Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 8. Appeals

Chapter 23. Offers in Compromise

Section 6. OIC Processing and Closing Procedures

8.23.6  OIC Processing and Closing Procedures

8.23.6.1  (10-16-2007)
Establishing New OIC Receipts

  1. This section provides instructions for Appeals Processing Section (APS) personnel in establishing new offer in compromise (OIC) receipts and controls.

  2. On the case inventory screen, follow normal procedures except for the following:

    1. TYPE — Enter OIC

      Note:

      If the offer is based upon Effective Tax Administration (ETA), add a Feature Code of "ET."

    2. Proposed Offer Amount (WUpropsdOfrAmt) Enter the amount of offer as shown on Form 656, Offer in Compromise.

      Note:

      One case folder could have more than one Form 656 all related to the same taxpayer such as an individual Form 656, a joint Form 656, and a sole proprietor Form 656. Be careful to input the proper WUpropsdOfrAmt to the work unit number (WUNO) associated with that particular Form 656.

  3. On the return information screen, enter the following:

    1. AIMS Indicator — Enter E since these cases are not controlled on AIMS

    2. Tax Period — Enter all tax periods associated with the case

    3. Statute Date —Leave blank

    4. Statute Code — Enter SUSP

    5. Proposed Def/-OA (Tax) — Enter the total unpaid liability amount on the earliest tax period. This may be found on Form 1271 Form 1271. On all subsequent tax periods, enter $ -0- (zero). If the tax has not been assessed, enter $ -0- (zero) for all tax periods.

    6. Duplication — Leave blank

  4. If the offer involves multiple MFTs, the case will be treated as one work unit number, unless multiple TINs are present, such as with an individual owing income tax under his SSN and employment tax as a sole proprietor under an EIN. Separate work units are required for each TIN even if both TINs belong to the same taxpayer. Use the MFT of the earliest tax period as the key case, enter the amount of the offer in the NOTES field, and enter the total of all unpaid liabilities on the first tax period and enter zero in any remaining tax periods. On each related case, list all tax periods involved for that MFT but zero dollars for all tax periods.

    Note:

    If there are different entities in the same case file, such as individual and joint, different WUNOs would apply.

8.23.6.1.1  (10-16-2007)
Previously Accepted OIC (Potential Default) Cases Returned to Appeals

  1. If an earlier "accepted" offer is proposed for default , Collection will send Form 2209, Other Investigation, to Appeals to consider issuing a formal termination letter. Establish the case on Appeals Centralized Database System (ACDS) as a new receipt. Follow the procedures above except for the following:

    1. Notes: enter "Proposed Default - Appeals OIC"

  2. Appeals also occasionally receives a taxpayer's request to consider a "compromise of a compromise." See IRM 5.8.9.4. Sometimes the taxpayer's request is made through one of the Monitoring Offer in Compromise (MOIC) units, in which case Appeals will receive a Form 2209. Often times, however, the request is made directly to the Appeals Officer or Settlement Officer (AO/SO), so there is no Form 2209 involved. If the request is made directly to the AO/SO, then open a new case following the same procedures as with a potential default case above except for the following:

    • Notes: enter "Compromise of a Compromise - Appeals OIC"

8.23.6.1.2  (10-16-2007)
OICs Received with CDP/EH Case

  1. OIC’s received with or initiated during the course of a Collection Due Process (CDP) or equivalent hearing (EH) may be added to ACDS as a separate work unit.

  2. A CDP/EH case could result in more than one OIC. For example, related entities such as a joint return and a sole proprietorship will each be carded as a separate OIC work unit.

  3. No periods should be added to the CDP/EH case merely because they are included on the OIC.

  4. If the OIC and CDP/EH cases are received in Appeals together, and the OIC has already been determined to be processable (signed on page 4 of the Form 656 by an authorized IRS employee), both the CDP/EH case and the OIC case will be carded into ACDS at the same time, as separate work units. If the OIC is not signed on page 4, only the CDP/EH case will be carded in.

  5. Follow normal procedures except for the following;

    • Type= OIC

    • Feature Code= DP, also input this feature code on the CDP/EH work unit, to indicate there is a related OIC.

    • Entries in SOURCE, DO, and PBC for the OIC(s) will be the same as those entries in the related CDP/EH case(s).

    • REQAPPL – date the authorized Service employee signed on page 4 of the Form 656.

  6. If the OIC is received or determined to be processable after the CDP/EH case has been carded in, the AO/SO will provide a package to APS requesting they add the OIC unit to ACDS. The package will include:

    • A copy of the related CDP/EH case summary card noted at the top in red ""Please input OIC work unit" " with feature code = DP and Notes – XREF (work unit number of the related OIC case)

    • A copy of page one of Form(s) 656 identifying all periods included on the OIC. Input TPNAME, ADDRESS, TIN, MFT, Tax Periods, and offer amount as shown on Form 656

    • A copy of page four (signature page) of Form(s) 656.

