8.23.3  Evaluation of Offers in Compromise

Manual Transmittal

October 15, 2014

Purpose

(1) This transmits revised IRM 8.23.3, Offer in Compromise, Evaluation of Offers in Compromise. Revised to include Interim Guidance memorandums AP-08-0614-0003 and AP-08-0714-0005, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project - Collection Phase 2 (Attachment 2), and AP-08–0814-0008, Appeals Judicial Approach and Culture (AJAC) Feature Codes and Premature Referral Reason as they pertain to the OIC program, and the other editorial changes noted in the table below:

Material Changes

(1) Revised to include the following editorial changes:

IRM Section Description of Change
In General Revised to incorporate Interim Guidance memorandums AP-0614–0003, AP-08-0714–0005 and AP-08-0814-0008, pertaining to the OIC program.
In General Revised for grammar, plain language and other editorial changes
In General Updated IRM cross-references
In General As a result of the above changes, some renumbering of this IRM has occurred. Become familiar with those sections you use most.

Effect on Other Documents

IRM 8.23.3 dated November 21, 2013, is superseded. Incorporates , Interim Guidance memorandums AP-08-0614-0003 and AP-08-0714-0005, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project - Collection Phase 2 (Attachment 2), and AP-08-0814-0008, Appeals Judicial Approach and Culture (AJAC) Feature Codes and Premature Referral Reason, as they pertain to the OIC program, and other editorial changes.

Audience

Appeals Employees

Effective Date

(10-15-2014)


John V. Cardone
Director, Policy, Quality and Case Support

8.23.3.1  (10-15-2014)
Consideration of Doubt as to Collectibility Offers

  1. The purpose of this section is to provide you with the procedures necessary to properly evaluate a taxpayer's appeal of a rejected offer in compromise (OIC). Appeals does not have its own set of rules or procedures for determining reasonable collection potential (RCP) in an OIC case. For this reason, this section largely does not reiterate what is already in IRM 5.8, Offers in Compromise. Rather, it discusses some of the more basic elements of the OIC evaluation process and provides guidance unique to Appeals' role in the OIC process.

  2. Collection, under the Commissioner, Small Business/Self Employed (SBSE), is responsible for processing and analyzing a taxpayer's offer, negotiating with the taxpayer, making an RCP determination and communicating the final determination to the taxpayer. IRM 5.8.4, Offer in Compromise, Investigation, and IRM 5.8.5, Offer in Compromise, Financial Analysis contain OIC guidance concerning:

    • Components of collectibility

    • Procedures for evaluating specific types of taxpayers and tax debts, including trust fund, excise, partnership, and child support liabilities

    • Financial analysis, including determining equity in assets and a taxpayer's future ability to make payments

    • Issues involving the dissipation of assets

    • Financial information documentation and verification requirements

    • Payment terms

  3. If you determine that the taxpayer cannot pay in full or there are circumstances that otherwise place collectibility in doubt, there is a legal basis for compromise under IRC 7122 , based on doubt as to collectibility. If the taxpayer has the ability to pay in full, there may still be a legal basis for compromise if it is further determined that such compromise would promote effective tax administration. See IRM 8.23.3.8 for guidance on Effective Tax Administration (ETA) offers.

    Note:

    An offer based upon doubt as to collectibility with "special circumstances" will be evaluated using the same criteria as an ETA offer.

  4. Policy Statement P-5-100 (IRM 1.2.14.1.17) states, in part:

    The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

  5. You should research IRM 5.8 and related interim guidance to evaluate Compliance actions, decisions and valuation methods for Offers in Compromise. When evaluating an appealed rejection, IRM 5.8 and related interim guidance are consulted as a reference to ensure that Collection followed their proper procedures. Your evaluation of an OIC must be independent of the decision rendered by Collection. Standard Appeals conference practices are found in IRM 8.6.1,Conference and Settlement Practices, Conference and Issue Resolution.

  6. You will not request information or evidence (from any party) solely for the purpose of strengthening the government's case.

  7. IRC 7122(d)(2) requires IRS to publish schedules of national and local allowances designed to ensure that taxpayers seeking to compromise their tax debts have an adequate means to provide for basic living expenses. This code section further requires that IRS (including Appeals) "shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under IRC 7122(d)(2)(A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses."

    1. If national or local standards for determining allowable living expenses are updated after an offer is rejected by Collection, you will use the most current or updated Allowable Living Expense (ALE) standards unless you have already submitted the case for final review and approval by the Appeals Team Manager (ATM) and/or Counsel.

    2. A taxpayer must be able to substantiate that limiting him/her to the national or local standard allowance(s) would not provide for his/her basic living expenses.

    3. Allowances in excess of national or local standards must be documented in the Appeals Case Memorandum (ACM).

  8. If the taxpayer disagrees with the rejection of an offer by Collection, they can request Appeals' consideration and review of the determination. The appeal must be in writing. A Form 13711, Request for Appeal of Offer in Compromise, is generally used but is not required.

  9. Appeals employees evaluating appealed OICs must be knowledgeable in the procedures detailed in IRM 5.8 and other parts of the IRM as well as the law and regulations governing offers and Appeals such as:

    • 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

    • IRM 5.1, Field Collecting Procedures

    • IRM 5.7, Trust Fund Compliance

    • IRM 5.12, Federal Tax Liens

    • IRM 5.14, Installment Agreements

    • IRM 5.15, Financial Analysis

    • IRM 5.16, Currently Not Collectible

    • IRM 5.17, Legal Reference Guide for Revenue Officers

    • IRC 7122

    • Treasury Regulation § 301.7122-1 for offers in compromise

    • Notice 2006-68, Downpayments for Offers in Compromise

    • Revenue Procedure 2012-18 concerning the prohibition of ex parte communications between Appeals and other IRS employees

    • Interim Guidance issued by Appeals or other functions

    • Other legal and administrative guidance, including local law

      Note:

      Links to several IRM sections, IRC 7122, Treasury Regulation § 301.7122-1, Notice 2006-68, and local law guides for all states (including community property states) are available on the Appeals OIC Web Page.

      Note:

      Additional resources listed here are not intended to assist you in the further development of issues that either were not identified or may not have been adequately developed by Collection.

8.23.3.1.1  (11-21-2013)
The Tax Increase Prevention and Reconciliation Act of 2005

  1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted May 17, 2006 and became effective July 16, 2006. TIPRA brought about major changes to the OIC program, most of which do not affect non-CDP offers in Appeals. Notice 2006-68, Downpayments for Offers in Compromise, provides guidance on TIPRA issues until the regulations are updated.

  2. Offers mailed prior to July 16, 2006, are not affected by TIPRA. Amended offers for these cases are not considered 'TIPRA offers' and may be secured using the July 2004 revision of Form 656. Taxpayers submitting such amended offers are not required to remit TIPRA payments with any subsequent amended offer.

  3. One of the significant changes under TIPRA provides that an offer shall be deemed to be accepted if it is not rejected, returned or withdrawn before the date which is 24 months after receipt of the offer by IRS. See IRC 7122(f). This 24-month TIPRA period ends when the offer is rejected by Compliance, so most non-CDP offers considered by Appeals will not have open TIPRA statute issues. There are, however, instances in which a non-CDP OIC case arrives in Appeals with an open TIPRA statute, so the Appeals employee assigned the case must carefully review IRM 8.23.2.3, Initial Case Review and Statute Controls to make sure the OIC work unit (WUNO) contains the proper statute controls.

  4. IRS began using a Form 656-L, Offer in Compromise (Doubt as to Liability), in January of 2006. The Form 656 no longer includes doubt as to liability as an option because Notice 2006-68 provides that taxpayers submitting offers based only on doubt as to liability are not required to make TIPRA payments with the offers.

  5. IRM 8.23.1.4.1 contains TIPRA information concerning:

    • OIC payment terms

    • Installment agreement in effect prior to receipt of the OIC

    • Taxpayer's right to designate offer payments

    • Appeals procedures for processing TIPRA payments

8.23.3.1.1.1  (10-15-2014)
Processability Criteria and General Changes Resulting from TIPRA

  1. IRS changed the rules for determining the processability of post-TIPRA offers. An offer will be deemed non-processable only if one or more of the following criteria are present:

    1. Taxpayer in Bankruptcy: An offer will not be considered during an open bankruptcy proceeding.

    2. Taxpayer did not submit the application fee with the offer: The appropriate application fee must be provided, or the taxpayer must have completed the section for low-income taxpayers located in section 4 of the Form 656. Section 4 is available to individual taxpayers only. No application fee is required if the sole basis of the offer is Doubt as to Liability.

    3. Taxpayer did not submit the required initial payment with the offer: See IRM 8.23.1.4.1 for initial payment requirements. No initial payment is required if the sole basis of the offer is Doubt as to Liability.

      Note:

      If the taxpayer submits a portion (but not all) of the required TIPRA payment (either cash or periodic payment) then the offer will be considered processable.

    4. Department of Justice: The IRS may not process any offer to compromise a liability previously referred to the Department of Justice (DOJ) for prosecution or defense. If all liabilities have been referred to DOJ then the offer is not processable. If IRS retains jurisdiction on any tax liabilities then the offer is processable.

    5. Unassessed Liabilities: Offers submitted solely to compromise a tax period or tax year that has not been assessed, and IDRS does not indicate that a return has been received, will be deemed not processable.

    6. Offers submitted solely for tax periods with expired CSED(s): An offer will not be considered when the CSED(s) has expired for all liabilities sought to be compromised.

  2. The Centralized Offer in Compromise (COIC) sites perform all of the Service's processability reviews, including those for Appeals (CDP offers). If an offer based upon doubt as to collectibility is received without the application fee, initial offer payment, or completion of section 4 of the Form 656, COIC will review the Form 433-A, Collection Information Statement for Individuals, and waiver criteria to see if the taxpayer meets the requirements for waiving the application fee and initial offer payment. If the taxpayer meets the low-income criteria in Form 656, COIC will consider the offer processable.

  3. Collection has procedures for handling cases where the determination that a taxpayer qualified for the Form 656 waiver was later found to be erroneous. However, you will not become involved in addressing erroneous Form 656 qualification issues on a non-CDP offer. If Collection has granted the waiver for the Taxpayer, do not revisit the issue..

  4. The TIPRA requirement for a taxpayer to make 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.

  5. If a taxpayer’s total liability exceeded $50,000 at the time the offer was submitted, and a TIPRA payment submitted with the offer or TIPRA payments made during the course of an OIC investigation contributed to the total falling below $50,000 at the time the case is submitted for approval, the offer still requires an opinion from Counsel. See IRM 8.23.4.2.2.

  6. The 24-month mandatory acceptance period provided for in IRC 7122(f) ends when Compliance rejects or returns the offer, or when the offer is withdrawn or treated as withdrawn under section 7122(c)(1)(B)(ii) because the taxpayer failed to make the second or later installment payment due on a periodic payment OIC. See IRM 5.8.8.6. A non-CDP offer that was rejected by Compliance will not be deemed accepted if Appeals doesn't render a decision on the appealed offer within 24 months after the date the offer was submitted. (See IRM 8.23.2.3 for a listing of non-CDP offers received in Appeals that were not previously rejected by Compliance and thus have open TIPRA statutes). Appeals' responsibilities are considerably different with a CDP offer. See IRM 8.22.7 for procedures involving offers received as alternatives to collection in a CDP case.

8.23.3.2  (10-15-2014)
Rejected Offers

  1. When evaluating offers, Collection generally sends a preliminary determination letter to the taxpayer explaining to them why they are proposing to reject the offer. This letter provides the taxpayer with the rationale and financial analysis for Collection’s preliminary conclusion and an opportunity for the taxpayer to supply additional information or, if applicable, to amend the offer to reflect the reasonable collection potential (RCP) determined by Collection.

    1. Collection is responsible for reviewing and verifying any information provided by the taxpayer before the offer is rejected and any new information provided by the taxpayer as part of the appeal of the rejection. See IRM 5.8.7. Collection should address each disputed item in its narrative or case history. If the taxpayer provided substantial information with the appeal that was not adequately considered by Collection, you will not return the case as a premature referral. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make your decision based upon those factors.

