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4.18.3  Effective Tax Administration Offers

Manual Transmittal

February 28, 2017

Purpose

(1) This transmits revised IRM 4.18.3, Exam Offer-in-Compromise, Effective Tax Administration Offers.

Background

This IRM provides instructions and guidance for examiners evaluating Effective Tax Administration Offers.

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 Changes
4.18.3.1 Removed previous item (3) due to obsolete information.
4.18.3.2 IRM 4.18.3.2(1) - Note was added to clarify when compromise is permitted if there are compelling public policy or equity considerations. IRM 4.18.3.2 - Removed previous items (3), (4), and (5) which repeated information and examples in Treas. Regs. 301.7122-1.
4.18.3.3 IRM 4.18.3.3(2) - Updated processing procedures. IRM 4.18.3.3 - Updated for changes in procedures. Added information regarding Non-Economic Hardship - Effective Tax Administration (NEH-ETA) offers.
4.18.3.4 IRM 4.18.3.4 - Updated item (1) and removed previous items (2) and (3) due to obsolete procedures.
4.18.3.5 IRM 4.18.3.5(2) - Changes made to clarify authority needed to approve an OIC. IRM 4.18.3.5 - Added new items (3) and (4) and removed previous item (4) regarding acceptable procedures. IRM 4.18.3.5 - (6 renumbered) Revised to reflect updated procedures.
4.18.3.6 IRM 4.18.3.6(2) - Revised to reflect updated procedures.
4.18.3.7 IRM 4.18.3.7 - Revised items (2), (3) and (4) to reflect updated procedures.

Effect on Other Documents

This material supersedes IRM 4.18.3, Effective Tax Administration Offers, dated December 23, 2010.

Audience

SB/SE Examination

Effective Date

(02-28-2017)

John Caggiano
Acting Director, Exam - Field and Campus Policy
SE:S:E:HQ:EFCP
Small Business/Self Employed

4.18.3.1  (02-28-2017)
Overview

  1. This section provides information for examiners considering effective tax administration Offer in Compromise (OIC) requests.

  2. As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added IRC 7122(c), Rules for Submission of Offers-in-Compromise. That section provides that the Service shall set forth guidelines for determining when an OIC should be accepted. Congress explained these guidelines should allow the Service to consider:

    • Hardship;

    • Public policy; and

    • Equity.


    26 CFR 301.7122-1, authorizes the Service to consider OIC’s raising these issues. These offers are called Effective Tax Administration (ETA) offers. See IRM 5.8.11, Effective Tax Administration, for more information and examples.

4.18.3.2  (02-28-2017)
Considering the Effective Tax Administration Issue

  1. If there are no grounds for compromise under the doubt as to collectibility or doubt as to liability provisions, a compromise may be entered into to promote effective tax administration when compromise of the liability will not undermine compliance with the tax laws, and:

    1. Collection of the full liability will create economic hardship within the meaning of Treasury Regulation 301.6343-1; or,

    2. Regardless of the taxpayer's financial circumstances, exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance (DVC).

      Note:

      If there are no grounds for compromise based on doubt as to collectibility, doubt as to liability or because collection would cause an economic hardship, compromise is permitted if compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this provision will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full.

  2. Factors supporting (but not conclusive of) a determination that compromise would not undermine compliance with the tax laws include:

    1. Taxpayer does not have a history of noncompliance with the filing and payment requirements of the IRC;

    2. Taxpayer has not taken deliberate actions to avoid the payment of taxes; and

    3. Taxpayer has not encouraged others to refuse to comply with the tax laws.

      Note:

      These factors, as well as, any other relevant factors should be considered but no minimum compliance requirement has been established.

4.18.3.3  (02-28-2017)
Jurisdiction-Effective Tax Administration

  1. Collection has jurisdiction over offers based on effective tax administration for public policy reasons or equity considerations.

    Note:

    These cases may also fall under the jurisdiction of Appeals if the taxpayer raises the issue during a Collection Due Process (CDP) or equivalent proceeding. See IRM 4.18.7.4, Offers Under Office of Appeals Jurisdiction.

  2. Collection's Non-Economic Hardship - Effective Tax Administration (NEH-ETA) group reviews offers submitted under public policy or equity consideration.

  3. In some instances, the NEH-ETA group may request review or input from Examination relative to a tax law issue or an issue that would undermine public confidence that the tax laws are being administered in a fair and equitable manner or would undermine compliance.

  4. In instances where Examination consideration is warranted, Collection will forward the offer to the appropriate Exam Area Office based on the PSP coordinator listing. See IRM 4.18.2, Doubt as to Liability Offers, which provides guidance in considering doubt as to liability offers.

4.18.3.4  (02-28-2017)
Examination Considerations

  1. If the taxpayer requested consideration of the Effective Tax Administration provisions on Form 656, Offer in Compromise, and the case has been forwarded from Collection for consideration, the examiner is required to fully document any and all relevant tax law considerations and provide a recommendation whether the case is appropriate for compromise based on the specific facts and issues raised.

  2. The examiner should consider equity already established in the tax law in assessing/analyzing the taxpayer's DVC offer.

4.18.3.5  (02-28-2017)
Offer Accepted

  1. See procedures in IRM 4.18.2.6, Doubt as to Liability Offer Accepted.

  2. IRM 1.2.44.2, Delegation Order 5-1 (Rev. 4), 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 the OIC meets the legal requirements for compromise and conforms to the Service's policy and procedure. See IRM 5.8.8.13, Legal Opinion of Counsel.

  3. Doubt as to liability offers will be rarely, if ever, closed as an acceptance.

    1. Examiners and taxpayers should be able to arrive at a correct tax liability amount.

    2. In most circumstances, the offer will close either as a rejection or as a withdrawal.

  4. If an examiner believes that an offer should close as an acceptance, they should reach out to their PSP OIC-DATL coordinator (or WSD classifier) for assistance.

    Note:

    All offer acceptances need prior review and approval from SB/SE Collection Policy.

  5. If Collection Policy approval has been secured, the completed case is routed via Form 3198, Special Handling Notice for Examination Case Processing, to the attention of the Technical Services OIC reviewer. See IRM 4.8.8.8.4, Accepted Offers, for further information.

  6. Form 7249, Offer Acceptance Report, is prepared by Technical Services and will be annotated "effective tax administration" as the reason for acceptance.

4.18.3.6  (02-28-2017)
Offer Withdrawn

  1. See procedures as outlined under "doubt as to liability" provisions in IRM 4.18.2.7, Doubt as to Liability Offer Withdrawn.

  2. Once a determination is made, the case file is routed via Form 3198, Special Handling Notice for Examination Case Processing, to the attention of the Technical Services OIC Reviewer.

4.18.3.7  (02-28-2017)
Offer Rejected

  1. See procedures as outlined under "doubt as to liability" provisions in IRM 4.18.2.8, Doubt as to liability Offer Rejected.

  2. The file is routed via Form 3198, Special Handling Notice for Examination Case Processing, to Technical Services for an independent administrative review. 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.

  3. The taxpayer has 30 calendar days from the date of the rejection letter to file an appeal request. The OIC-IAR Reviewer in Technical Services issues the rejection letter to the taxpayer. If the taxpayer requests an appeal, the file will be forwarded to the Office of Appeals.

  4. The OIC-IAR Reviewer in Technical Services completes the Automated Offer-in-Compromise (AOIC) Exam/Specialty Checklist (including the date of the rejection letter) and returns the Exam Checklist to PSP OIC-DATL Coordinator.


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