4.18.1 Offers in Compromise Received in Exam

Manual Transmittal

November 04, 2020

Purpose

(1) This transmits revised IRM 4.18.1, Exam Offer-In-Compromise, Offers-In-Compromise Received in Exam.

Material Changes

(1) Content from IRM 4.18.2, Doubt as to Liability Offers, IRM 4.18.5, Review, Closing and Reporting Requirements, and IRM 4.18.6, Case Processing and Controls, has been incorporated and these IRMs will be obsolete with the publication of this IRM.

(2) Changes in this revision are reflected in the table below.

IRM Reference Description of Change
4.18.1.1 Revised title from “Overview” to “Program Scope and Objectives” to properly reflect the internal controls now contained in this subsection. Added new content to describe the internal control framework required by IRM 1.11.2.2.5, Address Management and Internal Controls.
4.18.1.2 Revised title “Introduction” to “What is an Offer in Compromise (OIC)”. Moved content from IRM 4.18.1.2(9) to IRM 4.18.1.4.1.
4.18.1.2.1 Added subsection and incorporated content from IRM 4.18.2.2, Considering the Liability Issue (obsoleted), and IRM 4.18.2.3, Jurisdiction-Doubt as to Liability (obsoleted).
4.18.1.2.2 Added subsection and incorporated content from IRM 4.18.6.3, Statutory Period of Limitation, (obsoleted).
4.18.1.2.3 Added subsection and incorporated content from IRM 4.18.5.1, Overview (obsolete), and moved content in from IRM 4.18.1.3(1) and (2). Added reference to WSD.
4.18.1.3 Re-purposed subsection from “Classification and Screening Procedures” and incorporated content from IRM 4.18.6.6(1)-(4), Return Controls, (obsolete).
  • Moved content from paragraphs (1) and (2) to IRM 4.18.1.2.3.

  • Removed PSP OIC coordinator responsibility content from paragraphs (3), (5-11) and (13) and added a reference to IRM 4.1.1.6.16.1, OIC Coordinator.

  • Deleted content in paragraph (4) and added a reference in IRM 4.18.1.2.3 to the primary source for this information in IRM 5.19.24.6, Processability.

  • Moved content from paragraph (6) to IRM 4.18.1.6.4, Death of a Taxpayer.

  • Moved content from paragraph (12) to IRM 4.18.1.4.1, Initial Review of OIC-DATL.

  • Deleted TIPRA information from paragraph (14) that is duplicated in IRM 4.18.1.2.2, Statute of Limitations.

4.18.1.4 Re-purposed section and added an introduction to the following sections. Original content was deleted because it was either outdated or stated elsewhere in this IRM.
4.18.1.4.1 Added subsection and moved content in from IRM 4.18.1.2(9) and IRM 4.18.1.3(12). Added CSED indicators.
4.18.1.4.2 Added subsection and moved relevant content in from IRM 4.18.2.4, Examination Considerations (obsolete) and IRM 4.18.6.5, Examiner’s Time Charges (obsolete). Incorporated content from IRM 4.18.6.7, Dual Notice Requirement (obsolete). Added caution statement about sharing collection information.
4.18.1.4.3 Added subsection and incorporated content from IRM 4.18.2.5, Determination of Liability (obsolete) and IRM 4.18.2.4(5), Examination Considerations (obsolete).
4.18.1.4.3.1 Added subsection and moved content in from IRM 4.18.2.7, Doubt as to Liability Offer Withdrawn (obsolete). Revised withdrawal procedures. Deleted deposit discussion because payment is not required with DATL offers. Revised language to apply to all program areas.
4.18.1.4.3.2 Added subsection and moved content in from IRM 4.18.2.6, Doubt as to Liability Offer Accepted (obsolete).
4.18.1.4.3.3 Added subsection and moved content in from IRM 4.18.2.8. Added no change report requirement. Revised language to apply to all program areas and added reference to excise IRM for closing procedures.
4.18.1.5 Added subsection and incorporated content from IRM 4.18.5.2, Case Closing Procedures (obsolete) and updated to reflect the revised procedures in Interim Guidance SBSE-04-0220-0009, Interim Guidance to Update OIC-DATL Closing Procedures. Moved content in from IRM 4.18.6.6(5), Return Controls (obsolete). Revised language to apply to all program areas.
4.18.1.5.1 Added subsection and incorporated content from IRM 4.18.5.3, Independent Administrative Review Procedures (IAR) (obsolete). Content from IRM 4.18.5.3 that can be found elsewhere in IRM was replaced with a cite to the source.
4.18.1.6 Added introductory paragraph for miscellaneous information to follow.
4.18.1.6.1 Added subsection and incorporated relevant content from IRM 4.18.6.2, Payments Made with Form 656 (obsolete). Removed payment processing information because payment is no longer required with a DATL offer.
4.18.1.6.2 Added subsection and incorporated content from IRM 4.18.6.4, Innocent Spouse Procedures (obsolete).
4.18.1.6.3 Added subsection and incorporated content from IRM 4.18.6.8, Fraudulent and False Statements (obsoleted).
4.18.1.6.4 Added subsection and incorporated content from IRM 4.18.2.4(6), Examination Considerations (obsolete).