  2. If Collection rejects the offer, copies of Collection's Income/Expense (IET) and Asset/Equity (AET) Tables should be attached to their rejection letter.

  3. As a result of the preliminary determination letter and IET and AET information provided with the rejection letter, a taxpayer should be fully aware of why the offer was rejected. The Form 13711, Request for Appeal of Offer in Compromise, though not mandatory, directs the taxpayer to provide in the appeal:

    • the disagreed item(s),

    • reason(s) for the disagreement, and

    • supporting documentation, as appropriate

    Appeals can then try to narrow the focus of consideration to the specific issues for which the offer was rejected.

8.23.3.3  (10-15-2014)
Appeals OIC Evaluation Procedures

  1. As stated in IRM 8.23.3.1, you research IRM 5.8 and related interim guidance to evaluate Collection actions, decisions and valuation methods for Offers in Compromise. Your evaluation of an OIC must be independent of the decision rendered by Collection. Standard Appeals conference practices are found in IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.

  2. You must be knowledgeable in the procedures detailed in IRM 5.8, IRM 8.23, and other parts of the IRM and administrative policies and procedures such as those listed in IRM 8.23.3.1 above.

  3. Agreed RCP issues that were previously addressed during the investigation by Collection will not be re-examined by you. This does not include correcting errors that are strictly computational. A strictly computational error is one that does not involve judgment, but simple math. Correcting strictly computational errors should be uncommon, but may occur in the following general circumstances:

    • For the correction of simple mathematical errors anywhere on the Income/Expense Table (IET) or Asset Equity Table (AET) (such as addition or subtraction)

    • Where Collection fully developed an income, expense, asset or liability item, but did not record the value in the correct amount on the IET or AET.

    • Where an asset value is present on the Form 433-A/B (OIC) that was prepared by the taxpayer, and the value was uncontested by Collection in its development of the case. The taxpayer’s value of the asset should be transferred to the IET/AET if it was not included.

    • In Appeals, the taxpayer’s income is a disputed item, and is increased or decreased by you. Expenses for taxes should also be increased or decreased accordingly.

    • If you made any correction to a strictly computational error, and the change resulted in a calculated full-pay of the liability then you will sustain rejection of the offer, absent effective tax administration conditions.

  4. Appeals employees will not attempt to identify and value any additional assets. In addition, Appeals employees should not revise the value of an asset to an amount that is higher than previously determined by Collection.

    Note:

    The most current Allowable Living Expense (ALE) standards will be used by the Appeals employee when working an offer. Cases already submitted to the Appeals Team Manager (ATM) and/or Counsel for final review or approval will not be revised for the purpose of updating ALE.

  5. In collection issue cases, the taxpayer may submit new information while the case is in Appeals. Any new information should be considered, particularly if it pertains to an issue disputed at the time of rejection. New information pertaining to an issue that was not in dispute at the time of rejection may also be considered. See IRM 8.23.3.3.2.6 for guidance on information that should generally be referred to Collection for an initial review.

  6. A case will not be returned as a premature referral where Collection did not fully develop certain issues. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make the decision based upon those factors. See also IRM 8.23.2 for premature referral issues on appealed OIC cases.

  7. A financial statement that is less than 12 months old from the date it was received in Appeals will not be updated and will be considered verified since it was provided to Collection and they reviewed or had the opportunity to review it. Use the RECDATE of the OIC work unit to determine when the case was received in Appeals.

  8. You will not contact the taxpayer to secure an updated financial statement if the information is less than 12 months old, or if the information has become outdated as a result of IRS delay. If Appeals needs updated financial information from the taxpayer, an updated Form 433-A and/or 433-B is not necessary. "Pen-and-ink" changes to the existing Form 433-A/B are sufficient. See IRM 8.23.3.3.1.2, pertaining to review of supplemental information.

  9. You are responsible to address taxpayer compliance obligations only as stated in IRM 8.23.2.4Premature Referral Issues and IRM 8.23.2.5, When the Taxpayer Does not Remain in Compliance.

  10. A taxpayer who had a Periodic Payment offer rejected by Collection is not required to continue making the periodic installment payments while the case is being considered in Appeals. See IRM 8.23.3.1.1.1. The TIPRA requirement to make periodic installment payments ended when Collection rejected the offer. However, if you secure an amended Periodic Payment offer, then the taxpayer must once again start making the periodic installment payments proposed in the amended offer. See IRM 5.8.4.23 for guidance on TIPRA payment requirements for amended offers.

  11. Document all significant case actions on the case activity record in a timely, accurate and complete manner.

8.23.3.3.1  (10-15-2014)
Preliminary Evaluation Procedures

  1. After completing the required initial case review and statute control assessments (both TIPRA and CSED) found in IRM 8.23.2.3, the case is ready for initial evaluation. This section contains preliminary evaluation procedures for cases that were not prematurely referred by Compliance.

  2. Review and become familiar with IRM 8.23.1, particularly with the conference and settlement practices found in IRM 8.23.1.3.

  3. You must review the written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, then the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. You should contact the taxpayer to confirm the items in dispute, if necessary. Only the disputed issues will be initially reviewed and considered by you, however, the taxpayer may present new issues during the appeal.

  4. If the case requires verification of more complex items submitted after appeal, then you should send an Appeals Referral Investigation (ARI) to a Campus or Field OIC group. Use either the rejection letter or Form 1271 when determining to whom to send the ARI. See IRM 8.23.3.3.2.6 for procedures when requesting assistance from Collection.

  5. Within 30 days of case receipt, you should send out an initial substantive contact letter that:

    • Identifies the dispute

    • Asks the taxpayer to provide any other information to substantiate his or her claims

    • Identifies any compliance issues that must be remedied. See IRM 8.23.2.4, its related subsections and IRM 8.23.2.5 for compliance issues to be addressed.

    • Sets clear expectations and a specific date for providing any additional information. Due dates for the additional information should be within the next 30 days of the date of the initial contact letter and before any scheduled conference date, unless circumstances warrant a longer period.

    • Schedules the conference or requests the taxpayer to contact you by a specific date.

    • Advises the taxpayer of the consequences of either not providing additional information by the established due date or failing to participate in the conference.

    • Advises the taxpayer that any new information that is provided may be referred to Collection for an initial review and comment.

  6. You will then:

    1. Review the information in the case file and, if possible, prior to the scheduled conference, request from the taxpayer any additional information that may be needed to clarify issues that are in dispute. See IRM 8.23.3.3.1.2 for procedures for requesting additional information. Additional information should not be requested by you to develop new issues or to bolster development of issues that may have been under-developed by Collection.

    2. Conduct the conference, including explaining the offer process, how an acceptable amount is computed and how the available financial data supports either acceptance or a sustained rejection of the offer. Be aware that the taxpayer may raise new issues and present new information during the appeal.

    3. Follow up in a timely manner and review any information submitted as soon as possible. Timeliness of case actions is an important component in making the Appeals determination without needing to ask the taxpayer to update previously supplied financial information. Unwarranted inactivity gaps should be avoided.

  7. If initial substantive contact is made by telephone, be sure to cover all of the above and document the case activity record accordingly.

8.23.3.3.1.1  (10-15-2014)
Coordination with Other Functions

  1. You need to be alert to issues that may prevent you from making a final determination on an appealed offer and when such issues arose in relation to when the offer was either rejected by Compliance, or when the preliminary determination letter was issued to the taxpayer by the Compliance offer investigator. Issues arising after Compliance rejected the offer, such as bankruptcy, litigation, or an open criminal investigation, will require coordination with other functions before proceeding with considering the appealed offer. See IRM 8.23.2.4 for premature referral criteria and procedures if such events occurred before the preliminary determination letter was issued to the taxpayer by the Compliance offer examiner.

    Caution:

    For ex parte purposes, carefully review Appeals' IRM guidance before any contact with another function. Be sure to document the case activity record with the purpose of the contact, what was discussed, and the information that was received. Guidance pertaining to ex parte issues can be found in Rev. Proc. 2012-18 and IRM 8.1.10, Ex Parte Communications.

  2. For procedures concerning an open Examination matter, follow IRM 5.8.4.15.

  3. For procedures concerning an open criminal investigation, follow IRM 5.8.4.19. You must exercise caution and good judgment before contacting someone from Criminal Investigation (CI). Discuss the issue with your ATM and, if needed, IRS Counsel, before initiating contact with CI.

  4. The IRS may not have authority to compromise a case that has been referred to the Department of Justice (DOJ). A TC 520 with closing codes 60-89 indicates that the taxpayer is involved in a bankruptcy or litigation. Advisory, Insolvency & Quality (AIQ) should be contacted to determine the nature of the litigation and whether settlement authority belongs to DOJ.

8.23.3.3.1.2  (10-15-2014)
Review of Supplemental Information - Collection Issue Offers

  1. You will review the written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, then the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. You should contact the taxpayer to confirm the items in dispute, if necessary. Only the disputed issues will be initially reviewed and considered by you, however the taxpayer may present new issues during the appeal.

  2. Because information submitted to you by the taxpayer may sometimes require further analysis or more complex development, it may be necessary for you to request completion of an ARI from a Centralized Offer in Compromise (COIC) or Field OIC group. See (4), below, and IRM 8.23.3.3.2.6.

  3. Appeals will not request information to document or raise new issues.

  4. Do not forward information to a COIC or Field OIC Group using an ARI if the information can be easily reviewed by you. However, if investigation or further development of the issue is needed, you must use an ARI.

    Example:

    Many items such as new household bills, pay stubs, bank statements, retirement account statements, etc., can generally be reviewed by you without investigation. However, information involving more than a cursory analysis such as a newly furnished business appraisal, business profit and loss or financial statements, recently dissipated assets of high value, stock valuations, etc., should be initially reviewed by a COIC or Field OIC group in response to an ARI. In some circumstances, another option may be a referral for analysis by an Appeals Valuation Engineer.

  5. A taxpayer appealing Compliance's rejection of his/her offer has likely already had an opportunity to present to Collection the issues and financial information or documentation relevant to the acceptance of the offer. Therefore, deadline extensions by you should not be routine. A deadline extension should generally only be granted if you believe an extension may ultimately lead to a settlement, and is appropriate given the individual facts and circumstances of the case. 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.

  6. If the supplemental information request is made prior to the conference, allow a sufficient amount of time between the date by which the taxpayer is to provide the information and the conference date, so you have time to review the information before the conference. If the supplemental information request is made at or after the conference and the taxpayer does not provide complete information for all of the requested items by the established due date, the case may be closed by sustaining Collection's rejection of the offer. Document the case activity record as to exactly what was received and when it was received. Follow the procedures in IRM 8.23.4, Acceptance, Rejection Sustention, and Withdrawal Procedures (non-CDP).

8.23.3.3.2  (10-15-2014)
Financial Analysis and RCP Determination

  1. You will review the written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, then the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. You should contact the taxpayer to confirm the items in dispute, if necessary. Only the disputed issues will be initially reviewed and considered by you, however the taxpayer may present new issues during the appeal.

    Exception:

    You will use the most current or updated national and local standards unless the case has already been submitted by the Appeals hearing officer to the Appeals Team Manager (ATM) for final review or approval, or to Counsel for final review.

  2. You can consult with IRM 5.8.5, which contains details as to the information needing verification, and required level of such verification. If an issue is inadequately developed, Appeals will not develop the issue further. Weigh the evidence provided by the taxpayer versus the reasons for Collection’s non-acceptance of the issue, and make a determination based upon those factors.

  3. Occasionally, more complex, new information may be submitted by the taxpayer that requires the assistance of a COIC or Field OIC group. See IRM 8.23.3.3.1.2 and 8.23.3.3.2.6, in such circumstances.

  4. The numerical factors used to determine the present value of the taxpayer's future ability may occasionally change. Fewer months of future income are generally required from taxpayers who agree to shorter payment terms. The table in IRM 5.8.5.23 reflects the present value factors to be used when determining the present value of the taxpayer's future ability to pay.