    • IMFOLI or BMFOLI (AO/SO will add the TOTAL MOD BALANCE for all periods – input this amount in proposed tax on the earliest period.

8.23.6.2  (10-16-2007)
Offer in Compromise Closing Procedures (non-CDP)

  1. This section provides procedures for closing out completed OIC cases, except for offers worked as part of a CDP or EH case. CDP/EH offer procedures are in IRM 8.22.3.10, Back-end Processing for CDP and Equivalent Hearing Cases.

  2. The following types of offers originate in the Collection function and are controlled on the Automated Offer in Compromise (AOIC) system:

    • Doubt as to Collectibility (DATC)

    • Effective Tax Administration (ETA) based upon both economic hardship and public policy/equity considerations

    • Combination Doubt as to Liability (DATL) and either DATC or ETA

  3. DATL offers involving Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET) assessments are worked by Collection and are controlled on AOIC.

  4. DATL offers involving liabilities other than TFRP and PLET assessments originate in the Examination function and are not controlled on AOIC:

8.23.6.2.1  (10-16-2007)
Counsel Review of Accepted OIC

  1. Counsel is required to review all offers when the total unpaid liability (including all assessed and accrued penalties and interest) for all related offers on the same taxpayer is $50,000 or more. This amount is generally shown on the Form 7249, Offer Acceptance Report. However, taxpayers must now make up-front payments when filing an offer and sometimes make additional periodic installment payments while the offer is being considered. These offer payments are applied directly to the tax debts and are not refundable. If the balance owed exceeded $50,000 before the offer payments were applied, Counsel's review is still required, so there may be cases where the Form 7249 shows a total balance owed of less than $50,000, but the case must still be sent to Counsel for review.

    Example:

    John and Jennifer Maple owe joint income tax debts for years 2002, 2003 and 2004. The amounts owed for are $36,000 for 2002; $16,000 for 2003; and $3,000 for 2004. The total amount owed for all three years is $55,000, so Counsel's review is required.

    Example:

    Bill Elm owes a TFRP totaling $47,000. He also owes a $7,000 joint income tax debt with Betty Elm. This is Betty's only tax debt. Counsel must approve Bill's offer because he owes a total of $54,000. Counsel is not required to approve Betty's offer. However, the separate offers are part of one case file, so the entire file must be sent to Counsel.

    Example:

    Jack Oak owes income tax debts for 2004 and 2005 totaling $48,000. He submitted a non-refundable up-front payment of $5,000 with his offer. Since he owed $53,000 before the offer up front payment, the case must be sent to Counsel for review even though the Form 7249 shows Oak now owes less than $50,000.

  2. If acceptance of the offer is subject to Counsel's approval, local procedures will dictate how to proceed. Due to the variables involved in managing different sized offices and employees in remote offices, each office may utilize APS differently in order to most effectively manage and control the flow of cases and input the required data at the appropriate time.

    1. The ATM will either sign or initial (per local procedures) but not date the Form 5402. This indicates the ATM's preliminary approval of the offer.

    2. If the ATM routes the case to Counsel through APS, update ACDS to indicate when the case was sent to Counsel and then forward the file to Counsel using Form 3210.

    3. If the ATM bypasses APS and forwards the case directly to Counsel, the ATM should contact APS so ACDS can be updated accordingly.

  3. Counsel will sign and date Form 7249 to certify that all of the legal requirements for compromise have been met.

    1. If Counsel does not sign the form, the case must be returned to the AO/SO or ATM (per local procedures) as the Offer cannot be compromised until the legal issues are resolved.

    2. If Counsel signs the Form 7249, route the case to either the AO/SO or ATM (per local procedures) so the CAR can be updated, closing documents signed and ACAPDATE input.

8.23.6.2.2  (10-16-2007)
Collection Originated OIC Acceptance Procedures

  1. The work unit will be assigned to the Tax Examiner on the Processing Employees Automated System (PEAs) for closing, with PEAs TYPE "CLS" and the appropriate SubTYPE for the case. Generally, PEAs SubTYPE "ACDS Only" will apply.

  2. For an accepted OIC, the case will flow as follows:

    1. The AO/SO completes the case and submits it to the ATM for approval. See IRM 8.23.6.2.1 if Counsel review is required.

    2. The ATM signs the Form 7249 and OIC Acceptance Letter 673), dates and signs the Form 5402, and enters the ACAPDATE on ACDS.

