8.23.3  Evaluation of Offers in Compromise

Manual Transmittal

November 21, 2013

Purpose

(1) This transmits revised IRM 8.23.3, Offer in Compromise, Evaluation of Offers in Compromise.

Material Changes

(1) Revised to include the following editorial changes:

IRM Section Description of Change
8.23.3.1(5) General restatement of Appeals' role in the evaluation of an OIC.
8.23.3.1(6) Added that Appeals will not request information or evidence for purposes of strengthening the government's case.
8.23.3.1.1.1 Incorporates processability criteria in IRM 5.8.2, as revised May 14, 2013.
8.23.3.3 Revised Appeals OIC Evaluation Procedures - Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.3.1 Revised Appeals Preliminary Evaluation Procedures - Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.3.1.2 Revised Review of Supplemental Information - Collection Issue Offers. Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.3.2 Revised Financial Analysis and RCP Determination. Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.3.2.1 New section created for Net Realizable Equity.
8.23.3.3.2.6 Section renumbered from 8.23.3.2.5. Revised Requesting Assistance from Collection. Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.4(1) through (6) Revised Amended Offers. Incorporated AJAC interim guidance AP-08-0713-03.
8.23.3.10 Removed section on obsoleteConsideration of Streamline OIC Appeals procedures.
Former 8.23.3.16, 8.23.3.16.1, 8.23.3.16.1.1 and 8.23.3.16.1.2 Revised to remove guidance pertaining to Mediation and Arbitration and Fast Track Mediation procedures. This guidance has been relocated into IRM 8.26.9, Alternative Dispute Resolution (ADR) Program.
In General Revised for grammar and other editorial changes
In General Updated IRM cross-references
In General Changed "SBSE" references to "Compliance"
In General Throughout, referred to Appeals Technical Employees (Appeals Officer, Settlement Officer, Appeals Account Resolution Specialists) as "Appeals hearing officer" .
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IRM 8.23.3 dated August 31, 2012, is superseded. Incorporates Interim Guidance memorandum AP-08-0713-03, Implementation of the Appeals Judicial Approach and Culture (AJAC) Project (Attachment 3), and other editorial changes.

Audience

Appeals Employees

Effective Date

(11-21-2013)


Susan L. Latham
Director, Policy, Quality and Case Support

8.23.3.1  (11-21-2013)
Consideration of Doubt as to Collectibility Offers

  1. The purpose of this section is to provide Appeals personnel 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 it is determined 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. Appeals researches 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. Appeals’ 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. The Appeals hearing officer 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 Compliance, Appeals will use the most current or updated Allowable Living Expense (ALE) standards unless the Appeals hearing officer has 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 Compliance, they can request Appeals consideration and review of Compliance's 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.

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  (11-21-2013)
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. SBSE's 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. Appeals will not get involved in addressing erroneous Form 656 qualification issues on a non-CDP offer. The issue before Appeals on a non-CDP offer is the overall acceptability of the offer itself (See IRM 8.23.3.3). Collection had ample opportunity to make the proper Form 656 qualification determination before the case was referred to Appeals and such a matter would be considered a "new issue" in that it doesn't pertain to the overall acceptability of the offer.

  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 5.8.8.7.

  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 for procedures involving offers received as alternatives to collection in a CDP case.

8.23.3.2  (11-21-2013)
Rejected Offers

  1. When evaluating offers, Collection generally sends a preliminary determination letter to the taxpayer explaining to them why Collection is 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 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 properly considered by Collection, consider sending the case back as a premature referral for them to evaluate. See IRM 8.23.2.4 for Appeals premature referral guidance.

  2. If Collection rejects the offer, copies of Collection's Income/Expense (IET) and Asset/Equity (AET) Tables will 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  (11-21-2013)
Appeals OIC Evaluation Procedures

  1. As stated in IRM 8.23.3.1, Appeals researches IRM 5.8 and related interim guidance to evaluate Collection actions, decisions and valuation methods for Offers in Compromise. Appeals’ 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. Appeals employees evaluating appealed OICs 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 Appeals. This does not include correcting errors that are strictly computational.

    Note:

    Refer to IRM 8.23.4.2.2 where additional facts and law are addressed by Counsel.

  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 reworked 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. Appeals 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. The Appeals employee is responsible to monitor and address the IMF taxpayer compliance with current estimated tax and withholding requirements, or a BMF taxpayer's compliance with federal tax deposits while the DATC OIC case is being considered by Appeals. See IRM 8.23.2.6 for Appeals guidance on when a taxpayer does not remain in compliance while on appeal.

  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 Appeals secures 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  (11-21-2013)
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. 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. Only the disputed issues will be reviewed and considered by Appeals.

  4. If the case requires verification of more complex items submitted after appeal, then send an Appeals Referral Investigation (ARI) to a Field Revenue Officer group. See IRM 8.23.3.3.2.6 for procedures when requesting assistance from Collection.

  5. Within 30 days of case assignment (as opposed to case receipt - see IRM 8.23.2.1), Appeals should send out an initial substantive contact letter that:

    • Explains the Appeals process. Be sure to further explain that if the taxpayer prefers a face-to-face hearing, he or she should, generally, contact the Appeals hearing officer within 14 days from the date of the letter. See also IRM 8.23.2.2.1 regarding transferring a non-CDP OIC case.

