4.18.1 Offers in Compromise Received in Exam

Manual Transmittal

February 28, 2017


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


This IRM provides instructions and guidance to examiners for taxpayers requesting an offer in compromise.

Material Changes

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

IRM Reference Description of Change.
IRM IRM - Removed bullet referring to obsolete IRM 4.18.4. IRM - Added new item (4) regarding the rare acceptance of Doubt as to Liability Offers. IRM - Removed previous item (5) that stated offers filed for penalties and/or interest should generally be treated as not processable. Added language to clarify the current procedures. IRM - Removed "however, some may be forwarded to Examination for consideration.” IRM - Removed previous item (8) stating "The Brookhaven Campus, Collection Offer in Compromise (COIC) DATL Unit has the authority to consider penalty offers based upon DATL. Area office action or investigation is not necessary unless the offer is based on DATC or there are unusual circumstances or complex questions involved. Penalties that are not subject to reasonable cause determination are not subject to compromise based on DATL and should be returned."
IRM IRM - Changed the procedures explained to reflect the current process using the Automated Offer in Compromise (AOIC) system. IRM - Update procedures regarding AOIC tracking code, and freezes. IRM - Updated procedures for unpostable entries. IRM - Updated for procedural changes. IRM - Added a comment regarding the rarity of not processable offers or offers that can be returned without further investigation. Updated the IRM reference. IRM - Added "The PSP OIC Coordinator will reach out to the SB/SE Exam HQ Analyst for OIC-DATL." IRM - Updated letter requirement. IRM - Updated procedures where Appeals determined the liability. Added information about the steps to be taken at the Technical Services level. IRM - Removed previous item (12) regarding offers on cases under the jurisdiction of the Department of Justice. IRM (12 renumbered) - Added “PSP coordinator will also update the Area assignment on AOIC to the correct area.” IRM (13 renumbered) - Removed "If the taxpayer does not amend or withdraw the offer, the request may be considered as an audit reconsideration or informal claim, but may not be considered as an offer in compromise." And the following Note. IRM (14 renumbered) - Added TIPRA Statute information. Removed obsolete letter information. IRM - Removed this item regarding AIMS control. IRM (15 renumbered) - Added “Updates are recorded in the AOIC remarks section.”
IRM IRM - Added “All OIC-DATL cases are mandatory review and must be closed through Technical Services. Technical Services gives the offer case the required independent administrative review and issues the proper (withdrawal, rejection or, in very rare cases, acceptance) closing letter."
Removed Exhibits - Under the current procedures, examiners do not issue these letters.

Effect on Other Documents

This material supersedes IRM 4.18.1, Offer-in-Compromise Received in Exam, dated January 7, 2011.


SB/SE Examination

Effective Date


John Caggiano
Acting Director, Exam Field and Campus Policy
Small Business/Self Employed


  1. This section provides an introduction to offers in compromise received in Examination and initial processing procedures.


  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 (OIC) 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 will rarely, if ever, be closed as accepted because examiners can usually determine the 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. See IRM 4.18.2, Doubt as to Liability Offers, for information on the OIC-DATL examination process.

  5. Submission of an OIC stays collection of an account, unless the taxpayer waives the stay or the collection of tax is in jeopardy. Also, a liability may, in special circumstances, be compromised upon the grounds that the case is appealing from an equitable standpoint. 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 Office of Appeals will have jurisdiction regarding an offer. See IRM, Offers Under Office of Appeals Jurisdiction, and IRM, CDP and Equivalent Appeal Offer Processing, regarding Appeals's 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. See IRM

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

    • TC 480 - Offer pending on all periods sought to be compromised

    • 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

    Other indicators:

    • P - The primary TP submitted the offer

    • S - The secondary TP submitted the offer

    • B - Both TPs submitted the offer

Classification and Screening Procedures

  1. Offer in compromise cases may be forwarded from the Campus DATL Unit for further investigation. Examination will make a determination whether the offer merits further consideration.


    Campus DATL determines the offer processibility and loads the offer on the Automated Offer in Compromise (AOIC) system. AOIC is the case management system for Offers in Compromise. See IRM 5.19.24, Doubt as to Liability Offer in Compromise for further information on the initial processing and other Campus procedures for OIC-DATL offers.

  2. AOIC uploads the TC 480 to IDRS which generates the Y freeze. AOIC also uploads a STAUP 71 to suspend collection activity and verifies the presence of Jurisdiction Code 2.

  3. Occasionally the TC 480 or the STAUP will go unpostable. If the unpostable is not corrected by the Area Office, TC 480 and Status 71 will not show on the tax module. The PSP coordinator should reach out to the DATL unit in Brookhaven to request the TC 480 be manually input.

  4. Offer receipts will fall into 3 categories:

    1. Processable offer Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), is properly prepared and required documents are attached.