    3. The ATM submits the case to APS for final closing.

      Note:

      If the offer is based upon either Doubt as to Collectibility or Effective Tax Administration - Hardship, the Form 656 provides that IRS will keep any refund due the taxpayer for tax periods extending through the calendar year in which the IRS accepts the offer. In some cases, especially toward the end or beginning of a calendar year, the Acceptance Letter 673 have the wrong tax years. This typically occurs when the AO/SO prepares the acceptance letter near the end of a calendar year and for various reasons, including time the case is in Counsel for review, the case is not ready for the acceptance letter to be issued until the following calendar year. The acceptance letter should be mailed the same calendar year that it's signed by the ATM. If a new calendar year has begun and the acceptance letter contains the wrong years, return the case file to the ATM to have the acceptance letter corrected.

  3. The Appeals Office will send the case to the appropriate APS office in either Brookhaven, NY or Memphis, TN for closing. The next section has information on closing the case on AOIC.

  4. The OIC case file will contain the following documents:

    • Original Form 656, Offer in Compromise

    • Original Amended Form 656, if applicable

    • Original Form 7249, Offer Acceptance Report

    • Sanitized MFTRAX transcripts

    • Form 5402, Appeals Transmittal and Case Memorandum

    • Appeals Case Memorandum, if applicable

    • Financial information, including Form 433-A and/or Form 433-B, bank statements, property records, and other information used to make the acceptability determination

  5. If an offer is received from one spouse on a joint liability, the MOIC site is responsible for creating mirror assessments on the accepted OIC.

  6. Close the OIC work unit on ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 15 (OIC Accepted)

    2. WUaccptOfrAmt = amount of accepted offer (see Form 5402 or the "Terms of this Offer" section on Form 7249)

    3. RevsdTax = 0 (zero) for all tax periods

    4. Paycode = 7

    5. LACTION - Accepted OIC file to XXXXXXX (Offers worked by Collection Field), or Accepted OIC file closed on AOIC (Offers work by Collection Campus) and sent to XXXXXXXX

  7. The following table provides information on when Appeals can and cannot close the case on AOIC. The next section of this IRM contains information for actually closing applicable cases on AOIC.

    If ... Then ...
    The offer was originally worked by a COIC campus site Update AOIC with the appropriate closing information. See IRM 8.23.6.2.2.1.
    The offer was originally worked by a Collection Field offer group

    • Print the first page of AOIC and attach it to the front of the case file.

    • Forward the file to the appropriate Area Collection Field Office OIC Coordinator as shown on the , which is available in the APS section on the Appeals web site at Non-CDP OIC Cases (with CO Source Code) Field Area Drop Points for Closed Cases.

    • Collection will then update AOIC with the appropriate closing information.

  8. Date and mail the acceptance letter to the taxpayer and/or POA and include as attachments:

    1. A copy of the Form 656 or amended Form 656

    2. A copy of the co-obligor agreement, if applicable (used only if one spouse is compromising a joint tax debt)

    3. A copy of the collateral agreement ( Form 2061), if applicable (collateral agreements are rare)

  9. Make copies of the above and the Form 7249 for the office administrative file.

  10. Send one copy of Form 7249 and the sanitized MFTRAX to the applicable Area Collection Field Office for filing in the Public Inspection File. The address list for where to send the OIC Public Inspection Files is in the APS section on the Appeals web site at OIC Public Inspection File Locations.

  11. Send the case file to the appropriate campus MOIC unit based on the state where the taxpayer resides. The listing of states associated with both the Brookhaven and Memphis MOIC units (back-end OIC) and their mailing addresses are available on SERP under the "Who/Where" tab.

  12. Close PEAs using Closing Code 03 with a completion date equal to the date the above actions were completed.

  13. Process any OIC payments to the campus OIC unit. After the case is closed, the taxpayer should send payments directly to the campus OIC unit.

  14. Collection also works Doubt as to Liability offers when the tax debt involves a TFRP or PLET assessments. These case are also loaded on AOIC.

  15. Closing procedures for OICs that are part of a CDP case are found in IRM 8.22.3.10.

8.23.6.2.2.1  (10-16-2007)
AOIC Closing Procedures for Accepted Offer

  1. This section provides general information for closing an accepted OIC case on the Automated Offer in Compromise (AOIC) system. This applies only to offers that originated out of the applicable COIC site.