    • Identifies the disputed issues

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

    • Identifies any compliance issues that must be remedied

    • Sets clear expectations and a specific date for providing any requested 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 special circumstances warrant a longer period.

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

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

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

    Note:

    Request only specific items needed to resolve the issues in dispute between Collection and the taxpayer. See IRM 8.23.3.3.1.2 for guidance on additional information. Do not send blanket requests for supplemental information or documentation that either may not actually be needed in the analysis or that may have been previously provided. To a large extent, updates to financial statements should be made with pen-and-ink changes, rather than by asking the taxpayer to complete them anew. See IRM 8.23.3.3.1.2 for additional guidance on requesting supplemental information.

  6. Appeals 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.

    2. Conduct the conference, including explaining the offer process, how an acceptable amount is computed, how the available financial data supports either acceptance or rejection of the offer and, if applicable, what further information the taxpayer can provide or actions to take that could make an OIC a viable resolution.

    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  (11-21-2013)
Coordination with Other Functions

  1. The Appeals hearing officer needs to be alert to issues that may prevent Appeals 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 an open claim for relief from joint and several liability (also known as an innocent spouse claim), 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. IRM 5.8.4.23.1 contains information regarding a claim for relief from joint and several liability. The following table reflects Appeals procedures for the various scenarios that may occur where a claim for relief from joint and several liability was filed after the issuance of the preliminary determination letter by Collection (see IRM 8.23.2.4 for details regarding such claims filed before the issuance of the preliminary determination letter by Collection):

    If ... And ... Then ...
    The spouse whose appealed offer is being considered is not the spouse who filed the innocent spouse claim The innocent spouse claim is still open Contact the Service employee at the Cincinnati Centralized Innocent Spouse Operations Unit (CCISO) considering the innocent spouse claim to make sure there are no reasons to delay Appeals' consideration of the non-requesting spouse's offer until the claim is resolved
    The spouse whose appealed offer is being considered is the same spouse who filed the innocent spouse claim The innocent spouse claim is still open Ask the taxpayer to withdraw the offer unless CCISO indicates that the claim will be closed immediately and no relief will be granted
    The spouse whose appealed offer is being considered is the same spouse who filed the innocent spouse claim CCISO indicates that the innocent spouse claim has merit and the taxpayer won't withdraw the appealed offer Suspend consideration of the appealed offer pending disposition of the innocent spouse claim

    Caution:

    Contacting CCISO is considered an administrative or ministerial contact for ex parte purposes, provided such contact is limited to simply making sure there are no reasons to delay Appeals' consideration of the non-requesting spouse's offer or checking on the status of the requesting spouse's claim when the requesting spouse's offer is in Appeals. Be sure to document the case activity record with the purpose of the contact, what was discussed, and the information that was received.

  4. For procedures concerning an open criminal investigation, follow IRM 5.8.4.19. The Appeals hearing officer 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.

  5. 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. AIQ should be contacted to determine the nature of the litigation and whether settlement authority belongs to DOJ.

8.23.3.3.1.2  (11-21-2013)
Review of Supplemental Information - Collection Issue Offers

  1. As stated earlier in 8.23.3, review the written appeal for the issues that are in dispute. If no specific issues are listed in the appeal, then the specific issues present on the IET/AET completed by Collection will be used to identify the issues under appeal.

  2. Because information submitted to Appeals by the taxpayer may sometimes require further analysis or more complex development, it may be necessary for Appeals to request an ARI. See (4) below, in addition to 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 Collection using an ARI if the information can be easily reviewed by the Appeals hearing officer. However, if investigation or further development of the issue is needed, use an ARI.

    Example:

    Many items such as new household bills, pay stubs, bank statements, retirement account statements, etc., can generally be reviewed by Appeals, and 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 Collection 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 Compliance the issues and financial information or documentation relevant to the acceptance of the offer. Therefore, deadline extensions by Appeals should not be routine. A deadline extension should generally only be granted if the Appeals employee believes 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  (11-21-2013)
Financial Analysis and RCP Determination

  1. As stated earlier in 8.23.3, review the written appeal for the specific issues that are in dispute. The specific issues present on the IET/AET completed by Collection and/or the taxpayer’s written request for appeal will be used to identify the issues.

    Exception:

    Appeals 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. Appeals 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 which requires the assistance of a field investigator. 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 to pay were changed to accommodate changes brought about by TIPRA. Fewer months of future income are 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 to average the taxpayer's income 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, Appeals may see this issue differently than how it was seen by Compliance, 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. A key requirement for accepted offers with a liability over $100,000 is the need to review a full consumer credit report. This requirement only applies to offers recommended for acceptance. To save time in the overall offer process, consider allowing the taxpayer to obtain a copy of their own full consumer credit report through the Internet or other means. The report should meet the requirements of a full consumer credit report and, if it does, do not obtain an additional credit report through internal sources. If the taxpayer is unable or unwilling to provide a report, request one through normal administrative procedures. See also IRM 5.1.18.17.2 for credit report requirements.