(3) Minor editorial changes have been made throughout this IRM. Website addresses, legal references and IRM references were reviewed and updated as necessary.

Effect on Other Documents

This material supersedes IRM 4.18.1, Offer-in-Compromise Received in Exam, dated February 28, 2017. This IRM revision incorporates Interim Guidance Memorandum SBSE 04-0220-0009, Interim Guidance to Update OIC-DATL Closing Procedures, dated January 27, 2020. Content from IRM 4.18.2, Doubt as to Liability Offers, IRM 4.18.5, Review, Closing and Reporting Requirements, and IRM 4.18.6, Case Processing and Controls, has been incorporated and these IRMs will be obsolete with the publication of this IRM.

Audience

Small Business and Self-Employed (SB/SE), Large Business and International (LB&I), and Tax Exempt and Government Entities (TE/GE) employees assigned Offer in Compromise cases.

Effective Date

(11-04-2020)

Maha H. Williams
Director, Examination Field and Campus Policy
SE:S:DCE:E:HQ:EFCP
Small Business/Self Employed

Program Scope and Objectives

  1. Purpose. This IRM provides instructions and guidance to examiners working offer in compromise - doubt as to liability (OIC-DATL) cases.

  2. Audience. These procedures apply to examiners in SB/SE, LB&I, and TE/GE.

  3. Policy owner. The Director, Examination Field and Campus Policy, who is under the Director, Headquarters Examination.

  4. IRM owner. Field Exam Special Processes (FESP), which is under the Director, Examination Field and Campus Policy.

  5. Primary stakeholder. LB&I and TE/GE are the primary stakeholders of the Offer in Compromise program.

  6. Program goals. The goal of the OIC-DATL program is to ensure adherence to IRC 7122 and closure of all OIC-DATL cases before the expiration of the 24 month TIPRA statute.

Background

  1. This section provides direction for examiners working OIC-DATL cases.

  2. All OIC cases are received and processed through the Centralized Offer in Compromise (COIC) group. OIC-DATL cases are routed to the Centralized DATL processing unit in the Brookhaven Campus. Per IRM 5.19.24.6.4.2, Routing Cases Based on Jurisdictional Responsibility, the DATL unit evaluates the offer for processability and sends the case to exam if exam has jurisdictional responsibility.

Authority

  1. In accordance with IRC 7122, Compromises, the Service is authorized to compromise any civil or criminal case arising under the internal revenue laws prior to referral to the Department of Justice for prosecution or defense. IRM 1.2.2.6.1, Delegation Order 5-1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise, contains delegations of authority related to the OIC program.

Responsibilities

  1. The Director, Headquarters Examination, is the executive responsible for providing policy and guidance for compliance activities in Field, Specialty and Campus Exam operations and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayer rights. See IRM 1.1.16.3.5, Headquarters Examination, for additional information.

  2. The Director, Examination Field and Campus Policy, reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the SB/SE Campus and Field examination process. See IRM 1.1.16.3.5.1, Field and Campus Policy, for additional information.

  3. Field Examination Special Processes (FESP), which is under the Director, Examination Field and Campus Policy, is the group responsible for providing oversight and policy, and procedural guidance on specialized examination processes to SB/SE field examiners and managers. See IRM 1.1.16.3.5.1.2, Field Exam Special Processes.

