4.18.7 Special Case Processing

Manual Transmittal

February 28, 2017

Purpose

(1) This transmits revised IRM 4.18.7, Exam Offer-In-Compromise, Special Case Processing.

Background

This IRM provides instructions and guidance to examiners for Offer-in-Compromise request requiring special processing.

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
4.18.7.1 IRM 4.18.7.1(2) - Added Assistance in preparing the OIC will be limited to helping the taxpayer obtain the appropriate forms and reviewing the offer package to ensure it is complete in order to expedite processing. IRM 4.18.7.1(3) - Replaced in the Risk analysis workpapers with Lead Sheet 110, Revenue Agent Audit Plan/TCO Audit Plan. IRM 4.18.7.1(4) - Removed the Note after this paragraph. IRM 4.18.7.1(5) - Added procedures related to payments received with Form 656. IRM 4.18.7.1(6)(i) - Revised the wording to explain procedures for taxpayers who are not required to submit a fee and removed the outdated note. IRM 4.18.7.1(14) - Added "(14) The Service will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides procedures to resolve the Service's claim. See IRM 5.8.10.2, Bankruptcy."
4.18.7.4 IRM 4.18.7.4(2) - Added information regarding appeal of non-Collection Due Process (CDP) cases.
4.18.7.4.1 IRM 4.18.7.4.1 - Revised to reflect current procedures.
4.18.7.5 Added subsection to provide guidance on Request for Penalty Assertion under IRC 7602(b).

Effect on Other Documents

This material supersedes IRM 4.18.7, Exam Offer-In-Compromise, Special Case Processing, dated January 04, 2011.

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

Offer-in-Compromise (OIC) Filed During the Audit

  1. This section provides procedures for consideration and processing of Form 656, Offers-in-Compromise, Doubt as to Collectibility, or "Effective Tax Administration" , filed during an examination.

  2. While Collection has jurisdictional responsibility for offers based on doubt as to collectibility and effective tax administration, examiners play a role in the processing of offers. IRM 1.2.14.1.17, Policy Statement 5-100, provides that in cases where an OIC appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. This generally should not occur until the examiner has already made a determination of the proper amount of tax liability/deficiency. Assistance in preparing the OIC will be limited to helping the taxpayer obtain the appropriate forms and reviewing the offer package to ensure it is complete in order to expedite processing.

  3. Examiners must exercise good judgment in identifying when an offer in compromise represents the best means to resolve a deficiency. The primary objective is to secure full payment of the deficiency. However, when the examiner identifies an offer as the best alternative for securing payment, a discussion of collectibility concerns will take place between the examiner and his/her group manager prior to initiating a discussion of the offer alternative with the taxpayer. A comment regarding this discussion and applicability of limited scope procedures will be made on Lead Sheet 110, Revenue Agent Audit Plan/TCO Audit Plan.

  4. The taxpayer may submit an offer to the examiner during the course of the examination or at the conclusion of the examination. Upon receipt of the offer, the examiner will date stamp page 1 of Form 656, Offer in Compromise, in the upper right-hand corner and will review all forms for completeness prior to forwarding to Centralized Offer in Compromise (COIC).

  5. If the Form 656, Offer in Compromise, is submitted with payment, forward it to the COIC unit within 24 hours of receipt. If no funds are submitted, forward it within three calendar days of receipt. Form 656, instructions provide the mailing address.

    Note:

    The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) requires mandatory acceptance if a determination is not made on a taxpayers offer within 24 months of the IRS received date. Based on this requirement, it is critical any Form 656, submitted to the IRS is promptly forwarded to a COIC unit for a processability determination.

  6. The examiner will not sign the OIC, Form 656, Offer in Compromise.

  7. To provide better service to the taxpayer the examiner will perform a cursory review to expedite processing of the offer. The examiner should ensure the offer package is complete as required on Form 656, Offer in Compromise, and includes the following:

    1. Full identification of taxpayer: name, address, social security number or employer identification number; both taxpayer names and signatures in instances of a joint liability offer.

    2. Identification of the liability (type of tax).

    3. Amount and terms of the offer.

    4. Appropriate signature(s).

    5. Basis for compromise.

    6. Completed Form 433-A, Collection Information Statement for Wage Earners & Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses.