  5. A frequent issue on appeal is the amount of income to use when determining future ability to pay when a taxpayer has a sporadic employment history or fluctuating income. In these instances, IRM 5.8.5.18 says the taxpayer's income may be averaged over the three prior years. Use by Appeals of a period of time other than three years or the amount of time used by Compliance should be the exception, and done only when specific circumstances are present. However, you may see this issue differently than how it was seen by Collection, so the rationale for using the non-standard or different time period must be documented in the case activity record and in the ACM.

  6. You will not secure a consumer credit report when recommending an offer for acceptance. However, any credit reports that are in the case file must be disposed of upon closure of the OIC, regardless of disposition (acceptance, rejection or withdrawal). Refer to IRM 8.23.4.2.1 for procedures.

    Note:

    The Fair and Accurate Credit Transactions Act of 2003 requires that persons who dispose of credit information take reasonable measures to protect against unauthorized access to or use of credit information in connection with its disposal. See IRM 8.23.4.2.1 for information on removing and destroying credit report information as part of closing out an OIC case in Appeals. These procedures are in IRM 8.23.4.2.1, Accepted Offer Closing Documents and Appeals Hearing Officer Procedures, but also apply to all OIC case disposition types.

  7. If it becomes apparent that you must sustain Collection's rejection of the offer, contact the taxpayer and advise him/her of the decision and the reason(s) why the offer cannot be accepted. Provide a copy of the financial analysis reflecting Appeals' determination of RCP (generally copies of the IET and AET), allow the taxpayer a reasonable opportunity to provide feedback or amend the offer to the revised RCP amount and then follow the instructions in the following table:

    If ... Then ...
    The taxpayer provides feedback causing a substantive change to the previous RCP determination, but the revised RCP is still greater than the taxpayer's offer and less than the amount owed Contact the taxpayer and allow him/her 14 calendar days to amend the offer to the revised RCP amount. See IRM 8.23.3.4 for details on amended offers and IRM 5.8.4.25 for possible TIPRA payment requirements.

    Note:

    Appeals has had CDP cases remanded by the Tax Court for abuse of discretion citing IRM 5.8.4.9 for not allowing the taxpayer an opportunity to amend the offer to the final RCP amount.

    The taxpayer provides feedback that causes no appreciable change to the RCP determination or is unwilling/unable to amend the offer to the necessary amount, if applicable Contact the taxpayer, explain any legal or administrative remedies and advise that Appeals must sustain rejection of the offer. Review the procedures in paragraph (11) of this section before proceeding with closing out the case
    The taxpayer contacts Appeals and indicates an inability to amend the offer to the necessary amount, or amending the offer doesn't apply because RCP exceeds the liability and there is no basis for ETA consideration Advise the taxpayer that Appeals must sustain rejection of the offer. Review the procedures in Paragraph (11) of this section before proceeding with closing out the case
    The taxpayer doesn't respond Proceed with closing out the case by sustaining rejection of the offer

    Note:

    Providing the taxpayer with a copy of your financial analysis is not necessary if there are no substantive changes to the analysis that was completed by Collection. The taxpayer has already had an opportunity to provide relevant feedback to Collection's RCP analysis.

  8. If an offer cannot be accepted, you must communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status, as applicable) that the taxpayer may pursue with Collection. Do not refer the taxpayer to COIC or Field OIC groups. Close the offer and refer the taxpayer to Form 9465 Installment Agreement Request, and/or 1-800-829-1040.

  9. NFTL filing determinations are not to be made by Appeals employees.

8.23.3.3.2.1  (11-21-2013)
Net Realizable Equity

  1. For offer purposes, assets are valued at the net realizable equity (NRE). NRE is generally defined as quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien, if applicable, and levy exemption amounts. See IRM 5.17.2.

  2. QSV is defined as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short period of time, usually 90 calendar days or less. Generally, QSV is an amount less than fair market value (FMV). For purposes of determining the taxpayer’s reasonable collection potential (RCP), information provided by the government and the taxpayer should be used to arrive at appropriate FMV determinations.

  3. As stated earlier in this IRM, you research IRM 5.8 and related interim guidance to evaluate Collection actions, decisions and valuation methods for Offers in Compromise. IRM 5.8 and related interim guidance should be used as a reference for valuation methods pertaining to Offers in Compromise.

  4. For the consideration of an Offer in Compromise by Collection, Collection should verify the information contained on the financial statement, and identify any assets belonging to the taxpayer that may not have been disclosed. Collection should also properly value assets that were either disclosed by the taxpayer or discovered during the offer investigation.

  5. Appeals employees will only consider assets documented previously by Collection in the offer case file. Appeals will not identify and value any additional assets. Appeals will only consider Items in dispute where the Taxpayer and Collection did not reach an agreement.

  6. Appeals employees will not revise the value of an asset to an amount that is higher than the value previously determined by Collection, unless the taxpayer voluntarily provided such information to Appeals.

8.23.3.3.2.2  (11-21-2013)
Future Income Valuation

  1. Future income is defined as an estimate of the taxpayer’s ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. Complete guidance pertaining to future income and the calculation of future income are in IRM 5.8.5.18 and IRM 5.8.5.23.

  2. When calculating the value of future income, determine if the taxpayer can full pay the liability through installment agreement guidelines. This calculation will initially be based on the taxpayer's documentation, and include application of the expense standards and allowances. It is appropriate to ensure accruals are taken into consideration when considering whether or not the liability can be paid in full. 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, by installment payments extending through the remaining statutory period for collection, or other means of collection. See IRM 5.8.1.1.3. See also (3) below.

  3. Notwithstanding the directives of IRM 5.8.1.1.3, and paragraph (2) above, in an OIC, future income is an asset, the value of which can be adjusted for numerous reasons. This means that, under certain circumstances, future income may be determined to be higher or lower than what is found by initial analysis. Therefore, adjustments to future income calculation can be made even though initial analysis determines, with mathematical certainty, that the taxpayer could full-pay the liability through an installment agreement.

  4. While other reasons for adjustments to future income valuation may apply, the chart below provides IRM references for some of the most common reasons for adjustments to future income that are encountered, and for the calculation of future income:

    Issue Related to Future Income IRM Section(s)
    Bankruptcy (Proposed Filing) IRM 5.8.5.18, IRM 5.8.10, IRM 8.23.3.3.2.2
    Expenses (Projected Future Increase or Decrease) IRM 5.8.5.20, IRM 5.8.5.21, IRM 5.8.5.22
    Future Income (Calculation of) IRM 5.8.4.3.1, IRM 5.8.5.23
    Future Income (Calculation of) - Taxpayer Located Outside of the United States IRM 5.8.5.23.1
    Income Averaging (for situations of taxpayer underemployment, temporary employment, unemployment, fluctuating annual income, etc.) IRM 5.8.5.18
    Payment Terms (Offer Payment Terms) IRM 5.8.4.3.1, IRM 5.8.5.26
    Retirement (Proposed) IRM 5.8.5.18
    Sickness IRM 5.8.5.18

8.23.3.3.2.3  (10-15-2014)
Bankruptcy Considerations

  1. The Service will not consider an offer while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides legal remedies and procedures to resolve the government's claim. If the taxpayer files bankruptcy while the case is being considered by you, the offer must be closed by sustaining Collection's rejection of the offer. In this instance, the offer has already been rejected (by Compliance) and Appeals no longer has a basis to overturn that decision. Follow the procedures in IRM 8.23.4 for closing the offer.

  2. If the taxpayer states an intent to file bankruptcy if the offer is not accepted, you should consider whether any of the tax liability can be discharged, and refer to the guidance in IRM 5.8.5 and IRM 5.8.10. Considering if the taxpayer were to file bankruptcy, you should make a general analysis of collectibility and the liabilities that would be discharged. You should attempt to negotiate an agreeable settlement, as appropriate. Based upon your findings, a hazards approach should be used based upon the degree of risk determined to exist that the taxpayer would file bankruptcy. An ARI may be needed to have the bankruptcy analysis considered by Collection first. See IRM 8.23.3.3.2.6 for ARI procedures. For bankruptcy considerations, some general determinations you should make are as follows:

    1. which liabilities are dischargeable

    2. if the taxpayer has dischargeable non-tax debts

    3. if the taxpayer has any prior history of bankruptcy filing

    4. the overall age of the liabilities

    5. the success of the Service's prior collection efforts against the taxpayer

    6. any assets that would be excluded from a bankruptcy estate and encumbered by the statutory lien

    7. does the taxpayer qualify for a Chapter 7 discharge based upon the "means test"

    8. any NFTLs already filed on assets that would be exempted from a bankruptcy estate

    Note:

    Procedures involving ex parte communications must be followed when discussing case information with Insolvency Unit personnel. You should clearly document the case activity record concerning exactly what information was requested from Insolvency, why such information was requested, and the results of the contact. See IRM 8.1.10, Ex Parte Communications, for additional guidance.

  3. The value of future income is an asset that may be lowered based upon the perceived degree of risk of the taxpayer filing a Chapter 7. See IRM 5.8.5.18 and IRM 8.23.3.3.2.2.

  4. Unless special circumstances exist, under no circumstances will the Service accept less than would be collectible in the event of a Chapter 7 bankruptcy, including the amount recoverable in bankruptcy plus the amounts recoverable based on excluded property subject to a statutory lien, or exempted property subject to a NFTL. A successful compromise would generally secure more than the adjusted RCP, because if the taxpayer only offers what would be collectible in the event of bankruptcy, there may be little or no benefit to the government by acceptance of the offer.

  5. The basis for acceptance of an offer will be Doubt as to Collectibility, where the RCP is adjusted based on consideration of the amount recoverable in bankruptcy. If special circumstances are present which suggest that an amount less than the bankruptcy adjusted RCP should be accepted, then the offer should be accepted under either Effective Tax Administration (ETA), or Doubt as to Collectibility with special circumstances.

  6. If the taxpayer files bankruptcy after the offer is accepted, follow the procedures in IRM 5.8.10, Offer in Compromise Special Case Processing. In accordance with the Bankruptcy Code, the offer should not be defaulted or payments solicited while the taxpayer is in bankruptcy.

  7. See IRM 8.7.6.3, Appeals Bankruptcy Cases, Offer in Compromise Cases, for additional information on bankruptcy issues.

8.23.3.3.2.4  (10-15-2014)
Dissipated Assets

  1. Dissipation of assets can be a frequent issue of dispute in an appealed offer in compromise. If a determination is made that a taxpayer dissipated an asset(s) and such asset is no longer available to pay the tax liability, a secondary determination must be made as to whether or not to include the value of the dissipated asset as part of reasonable collection potential (RCP).

  2. Including the value of the dissipated asset as part of the RCP determination is not automatic. Such inclusion must be clearly justified in the case file and documented in the case activity record. If the taxpayer can show that all or a portion of the asset was used to provide for necessary living expenses, the applicable portion of the asset should not be included in the RCP calculation. The taxpayer must be able to provide a reasonable accounting of the dissipated asset.

    Note:

    Where more complex asset dissipation issues are encountered, it may be necessary for you to use an ARI to present the taxpayer’s documentation to a COIC or Field OIC group for initial analysis. Refer to IRM 8.23.3.3.2.6.

  3. If the investigation clearly reveals that the asset was dissipated with a disregard of the outstanding tax debt, the value of the asset should generally be considered for inclusion in the RCP calculation. As indicated, however, an exception may be appropriate to the extent of the amount that the taxpayer can establish was used to fund necessary living expenses.

    Caution:

    Avoid "double counting" . For example, do not include a dissipated asset as part of RCP and to the extent that the dissipated asset was used to purchase or improve the value of another asset that is also being included as part of RCP.

  4. If you reduce or eliminate the value of a dissipated asset included as part of RCP, the reason for such should be documented in the case activity record and in the Appeals Case Memorandum.

