5.8.1 Overview

Manual Transmittal

August 01, 2017

Purpose

(1) This transmits revised IRM 5.8.1, Offer in Compromise, Overview.

Material Changes

(1) Updated this IRM to reflect various editorial changes.

IRM Section Change
5.8.1 This revision contains various editorial and grammatical corrections.
5.8.1.2.4(1) 2nd bullet, corrected grammatical error.
5.8.1.4(1) Corrected link to TBOR. Removed the example of personal judgment.
5.8.1.5(1) Changed reference to Taxpayer Bill of Rights to TBOR since that reference was included 5.8.1.4.1. Same for Offer Examiner and Offer Specialist reference. Changed to OE/OS since that reference was included in 5.8.1.1. (3) Corrected the number of rights from 19 to 10.
5.8.1.6.5 (2) Added title to IRM 5.8.7; (4) added title to 21.4.5.4.5; (6) added title to 5.8.4.
5.8.1.8(1) Removed the word not from the 2nd sentence.
5.8.1.11 (2) and (3) removed extra spaces between comma and IRM reference.
5.8.1.12.1(2) Corrected language that defines when managerial signature and approval are required on Form 657, which was inadvertently eliminated with this revision.
5.8.1.14 (6) added title to 5.8.3; (5) Changed reference from Notice of Federal Tax Lien (NFTL) in first sentence and used NFTL reference thereafter.

Effect on Other Documents

This IRM supersedes IRM 5.8.1 dated May 5, 2017

Audience

SB/SE Collection and Campus Compliance employees.

Effective Date

(08-01-2017)


Kristen E. Bailey
Director Collection Policy

Program Scope and Objectives

  1. Purpose: The government, like other creditors, encounters situations where an account receivable cannot be collected in full or there is a legitimate dispute as to what is owed. It is an accepted business practice to resolve these issues through negotiation and compromise. This IRM also provides a brief summary of various functional activities that are key to the offer process.

  2. Audience: These procedures apply to IRS employees who are responsible for investigating and making a decision on offers. It also provides guidance to other collection employees when all other collection alternatives have been exhausted.

    • Offer Examiners (OE) in Centralized Offer in Compromise (COIC)

    • Offer Specialists (OS) in the field

    • Additional IRS employees assigned to the offer program and employees who conduct offer investigations, Appeals Officers, etc.

    • Collection employees that assist taxpayer’s in resolving delinquent tax liabilities; i.e. revenue officers, etc.

  3. Policy Owner: Director, Collection Policy

  4. Program Owner: SBSE Collection Policy, Offer In Compromise (OIC) Program

  5. Primary Stakeholders: COIC and field offer employees

  6. Program Goals: This IRM provides the fundamental knowledge and procedural guidance for OE and OS employees engaged in the investigation of offers.

Background

  1. This section provides an general overview and direction for the offer program.

Authority

  1. Authorities that are related to the offer program are:

    • IRC § 7122 – Compromises

    • Treasury Regulation § 301.7122-1 – Compromises

    • IRC § 6702(b) – Civil penalty for specified frivolous submissions

    • Policy Statement P-5-89, Offer may be rejected for public policy reasons

    • Policy Statement P-5-97, Stay of collection - offer in compromise cases

    • Policy Statement P-5-100, Offers will be accepted

    • Revenue Procedure 26CFR 300.3 – Offer to compromise fee

    • Revenue Procedures 2003-71

    • Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)

    • Notice 2006-68

    • IRM 1.2.44.2 – Delegation Order 5-1 (Rev. 4)

Responsibilities

  1. The Director Collection Policy is responsible for the all policies and procedures within the offer program.

  2. The National Program Manager (OIC) is responsible for development and delivery of policies and procedures within the program.

  3. IRM authors are responsible for writing the polices and procedures and clearing documents through all affected offices.

Program Management Review

  1. Operational and program reviews are conducted on a yearly basis with the use of data and reports on the Automated Offer in Compromise (AOIC) system and Integrated Collection System (ICS). See IRM 1.4.52, Offer in Compromise Manager’s Resource Guide – Field Program, and IRM 1.4.54, Offer in Compromise Managers – Centralized Offer in Compromise Program Guide.

  2. National quality reviews and consistency reviews are routinely conducted.

Program Controls

  1. The AOIC program is used to track offers submitted by taxpayers and record case actions and history. Ability to take action on AOIC is limited to specific offer employees. Additional permissions ar also provided based on an employees duties and responsibilities.

  2. ICS is used by field employees as a method for inventory control and history documentation.

  3. Managers are required to follow program management procedures and controls addressed in IRM 1.4.52, Offer in Compromise Manager’s Resource Guide – Field Program, and 1.4.54, Offer in Compromise Managers – Centralized Offer in Compromise Program Guide.