    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 Appeals 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 5.8.4.25for 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 and Appeals agree to an alternative resolution such as an installment agreement or having the account placed in currently-not collectible status Consider having the taxpayer withdraw the offer and proceed with closing out the case. See IRM 8.23.4 for instructions for closing out the OIC case. If the agreed upon alternative resolution is an installment agreement, prepare the Form 433-D, Installment Agreement. See IRM 8.23.3.12
    The taxpayer and Appeals agree to an alternative resolution and the taxpayer won't withdraw the offer Proceed with processing the applicable alternative resolution as part of closing out the case by sustaining rejection of the offer. See IRM 8.23.3.12
    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 Appeals' 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. IRM 5.8.4.13 calls for the filing of a Notice of Federal Tax Lien (NFTL) in certain instances even though the offer is accepted. This guidance was supplemented with SBSE Interim Guidance memorandum SBSE-05-0311-039, dated March 28, 2011. Appeals must follow the same IRM 5.8 criteria when accepting an offer. The following table reflects the general NFTL filing criteria for accepted offers when the unpaid balance of assessments exceeds $10,000:

    If ... Then ...
    Lump sum cash offer with five or fewer installments paid in five months or less No NFTL is necessary
    Lump sum cash offer with five or fewer installments paid in six months or more A NFTL will generally be filed
    Short-term periodic payment offer A NFTL will generally be filed
    Deferred periodic payment offer A NFTL will generally be filed

  9. If a NFTL will be filed per standard administrative procedures, advise the taxpayer accordingly. Explain CDP rights under IRC 6320 and document the case activity record. Indicate in the "Brief Remarks" section of the Form 5402 that the IRM calls for a lien to be filed and indicate the tax periods to be listed on the NFTL.

  10. The circumstances and reasons for not filing a NFTL in the above situations must be clearly documented in the case activity record.

  11. Since Appeals already has detailed financial information and familiarity with the taxpayer's current circumstances with a Doubt as to Collectibility offer, there will be instances when an offer cannot be accepted but both the taxpayer and Appeals believe that an alternative resolution such as an installment payment agreement (IA) or having the account placed in currently non-collectible (CNC) status is appropriate. Document any discussions of alternative resolutions in the case activity record. If it is apparent that either an IA or CNC are appropriate resolutions, and the taxpayer's ability to pay has been conclusively determined, generally, it is good tax administration for Appeals to grant the IA or declare the tax periods CNC. Subject to the Multifunctional Agreement with Collection, Appeals is limited to cases with aggregate balances below $100,000.00. SeeIRM 8.23.3.12 for details on possible alternative resolutions for a non-CDP offer.

    Note:

    If the taxpayer qualifies for any in-business trust fund express, streamlined or guaranteed installment agreement, Appeals will process the agreement.

    Reminder:

    Appeals is responsible to input Transaction Code (TC) 971 with Action Code (AC) 043 upon receipt of an installment payment proposal. Use a Form 4844, Request for Terminal Action, to request input of the TC 971 AC 043 to all tax periods. Appeals does not input the TC 971 AC 063.

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, Appeals researches 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  (11-21-2013)
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 Appeals, the offer must be closed as Appeals sustaining Compliance'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, consider whether any of the tax liability can be discharged, and follow the guidance in IRM 5.8.5 and IRM 5.8.10. Considering if the taxpayer were to file bankruptcy, make a general analysis of collectibility and the liabilities that would be discharged, and attempt to negotiate an agreeable settlement, as appropriate. Based upon the findings, a hazards approach may be used, based upon the degree of risk determined to exist that the taxpayer would file bankruptcy. Some general determinations to 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. 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  (10-14-2011)
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.

  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 Appeals reduces or eliminates 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, in which he outlined ways 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 wary 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. The SO working the OIC case and/or ATM must have a discussion with the taxpayer or representative concerning the disputed valuation and the case must meet all of the following requirements before it is referred to the Appeals hearing officer for the required additional review:

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

    2. Taxpayer owes 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 the SO assigned the case 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, public policy matters, etc.

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

    1. Prepare a brief memorandum confirming the case meets the criteria in paragraph (4) above and with sufficient details, documentation and valuation source information used to determine the value of the real property, including any 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, the SO's 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 Appeals Team Manager (ATM) for review and approval.

  5. Upon receipt of the additional review referral package from the SO, the SO's 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 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, the SO’s 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 from the SO's ATM, the ATM of the Appeals reviewer will assign the Team Member case to the Appeals reviewer.

  8. The procedures and responsibilities of the Appeals 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 SO's 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 Appeals reviewer will prepare an 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 (in 1/4 hour increments), and the month and year in which the Team Member case was closed. The SO previously input Loc Code ‘RV’ in the Loc 10 field, so after the Appeals additional reviewer inputs the hours and month/year closed, the Loc 10 field should look like: RV–1.00hrs–11/09.

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

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

  10. Upon receipt of the returned additional real property value report/ACM, the SO 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  (11-21-2013)
Requesting Assistance from Collection

  1. Situations may arise during the consideration of an appealed offer in which Appeals requests the assistance of a field Revenue Officer. In these situations, Appeals should send an Appeals Referral Investigation (ARI) to the field collection office nearest the taxpayer, using Form 2209 Courtesy Investigation.

  2. These requests should be limited to situations where Appeals needs the assistance of a Revenue Officer to perform more complex 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. If the taxpayer does not cooperate with Collection or otherwise fully respond to the request(s) for additional information, decide the issue based upon the available information.

  4. 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.