  5. IRM 5.8.5.16 contains the primary guidance for dissipated asset issues, including numerous situational examples.

8.23.3.3.2.5  (11-21-2013)
Additional Review of Real Property Valuations in Certain Cases

  1. On January 6, 2009, the Commissioner issued News Release IR-2009-2, to outline ways in which the Internal Revenue Service would assist taxpayers experiencing financial hardship. One of the steps outlined by the Commissioner was to provide an additional review of the information used to value real property to see if accepting an offer in compromise is appropriate.

  2. A cadre of Appeals hearing officers will provide the additional review of real property valuations for Appeals. Review assignment will be based upon the location of the property. See the cadre list on the Appeals OIC Web Page.

    Note:

    Because most CDP offers have open TIPRA statutes, the SO must be aware of the statute expiration date in cases where additional review of real property values is likely. Referrals should be made with no less than 150 days remaining before the 24-month TIPRA period expires. See IRM 8.23.2.3 for information on TIPRA statute issues and when the OIC case must generally be presented to Appeals Account and Processing Support (APS) for closing.

  3. You and/or the ATM must have a discussion with the taxpayer or representative concerning the disputed valuation. The case must meet all of the following requirements before it is referred to another Appeals hearing officer for the required additional review:

    1. The case did not previously receive the additional review by Collection on the same property prior to rejection of the offer being considered by Appeals,

    2. Taxpayer owes Individual Master File (IMF) tax (MFTs 20, 30, 31 or 55),

    3. Offer negotiations are otherwise complete, all case issues are fully developed and the difference between the amount offered by the taxpayer and the reasonable collection potential determined by you is solely attributable to a dispute over the amount determined to be net realizable equity in real property,

    4. There are no other issues that would independently justify rejection of the offer, such as non-compliance, taxpayer failed to provide information necessary to properly evaluate the merits of the offer, etc.

  4. If a case meets the above requirements, the procedures and responsibilities for you are:

    1. Prepare a brief memorandum confirming the case meets the criteria in paragraph (4) above and with sufficient details, documentation and valuation information used to determine the value of the real property, including all information provided by the taxpayer. Include details about any defects in the condition of the property that may impact its value. Include in the memorandum a statement as to whether there is an open TIPRA statute, and if so, the TIPRA statute expiration date.

      Note:

      There must be at least 150 days remaining before the expiration of the TIPRA statute. If there are less than 150 days, your ATM must approve the potential delay in submitting the case to APS within the 90-day requirement in IRM 8.23.2.3.

    2. Type in Loc Code ‘RV’ in the Loc 10 field.

    3. Submit the referral package to your ATM for review and approval.

  5. Upon receipt of the additional review referral package, your ATM will:

    1. Review the referral package for completeness and approval.

    2. Make sure at least 150 days remain on the 24-month TIPRA period (see below for instructions in cases with less than 150 days).

    3. Access the Appeals additional reviewer cadre and ATM listing by clicking the 'Additional Real Property Value Review' link in the Resources section on the Appeals OIC Web Page. Determine the likely Appeals additional reviewer and his/her ATM based on the location of the property.

    4. Because of the short turnaround time for the review, it is important to make sure the selected reviewer is available. Contact the reviewer's Manager and advise him/her that you have a referral ready for the additional review. If the selected reviewer is not available, choose a different reviewer from the cadre listing and similarly contact that reviewer's Manager to ensure availability.

    5. Once an available reviewer is selected, fax, E-efax or secure E-mail the referral package to the reviewer's Manager for team case assignment.

  6. If less than 150 days remain before the 24-month TIPRA period expires, your ATM will contact the reviewer’s ATM to advise of the pending referral and work out arrangements for expedited review. This may require assignment to a reviewer who generally covers referrals involving properties located in other areas.

  7. Upon receipt of the additional review referral package, the ATM of the Team Member Case (TM) reviewer will assign the TM case to the reviewer.

  8. The procedures and responsibilities of the reviewer are as follows:

    1. Review the referral package to make sure the referral meets the criteria for additional review detailed in paragraph (4) above, and make note of the TIPRA statute date listed in the referring memorandum

    2. Submit a request to APS to create a separate Team Member record for the OIC WUNO and input the appropriate ‘TL’ and ‘TM’ feature codes.

    3. Complete the additional property value review within 15 days of Team Member assignment by reviewing the available information and determining the appropriate value of the real property.

    4. Per IRM 8.7.11.3.1, the reviewer will prepare a brief Appeals Case Memo (ACM) in support of the determination of the property value issue as a Team Member on the OIC case.

    5. Input in the Loc 10 field the number of hours on the ACDS Team Member record, and the month and year in which the TM case was closed. Loc Code ‘RV’ was previously input in the Loc 10 field, so after the reviewer inputs the hours and month/year closed, the Loc 10 field should look like: RV–1.00hrs–11/09.

    6. Close out the TM WUNO using Closing Code 45 and submit the completed additional review package and brief ACM to the reviewer’s ATM.

  9. Upon receipt of the completed additional review package, the ATM of the reviewer will review and approve the Report and Team Member case and fax, E-efax or E-mail the valuation report/ACM to the ATM of the Appeals hearing officer assigned to the OIC case.

  10. Upon receipt of the returned additional real property value report/ACM by you, you will incorporate the Appeals reviewer’s determination into the OIC’s overall RCP calculation as follows:

    If... Then...
    The final real property valuation results in RCP exceeding the balance due Follow procedures in IRM 8.23.3.3.2 for non-CDP offers and IRM 8.22 for CDP offers.
    The final real property valuation results in a RCP amount consistent with the taxpayer's offer amount Follow procedures in IRM 5.8.8 and IRM 8.23.4 for acceptance processing.
    The final real property valuation results in a RCP that exceeds the taxpayer’s offer but is less than the balance due and the taxpayer has not had an opportunity to amend the offer Provide the taxpayer an opportunity to amend the offer. See IRM 8.23.3.4 for non-CDP offers and IRM 8.22 for CDP offers.
    The final real property valuation results in an RCP amount of which the taxpayer was previously given an opportunity to amend the offer Provide the taxpayer with an opportunity to amend the offer. See IRM 8.23.3.4 for non-CDP offers and IRM 8.22 for CDP offers.

8.23.3.3.2.6  (10-15-2014)
Requesting Assistance from Collection

  1. Situations may arise during the consideration of an appealed rejection where you will request the review of new information to be made by a COIC or Field OIC group. In these situations, you should use Form 2209 Courtesy Investigation, to request an Appeals Referral Investigation (ARI). The ARI should be sent as follows:

    • If the OIC case was rejected to Appeals by a Field OIC group, you should send the ARI to the originating office. The name of the Collection manager will be on the rejection letter or Form 1271 that should be located in the case file.

    • If the OIC case was rejected to Appeals by COIC, then you should send the ARI to the originating office via secure E-mail to *SBSE COIC Memphis or *SBSE COIC Brookhaven. If you are unable to scan and secure E-mail the ARI, it may be sent to the originating office via E-efax to Memphis COIC at 1-855-800-5520 or Brookhaven COIC at 1-855-383-8818. Subject lines should include “ARI”.

      E-fax, secure E-mail or regular mail may be used to transmit referrals. If regular mail is used, you should include a Form 3210 transmittal. If E-fax is used, a copy of the “received” transmittal should be retained in the case file by you.

  2. These requests should be limited to situations where you need the assistance of COIC or a Field OIC group to perform financial verification actions.

    Example:

    Many items such as new household bills, pay stubs, bank statements, retirement account statements, etc., can generally be reviewed by the Appeals hearing officer, and without further investigation. However, information requiring more than a cursory analysis such as a newly furnished business appraisal, business profit and loss or financial statements, recently dissipated assets of high value, stock valuations, etc., should be initially reviewed by Collection in response to an ARI. In some circumstances, the Appeals hearing officer may refer the issue to an Appeals Valuation Engineer.

    Note:

    See IRM 8.23.3.4 for situations where an ARI may be necessary for amended offers.

  3. Apply feature code "RI" Referral Investigation and suspend the case in ACDS using CARATS code SU/PI until the ARI is completed. Update the status to E/OTH.

  4. Once the ARI is returned, take the case out of suspense using CARATS code SU/TO. The RI feature code will remain on the case after it has been taken out of suspense.

  5. The case will be decided by you based upon the available information in either of the following circumstances:

    • The taxpayer does not cooperate with Collection or otherwise fully respond to any request(s) for additional information.

    • The COIC or Field OIC Group in receipt of the ARI does not respond timely. This does not include a request for additional time to complete the ARI, to which Appeals agrees.

    Note:

    If there is no response to you from Collection, or the taxpayer has not responded to Collection after 45 days and no requests for extension have been agreed, you will make a determination based upon the available information, including the uninvestigated items provided by the taxpayer.

  6. Per Revenue Procedure 2012-18, OIC cases are subject to ex parte communication provisions. The third-party contact waiver provision found in Section 8 of Form 656 pertains to non-IRS contacts only.

  7. After sending the ARI, you should send a letter to the taxpayer advising them of the referral – consider using Letter 5208, available on APGolf, for this purpose. Generally state what you have asked Collection to do and inform the taxpayer that you will share the results with the taxpayer and give him/her an opportunity to provide feedback.

  8. When the investigation results are received from Collection, promptly send a copy of the results to the taxpayer attached to a letter stating Collection has concluded its investigation and the taxpayer has (generally) 14 calendar days to review the information and provide the feedback he/she wants Appeals to consider.

  9. Per IRM 5.1.8.5, Collection considers the ARI to be a “Mandatory Assignment.” For a non-CDP OIC, this means the manager is responsible to assign the ARI to the next available COIC or Field OIC employee. In most instances, the manager should assign the ARI to the employee who originally worked the offer. Where a previous investigation of the offer has not taken place, the manager should assign in accordance with normal procedures. The completion period for the ARI is:

    • 45 days after issuance if the action address is within the United States, Puerto Rico or the Virgin Islands

    • Six months after issuance if the action address is any other US possession or territory or located within a foreign country

  10. Appeals retains full jurisdiction of the open OIC while Collection is investigating the ARI, so it is Appeals' responsibility to follow up if the above time frames are not met. Because of ex parte issues, limit the extent of the discussion to only the general time frame of the ARI/OI’s completion. See IRM 8.1.10, Ex Parte Communications. Carefully document the case activity record:

    • why the COIC or Field OIC employee was contacted

    • what question(s) was asked and the answer(s) received

8.23.3.4  (10-15-2014)
Amended Offers

  1. In a non-CDP OIC, you will review the taxpayer’s written appeal for the specific items that are in dispute. The specific, disputed items present on the IET/AET completed by Collection or the taxpayer’s written request for appeal will be used to identify the disputed items.

  2. If new information requiring further development is provided during consideration of an offer, an Appeals Referral Investigation (ARI) will be sent to Collection via Form 2209 Courtesy Investigation, to consider the new information. Collection’s response to the ARI will be shared with the taxpayer.

  3. If the Collection response to an ARI includes comment that the offer should be accepted, you will adopt the recommendation. If the Collection response is not to accept or no recommendation is made, you will review the information that was provided by both the government and the taxpayer and determine whether or not to accept the offer. See IRM 8.23.3.3.2.6, and (5) and (6) below, for examples where an ARI may be needed.

  4. In the interests of good tax administration, when rejection of an offer is sustained but the taxpayer is a possible candidate for consideration of acceptance under another basis, you will assist the taxpayer with an understanding of further options as outlined in (5) and (6) below.

  5. The table and examples below provide an illustration for the consideration of amended offers in Appeals.

    If the Original Offer was Considered Under Then it also may Generally be Considered Under
    DATC, DATCSC or ETA Hardship DATC, DATCSC, ETA Hardship, ETA Public Policy
    Doubt as to Liability (DATL) DATL
    ETA Public Policy DATC, DATCSC, ETA Hardship, ETA Public Policy
  6. Examples of amended offers are as follows:

    Example:

    (1) The taxpayer submitted an offer under DATC and the offer was rejected by Collection. During the appeal, it is determined that the acceptable amount of the offer is higher and the taxpayer agrees to pay the new offer amount and/or new payment terms. You will secure an addendum or amended offer form to reflect the new offer amount and process the acceptance. An ARI is not necessary.