Terms/Definitions/Acronyms

  1. For a list of common abbreviations, definitions and acronyms used throughout this IRM see Exhibit 5.8.1-1, Common Abbreviations Used in the IRM.

  2. Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: http://met.web.irs.gov/OldRnet/Other/acronymbd.asp.

Related Resources

  1. Below are recommended resources, which can be used when processing an offer.

    IRM Title Guidance On
    IRM 1.2.14 Policy Statements for Collecting Process Activities
    IRM 1.2.44 Delegations of Authority for the Collecting Process Approval and signature authorities
    IRM 5.8.1 through IRM 5.8.12 Offer in Compromise
  2. Employees can find helpful information on the below websites:

Introduction

  1. This IRM provides guidance and basic information on the offer process and is the first of twelve volumes surrounding the offer processes and procedures. This IRM also includes in Exhibit 5.8.1-1, Common Abbreviations Used in the IRM, a list of common abbreviations used throughout all sections of IRM 5.8.

Definition

  1. An offer is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed.

Authority

  1. The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section §7122.

  2. The Commissioner of Internal Revenue, under Treasury Regulation §301.7122-1, is authorized to compromise a liability on any one of three grounds: Doubt as to Collectibility (DATC), Doubt as to Liability (DATL), or to promote Effective Tax Administration (ETA).

  3. Delegation Order No. 5–1 (Rev. 4) in IRM 1.2.44.2, Delegation Order 5-1 (Rev. 4), delegates the Commissioner's authority to accept, reject, terminate, or acknowledge withdrawals of offers.

Policy

  1. Policy Statement 5-100 in IRM 1.2.14.1.17, states:

    Offers will be accepted

    The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

    In cases where an offer in compromise 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. The taxpayer will be responsible for initiating the first specific proposal for compromise.

    The success of the compromise program will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay and the Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a compromise which is in the best interest of both the taxpayer and the Service. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements.

  2. A protracted installment agreement is defined as one that extends beyond the Collection Statute Expiration Date (CSED). See IRM 5.14.2.2, Collection Statute Expiration Date (CSED): Law, Policy and Procedures, for additional information.

  3. Unless special circumstances exist, offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, or by installment payments extending through the remaining statutory period for collection, or other means of collection.

  4. Generally, a DATC offer amount must equal or exceed a taxpayer's reasonable collection potential (RCP) in order to be acceptable. In most cases, when the offered amount exceeds the RCP, the acceptance should be for the amount offered. The exceptions include special circumstances defined in IRM 5.8.4.2, Effective Tax Administration (ETA) and Doubt as to Collectibility with Special Circumstances (DATCSC), IRM 5.8.11.2.1, Economic Hardship, and IRM 5.8.11.2.2, Public Policy or Equity Grounds.

  5. See IRM 5.8.7.7.2, Public Policy Rejections, explaining that offers may be rejected based on public policy considerations if acceptance of the offer in any way may be detrimental to the interests of fair tax administration, even though it is shown conclusively that the amount offered exceeds the reasonable collection potential and is greater than could be collected by any other means, regardless of reasonable collection potential.

Objectives

  1. The objectives of the offer program are:

    • Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government.

    • Achieve a resolution that is in the best interest of both the individual taxpayer and the government.

    • Provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements.

    • Secure collection of revenue that may not be collected through any other means.

Process

  1. Revenue Procedure 2003-71, 2003-2 CB 517, defines the procedures applicable to the submission and processing of offer tax liabilities. Notice 2006-68, 2006-2 CB 105, provides additional guidance regarding offers submitted on or after July 16, 2006. This handbook further describes, in detail, those procedures.

Timeliness of Offer Investigations

  1. The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process but also is a key component of taxpayer satisfaction.

  2. The guidelines for timely case actions defined in this IRM are intended to provide structure for the overall offer process and to ensure investigations are completed in a responsive and efficient manner.

  3. Managers and employees must make sure communications from taxpayers are addressed in a timely manner. Timeliness of case actions ensures the length of the offer investigation process is appropriate given the taxpayer’s specific set of facts and circumstances.

  4. These guidelines are not intended as absolute measures of performance for individual employees. Performance evaluations of individual employees must be based on reviews of actual work produced by the employees and must take into account any special circumstances that may have impacted the ability of the employees to meet the specified guidelines. In general, unwarranted inactivity gaps in an offer investigation should be avoided, and offer managers should establish controls to ensure that cases with unwarranted inactivity gaps are identified and addressed appropriately.