Program Management and Review

  1. Periodic program reviews are conducted by FESP to:

    • Assess the effectiveness of specific programs within Examination or across the organization,

    • Determine if procedures are being followed,

    • Validate policies and procedures, and

    • Identify and share best/proven practices.

Program Controls

  1. Automated Offers in Compromise (AOIC) is a Collection owned application that tracks and controls offers filed with the Service. AOIC is the official system of record for the OIC program. The Collection OIC analyst sends to the Exam PSP OIC analyst a report of all DATL cases open on the AOIC system with a TIPRA statute due to expire within 14 months. The report is sent to Technical Services (TS) and PSP to provide a status update on all offers within 6 months of a TIPRA expiration and to close or update to Appeals on AOIC any case no longer in Exam’s possession.

Acronyms

  1. The following table lists acronyms used throughout this IRM and their definitions:

    Acronym Definition
    AIMS Audit Information Management System
    AOIC Automated Offer in Compromise
    ASED Assessment Statute Expiration Date
    CDP Collection Due Process
    CEAS Correspondence Examination Automation Support
    COIC Centralized Offer in Compromise
    CSED Collection Statute Expiration Date
    DATC Doubt as to Collectibility
    DATL Doubt as to Liability
    ERCS Exam Return Control System
    ETA Effective Tax Administration
    IAR Independent Administrative Reviewer
    OIC Offer in Compromise
    PSP Planning and Special Programs
    SFR Substitute for Return
    TC Transaction Code
    TIPRA Tax Increase Prevention and Reconciliation Act
    TS Technical Services
    WSD Workload Selection and Delivery

Related Resources

  1. The following additional resources are available to assist examiners working OIC-DATL cases:

    • IRC 7122, Compromises

    • Form 656-L, Offer in Compromise (Doubt as to Liability)

    • IRM 1.2.1.5.34, Policy Statement 4-117, Examination authority to resolve issues

    • IRM 1.2.2.6.1, Delegation Order 5-1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise

    • IRM 4.1.1.6.16, Offer In Compromise (OIC)

    • IRM 4.8.8.8, Offer in Compromise Cases

    • IRM 4.24.6.9, Procedural Guidance Relating to Offers in Compromise and Doubt as to Liability

    • IRM 5.19.24, Doubt as to Liability Offer in Compromise

    • IRM 25.6.23.5.7.2.1, Offer in Compromise - Doubt as to Liability (OIC-DATL) Exam Statute Controls

What is an Offer in Compromise (OIC)

  1. The Service, like any business, encounters situations where an account receivable cannot be collected in full or there is a dispute regarding what is owed. It is accepted business practice to resolve collection and liability issues through compromise.

  2. Form 656, Offer in Compromise, used for doubt as to collectibility (DATC) and effective tax administration (ETA) offers, and Form 656-L, Offer in Compromise (Doubt as to Liability), are forms used by taxpayers to propose to the Government a settlement of a tax liability for an amount less than previously determined and assessed. An offer, having been filed and accepted for processing, will be acted upon by recommendation for acceptance, rejection, return, termination, or it may be withdrawn by the taxpayer or the taxpayer's duly authorized agent.

  3. An accepted offer in compromise (OIC) is a legally binding agreement between the Service and the taxpayer, and is enforceable by either party. Contract law principles apply to compromise agreements. The compromise of a tax liability can rest upon:

    1. Doubt as to collectibility (DATC),

    2. Doubt as to liability (DATL),

    3. Promotion of effective tax administration (ETA).

  4. DATL offers are rarely accepted because examiners can usually determine the substantially correct tax liability. If the amount offered is the correct tax liability, it is not a compromise. If the amount offered is not the correct liability, the examiner should determine the correct tax liability.

  5. Unless collection of tax is in jeopardy, after an offer is accepted for processing the IRS cannot levy on the taxpayer’s property while the offer is being considered, for 30 days after rejecting the offer, and for the period that the IRS Independent Office of Appeals is reviewing the rejection. Also, a liability may, in special circumstances, be compromised upon the grounds of compelling public policy or equity considerations. The submission of an OIC does not serve to suspend interest and penalties from accruing on the outstanding tax liability.