  5. After sending the ARI to Collection, send a letter to the taxpayer advising of the referral. Be specific as to what Appeals has asked Collection to do and inform the taxpayer that Appeals will share the results with the taxpayer and give him/her an opportunity to provide feedback.

  6. 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.

  7. Per IRM 5.1.8.5, Collection considers the ARI to be a "Mandatory Assignment" , meaning the Collection group manager is responsible to assign the ARI to the next available Revenue Officer. Per IRM 5.1.8.2, 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

  8. 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 you contacted the Revenue Officer

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

8.23.3.4  (11-21-2013)
Amended Offers

  1. In a non-CDP OIC, Appeals 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, the Appeals hearing officer will adopt the recommendation. If the Collection response is not to accept or no recommendation is made, the Appeals hearing officer 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, the Appeals hearing officer 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. The Appeals hearing officer 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, the Appeals hearing officer will use an ARI to send the new information to Collection for verification. Appeals 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, the Appeals hearing officer will use an ARI to send the new information to Collection for development of the issue. Appeals 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. The Appeals hearing officer 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. Appeals 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, the Appeals hearing officer 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. Appeals 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 Compliance 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 Appeals.

    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. Appeals must now evaluate and negotiate not just an acceptable offer amount, but agreeable payment terms as well. Appeals is 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.

    Example:

    The taxpayer owes $65,000 and there are 60 months remaining on the CSED. RCP is $24,000. The taxpayer has proposed a Deferred Periodic Payment offer of $24,000 with 49 monthly payments of $100 and a final payment in the 50th month of $19,100. The terms of this offer are not acceptable unless the taxpayer can demonstrate why such a payment proposal is required. If this cannot be demonstrated, it must be renegotiated before approval.



    The CSED is no longer suspended after the offer is accepted and the risk of the taxpayer paying only a small portion of the offered amount may be high given the structure of the proposed payment terms. If the taxpayer cannot/will not make the final payment, the CSED may expire before the Monitoring Offer in Compromise unit (MOIC) is able to respond properly.

  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 Appeals secures 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 by either Collection or Exam (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 often met with delays in the review and approval 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. Appeals 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, Appeals will 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 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. Appeals is 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, Compliance 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, Appeals 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.

      Note:

      It is generally not Appeals' policy to consider an offer for liabilities that have not formally been submitted on Form 656, so if these related liabilities exist and a related offer has not been submitted, Appeals should secure the offer as soon as possible.

  16. Section 8 of Form 656 allows the Service to add any assessed liabilities the taxpayer failed to list in Section 2 of the Form. If the only revision needed before acceptance is the addition of a missing period, neither an addendum nor an amended Form 656 are necessary. As a courtesy, contact the taxpayer to advise him/her that you are adding the missed liability(s).

    Caution:

    A provision in Section 8 of Form 656 allows Service personnel to add missed periods to Section 2 of Form 656, but it does not authorize the deletion of any listed period. If the 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 Appeals secures an amended offer.

  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. Appeals is 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. Appeals will 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 Appeals does not receive the required proposed periodic installment payment by the established deadline and the Appeals employee determines 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  (10-14-2011)
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

      Caution:

      These forms may need to be modified to update any references to the six-year Collection statutes.

    4. Modification of Waiver Provisions of Compromise Agreement, IRM Exhibit 5.8.6-1

  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, Compliance changed its procedures for evaluating offers involving trust fund taxes. An interim guidance memorandum dated January 28, 2008 was issued by Compliance 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  (11-21-2013)
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. Regardless of when the offer was received by the Service, it is important for the Appeals employee considering an OIC appeal involving trust fund tax to be familiar with the premature referral criteria in IRM 8.23.2.4, because such cases often arrive in Appeals with various compliance issues, such as late or missing tax deposits, unfiled returns, and/or new liabilities that accrued after the offer was submitted. If the compliance problem arose before the SBSE offer investigator issued the preliminary determination letter, the case should be returned to Compliance as a premature referral.

    Reminder:

    While it may seem easier in some instances for the Appeals employee to keep the non-CDP OIC case and try to get the taxpayer current with estimated tax payments or withholding requirements, tax deposits, or missed proposed periodic OIC payments, such omissions by the taxpayer, if they occurred before the offer was submitted for rejection by the Compliance offer investigator, should be left to Compliance. Addressing the estimated tax, underwithholding, or missed tax deposits or proposed periodic payments that occurred before the Compliance offer investigator issued the preliminary determination letter would force Appeals to first resolve a compliance issue that had nothing to do with why the offer was rejected. If the compliance problem could not be resolved, then Appeals would have to sustain rejection of the taxpayer's offer without ever being able to engage in a dialogue with that taxpayer over the substantive issue(s) of dispute.

  5. If a compliance problem surfaced after the offer investigator issued the preliminary determination letter, and while the case was under consideration by Appeals, follow the procedures in IRM 8.23.2.6 regarding taxpayers who do not remain in compliance.

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 5.8.5.24, IRM 5.8.5.24.1, 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  (10-14-2011)
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 rarer.

    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.

  9. IRM 5.8 does not contain separate ETA offer procedures for when filing a NFTL is generally required. See IRM 8.23.3.3.2 for information regarding lien filing criteria and procedures if the offer is going to be accepted.