  2. As soon as possible after the Acceptance Letter 673 is issued, the case must be closed, validated and released on AOIC with the case file sent to the appropriate MOIC campus for monitoring. It is critical that the necessary actions are promptly taken to close the case on AOIC and the case immediately sent to MOIC because:

    • MOIC is responsible to monitor the taxpayer's compliance with the terms and conditions of the offer and won't know what to do with incoming payments without the closing information and case file

    • IRS has 30 days by law to release a tax lien if the taxpayer pays the accepted offer amount in full

  3. The case must be reassigned back to the Collection offer employee on AOIC immediately prior to closing the case on AOIC. The AOIC system will not let Appeals close the case until this step is done. ("C" = Control and "A" = Assign) Screen 12 provides the AOIC case assignment history to assist in determining the reassignment number (follow local procedures if a locally developed assignment number was provided). Be sure all information needed to input the closure is available prior to reassigning the case. The case must remain assigned to Appeals until all closure issues are resolved.

  4. AOIC INPUT (Query Offer Number)

    Note:

    Make sure all screens are updated if an amended offer was secured.

    Screen Number Input Fields
    One

    • Offer amount

    • Amended/Original

    • Proposed Disposition

    • DATC/Special Circumstances or ETA update Screen 1 with AOIC TYPE = "A"

    • If strictly DATC, leave as TYPE = "C"

    Note:

    Check all of the above fields for accuracy and update as appropriate.
    Five

    • MFT periods must match Form 656/amended Form 656

    • To ADD - Add/Update

    • To REMOVE - Control U
    Six

    • Accepted Terms match Form 656/amended Form 656 and the terms shown on Form 7249

    • Update Co-obligor or collateral terms, as appropriate
    Screen four is the final screen for input to finalize the AOIC closure Keystrokes:

    • C = Control

    • D = Disposition

    • F = Final

    • 2 = Accepted by Appeals

      Note:

      There must be a prior disposition before you can input a final disposition. The prior disposition in these cases will be "2" Reject with appeal rights. If there is no prior disposition, return the case to the originator for closure off of AOIC due to unique circumstances. Such a case requires special handling.

    Other Input Items:

    • Date of Appeals Acceptance Letter

    • Mailing date of the rejection letter previously issued by Collection before the case was referred to Appeals

    New Field on OIC:

    • Was Offer Accepted Under ETA/DCSC Criteria [ ] (Enter Y or N)

    • Enter the number for the Accepted Criteria [ ]

    • 1 = Economic Hardship ETA offer

    • 2 = Equity/Public Policy ETA offer

    • 3 = Economic Hardship DCSC (Doubt as to Collectibility with Special Circumstances

    • 4 = Equity/Public Policy DCSC

  5. Validate and Release the Closed Offer to the appropriate MOIC campus for monitoring as soon as possible after closing the accepted offer on AOIC. Validation and release on AOIC is required.

    1. Maintenance Screen: V = Validate. Locate the case you have in the list and indicate "Y." Follow the screen prompts for entering. You can do multiple cases at one time.

    2. Once the case is validated, the control of that offer goes to MOIC and the file must be sent to them as soon as possible. Use the destination list at the top to assist in determining where the case file should be sent.

      Note:

      If there are related cases with different BODs (SB and WI), the SB campus will monitor both offers.

  6. Prepare Form 3210 and mail to the appropriate MOIC campus. Be sure the file contains the original copies of:

    • Initial Form 656, Offer in Compromise

    • Amended Form 656, if applicable

    • Form 7249, Offer Acceptance Report

    • Co-obligor agreement, if applicable

    • Collateral agreement, if applicable

  7. Update AOIC history screen with the actions taken on the case.

8.23.6.2.3  (10-16-2007)
Collection Originated Withdrawn OIC Procedures

  1. The case file for a rejected or withdrawn offer in compromise should contain:

    • Form 5402

    • ACM

    • Withdrawal Letter 241 signed by the ATM

    • Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, if applicable

    • Form 433-D, Installment Agreement, if applicable

  2. If an offer is received from one spouse on a joint liability, mirror assessment procedures apply. Collection is responsible for mirror assessment actions on a rejected OIC.

  3. Close ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 16 (OIC withdrawn)

    2. Paycode = 7

    3. WUaccptOfrAmt = 0

    4. RevsdTax for earliest tax period = same as proposed tax (which should be the amount of the total unpaid liability). RevsdTax for other periods = $0

    5. LACTION - Withdrawn offer file to XXXXXXXX (Collection Field) or closed on AOIC (Collection Campus). The notation will inform anyone where the case was shipped or how it was closed.

  4. If an alternative resolution was reached, such as an installment agreement (Form 433-D) or having the account placed in currently non-collectible (CNC) status, process the collection alternative. If the alternative is to have the account placed in CNC status, the AO/SO should clearly state such a request and indicate the appropriate TC 530 Closing Code (24-32) on the Form 5402.

  5. The following table provides information on when Appeals can and cannot close the case on AOIC. The next section of this IRM contains information for actually closing applicable cases on AOIC.