  6. In general, Collection has jurisdiction over DATC offers, and Examination has jurisdictional responsibility for the investigation and processing of DATL offers. In certain circumstances, the IRS Independent Office of Appeals will have jurisdiction regarding an offer. See IRM 4.18.7.4, Offers Under Office of Appeals Jurisdiction, and IRM 4.18.7.4.1, CDP and Equivalent Appeal Offer Processing, regarding Appeals' jurisdiction.

  7. Offers that do not meet the DATL or DATC criteria may be compromised under the criteria for the promotion of effective tax administration. Jurisdiction of these offers rests with Collection.

  8. An OIC filed after July 16, 2006 is subject to the 24 month time constraints specified in IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period.

Offer in Compromise - Doubt as to Liability (OIC-DATL)

  1. Doubt as to liability exists when there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the tax liability.

  2. Grounds for an OIC-DATL may exist when there is legitimate doubt from both the viewpoint of the taxpayer and the IRS. Validity of the OIC-DATL is determined by evaluating the supporting evidence and circumstances. The taxpayer is required to submit documentation and/or other evidence to support the OIC-DATL. The evidence available for both parties must be weighed in order to determine the extent of any "doubt" .

    Note:

    The extent of any determination of "doubt" , should be consistent with Policy Statement 4–117. See IRM 1.2.1.5.34, Policy Statement 4-117, Examination authority to resolve issues.

  3. An OIC-DATL may not be rejected solely because the Service is unable to locate the taxpayer's return or return information. The taxpayer is not required to submit a financial statement for a DATL offer. Also, there is no application fee for a DATL offer.

  4. SB/SE Examination has jurisdiction over OIC-DATL cases, except as noted in the following paragraph. Examination employees are responsible for preparation of the necessary documents and letters to effect the disposition of the OIC-DATL filed by the taxpayer.

  5. Collection Division has jurisdiction over doubt as to liability offers involving the Trust Fund Recovery Penalty and Personal Liability for Excise Tax. Unless the prior assessment was made by Examination, liability offers concerning assessments made during bankruptcy proceedings may also fall under the jurisdiction of SB/SE Collection.

Statute of Limitations

  1. The filing of an OIC-DATL request extends an open statute for additional tax assessments in accord with the terms of the waiver provisions of Form 656-L, Offer in Compromise (Doubt as to Liability), filed by the taxpayer. See IRM 25.6.23.5.7.2.1, Offer in Compromise -Doubt as to Liability (OIC-DATL) Exam Statute Controls, for more detailed statute information. When an additional assessment is being considered, steps should be taken to protect the interest of the government before the recalculated statutory period for assessment expires. The recalculated period for assessment can be extended by consent before the recalculated period expires.

  2. In addition to the ASED statute, OIC-DATL cases have a Tax Increase Prevention and Reconciliation Act (TIPRA) statute. IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period, provides, "Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer."

  3. OIC-DATL cases forwarded to exam should carry the TIPRA statute date, that is two years from the IRS received date of the Form 656-L. The statute will also carry an "R" as part of the statute date, for example 04-04-2018R, to assist in identifying the TIPRA statute. The TIPRA statute is carried on AIMS/ERCS and the master file ASED will be blank while the offer is in process.

  4. When Technical Services issues a rejection letter, the TIPRA statute is closed. As a result, even if the TIPRA statute date appears to be less than a year when sent to Appeals, once a return or rejection letter is issued or the offer is withdrawn, it is not a live statute date.

OIC-DATL Process

  1. OIC-DATL offers are filed with the Brookhaven Centralized OIC Operation on Form 656-L. The DATL unit is responsible for the initial screening for processability. See IRM 5.19.24.6, Processability. The Campus DATL Unit loads the offer on the Automated Offer in Compromise (AOIC) system. AOIC is the case management system for Offers in Compromise. The AOIC system uploads a Transaction Code (TC) 480 to IDRS and generates a "Y" freeze.

  2. OIC-DATL cases may be forwarded from the Campus DATL Unit to the Area Planning and Special Program (PSP) or Workload Selection and Delivery (WSD) OIC coordinators for further review. The OIC coordinators determine whether further examination is warranted, prepare the cases to be sent to the Field and update AOIC for assignment to the Field. See Offer in Compromise in the SB/SE Field Exam Procedures book on Knowledge Management for a list of PSP OIC coordinators.

