxpayer is still required to make the proposed periodic payments while the amended offer is being considered, but the 24-month period to make such payments doesn't begin until the date the offer is accepted. See IRM 5.8.1.

  4. The 24-month time period during which the taxpayer must pay the Short Term Periodic Payment Offer also begins the date such offer is accepted if the Short Term Periodic Payment Offer is based upon DATL, the taxpayer qualifies for the waiver under Section 4 of the Form 656, or if Appeals accepts the original Short-Term Periodic Payment Offer that was rejected by Compliance, without amendments.


    As a collection alternative in a CDP case, on May 15, 2011, Appeals received a Short Term Periodic Payment OIC based upon doubt as to collectibility. The taxpayer made the required monthly periodic payments, and on January 18, 2012, submitted an amended Short Term Periodic Payment Offer. The amended offer was accepted February 15, 2012. The amended offer is payable in six or more installments before February 15, 2014.

  5. Section 7122 does not require the taxpayer to make periodic payments on either a regular basis or in equal amounts, although the revised Form 656 is set up for the taxpayer to make such a proposal. Also, the payment terms under Payment Option 2 do not have to be over the entire length of the collection statute, but may be paid in fewer months. However, the amounts and due dates of payments must be specified.


    A taxpayer has income and assets valued at $21,000.00. The value of future income is $200.00 per month for the 100 months remaining on the collection statute ($20,000.00), and equity in assets of $1,000.00. The taxpayer proposes to adjust some expenses and pay the offer in 70 payments of $300.00. This arrangement is acceptable. Payments do not need to be over the entire length of the collection statute, even though future income value is calculated over that period.

  6. If the offer is accepted and is either based upon DATL or the taxpayer qualified for the waiver under Section 4 of the Form 656, the taxpayer must begin making periodic payments in accordance with the terms of the accepted offer after Appeals issues the written notice of acceptance.

  7. The TIPRA requirement for a taxpayer to make proposed periodic installment payments while a periodic payment offer is being considered ends when Compliance rejects the offer. Taxpayers are not required to continue making periodic installment payments while a rejected offer is being considered by Appeals unless Appeals secures an amended offer. See IRM for additional guidance on amended offers secured by Appeals.

  8. IRC 7122 provides that the Secretary may issue regulations waiving any partial payments required with the submission of the offer. The only available waivers per Notice 2006–68 are for offers based upon doubt as to liability and offers received from low-income taxpayers. Such taxpayers are not required to pay the $150 processing fee, initial payment, or periodic installment payments.

  9. The IRS OIC Monthly Low Income Guidelines found in the Form 656 information booklet were recently increased, so an increased number of taxpayers will likely be exempt from the user fee and TIPRA payment requirements. A taxpayer seeking a low-income exemption must complete Section 4 of the Form 656 when submitting the offer. The low-income exemption applies only to individuals.

  10. If an individual taxpayer is granted a low-income exemption, the taxpayer is exempted from payment of the application fee as well as the 20% TIPRA payment, and any proposed periodic monthly payments, unless the offer is formally accepted. Once formally accepted, the taxpayer will be responsible for payment, subject to the terms on the accepted offer. However, no application fee or 20% TIPRA payment will ever be required of the taxpayer, even if the offer is accepted.

  11. The IRS no longer requires that installment agreements in effect prior to receipt of an OIC remain in effect while an offer is being considered.

  12. IRM 5.8.1 and IRM 5.8.4 contain detailed information concerning OIC payment terms, processability issues and initial payment requirements for offers. See also IRM  (09-13-2011)
Processing OIC Payments

  1. Appeals may process all "pre-acceptance" TIPRA payments using a Form 3244, Payment Posting Voucher, except for the payment that's due with the original Form 656. The user fee and initial payment are part of the overall processability determination so they must be forwarded to the appropriate Centralized Offer in Compromise (COIC) site. Subsequent periodic installment payments made prior to acceptance of the offer may be processed by Appeals as follows:

    1. For tax debts other than employment or excise taxes, apply designated payments per the written designation using Designated Payment Code (DPC) 35.

    2. For tax debts other than employment or excise taxes, apply undesignated payments to the liability with the earliest CSED using DPC 35.

    3. For tax debts other than employment or excise taxes, apply designated payments received with an amended Form 656 per the written designation using DPC 34.

    4. For tax debts other than employment or excise taxes, apply undesignated payments received with an amended Form 656 to the liability with the earliest CSED using DPC 34.

    5. For employment or excise tax (trust fund) debts, apply payments designated to trust fund taxes per the written designation using DPC 02.

    6. For employment or excise tax debts, apply undesignated payments to all unpaid Forms 1120 and 940 liabilities, and then to other non-trust fund liabilities beginning with the liability with the earliest CSED using DPC 35.


      This is different than the standard TFRP payment application procedures outlined in IRM, Trust Fund Compliance - Investigation and Recommendation of the Trust Fund Recovery Penalty, Calculating the TFRP, because offer payments are applied in the best interest of the government, unless otherwise designated.

    7. Apply payments designated to trust fund taxes that are received with an amended Form 656 per the written designation using DPC 02.

    8. Apply undesignated payments for employment or excise tax debts that are received with an amended Form 656, to all unpaid non-trust fund liabilities beginning with the liability with the earliest CSED using DPC 34.

  2. Per IRC 7122(c)(2)(A) and Notice 2006-68, taxpayers are entitled to designate all payments required under TIPRA while the offer is under consideration. The designation must be made in writing at the time the payment is made. Absent a written designation, the payments will be applied in the best interest of the government. Once the taxpayer designates application of a payment, it cannot be changed at a later date.


    The OIC user fee cannot be designated and will be applied to the taxpayer's liability in the best interest of the government.

  3. Once the offer is accepted, the taxpayer no longer has the right to designate subsequent offer payments. All post-acceptance payments should be processed by the Monitoring Offer in Compromise (MOIC) unit.

  4. Payments received for offers that have been accepted should be sent to the payment address that is shown on the taxpayer's offer acceptance letter. If the address is not known or cannot be readily identified, the payment may be routed to the most convenient remittance drop point in Appeals.

More Internal Revenue Manual