  5. Generally, cases should be assigned on a first-in-first-out (FIFO) basis. This is determined by the IRS received date; unless the case qualifies for expedited processing as discussed in IRM 5.8.3.17, Expedite Handling, or IRM 5.8.4.27, Expedite Handling.

Fairness and Integrity in Enforcement Selection (Policy Statement 1-236)

  1. The IRS Mission statement includes "enforcing the tax law with integrity and fairness to all" . A fair and just tax system is also a cornerstone in the Taxpayer Bill of Rights (TBOR). See https://www.irs.gov/taxpayer-bill-of-rights for additional information. Therefore, fairness and integrity applies to how IRS administers tax laws to all taxpayers as well as how IRS employees interact with each taxpayer and tax professional. Employees must exercise their professional judgment, not personal opinions, in conducting their enforcement responsibilities.

    Note:

    See IRM 1.2.10.37, Fairness and Integrity in Enforcement Selection, for additional information.

  2. There are three parts to enforcing the tax law with integrity and fairness:

    • Ensure fairness to the taxpaying public;

    • Ensure an equitable process for all taxpayers; and

    • Ensure fairness to each taxpayer.

    Note:

    See Policy Statement 1-236 for more information.

Protecting Taxpayer Rights

  1. One of the primary responsibilities of the OE and OS is to make sure taxpayer rights are always observed during the offer investigation as well as interactions with taxpayers and/or their representatives. All cases must be clearly documented to make sure the taxpayer has been afforded all rights in accordance to the TBOR.

  2. Although many taxpayer rights are included in the Internal Revenue Code, taxpayers are often not aware of their rights and all of the tools available to help them resolve issues. The IRS adopted the TBOR to make already existing rights more visible and to guide taxpayers in their interactions with the IRS. Pursuant to IRC § 7803(a)(3), the Commissioner must ensure that each employee must be aware of those rights and adhere to allowing those rights to all taxpayers.

  3. The TBOR provides the taxpayer with 10 rights when dealing with the IRS. For example, the taxpayer’s right to a Fair and Just Tax System where the facts and circumstances of their offer must be considered in resolving their underlying liability. The TBOR can be found at: https://www.irs.gov/taxpayer-bill-of-rights.

Functional Responsibilities

  1. The following list, while not all inclusive, provides a brief summary of various functions activities related to offer processing.

Tax Cases Controlled by Department of Justice

  1. The IRS may not have the authority to accept an offer when:

    1. Questions concerning the amount of the taxpayer's liability or the collection of a liability for all or part of the periods the taxpayer owes are in litigation being handled by the Department of Justice (DOJ).

    2. The federal tax liability for all or part of the periods the taxpayer owes has been reduced to a judgment. See IRM 5.8.10, Special Case Processing, for additional information on DOJ and docketed cases.

    3. An offer is received that covers tax periods for which restitution was ordered. Refer to IRM 5.1.5.17.6, Balancing Civil and Criminal Cases - Offers in Compromise (OIC) and Restitution and IRM 5.8.4.23.2, Offers in Compromise Submitted that Include Restitution. The Service cannot accept an offer that in any way modifies the terms of a restitution order. The IRS may consider an offer for the civil tax liability on periods for which restitution was ordered. If there is a closed Criminal Investigation (CI) indicator on the account, contact should be made with Advisory to verify if restitution was ordered. If restitution was ordered, the tax period may be under the control of the DOJ. In those cases, request the guidance of Area Counsel before proceeding. These cases may be identified by a TC 971 AC 180 - 189.

    4. The IRS has referred to the DOJ the taxpayer's civil or criminal case for prosecution or defense.

    5. Acceptance by the IRS is dependent upon the DOJ accepting a related offer or settlement.

  2. If the offer is returned based on paragraph (1) (a) through (d) above, all payments should be applied in accordance with guidelines established by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).

  3. In some instances, DOJ may request the case be forwarded to them for inclusion in pending litigation. However, in DATC offers, DOJ generally request that the field offer specialist conduct the investigation and make a recommendation to accept or reject the offer. In those cases, coordinate with Area Counsel to determine if the request should be worked as a courtesy investigation or if Collection has jurisdiction to process the offer.

Docketed Tax Court Cases

  1. Area Counsel handles Tax Court cases. The IRS has the authority to accept offers where the liability is the subject of a pending Tax Court case. See IRM 5.8.1.9.1, Unassessed Liability When No Other Tax Periods With Liabilities Exists, below for information on the consideration of offers relating to unassessed liabilities. Generally, DATC cases will be under the jurisdiction of Collection, unless the case is under Appeals jurisdiction. See IRM 5.8.10, Special Case Processing, for additional information on docketed court cases.

