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Part 8. Appeals

Chapter 23. Offers in Compromise

Section 1. Offer in Compromise Overview

8.23.1  Offer in Compromise Overview

8.23.1.1  (08-28-2009)
General

  1. This IRM provides instructions for Appeals personnel for offer in compromise 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. IRM 5.8 contains the primary policies and procedures for both Collection and Appeals for processing, evaluating and making determinations on offers. In addition to IRMs 5.8 and 8.23, other IRMs 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 8.21, Appeals Statute Responsibility

  3. An offer in compromise (OIC) is an agreement between a taxpayer and the government that 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 for 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 Per IRC 7122(f) and Notice 2006-68, an OIC shall be deemed accepted if it is not rejected, returned or withdrawn before the date which is 24 months after the date of the submission of the offer.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 section 7122(f) is the date on which the offer is received by the Service.

  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 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.

    Note:

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

    Note:

    Appeals has no authority to compromise a liability if the Department of Justice (DOJ) can settle the case. This is identified by a Transaction Code (TC) 550 with definer code "04." Also, a TC 520 with a Closing Code (cc) 80 indicates a judgment was obtained and a TC 520 cc 70 indicates litigation is pending. See IRM 5.8.1, Offer in Compromise Overview.

    Note:

    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 5.8.1.7.2 .

  6. Per Q-A 6 in Section 3 of Rev. Proc. 2000-43 , OIC cases are subject to ex parte provisions. The third party contact waiver provision found in paragraph (n) in Section V of Form 656 pertains to non-IRS contacts only and is not a waiver of prohibited ex parte communications between Appeals and either the Collection or Examination functions.

  7. 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, which are generally evaluated in the same manner as in a proposed deficiency case.

8.23.1.2  (08-28-2009)
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 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.

    Note:

    The date an offer becomes pending (TC 480 date) is not the same as the offer submission date under TIPRA.

  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

    • 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).

    Note:

    The suspension of the period of limitations to collect (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 and Settlement 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.

8.23.1.3  (08-28-2009)
Conference and Settlement Practices

  1. As previously indicated, IRM 5.8 contains the primary policies and procedures for processing, evaluating and making determinations on offers. Appeals does not have the authority to disregard established policies or procedures. However, the Appeals process in an OIC case is not merely an extension of the Small Business Self Employed (SBSE) Collection process. The role and mission of Appeals is different from that of SBSE Collection . 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 SBSE 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's 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 Appeals Officer or Settlement Officer believes is necessary to properly evaluate the offer and/or may make the offer acceptable

    • If an offer cannot be accepted, communicate the reason(s) why and, when appropriate, possible alternative resolution options (see IRM 8.23.3.13, Alternative Resolutions for Offers , for applicability)

    Note:

    It is important to note that general Appeals policy and procedures call for the Appeals Officer or Settlement Officer to offer the non-CDP OIC taxpayer an opportunity for the Appeals conference he/she asked for when the offer was rejected. 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 out a non-CDP offer case as sustaining rejection of the offer without first offering the taxpayer an opportunity for a conference. See IRM 8.23.2.4 for additional details on conferences involving taxpayers who do not remain in compliance after the offer is rejected .

  3. In a non-CDP OIC case, Appeals is not responsible to " re-work" the offer. Requests for the taxpayer to provide supplemental information to Appeals should clearly spell out

    • precisely what is needed

    • that the information, documentation, unfiled return, payment, etc., is necessary to enable Appeals to properly evaluate the offer

    • precisely when the requested items must be received in Appeals

    • that Appeals must make its decision on the offer based upon available information (unless the conference has not yet been held) if all of the requested items are not received by the stated deadline

    See IRM 8.23.3.3.1.2 , Requesting Supplemental Information.

  4. A taxpayer appealing SBSE's rejection of his/her offer has already had an opportunity to present to SBSE the issues and financial information or documentation relevant to the acceptance of the offer, so deadline extensions by Appeals should not be routine and generally granted only if the Settlement Officer believes an extension may ultimately lead to an opportunity for settlement and is appropriate given the individual facts and circumstances of the case. Appeals should not generally be looked upon to be the initial finders of fact or the first to consider determinative information. The reason for granting the taxpayer an extension of time to provide requested information/documentation or clear up a compliance issue should be documented in the case activity record.

    Note:

    Having found a basis to reject the offer, Collection may cease its evaluation and simply reject the offer without fully identifying or developing all RCP issues. As such, the taxpayer may not have had a full opportunity to present information and/or documentation to SBSE to address relevant RCP issues before the offer was rejected. If Appeals agrees with arguments made by the taxpayer, Appeals may need to address the issues not addressed by Collection before accepting the offer. See also IRM 8.23.3.3.