    If ... Then ...
    The offer was originally worked by a COIC campus site Update AOIC with the appropriate closing information. See IRM 8.23.6.2.3.1.
    The offer was originally worked by a Collection Field offer group

    • Print the first page of AOIC and attach it to the front of the case file.

    • Forward the file to the appropriate Area Collection Field Office OIC Coordinator as shown on the Non-CDP OIC Cases (with CO Source Code) Field Area Drop Points for Closed Cases, which is available in the APS section on the Appeals web site.

    • Collection will then update AOIC with the appropriate closing information.

  6. Date and mail the Withdrawal Letter 241 to the taxpayer and/or POA concurrent with closing the case on ACDS. Keep a copy in the administrative file.

    Note:

    The legal withdrawal date is the IRS received date if the taxpayer’s withdrawal letter was mailed certified or hand delivered, in which case the date should be indicated by the AO/SO in the body of the Letter 241. If the request to withdraw was received via regular mail, fax or phone, it is the date the withdrawal letter is mailed to the taxpayer.

  7. If an offer deposit was made and input onto AOIC, direct the disposition of the payment by selecting the appropriate option on ACDS.

    Note:

    An offer deposit is normally returned to the taxpayer unless the taxpayer provides written authorization allowing IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization signed by the taxpayer should be included in the file and routed to the MOIC campus that processed the payment.

  8. Close PEAs using PEAs Closing Code 03 with a completion date equal to the date the above actions were completed.

  9. Collection also works Doubt as to Liability offers when the tax debt involves a TFRP or PLET assessments. These case are also loaded on AOIC.

  10. Closing procedures for OICs that are part of a CDP case are found in IRM 8.22.3.10.

8.23.6.2.3.1  (10-16-2007)
AOIC Closing Procedures for Withdrawn Offer

  1. This section provides general information for closing a withdrawn OIC case on the Automated Offer in Compromise (AOIC) system. This applies only to offers that originated out of the applicable COIC site.

  2. The case must be reassigned back to the Collection offer employee on AOIC immediately prior to closing the case on AOIC. The AOIC system will not let Appeals close the case until this step is done. ("C" = Control and "A" = Assign) Screen 12 provides the AOIC case assignment history to assist in determining the reassignment number (follow local procedures if a locally developed assignment number was provided). Be sure all information needed to input the closure is available prior to reassigning the case. The case must remain assigned to Appeals until all closure issues are resolved.

  3. AOIC INPUT (Query Offer Number)

    Note:

    Make sure all screens are updated if an amended offer was secured.

  4. KEYSTROKES: "C" = Control, "D" = Disposition, and "F" = Final

    1. Final Disposition - 9 = withdrawn in Appeals

      Note:

      There must be a prior disposition before you can input a final disposition. The prior disposition in these cases will be "2" = Rejected with appeal rights. If there is no prior disposition, return the case to the originator for closure off of AOIC due to unique circumstances. Such a case requires special handling.

  5. Input Items:

    • Mail date of the Rej w/ Apl Right Ltr

    • Mail date of the Appeals Withdrawal Ltr

    • Legal withdrawal date ( See IRM 8.23.6.2.3 in paragraph (6) to determine the date)

  6. If an offer deposit was made and input onto AOIC Screen 1 (Offer Deposit Amt), a pop-up box will appear at the time of closure asking what should happen with the deposit. Enter one of the following options:

    • AN = Apply No Special Instructions

    • AS = Apply Special Instructions

    • RN = Refund No Special Instructions

    • RS = Refund Special Instructions

    Note:

    An offer deposit is normally refunded unless the taxpayer provided written authorization allowing the IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization should be included in the file and routed to the appropriate MOIC campus that processed the payment.

  7. Update AOIC history screen with the actions taken on the case.

  8. Print the first page of AOIC for the case and attach it to the front of the closed file. Route the case file back to the Area Office/COIC Offer Coordinators. They will maintain the closed offer file until time to ship to FRC. Attaching the first page from AOIC will assist them in routing the case properly.

8.23.6.2.4  (10-16-2007)
Collection Originated Rejected OIC Procedures

  1. The file for a case where Appeals sustained Collection's rejection of the offer should contain:

    • Form 5402

    • ACM

    • Rejection Sustention Letter 238 signed by the ATM

    • Form 1271

      Note:

      The Form 1271 in the file will most likely be the one that was originally prepared by Collection. Appeals will prepare a Form 1271 if one was not previously prepared by Collection.

    • Form 3040, if applicable

    • Form 433-D, if applicable

  2. If an offer is received from one spouse on a joint liability, mirror assessment procedures apply. Collection is responsible for creating mirror assessment actions on a rejected OIC.