  3. Examination is responsible for the investigation of OIC-DATL cases.

  4. Technical Services or WDS for excise cases is responsible for case closing procedures, the administrative review and closure on AOIC. This occurs after the investigation and processing of OIC-DATL cases are completed in Examination.

Return Controls

  1. The Campus DATL Unit forwards the Form 656-L, Offer in Compromise (Doubt as to Liability), and associated documents to Area PSP or WSD. PSP/WSD requests the administrative file and establishes AIMS controls. In some situations, the administrative file may not be available. The electronic file should be requested as an alternative.

  2. For AIMS purposes, the return is requested using Source Code 73 and Project Code 0264. Once the return is established, AIMS Freeze Code 08 must be added. See IRM 4.18.1.2.2, Statute of Limitations, for statute information. Employment Tax cases worked in Area 212 (Exam, Specialty, Employment Tax) will not use Project Code 0264 but, rather, use Tracking Code 6506 for all OIC-DATL cases.

  3. Offers that are deemed processable by the OIC coordinator are generally sent to field revenue agents and tax compliance officers for further consideration.

  4. Because OICs are priority cases, the OIC coordinator must effectively monitor OIC cases assigned to the field and in process. Monthly status updates will be obtained on offers in process over 6 months.

  5. See IRM 4.1.1.6.16.1, OIC Coordinator, for more detail of coordinator responsibilities.

Examining an OIC-DATL

  1. Per IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period, if an offer is not returned, rejected, or withdrawn within 24 months following the submission of the offer, it is deemed accepted. Consequently, priority treatment of offers is critical.

Initial Review of OIC-DATL

  1. Offers are identified on IDRS using the following transaction codes (TC):

    • TC 480 - Offer pending (Jurisdiction Code 1=collection, 2=exam and 3=appeals)

    • TC 481 - Offer rejected or returned

    • TC 482 - Offer withdrawn

    • TC 483 - Correction of TC 480

    • TC 780 - Accepted Compromised

    • TC 781 - Defaulted OIC

    • TC 788 - All collateral conditions of the OIC completed

  2. The following CSED indicators are found with the TC 480:

    • P - The primary TP submitted the offer

    • S - The secondary TP submitted the offer

    • B - Both TPs submitted the offer

  3. When an offer is received in an Area office and the taxpayer is not located within the receiving Area, the offer will generally be forwarded to the PSP Area office where the taxpayer resides using Form 3210, Document Transmittal, through their local PSP office. The PSP coordinator will update the Area assignment on AOIC to the correct Area and record where the offer was sent in the AOIC remarks.

Working the OIC-DATL

  1. Time applied to investigating an OIC, including time spent examining books/records, preparing the report, and preparing the rejection/withdrawal memorandum and taxpayer letters, is charged directly to the case (return).

  2. For SB/SE Field Exam, if a prior examination occurred, the case should be set up in RGS similar to an audit reconsideration. See the RGS quick reference guide for Audit Reconsiderations.

  3. Taxpayer contact should generally be made within 30 days from receipt of the OIC-DATL. Offers in process over six months are considered overage. Letter 6233, Offer in Compromise (OIC) - Doubt as to Liability (DATL) Contact, should be used for the initial contact with the taxpayer regarding their OIC-DATL.

  4. Section 3201(d) of the IRS Restructuring and Reform Act of 1998 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return. This requirement also applies to an OIC filed on a joint liability. See IRM 4.10.1.2.2.1, Separate Notice Requirements for Joint Returns, for more information.

    Caution:

    Examiners must exercise caution when divorced or separated spouses request collection information about the other spouse. See IRM 11.3.2.4.1.1, Disclosure of Collection Activities with Respect to Joint Returns, for guidance.

  5. Generally, the scope of the exam is limited to the issues raised in the offer. If other material issues are evident, adjustments can be made to offset any reduction in tax resulting from the OIC issues. If the other material issues result in additional tax, contact the PSP OIC coordinator, WSD OIC coordinator or the TS OIC reviewer for guidance.