  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, contain general guidance on Appeals conference and settlement practices and other general Appeals responsibilities. Because a taxpayer may not (generally) seek judicial review of Appeals' decision to sustain Collection's rejection of an offer, not all of IRMs 8.1.1, 8.6.1 and 8.6.4 relate to OICs, but some relevant portions of those sections are:

    1. Appeals is committed to the reduction of the outstanding accounts receivable of the Service. Appeals Officers or Settlement Officers can assist in this reduction by soliciting advance payments, using offer in compromise and installment agreement procedures, and quickly resolving problems with incorrect assessments. (See IRM 8.1.1.6.)

    2. 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 8.6.1.3.)

    3. The judicial attitude is one which reasonably appraises the facts, law, and litigating prospects; uses sound judgment and ability to see both sides of a question; and is objective and impartial. Any approach which contemplates a maximum possible result in favor of the Government or a deficiency in every case is incompatible with a judicial attitude and the Appeals mission. (See IRM 8.6.4.1.4.)

    4. Do not take advantage of a taxpayer's lack of technical knowledge. The Appeals Officer or Settlement Officer will assist the pro se taxpayer in every way possible. In the absence of an agreement, explain the taxpayer's further appeal rights. (See IRM 8.6.4.1.4 .)

8.23.1.4  (08-28-2009)
Requirements for Compromise

  1. This 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 what you need to know 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.

    Note:

    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 must be secured prior to accepting the offer.

  3. If you are considering an OIC case 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, you may use the July 2004 revision of Form 656 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. There is no DATL option on the February 2007 or subsequent revisions of Form 656 because Notice 2006-68 provides that taxpayers submitting offers based only on DATL are not required to make TIPRA payments with the 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 8.23.3.4 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.

      Note:

      Further details concerning Counsel's review and statutorily required opinion are in IRM 8.23.4.2.2, Counsel Review of Acceptance Recommendations.

8.23.1.4.1  (08-28-2009)
Application Fees, Offer Terms, Payments and Deposits

  1. On May 17, 2006, TIPRA was signed into law by the president. 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. Lump Sum Cash Offer: Payable in five or fewer installments from notice of acceptance. The Form 656 must be accompanied by either payment of 20% of the amount of the proposed offer or a signed Form 656-A, Income Certification for Offer in Compromise Application Fee and Payment.

    2. Short Term Periodic Payment Offer: Payable in six or more installments within two years (24 months) from the IRS received date. The Form 656 must be accompanied by either the first proposed installment or a signed Form 656-A. 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 via an approved Form 656-A. See paragraph (4) below for information on the low-income exemption.

      Note:

      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 5.8.1.10.4 .

      Note:

      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 Form 656-A waiver, or if Appeals accepts the original Short-Term Periodic Payment Offer that was rejected by SBSE without amendments.,

      Example:

      On May 15, 2009, Appeals received a Short Term Periodic Payment OIC based upon doubt as to collectibility as alternative to collection in a CDP case. The taxpayer made the required monthly periodic payments and on January 18, 2010 submitted an amended Short Term Periodic Payment Offer. The amended offer was accepted February 15, 2010. The amended offer is payable in six or more installments before February 15, 2012.

    3. Deferred Periodic Payment Offer: Payable in six or more installments over 25 or more months from the IRS received date, but within the time remaining on the statutory period for collection. The Form 656 must be accompanied by either the first proposed installment or a signed Form 656-A. 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 via an approved Form 656-A. See paragraph (4) below for information on the low-income exemption.

      Note:

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

    Note:

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

  2. The TIPRA requirement for a taxpayer to make proposed periodic installment payments while a Periodic Payment offer is being considered ends when Collection 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 8.23.3.4 for additional guidance on amended offers secured by Appeals.

  3. 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.

  4. The IRS OIC Monthly Low Income Guidelines found in the Form 656 information booklet were increased to 250% of the most current Health & Human Services poverty guideline, so an increased number of taxpayers will be exempt from the user fee and TIPRA payment requirements. A taxpayer seeking a low-income exemption must submit a Form 656-A with the offer. The low-income exemption applies only to individuals.

  5. The IRS now requires that installment agreements in effect prior to receipt of an OIC remain in effect while an offer is being considered only with regard to Lump Sum Cash offers. Installment agreement payments are not required for Periodic Payment offers because the taxpayer is required to make proposed installment payments pursuant to Section 7122 while the offer is under consideration. See IRM 5.8.3.18. Even though the taxpayer is no longer required to make periodic installment offer payments after a Periodic Payment offer is rejected by SBSE, the taxpayer is still not required to make prior installment agreement payments while the matter is being considered by Appeals.

  6. IRM 5.8.3.7 contains detailed information concerning OIC payment terms, processability issues and initial payment requirements for offers. See also IRM 8.23.3.1.1.1 .

8.23.1.4.1.1  (10-16-2007)
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. Apply designated payments for tax debts other than employment or excise taxes per the written designation using Designated Payment Code (DPC) 35.

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

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

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

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

    6. Apply undesignated payments for employment or excise tax debts 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.

      Note:

      This is different than the standard TFRP payment application procedures outlined in IRM 5.7.4.3, 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.

    Note:

    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 must be processed by the Monitoring Offer in Compromise (MOIC) unit.


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