8.23.3.9  (10-14-2011)
Centralized Offer in Compromise and “Obvious Full Pay” Offers

  1. All new offers are either received in or forwarded to the Centralized Offer in Compromise (COIC) sites for initial processing. Once the COIC unit has loaded the offer onto the Automated Offer in Compromise (AOIC) system and determined the offer to be processable, a decision is made as to where the case will be assigned. Collection’s field offer groups work the more complex cases.

  2. Some taxpayers look to compromise their tax debts yet their self-completed application (Form 433-A , Form 433-B and their attachments) reflects an ability to pay the account in full. COIC will reject such offers unless the taxpayer presents special circumstances warranting consideration under ETA. COIC will not contact the taxpayer to clarify any information or submit any further documentation if it is apparent to COIC that the account can be paid in full based upon the financial information provided by the taxpayer. The formal rejection letter will be the first response the taxpayer receives from COIC.

  3. If the taxpayer submits new information with his or her appeal, COIC is required to consider such information before sending the case to Appeals. If Collection did not consider the information and such information could result in a different determination, the offer may be returned to COIC as a premature referral so that the information can be considered. If COIC still believes the offer should be rejected after considering the information, they will return the offer to Appeals with their response and Appeals will process the appeal. See IRM 8.23.2.4 for premature referral criteria.

8.23.3.9.1  (10-14-2011)
Consideration of “Obvious Full Pay” Offers

  1. As with any other Appeals case, standard Appeals conference and settlement practices require Appeals to afford the same opportunities for discussion and negotiation to taxpayers whose offers were rejected by Collection as “obvious full pay” cases. There may very well be settlement opportunities available in these cases because Collection’s “obvious full pay” procedures:

    • Assume the taxpayer knew what he/she was doing when completing the Form 433-A/B

    • Do not adjust any asset values or apply necessary national or local expenses standards

    • Call for rejection of the offer without any contact with the taxpayer

    However, depending on the circumstances, there may also be little to discuss and no opportunity for settlement absent information from the taxpayer indicating a basis for compromise.

  2. To meet the basic mission of Appeals, carefully review and become familiar with IRM 8.23.1, and particularly IRM 8.23.1.3 in order to adhere to standard conference and settlement practices applicable to all Appeals cases. Appeals should take the following actions in a case referred to Appeals by COIC as an “obvious full pay” case:

    1. Send a letter to the taxpayer which explains both the Appeals and OIC processes. Enclose Publication 4227, Overview of the Appeals Process. The letter should clearly explain to the taxpayer that the offer was rejected by Collection because the financial information that the taxpayer provided in the Form 433-A/B reflected an ability to pay in full. Enclose a copy of Collection’s Full Pay Worksheet and offer the taxpayer the opportunity to either provide feedback to dispute Collection’s findings or pay in full. If the taxpayer qualifies for either a guaranteed or streamlined installment agreement, offer him/her the opportunity to discuss such an alternative resolution with Appeals. If the taxpayer qualifies for any in-business trust fund express, streamlined or guaranteed installment agreement, Appeals will process the agreement. Do not simply refer the taxpayer to ACS or some other general IRS ’800’ number. See SBSE interim guidance and IRM 5.14.5, for in-business trust fund express, guaranteed and streamlined installment agreement criteria, and IRM 8.23.3.12 for Appeals procedures regarding alternative resolutions for offers.

    2. Give the taxpayer a reasonable period of time to respond, with a specific response date provided in the letter. Generally, no fewer than 10 business days should be allowed, if contact is by mail.

    3. c. Set a follow-up date allowing for mail time beyond the response date provided in the letter.

    4. d. Follow the procedures in the following table based upon the taxpayer’s response, or lack of response.

    "If..." "Then..."
    The taxpayer does not respond by the response due date Sustain Collection’s rejection of the offer by preparing the following closing documents:
    • Closing letter

    • Generate a Customized Form 5402, Appeals Case Transmittal and Case Memorandum, from APGolf and attach a copy of Collection’s Full Pay Worksheet. (The Form 5402 will be used in lieu of an ACM, so be sure to document the basis of your decision in the Brief Remarks section of the Form.)

    • A copy of the Form 1271 completed by Collection.

    The taxpayer responds to Appeals with new information not previously considered by Collection. Review the information and determine whether it could make the offer acceptable.
    Appeals determines the new information could make the offer acceptable and is able to sufficiently address all issues on its own. Continue working with the taxpayer in accordance with IRM procedures.
    The new information requires significant evaluation or development to determine whether it could make the offer acceptable. Consider returning the offer to Collection to address the new information.
    The offer is sent back to Collection to consider the new information and they determine that the offer should still be rejected. Collection will return the offer to Appeals for Appeals to resume working with the taxpayer in accordance with standard Appeals OIC procedures. Any information received from Collection must be shared with the taxpayer.
    The new information makes the offer acceptable Share the information with the taxpayer. Verify the information in accordance with IRM 5.8.5 and follow the procedures in IRM 8.23.4 to close the case as an acceptance.
    The taxpayer responds with new information that will not make the offer acceptable Provide the taxpayer with your revised Income/ Expense (IET) and Asset/Equity (AET) Tables. Set a reasonable deadline for the taxpayer to respond with feedback to your findings, but no fewer than 10 business days if contact is by mail. Be sure to advise the taxpayer that Appeals must sustain rejection of the offer if the taxpayer:
    1. neglects to respond by the established date,

    2. does not provide information that will impact the IET and AET determinations, or

    3. does not amend the offer to the RCP amount reflected on the revised IET and AET, if applicable

    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:
    • neglects to provide feedback to the revised IET and AET,

    • responds with additional information that does not make the offer acceptable, or

    • if applicable, neglects to submit an amended offer along with the appropriate TIPRA payment.