  6. The OIC-DATL file is maintained separate from any previous examination file. Any previous file (paper and electronic) is used for reference only and should remain unchanged. The OIC-DATL issue workpapers should be in a separate folder in the RGS electronic file.

  7. A brief summary of why the offer was filed should be included, and all conclusions should be documented and all arguments raised by the taxpayer addressed in the workpapers.

Determination of Liability

  1. If the taxpayer's liability changes as a result of the examination determination, a revised examination report must be prepared. The line for taxable income and or tax per return or previously adjusted should be the corrected taxable income and/or tax from the previous report. This should be verified from a transcript of account.

  2. The adjustment(s) should be discussed with the taxpayer. An examination report will be prepared to reflect the corrected tax liability. If the case is closing as a rejection the report is not issued to the taxpayer. See IRM 4.18.1.4.3.3, Rejection.

  3. When considering an OIC-DATL where the assessment was based on substitute for return (SFR) assessments, any return filed with an open assessment statute must be reviewed to determine if all reportable income was included in the assessment. If the OIC-DATL investigation reveals additional income not included in the SFR assessment, or a subsequent return, and the statute is open, the taxpayer will be required to file an amended return to include the additional income.

  4. If a liability remains after consideration of the offer, payment should be solicited. See IRM 4.20.1.3.1, Request Full Payment.

Withdrawal
  1. When the examiner and taxpayer reach an agreement on the correct tax liability, a "compromise" is not required. In order to process the case as agreed it is necessary for the taxpayer to withdraw the offer.

  2. Any adjustments required to correct the outstanding tax liability are accomplished through abatement of the erroneously assessed tax. If the taxpayer indicates agreement with the findings and wishes to withdraw the offer, then the following procedures are completed by the examiner:

    1. Prepare an agreed audit report starting with tax and/or taxable income as previously determined. Verify this from a transcript of account. Explain the recommendation to the taxpayer, with the caveat that the report is subject to review. Include the following language in the Other Information section of the audit report: "I hereby withdraw my offer in compromise. By withdrawing my offer, I waive my appeal rights."

    2. Alternatively, secure a withdrawal statement from the taxpayer that states, " I hereby withdraw my offer for the tax period (insert period(s)), subject to the reduction of $(enter amount) in previously assessed tax and penalties, respectively, plus interest."

    3. The taxpayer's signature is required on the report form or the withdrawal statement. If the offer was filed jointly, signatures of both spouses are required. The taxpayer's representative (per the power of attorney) may sign on the taxpayer's behalf.

    4. Inform the taxpayer that when the OIC-DATL is withdrawn by signing the report or withdrawal statement, this action forfeits any appeal rights and also resumes the running of the statutory period for collection.

  3. The signed withdrawal may be received in person, by mail or by fax and should be date stamped upon receipt. The case file should be clearly documented with the date of receipt and the delivery method, for example, by certified mail, regular mail, fax or personal delivery.

  4. The completed case must close to the Technical Services OIC coordinator. See IRM 4.18.1.5. Excise cases only must close to WSD.

Acceptance
  1. An offer to compromise a tax liability should set forth the legal grounds for compromise and should provide enough information for the Service to determine where the offer fits within its acceptance policies. Doubt as to liability exists when there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist when the liability has been established by a final court decision or judgment concerning the existence of the liability.

  2. While acceptance of an offer is a possibility, an accepted offer will be very rare. This is because there will rarely be an instance when a liability cannot be determined.

  3. Typically, the only time an offer would be accepted is when there is no way to determine the liability, for example, books and records do not exist and can’t be reconstructed. In that event, the taxpayer will be requested to withdraw the OIC-DATL. Closure as acceptance will be the last resort.

  4. Acceptance of an OIC-DATL requires special processing procedures. IRM 1.2.2.6.1, Delegation Order 5 -1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise, outlines the level of authority needed to approve an OIC. Under IRC 7122(b), Record, if the total liability for an offer is $50,000 or more, Counsel must provide an opinion to ensure that the OIC meets the legal requirements for compromise and conforms to the Service’s policy and procedure. See IRM 5.8.8.12, 24-Month Mandatory Acceptance under IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period.

  5. If an acceptance is being considered, immediately contact the PSP OIC coordinator, the WSD OIC coordinator or the TS OIC reviewer to discuss and secure the current acceptance procedures.