  3. Close the OIC work unit on ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 14 (OIC rejection sustained)

    2. WUaccptOfrAmt = 0

    3. Paycode = 7

    4. RevsdTax for earliest tax period = same as proposed tax (which should be the amount of the total unpaid liability). RevsdTax for other periods = $0

    5. LACTION - Rejected offer file to XXXXXXXX, or rejected offer closed on AOIC.

  4. If an alternative resolution was reached, such as an installment agreement (Form 433-D) or having the account placed in currently non-collectible (CNC) status, process the collection alternative. If the alternative is to have the account placed in CNC status, the AO/SO should clearly state such a request and indicate the appropriate TC 530 Closing Code (24-32) on the Form 5402.

  5. The following table provides information on when Appeals can and cannot close the case on AOIC. The next section of this IRM contains information for actually closing applicable cases on AOIC.

    If ... Then ...
    The offer was originally worked by a COIC campus site Update AOIC with the appropriate closing information. See IRM 8.23.6.2.4.1.
    The offer was originally worked by a Collection Field offer group

    • Print the first page of AOIC and attach it to the front of the case file.

    • Forward the file to the appropriate Area Collection Field Office OIC Coordinator as shown on the Non-CDP OIC Cases (with CO Source Code) Field Area Drop Points for Closed Cases, which is available in the APS section on the Appeals web site.

    • Collection will then update AOIC with the appropriate closing information.

  6. Date and mail the OIC rejection sustention Letter 238 to the taxpayer and/or POA concurrent with closing the case on ACDS. Keep a copy in the administrative file.

  7. If an offer deposit was made and it was input onto AOIC, direct the disposition of the payment by selecting the appropriate option on ACDS.

    Note:

    An offer deposit is normally refunded unless the taxpayer provided written authorization allowing the IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization should be included in the file and routed to the appropriate MOIC campus that processed the payment.

  8. Close PEAs using PEAs closing code 03 with a completion date equal to the date the above actions were completed.

  9. Collection also works Doubt as to Liability offers when the tax debt involves a TFRP or PLET assessments. These case are also loaded on AOIC.

  10. Closing procedures for OICs that are part of a CDP case are found in IRM 8.22.3.10.

8.23.6.2.4.1  (10-16-2007)
AOIC Closing Procedures for Rejected Offer

  1. This section provides general information for closing are rejected OIC case on the Automated Offer in Compromise (AOIC) system. This applies only to offers that originated out of the applicable COIC site.

  2. The case must be reassigned back to the Collection offer employee on AOIC immediately prior to closing the case on AOIC. The AOIC system will not let Appeals close the case until this step is done. ("C" = Control and "A" = Assign) Screen 12 provides the AOIC case assignment history to assist in determining the reassignment number (follow local procedures if a locally developed assignment number was provided). Be sure all information needed to input the closure is available prior to reassigning the case. The case must remain assigned to Appeals until all closure issues are resolved.

  3. AOIC INPUT (Query Offer Number)

    Note:

    Make sure all screens are updated if an amended offer was secured.

    Screen Number Input Fields
    One

    • Offer amount

    • Amended/Original

    • Proposed Disposition

    • DATC/Special Circumstances or ETA update Screen 1 with AOIC TYPE = "A"

    • If strictly DATC, leave as TYPE = "C"

    Note:

    Check all of the above fields for accuracy and update as appropriate.
    Five

    • MFT periods must match Form 656/amended Form 656

    • To ADD - Add/Update

    • To REMOVE - Control U
    Screen four is the final screen for input to finalize the AOIC closure Keystrokes:

    • C = Control

    • D = Disposition

    • F = Final

    • 3 = Accepted by Appeals

      Note:

      There must be a prior disposition before you can input a final disposition. The prior disposition in these cases will be "2" = Reject with appeal rights. If there is no prior disposition, return the case to the originator for closure off of AOIC due to unique circumstances. Such a case requires special handling.

    Other Input Items:

    • Mailing date of Collection's Reject with appeal right letter

    • Mailing date of Appeals letter sustaining rejection of the offer (Letter 238)

    • Enter the Reasonable Collection Potential (RCP) amount determined by Appeals (from Form 5402 or ACM)

    Note:

    If an offer deposit was made and input onto AOIC Screen 1 (Offer Deposit Amt), a pop-up box will appear at the time of closure asking what should happen with the deposit. Enter one of the following options:

    • AN = Apply No Special Instructions

    • AS = Apply Special Instructions

    • RN = Refund No Special Instructions

    • RS = Refund Special Instructions

  4. An offer deposit is normally refunded unless the taxpayer provided written authorization allowing the IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization should be included in the file and routed to the appropriate MOIC campus that processed the payment.