    Close out the offer by sustaining Collection’s rejection of the offer as noted above. If the taxpayer participated fully in the Appeals process, be sure to address alternative resolution options, when appropriate. See IRM 8.23.3.12. Ensure additional information secured from Collection has been shared with the taxpayer.

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

8.23.3.10  (11-21-2013)
Consideration of Doubt as to Liability Offers

  1. Appeals considers offers based in whole or in part on doubt as to liability (DATL) where

    • the offer was rejected by Exam, or

    • the liability to be compromised was previously determined by Appeals

  2. Any OIC (CDP or non-CDP) work unit (WUNO) should have ACDS feature code 'LI' indicating it is a DATL offer.

  3. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted May 17, 2006, and became effective July 16, 2006. One of the significant changes under TIPRA provides that an offer shall be deemed to be accepted if it is not rejected, returned, 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 offer (See IRM 5.8.8.6), before the date which is 24 months after the date of receipt by the IRS of such offer. 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, such as when Compliance sends an offer directly to Appeals because Appeals determined the original liability, so the Appeals hearing officer assigned the case must carefully review IRM 8.23.2.3, Initial Case Review and Statute Controls to make sure the OIC WUNO contains the proper statute controls.

  4. IRM 4.18, Exam Offer in Compromise, and IRM 5.8.4.22.3 contain administrative procedures for working DATL offers. A DATL offer acceptance must be payable within 90 days of acceptance per the payment terms listed on the Form 656-L, Offer in Compromise (Doubt as to Liability).

  5. Appeals will make an independent determination regarding the offer, which should generally be evaluated in the same manner as an audit reconsideration case. Consider the facts and law as well as the hazards of litigation in determining the degree of doubt as to the liability. 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.

  6. If the DATL offer case came to Appeals after being rejected by Exam, the case file should be fully developed and documented. If the DATL offer case came to Appeals because the liability at issue was previously determined by Appeals, then Appeals has exclusive jurisdiction over the case and Exam is not responsible for either developing the case or securing the closed administrative case file before forwarding the case to Appeals. The case will also arrive in Appeals with an open TIPRA statute, so make sure the OIC WUNO contains the proper statute controls. See IRM 8.23.2.3.

    Caution:

    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, Appeals is still responsible to either accept or reject the offer. Such a case is not a premature referral just because the previous tax case was closed just prior to the submission of the DATL offer. If the DATL offer is not rejected or withdrawn within 24-months after it was submitted, it will be deemed accepted under IRC 7122(f). See paragraph (7) below and IRM 8.23.2.4, for exceptions involving cases closed with a Form 870-AD, or a case closed on the Appeals Centralized Database System (ACDS) with Closing Code 21.

  7. The DATL Specialty Unit in Brookhaven serves as a clearing house for the Service's DATL offers. There are instances in which the DATL Specialty Unit will prematurely send a DATL offer directly to Appeals because it appears as though Appeals determined the original liability, or they are not able to tell the manner in which the case was closed by Appeals. The following cases should be sent back to the Brookhaven DATL Specialty Unit using the appropriate Form 3210 template available on the Appeals OIC Web Page -- see IRM 8.23.2.4 for full details:

    • Cases in which the taxpayer signed a Form 870-AD, which requires the approval of the Appeals Director of Field Operations or Appeals Director of Technical Services to re-open, and

    • Cases closed on ACDS with a Closing Code 21, meaning Appeals provided tax computation and processing support to Counsel in a docketed case but was not involved in determining the liability

  8. The following table reflects general decision and post-conference case closing guidelines.

    If ... Then ...
    It is determined that the actual liability is less than or equal to the amount offered The balance of the assessment in excess of the proper liability amount should be abated using a Form 3870 .
    1. If the proper adjustments have or will be made, ask the taxpayer to withdraw the offer.

    2. If the taxpayer does not withdraw the offer, it should be rejected using the DATL optional paragraph on the rejection letter on APGolf.

    It is determined that the actual liability is greater than the amount offered but less than the amount assessed The excess balance of the assessment should be abated using a Form 3870.
    1. Inform the taxpayer of the amount of the re-determined liability and advise him/her to pay the correct amount.

    2. Ask the taxpayer to withdraw the offer

    3. If the taxpayer does not withdraw the offer, it should be rejected using the DATL optional paragraph on the rejection letter on APGolf.

    It is determined that there is doubt as to liability based upon hazards of litigation The case should be closed by accepting the offer. The acceptable amount depends on the degree of doubt established, based upon the hazards relative to the amount assessed.
    It is determined that there is no doubt as to the liability Close the case by using the DATL optional paragraph on the rejection letter on APGolf.
  9. If an agreement is reached in the case, it is generally better to use a Form 3870 and make the proper adjustment than to proceed with accepting the offer. If Appeals determines the taxpayer owes less than the assessed amount, the taxpayer would still have to pay the offered amount. If the case is closed via the Form 656-L and for any number of reasons the taxpayer ends up not paying the full offer amount, the accepted offer will be terminated and IRS must reinstate the original assessment. If the agreed upon adjustment is made with a Form 3870, such adjustment is not dependent on any further action or performance by the taxpayer.