  6. The completed case must close to the Technical Services OIC coordinator. See IRM 4.18.1.5. The reviewer will review the case and secure approval to issue the acceptance letter.

Rejection
  1. If the taxpayer does not agree with the examiner's conclusions and the offer is not withdrawn, the following procedures are completed by the examiner:

    1. Prepare an unagreed report on Form 4549-A, Report of Income Tax Examination Changes (Without Taxpayer Signature) or other applicable report form, to reflect any decrease in tax and penalties (based on the correct tax liability determined by the examiner). Do not issue the report to the taxpayer or solicit a signature. If requested, explain the recommendation to the taxpayer with the caveat that it is subject to review. If no abatement of tax is recommended, then a no change report is required to populate Form 5344, Examination Closing Record.

    2. Prepare Form 1271, Rejection Memorandum, and check the box indicating rejection. Do not fill in the date of rejection letter at the top of the form. Attach to Form 1271, a Form 886-A, Explanation of Items, providing a (1) Summary, (2) Facts as to Liability, and (3) Conclusion.

      Note:

      If a report is prepared, Form 886-A, and any other supporting workpapers and schedules will be enclosed in the case file. If an explanation of adjustments is not prepared, Form 1271, must contain sufficient detail to explain why the OIC-DATL is rejected.

      Category Sample Content
      Summary The taxpayer is seeking to compromise under authority of IRC 7122, an unpaid liability for income taxes plus statutory additions. The amount of the offer is the total sum of ($ amount) to be paid in full within ten days of acceptance of the offer. This is the first offer submitted by the taxpayer. The offer is recommended for rejection on the grounds that no legitimate doubt exists from the viewpoint of both the taxpayer and the IRS that the assessed liability is incorrect.
      Facts as to Liability The liability in this case arose from an examination conducted in 1995. The examination disallowed in full the Schedule A deduction because the deduction does not meet the requirements of IRC 170. The non-deductible contributions to a fraudulent church has been upheld by a long list of cases (Hall v Comm., T.C. Memo 1981-143; Kalgaard v Comm., T.C. Memo 1984-283).
      Conclusion For the reasons stated above, this offer is recommended for rejection on the grounds that there is no legitimate doubt that the assessed liability is incorrect.

  2. If the taxpayer does not agree with the examiner’s conclusions, the case is processed as a rejection.

  3. The completed case must close to the Technical Services OIC Reviewer. See IRM 4.18.1.5.1. If the OIC Independent Administrative Reviewer (IAR) agrees with the examiner's determination, they process the file. If the OIC IAR disagrees, the file is returned to the group via Form 3990, Reviewers Report, to communicate the OIC IAR’s observations. Excise cases only close to WSD. See IRM 4.24.6.9.5, Excise Tax Examination of Offer in Compromise Case.

  4. The OIC-IAR Reviewer in Technical Services or WSD (excise only) issues a rejection letter to the taxpayer. The taxpayer has 30 calendar days from the date of the rejection letter to file an appeal request. If the taxpayer requests an appeal, the file will be forwarded to the IRS Independent Office of Appeals. Any partial abatement is made before the case is forwarded to Appeals.

Case Closing Procedures

  1. After consideration of an OIC case is completed in the Field, the file is forwarded to the Exam OIC reviewer in Technical Services using Form 3210, Document Transmittal. There must be a minimum of six months (180 days) remaining on the Tax Increase Prevention and Reconciliation Act (TIPRA) statute when the case is received in Technical Services. See IRM 4.18.1.2.2, Statute of Limitations.

  2. All OIC-DATL cases are required to be closed through Technical Services. An independent administrative review by Technical Services is required for offers with a rejection recommendation.

  3. Form 7249, Offer Acceptance Report, (required for recommended acceptance of offer) or Form 1271, Rejection Memorandum, (required for recommended rejection of offer) is forwarded, with the case file, for the appropriate approval and signatures. Prior to closing a case as an offer acceptance, the examiner should reach out to their Area PSP OIC coordinator, WSD OIC coordinator or the TS OIC reviewer for guidance. Offer acceptances require concurrence from the SB/SE Exam Headquarters OIC-DATL analyst. For additional guidance regarding Technical Services’ procedures, see IRM 4.8.8.8, Offer in Compromise Cases.