    Example:

    (2) In example 1 (above), if new information is submitted by the taxpayer that requires investigation, you will use an ARI to send the new information to Collection for verification. You will share and discuss Collection’s response with the taxpayer, and make a determination based upon the information that was provided.

    Example:

    (3) A DATC offer is considered and rejected by Collection. In Appeals, the taxpayer introduces information requiring further development to consider the same offer under DATCSC or ETA. Upon securing the new information from the taxpayer, you will use an ARI to send the new information to Collection for development of the issue. You will share Collection’s response with the taxpayer and make a determination based upon the information that was provided.

    Example:

    (4) A DATCSC offer is considered and rejected by Collection. During the appeal process the taxpayer is unable to prevail using the special circumstances. The taxpayer raises a counter argument they can pay the RCP amount – which was fully documented and verified in the case file from Collection. You can accept the offer based upon DATC without an ARI. However, if new information requiring further development is presented for consideration, an ARI is necessary for Collection to comment on the new information. You will share Collection’s response with the taxpayer and make a determination based upon the information that was provided.

    Example:

    (5) An ETA Hardship offer is considered and rejected by Collection. During the appeal process the taxpayer is unable to prevail under ETA, however, a change in RCP or amount owed causes the taxpayer no longer to be projected as being able to full-pay the liability.

    If the taxpayer raises a counter argument they can instead pay the RCP amount, and the issues involved in the argument have already been fully documented and verified by Collection, you can accept the offer based upon DATC or DATCSC, without an ARI. However, if new information requiring further development is presented for consideration, an ARI will be necessary for Collection to comment on it. You will share Collection’s response with the taxpayer and make a determination based upon the information that was provided.

    Example:

    (6) A DATL offer is considered and rejected by Compliance. In Appeals, the taxpayer attempts to introduce new issues for consideration of the same offer under any other acceptance basis. The original offer must be resolved, and the taxpayer may submit a new offer to Collection under the new basis of compromise. Consult IRM 5.8.1.9.2.

    Note:

    The same rule in Example 6 applies if a DATC or ETA offer is considered and rejected by Collection, but the taxpayer wishes to introduce a DATL offer in Appeals. The original offer must be resolved, and the taxpayer may submit a new offer to Compliance under the new basis of compromise.

    Example:

    (7) An ETA Public Policy offer is considered and rejected by Collection. Under ETA Public Policy, all other bases of compromise must have been considered and, where applicable, fully developed prior to rejection. Therefore, any developed bases of rejection are subject to consideration by you.

    Example:

    (8): An offer is considered and rejected by Collection under any basis other than DATL and, in Appeals, either:

    • The taxpayer raises issues involving ETA Public Policy, or

    • Appeals identifies for the first time issues involving ETA Public Policy

    An ARI should be sent to Collection’s ETA team in Austin, TX, for initial analysis of the ETA offer. See IRM 5.8.11.

  7. Because a taxpayer may propose not just the amount of the offer, but also the terms of the payment, consideration must be given to such terms before deciding to recommend acceptance. You must evaluate and negotiate not just an acceptable offer amount, but agreeable payment terms as well. You are not required to accept the taxpayer's offer simply because it otherwise meets or exceeds RCP. If the taxpayer's proposed payment terms cause the offer itself to be unacceptable, the terms must be sufficiently renegotiated. If the taxpayer is not willing to propose acceptable terms, the offer may be denied as not being in the best interest of the government.

  8. During the course of an offer investigation, if a TIPRA payment(s) (which includes the initial payment submitted with the offer, subsequent periodic installment payments, and/or the payment submitted with an amended offer) contributes to the full payment of a tax period, that period must remain part of the offer and must be listed on any subsequent amended Form 656 or addendum, and the Form 7249. Even though the tax debt is fully paid, the payment or payments used to satisfy the tax debt are still part of the overall offer amount, so all satisfied periods must remain part of the offer. See IRM 5.8.8.6. If a tax period is paid in full exclusively via a non-TIPRA payment, such as a refund offset, there is no need to list such period on the amended Form 656 or addendum, or the Form 7249. Before securing an amended Form 656 with the tax period removed, make sure no TIPRA payment was applied to the satisfied tax period.

  9. If you secure an amended offer or addendum, no IRS signature is required for the "Authorized Internal Revenue Official" . For an amended offer, the TC 480 date for any additional periods that are added to it will be the same as the original TC 480 date, and no new signature is required. Use of a new signature date can be confusing to APS, and cause a second TC 480 date to be used for periods that may have been added to the offer later. In the event that the amended offer includes tax periods that were assessed after the submission of the original offer, the TC 480 date will also be the same.

    Note:

    Subsection (3), above, refers to amended offers only, and not new related offers that are secured during an investigation. New related offers will have their own TC 480 and TIPRA statute periods, as well as TIPRA payment requirements. See subsection (9), below. See also IRM 8.23.2.3(9) and (10).

    If ... Then ...
    The original Form 656 was received on or before July 21, 2006 You may use the July 2004 revision of Form 656 for the amended offer because the taxpayer is not required to make a TIPRA payment
    The original Form 656 was received on or after July 22, 2006 Use the most current revision of Form 656 for the amended offer because the taxpayer must make an additional required TIPRA payment unless exempt (see IRM 8.23.1.4.1 for exemption criteria)

    Note:

    An amended Form 656 does not impact the 24-month period under IRC 7122(f) during which the Service must either reject or return the offer. If the offer was not rejected (see IRM 8.23.2.3), the date by which Appeals must either reject or return the offer remains 24 months from the date the original offer was received by the Service.

  10. Taxpayers who do not meet the exemption criteria in Form 656, Section 4, may be required to remit an additional offer payment with the amended offer or addendum, depending on the amount and payment terms of such amended offer relative to the amount and payment terms of the original offer. Review IRM 5.8.4.23 for various amended offer scenarios and the associated TIPRA payment requirements.

  11. The taxpayer is given credit toward the amount of the amended offer for all OIC payments made prior to receipt of such amended offer. See IRM 5.8.4.23 and IRM 5.8.8.2. The OIC Acceptance Letter should indicate the total amount of offer payments received as of the date of issuance as well as the date and amount of the last offer payment received.

    Caution:

    Cases sent to Counsel are sometimes met with delays in the review process. Update the acceptance letter after it is returned from Counsel, so that it reflects the current TIPRA payments that have been made.

    Example:

    The taxpayer originally submitted a Lump Sum Cash offer of $5,000 and submitted $1,000 with the offer. The offer was rejected and the taxpayer appealed. The taxpayer and Appeals agreed on a final Short-Term Periodic Payment offer for $25,000. The taxpayer received credit for the $1,000 submitted with the original offer and thus owed a remaining amount of $24,000 to fully pay the offer. The offer amount listed on the amended Form 656 was $25,000 and the taxpayer proposed to make $1,200 periodic installment payments each month until the $25,000 is paid in full. The amended offer and additional TIPRA payment of $1,200 were received April 28, 2009. The OIC Acceptance Letter stated a total of $2,200 had been received and applied to the accepted offer and further advised the taxpayer that the last payment of $1,200 was received April 28, 2009.

  12. You may process the OIC payment received with the amended offer. See IRM 8.23.1.4.1.1 for guidance on how to process OIC payments.

  13. If an amended offer is received without the required partial payment, follow IRM 5.8.4.25 by sustaining rejection of the offer if the taxpayer does not make the required TIPRA payment after being given a reasonable opportunity to do so. If an amended offer is received without the required additional TIPRA payment:

    1. Carefully review the table in IRM 5.8.4.25 to make sure an additional TIPRA payment was required with the amended offer.

    2. If an additional TIPRA payment is required, contact the taxpayer and explain the TIPRA requirement.

    3. Give the taxpayer 15 calendar days to submit the required TIPRA payment and clearly explain that Appeals must sustain rejection of the offer if such payment is not received by the established deadline.

    4. If the taxpayer does not submit the required payment, the case may be closed by sustaining rejection of the offer.

    Note:

    Collection returns an offer as a processable return if the taxpayer does not submit the required additional TIPRA payment with the amended offer. Appeals does not "return" an offer that has already been rejected, but will apply the return criteria located in IRM 5.8.4.25, to sustain the previous rejection.

  14. If the amended offer secured by you is a Periodic Payment offer from a taxpayer who is not exempt from TIPRA payment requirements (see IRM 8.23.1.4.1 for exemption criteria), the taxpayer must once again start making the proposed periodic installment payments. You are responsible to make sure the taxpayer makes the periodic installment payments proposed in the amended offer while the OIC case is pending in Appeals. The offer may be considered withdrawn under IRC 7122(c)(1)(B)(ii) if the taxpayer fails to make all proposed periodic installment payments. See IRM 8.23.3.4.1 for Appeals mandatory withdrawal procedures.

  15. Appeals occasionally receives an appealed rejected offer in which two Forms 656 are required, but only one was initially received. In this case, Collection will sometimes not have secured the second Form 656. Review IRM 5.8.3.5 to determine how many Forms 656 are needed. In such a case, you should secure the second (and/or third) Form 656 that is required, along with any applicable OIC application fee and TIPRA payment, unless the taxpayer is exempt (per Form 656, Section 4). See IRM 8.23.1.4.1 and IRM 5.8.3.5 for information on required fees and payments. Even though the additional Form 656 is related to the offer that has already been rejected, the Centralized Offer in Compromise (COIC) site must complete the processability review and process the applicable fee and payment. As part of such processing, COIC will add the related offer to their Automated Offer in Compromise (AOIC) system so that offer may be properly monitored if accepted. Because the new Form 656 generally doesn't represent a new offer to be investigated, COIC will provide expedited processing of the related offer within 1-2 business days of receipt. To initiate this expedited processing, the SO must:

    1. Date stamp but not sign the second Form 656.

    2. Complete the Related Offer Cover Sheet, which is available on the Appeals OIC Web Page.

    3. Prepare a Form 3210 and mail it along with the original, Form 656, the OIC application fee, TIPRA payment, and the Related Offer Cover Sheet to the appropriate centralized site.

      Note:

      This new, related offer will have a new TIPRA statute, calculated from the received date of the new Form 656.

      Caution:

      To ensure accurate case and TIPRA statute tracking, be sure that a new WUNO is created as soon as the Form 656 is received.

  16. Section 8 of Form 656 (01/2014) allows the Service to add any assessed liabilities the taxpayer omitted or failed to list in Section 2 of the Form. A liability that was included on the Form 656 but for which there is no longer an outstanding balance, can also be removed from the Form 656 (01/2014), unless the period was satisfied due to a TIPRA payment. If the only revision needed before acceptance is to add or delete a missing period, neither an addendum nor an amended Form 656 is necessary. Contact the taxpayer to advise him/her that you are adding or deleting the missing period(s).

    Caution:

    Earlier revisions of the Form 656, Section 8, do not contain any provision to allow Service personnel to delete any listed period. So, if an earlier Form 656 lists a tax period that is paid in full and no TIPRA payment was applied to such tax period (see paragraph (2) above), an amended Form 656 must be secured.

8.23.3.4.1  (10-14-2011)
Mandatory Withdrawal Procedures for Amended Periodic Payment Offers Received by Appeals

  1. A taxpayer submitting either a Short-Term Periodic Payment Offer or a Deferred Periodic Payment Offer is required to make the periodic installment payments proposed in such offer. Most taxpayers submitting a Periodic Payment offer will propose monthly payments, but are not required to do so under IRC 7122(c)(1)(B). 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 proposed periodic installment payments while a rejected offer is being considered by Appeals unless an amended offer is secured.

  2. If the amended offer secured by Appeals is a Periodic Payment offer from a taxpayer who is not exempt from TIPRA payment requirements (see IRM 8.23.1.4.1 for exemption criteria), the taxpayer must once again start making the proposed periodic installment payments. You are responsible to make sure the taxpayer makes the periodic installment payments proposed in the amended offer while the OIC case is pending in Appeals. The offer may be considered withdrawn under IRC 7122(c)(1)(B)(ii) if the taxpayer fails to make all proposed periodic installment payments.