    Note:

    This does not apply to a settlement based on litigating hazards. If an agreement is reached based on litigating hazards, use Form 656-L to complete the agreement.

  10. If the DATL offer is accepted and no Form 3870 adjustment is made, remove the 5-year compliance and refund/overpayment offset provisions from the OIC Acceptance Letter on APGolf.

  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  (10-14-2011)
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.

8.23.3.10.2  (11-21-2013)
Doubt as to Liability (DATL) Offers Involving TFRP and Personal Liability for Excise Tax (PLET) Liabilities

  1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted May 17, 2006 and became effective July 16, 2006. 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 by the IRS of such offer. 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 WUNO contains the proper statute controls.

  2. If an offer involving a TFRP or PLET assessment and based upon doubt as to liability (DATL) came to Appeals after being rejected by Compliance, the case file should be fully developed and documented. If the DATL offer case came to Appeals because the liability at issue was previously determined by Appeals, then Appeals has exclusive jurisdiction over the case and Compliance is not responsible for either developing the case or securing the closed administrative case file before forwarding the case to Appeals. The case will also arrive in Appeals with an open TIPRA statute, so make sure the OIC WUNO contains the proper statute controls. See IRM 8.23.2.3 for statute control guidance.

    Caution:

    Even if Appeals recently closed a TFRP (or PLET) case involving the very same liability that is now the subject of the DATL offer, Appeals is still responsible to either accept or reject the offer. Such a case is not a premature referral just because the previous TFRP case was closed only months or weeks before the DATL offer was submitted. If the DATL offer is not rejected or withdrawn within 24-months after it was submitted, it will be deemed accepted under IRC 7122(f). See IRM 8.23.2.4 for an exception involving a TFRP case closed with a Form 2751-AD.

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

  4. A DATL offer must be payable within 90 days of acceptance per the payment terms listed on the Form 656-L, Offer in Compromise (Doubt as to Liability).

  5. IRM 8.25 has instructions for working TFRP cases in Appeals. IRM 5.8.4.22.3 contains instructions for working doubt as to liability offers involving TFRP and PLET assessments. Per IRM 5.8.4.22.3, resolution of an agreed case can be achieved by:

    • Preparing and submitting a Form 3870, Request for Adjustment, to correct the assessment, and securing a withdrawal of the offer from the taxpayer, or

    • Recommending acceptance of the offer for the correct amount

  6. Acceptance of a doubt as to liability offer concludes the TFRP or PLET matter for the taxpayer. There are no five-year compliance or refund offset provisions on a doubt as to liability offer.

  7. Compliance cannot settle a TFRP or PLET case based upon hazard of litigation considerations, so IRM 5.8.4.22.3 doesn't address this type of settlement. For this reason, simply recommending acceptance of the doubt as to liability offer is generally a simpler approach when settling a TFRP or PLET matter based on hazards.

  8. If an agreement is reached in the case regarding the correct amount of the TFRP or PLET, it is generally better to use a Form 3870 and make the proper adjustment than to proceed with accepting the offer. If Appeals determines the taxpayer owes less than the assessed amount, the taxpayer would still have to pay the offered amount. If the case is closed via the Form 656-L and for any number of reasons the taxpayer ends up not paying the full offer amount, the accepted offer will be terminated and IRS must reinstate the original assessment. If the agreed upon adjustment is made with a Form 3870, such adjustment is not dependent on any further action or performance by the taxpayer.

    Note:

    This does not apply to a settlement based on litigating hazards. If an agreement is reached based on litigating hazards, use Form 656-L to complete the agreement.

  9. If an adjustment is being made to the TFRP, even if the offer is withdrawn or rejected, the Form 5402 must instruct APS to send the Form 3870 and the complete TFRP administrative file to the local Collection Technical Service/Advisory unit. The Appeals hearing officer to whom the case is assigned is responsible to provide APS with the address of the appropriate Advisory Unit, which is available under the 'Who/Where' tab on SERP. The Advisory Unit will process the adjustments and send the administrative file on to retention. See IRM 8.23.4.

  10. If the DATL offer is accepted and no Form 3870 adjustment is made, remove the 5-year compliance and refund/overpayment offset provisions from the OIC Acceptance Letter on APGolf.

  11. If the offer is rejected or withdrawn and no Form 3870 adjustment is made, the case may be closed using normal procedures. See IRM 8.23.4.3 if the rejection is sustained, or IRM 8.23.4.4 if the offer is withdrawn.

  12. 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.

  13. 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.

8.23.3.11  (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  (11-21-2013)
Alternative Resolutions for Offers

  1. Taxpayers will occasionally express an interest in alternative resolutions when it is apparent that an offer is not a viable option. If the Appeals hearing officer determines that an alternative resolution such as an installment agreement (IA) or having the account placed in currently not collectible (CNC) status is appropriate, Appeals may initiate the alternative resolution using its general authority. As a general rule, if it is apparent that either an IA or CNC are appropriate resolutions, and the taxpayer's ability to pay has been conclusively determined, it is good tax administration for Appeals to grant the IA or declare the tax periods CNC. Subject to the Multifunctional Agreement with Collection, Appeals is limited to cases with aggregate balances below $100,000.00.