  4. Complete Form 5344 using the disposal code shown below and the original source code.

    Outcome of the Case Disposal Code
    If the offer is withdrawn DC 03 - Agreed
    If the offer was rejected DC 08 - Other
    If the offer was accepted DC 03 - Agreed

    Reminder:

    A No Change report must be generated in RGS in order to populate the Form 5344.

  5. The OIC file should be forwarded to Technical Services with Form 3198, Special Handling Notice for Examination Case Processing, secured to the outside of the folder and marked “OIC-Doubt as to Liability”. The file should contain the following documents in the order shown (as applicable):

    1. Any written withdrawal request signed by the taxpayer(s) and date stamped.

    2. Form 7249, Offer Acceptance Report, or Form 1271, Rejection Memorandum, (completed and signed) and Form 886-A, Explanation of Items, completed as described in IRM 4.18.1.4.3.3, Rejection.

    3. Agreed or unagreed audit report form and an explanation of adjustments. For no change OIC-DATL cases, Form 4549-A, Report of Income Tax Examination Changes (Without Taxpayer Signature), or other applicable unagreed report form should include No Change language.

    4. Form 656-L, Offer in Compromise (Doubt as to Liability).

    5. Form 5344, Examination Closing Record, attached to the front of the tax return.

    6. Tax return (original, copy or electronic print).

    7. Form 2848, Power of Attorney and Declaration of Representative, attached to the tax return as required.

    8. OIC-DATL workpapers.

    9. Prior examination workpaper file clipped, banded and/or placed in a separate folder.

  6. After review, the TS OIC reviewer will update the AOIC system with the closing data.

Independent Administrative Review

  1. IRC 7122(e), Administrative Review, requires the Service to provide for independent administrative review of all proposed rejections of offers in compromise prior to the rejection being communicated to the taxpayer.

  2. For Examination (except excise cases), this review occurs within the Technical Services function where one reviewer shall be designated as the Independent Administrative Reviewer (IAR). See IRM 4.8.8.8.2, Independent Administrative Review Procedures for Rejected Offers. For excise cases this review occurs in WSD. See IRM 4.24.6.9.7, Doubt as to Liability Cases Subject to Independent Review Process.

  3. If the IAR determines that the rejection is not appropriate, the case file will be returned to the examiner, using Form 3990, Reviewers Report, with an explanation of why the rejection was inappropriate. If an agreement cannot be reached between the examiner and the IAR, the issue will be elevated to management (group managers or above) by either the field examiner or IAR, as appropriate.

Miscellaneous

  1. This section contains guidance for various processing issues that may occur in OIC-DATL cases.

Payment with Form 656

  1. No payment, or application fee, is required with the submission of Form 656-L, Offer in Compromise (Doubt as to Liability). On occasion, taxpayers submit payments when they submit OIC-DATL offers. If a payment is submitted with the offer, the Brookhaven DATL Unit will apply the funds to the outstanding liability as discussed on Form 656-L.

Innocent Spouse

  1. If the sole issue is relief from joint and several liability, the taxpayer should withdraw their OIC and file Form 8857, Request for Innocent Spouse Relief. In most instances, this will expedite the processing of their claim.

    Reminder:

    Once a determination is made regarding a taxpayer's OIC, the taxpayer is precluded by the terms of the offer from raise any issue related to the liability of the tax period compromised. Therefore, the taxpayer is ineligible to file an innocent spouse claim for that tax period.

Fraudulent and False Statements

  1. IRC 7206(5), Compromises and Closing Agreements, provides for penalties (imprisonment and fines) for fraudulent and false statements applicable to compromises (and closing agreements). If an examiner believes fraudulent and false statements were made in submission of the offer, the Fraud Referral Specialist should be consulted.

Death of the Taxpayer

  1. When the Service is notified of the death of a taxpayer who submitted an OIC-DATL that is currently under consideration, the Service can no longer consider the OIC-DATL. If the OIC-DATL under consideration was submitted jointly by a husband and wife, contact with the surviving spouse should be made to determine whether there is a probate proceeding pending. See IRM 5.19.24.15, Death of a Taxpayer.