  3. Follow IRM 5.8.4.25 and IRM 5.8.7 procedures, including:

    • allowing the taxpayer two weeks to submit the missed payment(s),

    • affording the taxpayer an opportunity to make up only one missed proposed periodic installment payment, unless it is determined special circumstances exist, and

    • continuing with consideration of the taxpayer's appeal if it is determined special circumstances exist

  4. If you do not receive the required proposed periodic installment payment by the established deadline and determine no special circumstances exist, the offer will be considered withdrawn under IRC 7122. Per IRM 5.8.7, the date of the withdrawal (TC 482 date) will be the date of the letter issued by Appeals indicating the offer is considered withdrawn.

    Note:

    To be applicable, special circumstances should generally involve something out of the taxpayer's control that has caused their inability to make the payment, and not a mere oversight or financial inability to make the payment.

8.23.3.5  (10-15-2014)
Collateral Agreements

  1. Follow IRM 5.8.6 with regard to collateral agreements. In addition to the terms specifically stated in the offer, collateral agreements enable the government to either collect funds or restrict a taxpayer's ability to claim future losses or credits. Do not use them to allow the taxpayer to submit an offer for a lower amount than the collection potential of the case dictates. Usage of collateral agreements should not be routine. Secure them only when you expect significant recovery or the taxpayer has identifiable future losses or credits. It may be appropriate to secure a collateral agreement when a significant increase in income is expected.

  2. Do not secure a future income collateral agreement

    • to collect future income that should be included in the offer amount itself

    • merely on unfounded speculation about an increase in future income

    • to guard against statistically improbable events, such as lottery winnings

    • to attempt collection from a potential inheritance

  3. If a future income collateral agreement is secured, the agreement can be approved by same level of approval as that of the offer. See IRM 5.8.6.2.1.1 for additional information.

    Note:

    Future income collateral agreements must be manually monitored by MOIC for the life of the agreement. The cost of monitoring the terms and conditions of the agreement and the potential difficulty of tracing the taxpayer's income, especially if such income could be structured through other entities, must be considered before deciding to secure such an agreement.

  4. Use standard collateral agreements whenever possible to aid in the monitoring of the agreements. The standard agreements are listed below:

    1. Form 2261, Collateral Agreement-Future Income-Individual, and Form 2261-A, Collateral Agreement-Future Income-Corporation / Limited Liability Company

    2. Form 2261-B, Collateral Agreement-Adjusted Basis of Specific Assets

    3. Form 2261-C, Collateral Agreement-Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits

  5. The collateral agreement must be signed by the Appeals official authorized to approve the underlying offer. See Delegation Order 5-1, which is also IRM 1.2.44.2 and is available on the Appeals OIC Web Page.

    Note:

    The Area Director of Appeals approval of an offer with a future income collateral agreement is not based on Del. Order 5-1. It is based on the IRM 5.8.6.2.1.1 requirement that such offers be approved by a second level manager.

8.23.3.6  (11-21-2013)
Offer from an Operating Business

  1. When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer is relieved of a significant operating expense. The effect is to grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of "fairness to all taxpayers" the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. Procedures in IRM 5.8.4.20 must be followed when considering an appealed offer from all In-Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, LLCs and corporations.

  2. On February 5, 2008, Collection changed its procedures for evaluating offers involving trust fund taxes. An interim guidance memorandum dated January 28, 2008 was issued by Collection and later incorporated into the 9/2008 revision of IRM 5.8.4.13.1 and 5.8.4.13.2. Offers received by the Service on or before February 4, 2008, are still subject to procedures found in the 9/2005 revision of IRM 5.8.4.13.1 and IRM 5.8.4.13.2. Offers received on or after February 5, 2008 are subject to the procedures found in the current revision of IRM 5.8.4.22.1.

  3. If the offer under consideration was received by the Service on or before February 4, 2008 to compromise trust fund tax, all issues outlined in the 9/2005 revision of IRM 5.8.4.13.2 must have been addressed by Collection before sending the non-CDP offer case to Appeals. This includes proper protection of the ASED(s) for the Trust Fund Recovery Penalty (TFRP). Per IRM 8.23.2.4, return the case as a premature referral if Collection did not adequately protect the ASED(s) on a pre-February 5, 2008 trust fund offer before sending the case to Appeals.

  4. If the offer under consideration was received by the Service on or after February 5, 2008, to compromise trust fund tax, all issues outlined in the current revision of IRM 5.8.4.20 must have been addressed by Collection before sending the non-CDP offer case to Appeals. This includes:

    • full payment of the trust fund portion of the unpaid tax,

    • assessment of the TFRP(s), or

    • the TFRP(s) submitted by Collection for assessment

  5. Per IRM 8.23.2.4, return the case to Collection as a premature referral if the offer was received by the Service on or after February 5, 2008, and the trust fund tax is not fully paid or the TFRP(s) is either assessed or in the process of being assessed, unless Collection has clearly documented either a non-assertion determination or the case being under LEM criteria.

8.23.3.6.1  (10-15-2014)
Corporate Trust Fund Offer Procedures

  1. On January 28, 2008, Collection issued interim guidance for offers involving taxpayers who owe trust fund tax. The new procedures were later incorporated into the 9/2008 revisions of IRM 5.8.4.13, and current revision of IRM 5.8.4.22.1. Provided are the following changes for all offers involving trust fund taxes received on or after February 5, 2008:

    • Only the amount representing the reasonable collection potential (RCP) of the corporation is needed to compromise a corporate trust fund liability -- the RCP of the person(s) responsible for the Trust Fund Recovery Penalty (TFRP) is no longer needed as part of the corporate trust fund offer, and

    • The trust fund portion of the tax liabilities must be paid or the TFRP either assessed or forwarded (by Collection) for assessment before the corporate offer may be evaluated

  2. The changes to procedures for offers involving trust fund tax received by the Service on or after February 5, 2008 have no separate or distinct impact on how Appeals will handle non-CDP offers because Collection will have already addressed all aspects of the offer affected by such changes before rejection. With a non-CDP offer, Appeals need only follow the new criteria for determining RCP mentioned above and the new procedures as outlined in the current IRM 5.8.4.22.1.

    Note:

    The manner in which Appeals processes and evaluates offers involving trust fund tax received as part of a CDP case changed significantly under the revised procedures. See IRM 8.22 for procedures for corporate trust fund offers received by Appeals as an alternative to collection in a CDP case.

  3. The procedures in the 9/2005 revision of IRM 5.8.4.13.2 remain in effect for all offers (CDP and non-CDP) received by either Collection or Appeals on or before February 4, 2008. The procedures for pre-February 5, 2008 offers state the amount offered to compromise a corporate liability involving trust fund tax must include the amount that may be collected from the corporate entity and all persons responsible for the TFRP up to the amount of the TFRP, plus interest, if assessed.

  4. Consult IRM 8.23.2.4 and its related subsections, and IRM 8.23.2.5 for premature referral or compliance issues that may be applicable.

8.23.3.7  (11-21-2013)
Offers for Other Liabilities

  1. The chart below contains IRM references for offers involving various other issues:

    Issue IRM Reference(s)
    Child - Child Support Obligations IRM 5.8.4.23
    Child - Offers from a Minor Child IRM 5.8.1.5.6
    Erroneous Refunds (Non-Rebate) IRM 5.8.4.23.4
    Limited Liability Companies (LLC) IRM 5.8.5.26, IRM 5.8.5.26.1, IRM 5.1.21.10.2
    Partnership Liabilities IRM 5.8.4.22.2
    Restitution IRM 5.8.4.23.2
    Trust Fund Liabilities (including Excise Taxes) IRM 5.8.4.22.1, IRM 8.23.3.6, IRM 8.23.3.6.1

8.23.3.8  (10-15-2014)
Effective Tax Administration Offers

  1. If it is determined that there is no basis to accept an offer under doubt as to collectibility (DATC) or doubt as to liability (DATL), the offer may still be accepted if it is determined that doing so:

    1. would promote effective tax administration, and

    2. would not undermine other taxpayers' compliance with the tax laws.

  2. IRM 5.8.11, Offer in Compromise, Effective Tax Administration, contains information about ETA offers and DATC offers where the taxpayer presents "special circumstances" (DATC-SC) as a basis to accept the offer, and the procedures for evaluating such offers.

  3. Under ETA, the taxpayer does not dispute being financially capable of paying the liability in full. To accept an ETA offer, the taxpayer must establish that:

    • Paying the full tax liability would cause an economic hardship (see below), or

    • Compelling public policy or equity/fairness considerations exist that would undermine public confidence that the tax laws are being administered in a fair and equitable manner if required to pay in full. These "public policy" or "equity" offers are sometimes referred to as "non-hardship" ETA offers.

  4. Under DATC-SC, the taxpayer does not have the ability to pay in full, but does not dispute being financially capable of paying more than the amount being offered. To accept a DATC-SC offer, the taxpayer must establish that:

    • Paying the full RCP amount would cause an economic hardship (see below), or

    • Compelling public policy or equity/fairness considerations exist that would undermine public confidence that the tax laws are being administered in a fair and equitable manner if required to pay the full RCP amount.

  5. ETA and DATC-SC offers require a more subjective evaluation. Although IRM 5.8.11 is comprehensive, it is simply not practical to try to draft guidance that encompasses every event or situation.

  6. ETA and DATC-SC offers based upon economic hardship are not uncommon. For purposes of ETA and DATC-SC offers, the definition of economic hardship is found in Treasury Regulation § 301.6343-1(b)(4)(i). Often a taxpayer presents circumstances reflecting one or more of the factors outlined in IRM 5.8.11, or closely resembling many aspects of an example cited in the IRM or Treasury Regulation 301.7122-1, but the case for ETA or DATC-SC acceptance for the amount proposed by the taxpayer falls apart when actual dollars are factored in. A decision in an ETA or DATC-SC hardship offer requires a three-tiered approach:

    1. Does the taxpayer present exceptional circumstances meriting ETA or DATC-SC consideration?

    2. Would payment of more than the offered amount cause the taxpayer to be unable to meet future necessary living expenses?

    3. Would acceptance of the offer undermine other taxpayers' compliance with the tax laws?

    An acceptable offer requires affirmative answers to questions 1 and 2, and a negative answer to question 3.

    Note:

    Delegation Order 5-1 now authorizes an Appeals Team Manager to approve the acceptance of an offer based upon ETA-hardship or DATC-SC hardship, if the assessed liability is less than $100,000. The approval of the Area Director of Appeals is still required on hardship cases if the assessed liability is $100,000 or more.

  7. Offers based upon public policy or equity considerations are more rare.

    1. A cceptance of any ETA or DATC-SC offer (either CDP or non-CDP) based in whole or in part on public policy or equity considerations requires review and approval by the Director, Field Operations (DFO).

    2. Rejection of any ETA or DATC-SC offer (either CDP or non-CDP) based in whole or in part on public policy or equity considerations requires review and approval by either an ATM or ATCL.

  8. See Delegation Order 5-1, which is IRM 1.2.44.2, and is also available on the Appeals OIC Web Page.

8.23.3.9  (10-15-2014)
Consideration of “Obvious Full Pay” Offers

  1. On occasion, taxpayers will submit an OIC accompanied by a financial statement that indicates they can full-pay the liability. IRM 5.8.4.6 directs Collection to contact the taxpayer or representative to verify the information. If the taxpayer does not respond or responds with no additional information, the offer rejection may be sustained.

  2. You will work these cases the same way as a fully developed OIC rejection. As with any other Appeals case, standard Appeals conference and settlement practices will apply. If the taxpayer provides new information to you that requires more than a cursory review, then you will follow the guidance in IRM 8.23.3.3.2.6, and use an ARI to refer the information back to Collection for review and development.

8.23.3.10  (10-15-2014)
Consideration of Doubt as to Liability (DATL) Offers

  1. You will make an independent determination regarding any offers. A DATL offer will generally be evaluated by you in the same manner as an audit reconsideration case. You should consider the facts and law as well as the hazards of litigation in determining the degree of doubt as to the liability.