  5. Close PEAs using PEAs Closing Code 03 with a completion date equal to the date the above actions were completed.

  6. Collection also works Doubt as to Liability offers when the tax debt involves a TFRP or PLET assessments. These case are also loaded on AOIC.

8.23.6.3  (10-16-2007)
Examination Originated OIC Cases

  1. Offers originating in Exam are referred to a Doubt as to Liability, or DATL offers. Exam will also handle Effective Tax Administration (ETA) offers based upon public policy or issues of equity.

  2. DATL offers are not controlled on the Automated Offer in Compromise (AOIC) system. ETA offers based upon public policy/equity consideration are controlled on the AOIC system.

  3. The work unit will be assigned to the Tax Examiner on PEAs for closing, with PEAs TYPE "CLS" and the appropriate SubTYPE for the case.

  4. Closing procedures for OICs that are part of a CDP case are found in IRM 8.22.3.10.

  5. Collection handles DATL offers involving Trust Fund Recovery Penalties (TFRPs) and Personal Liability for Excise Tax (PLET) liabilities. For closing procedures for TFRP and PLET cases, See IRM 8.23.6.2.2 for closing procedures on accepted offers. See IRM 8.23.6.2.3 for closing procedures on withdrawn offers. See IRM 8.23.6.2.4 for closing procedures on rejected offers.

    Reminder:

    TFRP and PLET liabilities are loaded onto AOIC, so follow the AOIC closing procedures for accepted, withdrawn and rejected cases.

8.23.6.3.1  (10-16-2007)
Examination Originated OIC Acceptance Procedures

  1. The OIC case file will contain the following documents:

    • Original Form 656, Offer in Compromise

      Note:

      Counsel review and approval/signature on Form 7249, Offer Acceptance Report, is required when the total unpaid liability (including all assessed and accrued penalties and interest) for all related offers on the same taxpayer is $50,000 or more. See See IRM 8.23.6.2.1.

    • Amended Form 656, if applicable

    • Original Form 7249

    • Sanitized MFTRAX transcripts

    • Form 5402, Appeals Transmittal and Case Memorandum

    • Appeals Case Memorandum, if applicable

    • Acceptance Letter 673 signed by the ATM

  2. The AO/SO will indicate if adjustment actions are required. If yes, input the appropriate adjustments to IDRS. If the case is controlled on AIMS, close the case on AIMS according to standard procedures.

  3. Close the OIC work unit on ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 15 (OIC Accepted)

    2. WUaccptOfrAmt = Amount of the accepted offer (see Form 5402 or the "Terms of this Offer" section on Form 7249)

    3. RevsdTax = 0 (zero) for all tax periods

    4. Paycode = 7

  4. The following closing actions should occur on the date the case is closed on ACDS:

    1. Date and mail the acceptance letter to the taxpayer and/or POA and include copies of the Form 656 or amended Form 656 and all collateral agreements as attachments

    2. Copy the acceptance letter with attachments for the administrative file

    3. Send one copy of Form 7249 and the sanitized MFTRAX to the applicable Area Collection Field Office for filing in the Public Inspection File. The address list for where to send the OIC Public Inspection Files is in the APS section on the Appeals web site at OIC Public Inspection File Locations.

    4. Ensure the OIC file contains the information in (1) above (except MFTRAX)

    5. Close PEAs using PEAs Closing Code 03 with a completion date equal to the date the above actions were completed

    6. Return the case file to the originating Exam office.

    7. Process any OIC payments to the campus OIC unit. After the case is closed, the taxpayer should send payments directly to the campus OIC unit.

8.23.6.3.2  (10-16-2007)
Examination Originated Withdrawn OIC Procedures

  1. When the AO and the taxpayer reach an agreement on the correct tax liability, a "compromise" is not required and the taxpayer will generally withdraw the offer in compromise.

  2. The case file for a withdrawn offer in compromise should contain:

    1. Form 5402

    2. ACM, if information not already contained in Form 5402

    3. Withdrawal Letter 241 signed by the ATM

    4. Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, if applicable

    5. Form 3870, Request for Adjustment, if applicable

    6. Form 433-D, Installment Agreement, if applicable

  3. Close ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 16 (OIC withdrawn)

    2. Paycode = 7

    3. WUaccptOfrAmt = 0

    4. RevsdTax for earliest tax period = same as proposed tax (which should be the amount of the total unpaid liability). RevsdTax for other periods = $0

  4. If an alternative resolution was reached, such as an installment agreement (Form 433-D) or having the account placed in currently non-collectible (CNC) status, process the collection alternative. If the alternative is to have the account placed in CNC status, the AO/SO should clearly state such a request and indicate the appropriate TC 530 Closing Code (24-32) on the Form 5402.