    7. Minimum of equity in assets offered.

    8. All outstanding liabilities and tax periods included.

    9. Application fee and the TIPRA payment, if applicable. Under TIPRA, taxpayers who qualify as low income, based on current criteria, and check the box in Section 4 on Form 656, are not required to submit the application fee or any TIPRA payment(s) while OIC is being investigated.

  8. If the examination is not complete and the examiner and group manager concur that a legitimate collectibility concern exists, the limited scope examination procedures may be applied. Otherwise the examination should continue and issues resolved as normal.

  9. If agreement is obtained, the case will be closed following existing procedures. The examiner will provide a copy of the audit report to the Collection employee handling the OIC case.

  10. Examiners should not solicit and obtain conditional agreements wherein the taxpayer only agrees to the proposed tax with the condition that an offer in compromise simultaneously submitted (doubt as to collectibility) is accepted.

  11. If agreement is not obtained, the case will be closed following normal unagreed procedures. Such action must clearly be communicated to the Collection employee handling the OIC case. The taxpayer's submission of the offer should be postponed until final resolution of the issues and resulting liability; the taxpayer loses his right to appeal the issues if the offer is accepted by Collection.

  12. If the taxpayer submits the offer directly to Collection during the course of an audit, Collection will determine whether any years are being examined and if so, contact the examiner for further coordination. See IRM 5.8.4.17, Pending Assessments.

    Note:

    If the examination will not be resolved as an agreed case within a short period of time, or the examination will be closed as unagreed, any pending offer will be returned to the taxpayer based on "other investigations pending" . Once all examination issues are resolved, the taxpayer may submit a new offer.

  13. If an offer is to be accepted by Collection, an acceptance letter cannot be mailed to the taxpayer until an assessment of the liability has been made. To obtain a quick assessment of the liability, Form 3198, Special Handling Notice, must be annotated in the other section, "Prompt Assessment Request—Offer Pending in Collection" , by the examiner in field exam.

  14. While the offer is under consideration, the taxpayer will not receive notices requesting payment.

  15. The Service will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides procedures to resolve the Service's claim. See IRM 5.8.10.2, Bankruptcy.

Federal Employees/Retiree Delinquency Initiative

  1. Offers in Compromise submitted by Federal retirees are considered and evaluated through normal offer processing.

  2. Offers submitted by Federal employees will be considered. However, due to the sensitivity associated with the acceptance of an offer in compromise from a Federal employee, public policy implications must be considered in all cases. Local management will make the determination based on the facts and circumstances of each case. See IRM 1.2.44.2, Delegation Order 5.1 (Rev. 4), regarding level of approval required to accept or reject an offer in compromise.

Collateral Agreements

  1. When Campus Examination checks compliance with the terms of future income or other collateral agreements, the complete files with related returns may be referred to Area Examination for follow-up action to determine if the taxpayer has complied with the collateral agreement obtained as part of an OIC acceptance. A collateral agreement may involve a waiver of a future deduction arising from net operating losses or capital loss carryforward arising in prior years. See IRM 5.8.6, Collateral Agreements.

Offers Under Office of Appeals Jurisdiction

  1. A taxpayer may submit an offer to the Appeals function during a Collection Due Process (CDP), or an equivalent proceeding, to exercise their rights granted under IRC 6330, Notice and opportunity for hearing before levy, and IRC 6320, Notice and opportunity for hearing upon filing a notice of lien. The Office of Appeals has statutory jurisdiction of such offers, whether submitted on the basis of doubt as to liability, doubt as to collectibility, or effective tax administration.

  2. In non-CDP cases, Appeals does not have jurisdiction over DATL Offers where the liability was determined by Appeals. Exam (DATL Cases) must issue a rejection letter stating the liability was determined by Appeals. IF the taxpayer submits a timely protest the case is forwarded to Appeals. See IRM 8.23.3.10.2, Examination DATL Offers - Liability Previously Determined by Form 870-AD, and IRM 4.18.2.8, Doubt as to Liability Offer Rejected.