  2. IRC 7122(d)(3) provides that a DATL offer may not be rejected solely because the Service cannot locate the taxpayer’s return or return information. The Service is also prohibited from requesting a financial statement if an offer is based solely on doubt as to liability.

  3. Appeals will consider offers based on DATL where the offer was rejected by Exam, TEGE, a specialty group, or Collection.

  4. Any DATL OIC (CDP or non-CDP) work unit (WUNO) should have ACDS feature code “LI”.

  5. Under IRC 7122(f), and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), an offer shall be deemed accepted if the IRS does not make a determination regarding whether to accept the offer and notify the taxpayer of its determination. The above action must have taken place before the date which is 24 months after the date of receipt of such offer by the IRS. See also IRM 8.21.5, Collection Statutes.

  6. This 24-month TIPRA period ends when the offer is rejected, so most non-CDP offers received in Appeals will not have open TIPRA statute issues. However, you should review IRM 8.23.2.3 Initial Case Review and Statute Controls, to make sure an OIC WUNO contains the proper statute controls.

  7. A DATL offer acceptance must be payable within 90 days unless an alternative payment term is approved at the time the offer is accepted. See Form 656-L.

  8. If the DATL offer came to you after being rejected by Exam, the case file should be fully developed and documented. If the case file is not fully developed and documented, you will not return the case as a premature referral. You should weigh the development of the case by the originating function versus information and testimony provided to you by the taxpayer, and make the decision based upon those factors.

  9. If the DATL offer case came to you because the liability at issue was previously determined by Appeals, then Appeals has jurisdiction over the case and the originating office is not responsible for the initial development of the case or securing the closed administrative file before forwarding the case to Appeals. See IRM 8.23.3.10.2 for guidance pertaining to such cases.

    Note:

    Even if Appeals recently closed a tax case (income tax, employment tax, etc.) involving the very same liability that is now the subject of the DATL offer, you are still responsible for deciding the disposition of the offer. Such a case is not a premature referral, return, withdrawal or rejection, just because the previous tax case was closed recently before the submission of the DATL offer.

  10. The total amount of money offered must be indicated and must be more than zero. If a DATL offer is received by Appeals that is not for more than $0.00, the offer will be returned. You will close a return by sustaining rejection; no separate independent administrative review is necessary.

  11. Non-compliance in filing of required federal tax returns does not preclude Appeals from considering and accepting an appealed DATL offer or from making appropriate adjustments via Form 3870.

  12. A DATL offer is no longer considered during a bankruptcy preceding. If an open bankruptcy is identified during consideration of the DATL offer, sustain rejection.

8.23.3.10.1  (10-15-2014)
Examination DATL Offers - Liability Previously Determined by a Court

  1. If the taxpayer submits Form 656-L and the liability was finally determined by the Tax Court, other courts, or by a Final Closing Agreement authorized under IRC 7121 (e.g. Forms 866 or 906), then there is no doubt concerning the existence or amount of the liability. The offer will be returned. You will close a return by sustaining rejection; no separate independent administrative review is necessary.

    Note:

    First, you should search ACDS and IDRS for litigation codes and confirm that the case was decided on the merits, as opposed to dismissed and not considered by the Court.

    Exception:

    If the offer is based upon a computational error by the Service after the decision was entered (e.g., penalties assessed contrary to the decision), you should consider the offer. You should review the decision document to ensure that the assessment is based upon the agreement. If an adjustment is required, you will prepare Form 3870 and return the offer. You will close a return by sustaining rejection; no separate independent administrative review is necessary

    Note:

    See IRM 8.23.2.4(5), for an exception for a case closed on ACDS with Closing Code 21.

8.23.3.10.2  (10-15-2014)
Examination DATL Offers - Liability Previously Determined by Form 870-AD

  1. If the taxpayer submits Form 656-L and the liability was previously determined by other agreement reached in Appeals, (e.g. hazards or 870-AD), the originating function will forward the timely appealed case for consideration by Appeals without initial development. You will secure the administrative file and make a determination on the DATL following the guidance in Policy Statements P-8-2 and P-8-3.

    Caution:

    See IRM 8.23.2.4(5), for an exception for a case closed on ACDS with Closing Code 21.

  2. If the taxpayer submits new information that, in your judgment, requires additional analysis or investigative action, you will retain jurisdiction of the case and return the new information to the originating function, via Form 10467 or Form 2209. Situations requiring the use of a Form 10467 or Form 2209 and referral back to the originating function will be rare. Refer to IRM 8.23.3.3.2.6 (3) and (4) for suspense codes to use.

    Note:

    If the new information only affects the consideration of hazards, then you will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function should not be made in these cases.

  3. The originating function has 45 days to take action on the new information and respond to you. This timeframe may be extended by mutual agreement. You will notify the taxpayer of the referral to the originating function and convey the findings to the taxpayer, giving them an opportunity to respond prior to making any case determination. You will also retain responsibility for any TIPRA statute, should there be one.

  4. If there is no response from the originating function or the taxpayer after 45 days, and no requests for extension have been agreed, you will make a determination based upon the available information, including the uninvestigated items provided by the taxpayer.

8.23.3.10.3  (10-15-2014)
Examination Issue DATL Offers - Liability Previously Determined by Form 870 or Defaulted Statutory Notice of Deficiency (SNOD)

  1. If the taxpayer submits new information during your consideration of a rejected DATL offer which was previously closed with a Form 870 or a defaulted SNOD, then you will retain jurisdiction and transmit the new information to the originating function via Form 10467 or Form 2209. Referrals of this kind should generally be rare. Refer to IRM 8.23.3.3.2.6 (3) and (4) for suspense codes to use.

    Note:

    Documents previously inaccessible to the taxpayer or which require a more in-depth analysis or investigation would be appropriate for a referral to the originating function using Form 10467 or Form 2209. This includes new issues raised by the taxpayer while in Appeals.

  2. If the new information only affects the consideration of hazards, then you will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function should not be made.

  3. If new information does not require additional analysis or investigative action, you will make the determination on the DATL.

  4. The originating function will have 45 days to take action on the new information and respond to you. This timeframe may be extended by mutual agreement. You will notify the taxpayer of the referral to the originating function, and will convey the findings to the taxpayer and give the taxpayer an opportunity to respond prior to making any case determination.

  5. If there is no response from the originating function or the taxpayer after 45 days, and no requests for extension have been agreed, you will make a determination based upon the available information, including the uninvestigated items provided by the taxpayer.

8.23.3.10.4  (10-15-2014)
Tax Equity and Fiscal Responsibility Act (TEFRA) Liability Offers

  1. Upon receipt of an offer in compromise case, secure an AMDIS or AMDISA print:

    1. If there is a Partnership Investor Control File (PICF) Code 5, there is at least one open TEFRA key case linkage. The taxpayer should have been advised by the investigating officer or function that an offer cannot be considered until all TEFRA partnership issues have been resolved. See IRM 5.8.4.15.1. Attempt to secure a withdrawal. If the taxpayer refuses to withdraw the offer, it should be returned to the investigating officer as a premature referral.

    2. If there is a PICF Code 7, there is at least one closed TEFRA key case linkage. Verify that any assessment as a result of the TEFRA key case was made and that the additional liability is included in the offer.

  2. Doubt as to liability offers should not be accepted because a taxpayer's liability resulting from a TEFRA assessment is final and conclusive. In addition, the consistent settlement provisions of IRC 6224(c)(2) may apply.

  3. Doubt as to collectibility offers and hardship ETA offers may be accepted, where appropriate, even where the tax liability involved an assessment resulting from a TEFRA entity. The fact that the liability is final is not a reason for rejecting the offer. The consistent settlement provisions of TEFRA do not apply to either doubt as to collectibility offers or hardship ETA offers. See IRM 8.19.8, Appeals Pass-Through Entity Handbook - Collection Cases.

  4. Non-hardship ETA offers based on public policy or equity grounds should not be accepted based on a taxpayer's contention that a provision of the tax law is unfair, or that the TEFRA rules or the actions of the Tax Matters Partner (TMP) on behalf of the taxpayer caused an inequitable result. Other facts and circumstances may be present such that acceptance of an offer would be fair and equitable (see IRM 5.8.11), but consideration has to be given to whether the consistent settlement provisions of IRC 6224(c)(2) would apply.

  5. Appeals employees considering acceptance of a non-hardship ETA offer that includes an assessment resulting from a TEFRA proceeding must discuss the issue with the Appeals TEFRA Technical Guidance Coordinator who will coordinate a response with the Appeals Program Analyst responsible for the Offer program.

  6. For other information regarding TEFRA liabilities in OIC cases, see IRM 8.19.8.5.

8.23.3.10.5  (10-15-2014)
Doubt as to Liability (DATL) Offers Involving Trust Fund Recovery Penalty (TFRP) and Personal Liability for Excise Tax (PLET) Liabilities

  1. Under IRC 7122(f), and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), an offer shall be deemed to be accepted if it is not rejected, returned, or withdrawn or treated as withdrawn under section 7122(c)(1)(B)(ii). The rejection, return or withdrawal of the offer must have taken place before the date which is 24 months after the date of receipt of such offer by the IRS. See also IRM 8.21.5, Collection Statutes.

  2. This 24-month TIPRA period ends when the offer is rejected by Collection, so most non-CDP offers you consider will not have open TIPRA statute issues. However, review IRM 8.23.2.3 Initial Case Review and Statute Controls, to make sure the OIC WUNO contains the proper statute controls.

  3. If an offer involving a TFRP or PLET assessment is based upon DATL and came to you after being rejected by Collection, the case file should be fully developed and documented. If the case file is not fully developed and documented, the case will not be returned by you as a premature referral. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make your decision based upon those factors. See subsections related to IRM 8.23.3.10.5 for guidance if new information is presented to you.

  4. If the DATL offer case came to you because the liability at issue was previously determined by Appeals, then Appeals has jurisdiction over the case and Collection is not responsible for any initial development of the case or for securing the closed administrative file before forwarding a timely appealed case to Appeals.

    Note:

    Even if Appeals recently closed a TFRP or PLET case involving the very same liability that is now the subject of the DATL offer, you are still responsible to either accept or sustain rejection of the offer. Such a case is not a premature referral, return, withdrawal or rejection just because the previous TFRP case was closed recently before the DATL offer was submitted.

  5. The OIC work unit (WUNO) must have feature code 'LI' indicating it is a DATL offer.

  6. A DATL offer acceptance must be payable within 90 days unless an alternative payment term is approved at the time the offer is accepted. See Form 656-L.

  7. IRM 8.25 has instructions for working TFRP cases in Appeals. IRM 5.8.4 also contains guidance for working doubt as to liability offers involving TFRP and PLET assessments. You should consult the chart in IRM 8.23.3.10.9 for how to resolve a DATL offer case (acceptance, rejection or withdrawal, and the use of Form 3870).

  8. Once the offer amount is paid, acceptance of a doubt as to liability offer concludes the TFRP or PLET matter for the taxpayer. Once accepted, there is no five-year compliance or refund offset provisions on a doubt as to liability offer.

  9. If an adjustment is being made to the TFRP or PLET, even if the offer is to be withdrawn or rejected, the Form 3870 must be prepared by you to provide instructions to APS regarding any adjustments that need to be made. The Appeals Case Memorandum should also explain the basis of the adjustments. APS will forward the 3870 to the correct Advisory Unit , along with any TFRP assessment file.

  10. Non-compliance in filing of required federal tax returns does not preclude you from considering and accepting an appealed DATL offer, or from making appropriate adjustments via Form 3870.

  11. A DATL offer is no longer considered during a bankruptcy proceeding. If an open bankruptcy is identified during consideration of the DATL offer, you will sustain rejection.

  12. The taxpayer must offer a dollar amount. If a DATL offer is received by you that is not for more than $0.00, return the offer. You will close a return by sustaining rejection; no separate independent administrative review is necessary.

    Note:

    Once the offer is closed, at your discretion, you may choose to work the issue as an informal claim. See IRM 8.25.1.7.4.1.