    2. Not processable offer Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), may be returned immediately (see paragraph 6 below).

    3. Offer must be perfected; Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), reflect omitted items and contact must be made with the taxpayer to obtain the information needed to make the offer processable.

  5. The Service should work with taxpayers to provide an opportunity to perfect defects or errors in the offers. PSP coordinators will use the AOIC Combo letter to request additional information from the taxpayer or POA. Offers that are not perfected by the taxpayer within 14 calendar days of request should be returned to the taxpayer; this time frame may be extended if warranted.

  6. The PSP OIC coordinator will analyze the offer to determine if it is not processable or may be returned without further investigation. This will be very rare. Offers that are not processable (per IRM, Not Processable Offers) will be returned to the taxpayer. Offers may be immediately returned as not processable if the offer is frivolous, groundless, or has been submitted for the purpose of delaying collection (i.e. not raising a valid collectibility issue or liability issue or repetitive re-submission of offers which have already been rejected). In addition, if a taxpayer is in bankruptcy when the offer is received or files bankruptcy while the offer is under consideration, the offer must be returned. An offer should be terminated when the IRS is notified of the death of a taxpayer whose offer is under consideration, except if the OIC under consideration was submitted jointly by a husband or wife. In that case, see IRM, Death of Taxpayer. Appropriate managerial approval must be obtained before an offer can be returned on these grounds.

  7. If the DATL offer contains tax liabilities that have been finally determined by the Tax Court, other courts, or by a Final Closing Agreement, there is no DATL and the offer should be returned.


    IDRS may reflect litigation/reversal of litigation when a case has been dismissed (and not considered by the Court). Coordination with Counsel and/or Appeals may be necessary to ensure a decision was actually made. In addition, an offer based on DATL may be considered based upon a computational error by the Service after the decision was entered, for example, the IRC 6662, penalty was assessed contrary to the decision. The PSP OIC Coordinator will reach out to the SB/SE Exam HQ Analyst for OIC-DATL.

  8. Failure in filing compliance on other required returns should not be used as a basis for returning or rejecting a DATL offer in compromise request. This is distinguished from DATC offers which may be returned for such purposes.


    The 5 year compliance requirement is not applicable for DATL offers.

  9. DATL offers may be considered on a tax period basis. If the taxpayer submits a separate DATL offer for more than one period, simultaneous consideration is not required. The tax periods may be considered together, particularly if the same issue applies in each tax period.

  10. The PSP Coordinator uses the AOIC return letter to return a DATL offer to the taxpayer.

  11. If it is evident, that Appeals determined the liability, the Exam Area OIC Coordinator will create an AOIC rejection letter stating the liability was determined by Appeals and send the file to Technical Services. Technical Services will mail the rejection letter and if the taxpayer submits a timely protest the case is forwarded to Appeals. See IRM, Examination DATL Offers - Liability Previously Determined by Form 870-AD, and paragraph 4 of IRM, Doubt as to Liability Offer Rejected, for closing procedures when a case goes to Appeals.

  12. 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. PSP coordinator will update the Area assignment on AOIC to the correct area and record where the offer was sent in the AOIC remarks.

  13. DATL offers submitted without any consideration (zero dollar amount offered) are not processable. The taxpayer should be advised to amend the offer to reflect what the taxpayer believes to be the correct liability.

  14. Offers that are deemed processable, and not returned, are generally sent to field revenue agents and tax compliance officers (hereinafter referenced as examiners) for further consideration. The statute of limitations date for OIC-DATL cases is called the Tax Increase Prevention and Reconciliation Act of 2005, (TIPRA) date. The statute of limitations for OIC cases is 24 months from the date the IRS receives Form 656-L, Offer in Compromise (Doubt as to Liability). The TIPRA date should be prominently indicated on the cover of the case file, as described in paragraph 5 of IRM

  15. Because OICs are priority cases, the OIC coordinator in PSP 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. Updates are recorded in the AOIC remarks section.

Changes Effective July 16, 2006

  1. Effective for offers filed after July 16, 2006, payment must accompany certain offers. See IRC 7122(c)(1). Offers that are solely DATL are exempt from the payment criteria. See Notice 2006-68; 2006-2 C.B. 105, Down Payments for Offers in Compromise, for guidance.

  2. Effective July 16, 2006, IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period, provides that if an offer in compromise is not returned to the taxpayer, withdrawn, terminated or rejected within 24 months after submission of the offer, the offer shall be deemed accepted. It is critical that offers in compromise receive priority treatment. All OIC-DATL cases are mandatory review and must be closed through Technical Services. Technical Services gives the offer case the required independent administrative review and issues the proper (withdrawal, rejection or, in very rare cases, acceptance) closing letter.