4.18.6 Case Processing and Controls

Manual Transmittal

February 28, 2017

Purpose

(1) This transmits revised IRM 4.18.6, Exam Offer-In-Compromise, Case Processing and Controls.

Background

This IRM provides instructions and guidance to examiners for various processing issues and controls on an Exam 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 Changes
4.18.6.2 IRM 4.18.6.2(1) Removed outdated reference for Form 3040. IRM 4.18.6.2(2) Moved content from paragraph (1) and added "On occasion, taxpayers submit deposits when they submit Offer-in-Compromise, Doubt as to Liability (OIC-DATL) offers" . IRM 4.18.6.2 Added paragraphs (3), (4) and (5) to update procedures for payments received.
4.18.6.3 IRM 4.18.6.3(2) Added "See IRM 5.8.10.8, Effect of Previous Offers on Assessment Statute Expiration Date, for further information on the impact of an offer on the assessment statute of limitations" . IRM 4.18.6.3 Added paragraphs (4), (5) and (6) regarding the TIPRA statute on OIC-DATL cases.
4.18.6.5 IRM 4.18.6.5 Revised to reflect current procedures regarding time charges. IRM 4.18.6.6 Added paragraphs (1) and (5). Renumbered paragraphs.
4.18.6.6 IRM 4.18.6.6(2) and (4) Revised to reflect current coding. IRM 4.18.6.6(2) Added reference to IRM 4.18.6.3. IRM 4.18.6.6(3) Added description of actions taken by Brookhaven Service Center (BSC).

Effect on Other Documents

This material supersedes IRM 4.18.6, Case Processing and Controls, dated December 28, 2010.
This revision incorporates Interim Guidance Memorandum SBSE-04–0416–0003 for Offer in Compromise, Doubt as to Liability Statute Controls.

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

Overview

  1. This section provides guidance for various processing issues and controls on a Doubt as to Liability, Offer in Compromise (OIC-DATL) under Exam’s jurisdiction.

Payments Made with Form 656

  1. Form 656, Offer in Compromise, which applies to offers based on Doubt as to Collectibility (DATC) and Effective Tax Administration (ETA), filed after the Tax Increase Prevention and Reconciliation Act (TIPRA) (July 16, 2006) requires "payment" , of 20% of the offer or the first installment of the proposed offer to be filed with the OIC. These payments are not deposits and will not be refunded to the taxpayer. They will be applied to the outstanding tax liability. The application of this payment may be designated by the taxpayer. An application fee is also required unless the taxpayer qualifies as low income based on current criteria, and checks the box in Section 4 on Form 656. See IRB 2006-31, Form 656, Form 656-B, Offer in Compromise (Booklet).

  2. 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 deposits when they submit OIC-DATL offers.

  3. If a deposit has been made with an offer, examiners should ask taxpayers if they wish to have deposit funds applied to the unpaid tax debt. This question is asked:

    1. When a withdrawal of the offer is solicited, or

    2. When advising taxpayers that an acceptance cannot be recommended.

  4. The examiner’s work papers will address how the taxpayer wants the deposit to be applied:

    1. If the taxpayer decides to apply the deposit against the unpaid tax, Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability, can be completed. The taxpayer can also give instructions regarding the deposit on the signed withdrawal letter.

    2. The taxpayer may or may not apply the tax to the year(s) in question. The payment should be applied to the year designated by the taxpayer.

    3. If the taxpayer decides not to apply the deposit against the unpaid tax, the deposit will be refunded.

  5. If the taxpayer does not authorize application of the deposit, in writing, it will be refunded. Refunds are processed when the case is closed from AOIC.

Statutory Period of Limitation

  1. The normal statutory period for collection purposes is ten years from the assessment of the tax liability.

  2. The filing of an OIC extends the statute for additional tax assessments in accord with the terms of the waiver provisions of the Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), which was filed by the taxpayer. See IRM 5.8.10.8, Effects of Previous Offers on Assessment Statute Expiration Date, for further information on the impact of an offer on the assessment statute of limitations. Steps should be taken to protect the interest of the government before the recalculated statutory period for assessment expires. The recalculated period of time for assessment can be extended by consent before the recalculated period expires. See IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent, for preparing and processing consents.

  3. IRC 6511(a), Period of limitation on filing claim, prescribes the period of limitation for a refund of tax. OICs are not applicable to tax amounts that have already been paid.

  4. In addition to the ASED statute, the OIC-DATL cases contain a 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" .

  5. OIC-DATL cases with an expired ASED or an ASED within six months of expiring will contain a statute date that is two years from the IRS received date of the offer. The statute will also carry an "R" , as part of the statute date, e.g. (04-04-2018R) to assist in identifying the TIPRA statute.

  6. When establishing or verifying the TIPRA statute date, the examiner will make sure the OIC-DATL received date recorded is correct. By making sure this date is correct, the examiner supports taxpayers rights to finality, in accordance with the Taxpayer Bill of Rights.

  7. When Technical Services issues a rejection letter, the TIPRA statute stops running. As a result, the following apply:

    1. Even if the TIPRA statute date appears to be less than a year when sent to Appeals, once a rejection letter is issued, it is not a live statute date.

    2. Appeals will not return a case because there is less than one year on the TIPRA statute of limitations.

    3. Appeals Processing Services has instructions to leave the statute information blank when carding the case into Appeals Centralized Database System (ACDS). See IRM 8.20.5.33, Offer in Compromise (OIC) Case Carding.

Innocent Spouse Procedures

  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.

    Note:

    Once a determination is made regarding a taxpayer's OIC, the taxpayer is precluded by the terms of the offer to 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.

Examiner's Time Charges

  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).

Return Controls

  1. OIC-DATL cases are received in Planning and Special Programs (PSP) for control (by the PSP OIC Coordinator) and are then sent to the examination group.

  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 4.18.6.3, Statutory Period of Limitation, 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. Brookhaven Service Center (BSC) forwards the Form 656-L, Offer in Compromise (Doubt as to Liability), and associated documents to Area PSP. PSP requests the administrative file and establishes AIMS controls. In some situations, the administrative file may not be available. The CEAS file should be requested as an alternative.

  4. If the return is still reflected on AIMS in status code 90 when the OIC is received, command codes ESTAB and AMSTUR should be used to order and establish the return. The AIMS source code is to be updated to 73. ERCS controls must be reopened manually.

  5. Close the case using Form 5344, Examination Closing Record, and the original source code.

    Note:

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

    Outcome of the Case Disposal Code
    If the offer is withdrawn
    • DC 01 - No Change with Adjustments

    • DC 02 - No Change

    • DC 03 - Agreed

    If the offer was rejected and a report was issued
    • DC 08 - Other

    If the offer was rejected and no report was issued
    • DC 01 - No Change with Adjustments

    • DC 02 - No Change

Dual Notice Requirement

  1. 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.

  2. This requirement also applies to OIC filed on joint liabilities. See IRM 4.10.1.6.8, Separate Notice Requirements for Joint Returns, for more information.

Fraudulent and False Statements

  1. IRC 7206(5), Fraud and false statements, provides for penalties (imprisonment and fines) for fraudulent and false statements applicable to compromise (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.