  5. The AO will indicate if adjustment actions are required. If yes, input the appropriate adjustments to IDRS.

  6. If an offer deposit was made and it was input onto AOIC, direct the disposition of the payment by selecting the appropriate option on ACDS.

    Note:

    An offer deposit is normally refunded unless the taxpayer provided written authorization allowing the IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization should be included in the file and routed to the appropriate MOIC campus that processed the payment.

  7. Date and mail the Withdrawal Letter 241 to the taxpayer and/or POA. Keep a copy in the administrative file.

  8. Return the case to the originating Exam office.

  9. Close PEAs using PEAs Closing Code 03 with a completion date equal to the date the above actions were completed.

8.23.6.3.3  (10-16-2007)
Examination Originated Rejected OIC Procedures

  1. A case is processed as Appeals sustaining rejection of the offer when the taxpayer does not agree with the AO's conclusions and does not otherwise withdraw the offer.

  2. The case file for a rejected offer in compromise should contain:

    1. Form 5402

    2. Rejection sustention Letter 238 signed by the ATM

    3. ACM

    4. Form 1271, Rejection and Withdrawal Memorandum

      Note:

      The Form 1271 in the file will most likely be the one that was originally prepared by Exam. Appeals will prepare a Form 1271 if one was not previously prepared by Exam.

    5. Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, if applicable

    6. Form 3870, Request for Adjustment, if applicable

    7. Form 433-D, Installment Agreement, if applicable

  3. Close ACDS following general closing instructions. In addition:

    1. CLOSINGCD = 14 (OIC withdrawn)

    2. Paycode = 7

    3. WUaccptOfrAmt = 0

    4. RevsdTax for earliest tax period = same as proposed tax (which should be the amount of the total unpaid liability). RevsdTax for other periods = $0

  4. If an alternative resolution was reached, such as an installment agreement or having the account placed in currently non-collectible (CNC) status, process the collection alternative. If the alternative is to have the account placed in CNC status, the AO/SO should clearly state such a request and indicate the appropriate TC 530 Closing Code (24-32) on the Form 5402.

  5. The AO will indicate if adjustment actions are required. If yes, input the appropriate adjustments to IDRS.

  6. If an offer deposit was made and it was input onto AOIC, direct the disposition of the payment by selecting the appropriate option on ACDS.

    Note:

    An offer deposit is normally refunded unless the taxpayer provided written authorization allowing the IRS to apply the deposit to the existing tax liability. A Form 3040 is typically used, but any written authorization satisfies the requirement. The Form 3040 or other written authorization should be included in the file and routed to the appropriate MOIC campus that processed the payment.

  7. Date and mail the Rejection Sustention Letter 238 to the taxpayer and/or POA. Keep a copy in the administrative file.

  8. Return the case to the originating Exam office.

  9. Close PEAs using PEAs Closing Code 03 with a completion date equal to the date the above actions were completed.

8.23.6.4  (10-16-2007)
Potentially Defaulted OIC Cases

  1. A taxpayer must agree to the terms set forth in the Form 656and the compromised amount remains a tax liability until the taxpayer meets all the terms and conditions of the offer. See Paragraph (i) of Section V of Form 656 (Rev. 02-2007).

  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, or until the deferred payment offer amount is paid in full, whichever is later. See Paragraph (d) of Section V of Form 656.

  3. If a taxpayer fails to meet any of the terms of an 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 Paragraph (d) of Section V of Form 656.

  4. If an offer was originally accepted by Appeals, Collection's Monitoring Offer in Compromise (MOIC) unit will refer the case to the appropriate Appeals office via a Form 2209, Other Investigation, for review of the case and, if necessary, issuance of the default letter. See IRM 5.8.9.3, Possible Actions on Accepted Offers, Potential Default Cases.

  5. MOIC takes care of all AOIC aspects of a potential default case. Appeals is responsible only for ACDS input. See IRM 8.23.6.1.1 for details on carding in a potential default OIC case.

    1. If Appeals determines the offer is in default the AO/SO will prepare a formal Default Letter for the ATM's signature. See IRM Exhibit 5.8.9-4. Mail the signed letter to the taxpayer and/or POA and close the case on ACDS using Closing Code 14. Send the Form 2209 back to the originating MOIC unit. Be sure to include a copy of the signed Default Letter.

    2. If the taxpayer remedies the problem that gave rise to the potential default, Appeals will not issue the default letter. Close the case on ACDS using Closing Code 15. Send the Form 2209 back to the originating MOIC unit.

  6. Follow the same procedures as above in a "Compromise of a Compromise" case.


More Internal Revenue Manual