8.23.3.10.6  (10-15-2014)
TFRP or PLET Issue DATL Offers - Liability Previously Determined by a Court

  1. If the taxpayer submits Form 656-L and the liability was finally determined by the Tax Court, other courts, or by a Final Closing Agreement authorized under IRC 7121 (e.g. Forms 866 or 906), then there is no doubt concerning the existence or amount of the liability. The offer will be returned. You will close a return by sustaining rejection; no separate independent administrative review is necessary.

    Note:

    You should first research ACDS and IDRS for litigation codes and confirm that the case was decided on the merits, as opposed to dismissed and not considered by the Court.

    Exception:

    See also IRM 8.23.2.4(5), for an exception for a case closed on ACDS with Closing Code 21.

    Exception:

    If the offer is based upon a computational error made by the Service after the decision was entered, the offer should be considered. You should review the decision document to ensure that the assessment is based upon the agreement.

8.23.3.10.7  (10-15-2014)
TFRP or PLET Issue DATL Offers - Liability Previously Determined by Form 2751-AD

  1. If the taxpayer submits Form 656-L and the liability was previously determined by other agreement reached in Appeals, (e.g. hazards, Form 2751-AD), Collection will forward the timely appealed DATL for consideration by Appeals without any initial development. You will secure the administrative file and make a determination on the DATL following the guidance in Policy Statements P-8-2 and P-8-3.

    Note:

    See IRM 8.23.2.4(5), for an exception for a case closed on ACDS with Closing Code 21.

  2. If the taxpayer submits new information that, in your judgment, requires additional analysis or investigative action, then you will retain jurisdiction of the case and, using Form 2209, return the new information to the originating function. Situations requiring the use of a Form 2209 and referral back to the originating function should be highly uncommon. Refer to IRM 8.23.3.3.2.6 (3) and (4) for suspense codes to use

    Note:

    If the new information only affects the consideration of hazards, then you will evaluate the probative value of the new information and make a determination on the DATL. A referral to the local Collection team will not be made.

  3. The local Collection team has 45 days to review and comment on the new information and to respond to you. This timeframe may be extended by mutual agreement.

  4. You will retain jurisdiction of the case while the originating function considers the new information. You will be responsible to monitor the TIPRA statute, should there be one.

  5. You will notify the taxpayer of any referral to the originating function (e.g. Field OIC group), share the referral’s findings with the taxpayer, and give the taxpayer an opportunity to respond prior to making any case determination.

  6. Consult IRM 8.25.2.4.2 for more information regarding case analysis and new evidence.

8.23.3.10.8  (10-15-2014)
TFRP and PLET Issue DATL Offers - Liability Previously Determined by Form 2751 or Defaulted Letter 1153

  1. If the taxpayer submits new information during your consideration of a rejected DATL offer which was previously closed with a Form 2751 or a defaulted Letter 1153, then you will retain jurisdiction and return the new information to the originating function via Form 2209. Situations where you request the development of new information will be highly uncommon. Refer to IRM 8.23.3.3.2.6 (3) and (4) for suspense codes to use

    New information includes documents previously inaccessible to the taxpayer or those which require a more in-depth analysis or investigation. This includes new issues raised by the taxpayer while in Appeals.

    Note:

    If the new information only affects the consideration of hazards, then you will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function will not be made.

  2. If new information does not require additional analysis or investigative action, then you will make the determination on the DATL.

  3. The originating function will have 45 days to review and comment on the new information and respond to you. This timeframe may be extended by mutual agreement.

  4. You will notify the taxpayer of any referral to the originating function (e.g. Field OIC group), and will share the referral’s findings with the taxpayer, giving an opportunity to respond prior to making any case determination. Consider using Appeals’ Letter 5208 to notify taxpayers of the referral.

  5. You will retain jurisdiction of the case while the originating function considers the new information.

  6. Consult IRM 8.25.2.4.2 for more information regarding case analysis and new evidence.

8.23.3.10.9  (10-15-2014)
Doubt as to Liability (DATL) - Resolution Options

  1. The table below contains actions necessary to make the adjustments to an account, or to accept a DATL offer.

    If... Then...
    The case is resolved by a redetermination of liability that is not based upon hazards The balance of the assessment in excess of the re-determined liability amount should be abated using a Form 3870.
    1. Ask the taxpayer to withdraw the offer.

    2. If the taxpayer does not withdraw the offer, you should sustain rejection using the DATL optional paragraph on the rejection letter (Letter 5197) on APGolf.

    3. The 3870 adjustment will be made by APS if the offer is a DATL other than TFRP or PLET.

    4. If the offer is on TFRP or PLET liabilities, APS will forward the 3870 to the correct Advisory Unit located on SERP, along with any TFRP assessment file.

    It is determined that there is doubt as to liability based upon hazards of litigation You should close the case by accepting the offer. The acceptable amount depends on the degree of doubt established, based upon the hazards relative to the amount assessed. No 3870 adjustments to the account should be made.
    It is determined that there is no doubt as to the liability You will close the case by using the DATL optional paragraph on the OIC rejection letter (Letter 5197) on APGolf.
  2. As stated in the table above, if the case is resolved by a redetermination of tax that does not include hazards a Form 3870 must be used to make the proper adjustment, rather than to proceed with accepting the offer. This is because if the redetermination is made with a Form 3870, the adjustment is not dependent on any further action by the taxpayer. However, if the offer is accepted using Form 656-L, the taxpayer would still have to pay the offered amount and may lose tax refunds offset during the consideration of the offer. If payment terms are not met, the accepted offer will be terminated and IRS must reinstate the original assessment without any adjustments.

  3. If a DATL offer is accepted, you must remove the 5-year compliance and refund/overpayment offset provisions from the OIC Acceptance Letter.

  4. If the offer is withdrawn or rejection is sustained and no Form 3870 adjustment is necessary, you may close the case using normal procedures. See IRM 8.23.4.3 if the rejection is sustained and IRM 8.23.4.4 if the offer is withdrawn.

  5. Non-compliance in filing of required federal tax returns does not preclude you from considering and accepting an appealed DATL offer or from making appropriate adjustments via Form 3870.

  6. A DATL offer is no longer considered during a bankruptcy proceeding. If an open bankruptcy is identified during consideration of the DATL offer, you must return the offer. You will close a return by sustaining rejection; no separate independent administrative review is necessary.

8.23.3.11  (10-14-2011)
Death of Taxpayer While OIC Case in Appeals

  1. Consideration of an offer in compromise (OIC) must be terminated upon the death of a single offer proponent. The date of termination and the date for the TC 482 shall be the date of the taxpayer's death. A sample OIC Termination Letter is available on the Appeals OIC Web Page.

  2. If the offer under consideration was submitted jointly by a husband and wife and only one spouse died, follow the procedures in IRM 5.8.10 to determine whether to continue with consideration of the jointly submitted offer.

8.23.3.12  (10-15-2014)
Alternative Resolutions for Offers

  1. Your role in a rejected offer is to resolve the disputed issues. Although taxpayers will occasionally express an interest in alternative resolutions when it is apparent that an offer is not a viable option, you will not deviate from Appeals’ role when considering the rejection of a non-CDP offer.

  2. If an offer cannot be accepted, you must communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status, as applicable) that the taxpayer may pursue with Collection. Do not refer the taxpayer back to COIC or Field offices. You should close the offer and refer the taxpayer to Form 9465 Installment Agreement Request, and/or 1-800-829-1040.

  3. NFTL filing determinations are not to be made by you. Notify the taxpayer verbally or in writing that Collection may file an NFTL after the case is closed. If the taxpayer indicates intent to file a Collection Appeal Request, you should refer them to the Collection employee who worked the initial case, and close the OIC following normal procedures.

8.23.3.13  (10-15-2014)
Potential Default Offers

  1. A taxpayer must agree to the terms set forth in the Form 656, and the compromised amount remains a tax liability until the taxpayer meets all the terms and conditions of the offer. See Form 656, Section 8.

  2. Taxpayers entering into either a DATC or ETA offer must agree to comply with all filing and paying obligations under the Internal Revenue Code for a period of 5 years after the offer is accepted. See Form 656, Section 8.

  3. If a taxpayer fails to meet any of the terms of the offer, the Service has the right to terminate the offer, reinstate the compromised liability, and pursue collection action against the taxpayer. The default provisions apply only to the party failing to comply if the liabilities are jointly owed and the offer was jointly submitted. See Form 656, Section 8.

  4. If Appeals initially accepted the offer, Appeals will consider the taxpayer’s potential default.

    • See IRM 8.23.3.14 for Compromise of a Compromise cases.

  5. The referral from MOIC should be on Form 2209, Courtesy Investigation, and include the following additional information:

    1. A copy of the "Terms" and" MFT" Screens from AOIC

    2. A copy of the AOIC history, reflecting actions already taken by MOIC on the potential default

    3. A copy of the AOIC payment screen

    4. Taxpayer contact information, including the last known telephone number of the taxpayer and/or representative

    5. Fax number of the Form 2209 originator

    6. A clear description in the body of the 2209 as to what exactly has caused the offer to potentially default

    7. Copies of letters to and from the taxpayer

  6. The case will be opened as an offer on ACDS in order to place time on the specific case. APS should note it as a pending defaulted offer in compromise by using feature code "DO" .

  7. Generally, all potential default offer cases will be worked by the Brookhaven Appeals office. Exceptions to this may be as follows:

    1. Proposals received on offers originally accepted by a field Appeals office may be assigned to the same Appeals team that originally accepted the offer.

    2. Proposals received on field and campus CDP offers that are subject to retained jurisdiction may be assigned to the field or campus team that accepted the CDP offer.

  8. When you are advised of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the referral coming to you, an Appeals Referral Investigation (ARI) may be needed. The ARI should be sent to Advisory to make the determination. If there is an estate, the Service should file a proof of claim for the balance owed on the offer. If there is no estate, the offer should simply be closed out by you as satisfied following procedures in this section.

  9. If the offer in default was accepted as part of a CDP hearing, the taxpayer may be entitled to a retained jurisdiction hearing with Appeals. See IRM 8.22 concerning retained jurisdiction. . Do not establish a retained jurisdiction case on ACDS. It should be noted on ACDS as a defaulted offer and not a new offer.

  10. If the taxpayer is deceased, you should verify TC 540 was input or request APS manually input the TC 540.

8.23.3.14  (10-15-2014)
Compromise of a Compromise

  1. In 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 which would justify that a default is not in the best interest of the government, then the Service may:

    1. Adjust the payment terms of the offer,

    2. Formally compromise the existing compromise, or

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

  2. A Form 656 is not required to make the proposal, and there is no other standard form for such a proposal. The proposal should be submitted in letter format and addressed to the Commissioner of the Internal Revenue. Generally, IRM Exhibit 5.8.9-1 may be used for this purpose.

  3. If Appeals initially accepted the offer, Appeals will consider the taxpayer’s “compromise of a compromise” proposal.

  4. Further substantive information that is provided to you by the taxpayer should be referred by you via an ARI to the appropriate Collection Drop Point manager. It is recommended to fax or E-mail the ARI to the Drop Point Manager.

  5. In Appeals, Compromise of a Compromise cases are assigned as follows:

    1. Proposals received on offers originally accepted by a field Appeals office will be assigned to the same Appeals team that originally accepted the offer.

    2. Proposals received on field and campus CDP offers that are subject to retained jurisdiction will be assigned to the field or campus team that accepted the CDP offer.

    3. All others will generally be considered by Brookhaven Service Center Appeals.

  6. For information on CDP Hearings on terminated OICs refer to IRM 8.22.

  7. When you are advised of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the referral coming to Appeals, an Appeals Referral Investigation (ARI) may be needed. The ARI should be sent by you to Advisory to make the determination. If there is an estate, the Service should file a proof of claim for the balance owed on the offer. If there is no estate, the offer should simply be closed out by you as satisfied following procedures in this section.

  8. If the taxpayer is deceased, you should verify the TC 540 was input, or request APS manually input the TC 540.

  9. When the case decision has been made, return the Form 2209 and any closing documents to the appropriate MOIC site.


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