CDP and Equivalent Hearing Appeal Offer Processing

  1. The IRS Restructuring and Reform Act (RRA) of 1998 established the CDP hearing rights under IRC 6320, Notice and opportunity for hearing upon filing of notice of lien, and IRC 6330, Notice and opportunity for hearing before levy. The CDP hearing provisions give taxpayers an opportunity for an independent review to make sure levy action that has been proposed, or the Notice of Federal Tax Lien (NFTL) that has been filed, is warranted and appropriate.

  2. If a liability is precluded in CDP – the taxpayer cannot challenge the validity of the liability, the Appeals employee will send the case to COIC for the processability determination. The Form 3210, Document Transmittal, is notated that the liability challenge is precluded in CDP. COIC will make the processability determination and forward the OIC-DATL to the Exam Area PSP for assignment.

  3. Appeals issues Appeals Referral Investigations (ARI) to verify financial information or to consider new information. It is possible an AO working an OIC-DATL where the liability was not precluded, or was precluded but determined by Appeals, could issue an ARI to Examination to consider new information. These situations should be rare. Appeals may also issue an ARI to Examination when considering an OIC-DATL that was submitted through CDP to consider new information provided.

  4. If information from the taxpayer is needed, and the taxpayer does not provide the information necessary to complete the investigation, he/she will be notified by letter that additional information is needed and allowed 14 calendar days to respond. If no response to the request is received, a second request will be issued within 10 calendar days of the initial response date, and the taxpayer will be allowed an additional 14 calendar days for a response. If no response to the second request is received, the ARI will be returned to Appeals.

Request for Penalty Assertion under IRC 6702(b)

  1. If the taxpayer files an OIC that states it should be accepted based on a frivolous position, or reflects a desire to delay or impede the administration of federal tax laws, and it is determined assertion of the penalty under IRC 6702(b), Frivolous tax submissions, is applicable, the taxpayer should be given 30 calendar days to withdraw or amend their OIC prior to the assertion of the penalty.

  2. The opportunity to withdraw or amend the offer should be in writing and included in correspondence that advises the taxpayer that actions to avoid the $5,000 IRC 6702(b), Frivolous tax submissions, penalty are either to withdraw the offer or amend the offer so it only includes a valid reason for acceptance based on existing law.

  3. If the taxpayer fails to withdraw the offer, review the documentation again to verify that the offer includes either a frivolous or a desire to delay position.

  4. Once the criteria for penalty assessment have been verified, the examination employee will take the necessary steps to have the penalty assessed by preparing a Form 3210, Document Transmittal, addressed to:

    Internal Revenue Service

    Attn: FRP, M/S 4450, Sr. Technical Advisor

    1973 N. Rulon White Blvd.

    Ogden, Utah 84404

  5. See IRM 25.25.10.3, Referrals to Frivolous Return Program, for more information.

  6. The following information should be listed on the Form 3210, Document Transmittal,:

    1. TIN and Name Control.

    2. MFT 55 for IMF or MFT 13 for BMF and Period (if multiple periods, use the latest period on the hearing request).

    3. Penalty Reference Code 543 which is used for IRC section 6702(b), Frivolous tax submissions, penalties.

  7. The following documents should be attached to the Form 3210, Document Transmittal:

    1. The original Form 656, Offer in Compromise, and related attachments discussing the basis for the offer submission.

    2. A copy of the letter or letters issued soliciting a withdrawal of the taxpayer’s "specified frivolous position" or "desire-to-delay" position.

    3. If applicable, a copy of case history notes documenting related discussion(s) with the taxpayer.

    4. A case memo that includes a statement identifying the possible IRC 6702(b), Frivolous tax submissions, issue in the submission. This may be a frivolous position as identified in IRS Notice 2010-33, Frivolous Positions, or a position that reflects a desire to delay or impede tax law administration.

    5. A copy of any written communication received from the taxpayer in response to the withdrawal solicitation.

  8. The group manager will document approval of the penalty assessment by writing "Determination to assess penalty pursuant to IRC 6702(b), Frivolous tax submissions, approved " on the Form 3210, Document Transmittal, and sign the Form 3210. The request for penalty assessment can be mailed or faxed to Ogden at 855-246-4886. The Frivolous Return Program at the Ogden Compliance Services Campus will review the documents and process the request for penalty assessment. Follow-up with Ogden if they do not acknowledge receipt of the Form 3210 within 15 calendar days.