  2. Refer to:

    • IRM 5.14, Installment Agreements

    • IRM 5.15, Financial Analysis

    • IRM 5.16, Currently Not Collectible

    • IRM 8.1.1, Appeals Operating Directives and Guidelines

    • Any relevant Interim Guidance

  3. If the taxpayer wants to enter into an IA and Appeals agrees that such is an appropriate resolution, follow the procedures in IRM 5.14. Similarly, follow procedures in IRM 5.16 to determine the propriety of placing the account in CNC status.

    Reminder:

    IA and CNC criteria are different than that which apply to an OIC.

    Note:

    Just because the taxpayer can pay in full via installment payments doesn't mean Appeals should automatically attempt to set up an IA. If the taxpayer does not qualify for an in-business express, guaranteed or streamlined IA, and has equity in assets, IRM 5.14.1 requires the taxpayer to either fully or partially pay using the equity in assets before an IA can be recommended for acceptance. See IRM 5.14.5 for information on guaranteed and streamlined IAs. An IA involving such issues should not be considered by Appeals as an alternative to a non-CDP OIC, so Appeals should simply proceed with closing the OIC case and refer the matter back to Collection.

    Exception:

    If the taxpayer qualifies for any in-business trust fund express, streamlined or guaranteed installment agreement, Appeals will process the agreement.

    Note:

    Appeals must rely on the Multi-functional Installment Agreement Authority (see IRM 5.14.1) for non-CDP offers. The Multi-functional Installment Agreement is for cases with an aggregate unpaid balance of assessments of less than $100,000, and is limited to individual taxpayers, out-of-business sole proprietors, and corporations owing income tax only. ATMs may negotiate appropriate local procedures with area Collection management for securing the necessary approvals in appropriate installment agreement cases that don't fit under the multi-functional authority.

  4. Appeals is responsible for securing a Form 433-D and inputting Transaction Code (TC) 971 with Action Code (AC) 043 upon receipt of an installment payment proposal. Use a Form 4844, Request for Terminal Action, to request input of the TC 971 AC 043 to all tax periods. Appeals does not input the TC 971 AC 063.

  5. Appeals is also responsible for making a lien filing determination as part of the alternative resolution. See IRM 5.14.1, in addition to any current interim guidance, for general NFTL filing criteria for installment agreements. Also see IRM 5.16.1, in addition to any current interim guidance, for NFTL information for CNC determinations. If a NFTL will be filed per standard administrative procedures, advise the taxpayer accordingly. Explain CDP rights under IRC 6320, and document the case activity record. Indicate in the "Brief Remarks " section of the Form 5402 that the IRM calls for a lien to be filed and indicate the tax periods to be listed on the NFTL. The circumstances and reasons for not filing a NFTL, if a NFTL is generally required, must be clearly documented in the case activity record.

  6. The Appeals Account and Processing Support section will input/process the applicable alternative resolution. Be sure to prominently indicate the alternative resolution on the Form 5402 so it is clearly visible to the APS tax examiner handling the back-end processing. See IRM 8.23.4 for specific non-CDP OIC case closing procedures.

  7. If the account will be placed in CNC status, add the following details to the closing letter:

    1. Penalty and interest continue to accrue while collection action is suspended,

    2. The Service will have the discretion to remove their account from CNC status should the taxpayer’s financial situation improve, and

    3. If the taxpayer’s account is removed from CNC status the Service may levy to collect the liabilities

8.23.3.13  (11-21-2013)
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 an offer was originally accepted by Appeals, Monitoring Offer in Compromise (MOIC) will refer the case to the Brookhaven Appeals office for review and, if necessary, issuance of the default letter. See IRM 5.8.9, Actions on Post-Accepted Offers, Potential Default 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 Service Center Appeals office. Exceptions to this are 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.

  8. When the Form 2209 advises Appeals of the death of a taxpayer, Appeals must determine whether there is an estate. An Appeals Referral Investigation (ARI) may be needed. See IRM 8.23.3.3.2.6 regarding ARI procedures. 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 as satisfied following compromise of a compromise procedures.

  9. If the offer in default was accepted as part of a CDP hearing, the taxpayer may be entitled to a retained jurisdiction hearing before Appeals. See IRM 8.22 concerning retained jurisdiction. These defaults will be worked like offers accepted by Appeals upon review of rejected offers. Do not establish a retained jurisdiction case on ACDS. It should be noted on ACDS as a defaulted offer and not a new offer.

8.23.3.14  (11-21-2013)
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. 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.

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

  6. When the Form 2209 advises Appeals of the death of a taxpayer, Appeals must determine whether there is an estate. An Appeals Referral Investigation (ARI) may be needed. See IRM 8.23.3.3.2.6 regarding ARI procedures. 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 as satisfied following compromise of a compromise procedures.

  7. IRM Exhibit 5.8.9-2 and IRM Exhibit 5.8.9-3 should be used to notify the taxpayer of either acceptance or rejection of the compromise of a compromise proposal.

  8. When the case decision has been made, return the Form 2209 and any closing documents to the appropriate MOIC site. See also IRM 8.23.6 for closing procedures.


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