  2. All cases identified as docketed court cases will be immediately forwarded to a field offer group for investigation.

  3. Centralized Offer in Compromise (COIC) will be responsible for determining processability on these cases.

Collection Function

  1. The Collection function is responsible for processing and investigating the following offers:

    • All offers based on Doubt as to Collectibility (DATC), including proposed liabilities still subject to settlement in Examination or Appeals.

    • All offers based on Effective Tax Administration (ETA) economic hardship grounds.

    • All offers based on non-ETA hardship (equity) grounds.

    • All offers submitted under Doubt as to Liability (DATL) for either a Trust Fund Recovery Penalty (TFRP) or Personal Liability Excise Tax (PLET) assessment.

Examination Function

  1. Examination function is responsible for processing and investigating offers submitted based on DATL (excluding offers submitted to compromise a TFRP or PLET). See IRM 4.18.2.3, Jurisdiction—Doubt as to Liability.

  2. Examination function employees must also provide the Collection function with a recommendation on offers based on ETA with public policy/equity issues, when requested by Collection. See IRM 5.8.11, Effective Tax Administration, for public policy or equity grounds and IRM 4.18.2, Exam Offer-In-Compromise - Doubt as to Liability Offers. See IRM 5.19.24, Doubt as to Liability Offers in Compromise, for more information.

Appeals

  1. Offers secured in Appeals offices in conjunction with related casework such as Collection Due Process (CDP) or Equivalent Hearing (EH), will be forwarded to the COIC sites for processability determination(s), processing of the application fee(s), deposit(s), required TIPRA payment(s), and mailing of processability letters provided by Appeals.

  2. COIC is responsible for the input of necessary transaction codes to IDRS. See IRM 5.8.4.15, COIC Investigation of Offers under Appeals Jurisdiction (COIC ONLY), for guidelines on determining processability for Appeals CDP offers.

  3. COIC will investigate CDP/EH offers that meet their criteria or forward the offer to the field for field investigation.

Counsel

  1. Counsel attorneys provide opinions on offers recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater at the time of submission. If additional liabilities are included or assessed prior to closure and the total liability(ies) exceeds $50,000, Counsel approval must be secured before acceptance.

  2. Counsel attorneys, when requested, may also provide legal opinions for matters related to investigation and processing of offers.

Taxpayer Advocate Service

  1. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

  2. The National Taxpayer Advocate and the Commissioner, SB/SE Division have reached an agreement (effective May 31, 2011) outlining the procedures and responsibilities for processing TAS casework when either the statutory or delegated authority to complete a case transaction rests with the SB/SE Division. The agreement is known as a Service Level Agreement (SLA).

  3. In preparation for a case being referred to a SB/SE Division function, the TAS employee is responsible for:

    1. Preparing Form 12412, Operations Assistance Request (OAR). The form should include a requested completion date.

    2. Securing all necessary supporting documentation.

    3. Identifying cases that require expedite processing. No case will automatically receive expedite processing; requests for expedite processing will be made on a case-by-case basis.

    4. Forwarding Form 12412 and documentation to the SB/SE Business Unit Liaison.

  4. SB/SE Division is responsible for:

    1. Assisting a liaison in each office or Campus where a Taxpayer Advocate is located.

    2. Acknowledging receipt of the case within one workday for cases requiring expedite processing or within three workdays for all other cases.

    3. Responding to TAS within three (3) workdays in writing, via facsimile, secure messaging E-mail, or hand delivery of resolution.

    4. Providing TAS with the name and telephone number of the SB/SE group manager or employee assigned the case.

    5. If the requested completion date cannot be met, refer to the SLA for how to proceed.

    6. Upon closing of the Operations Assistance Request (OAR), the SB/SE employee assigned the OAR will complete Section VI of Form 12412, Operations Assistance Request, and return it to the TAS employee assigned the case. The Form 12412 must be returned within three workdays from the date that all actions have been completed and transactions input.

  5. To see the full SLA, click on the link SLA - Service Level Agreements found at http://tas.web.irs.gov in the TAS Favorites section of the page.

Liabilities to be Compromised

  1. Accepted offers based on DATC or ETA should include all unpaid tax liabilities and periods, including MFT 35 modules or the mirrored MFT 65 modules — IRC § 5000Aindividual shared responsibility payment (SRP) liabilities. See IRM 5.8.11, Effective Tax Administration, for a definition of ETA.

  2. Offers accepted based on DATL should only include the tax years or periods in question. Liabilities for other tax periods should not be included in the offer.

Definition of a Compromised Liability

  1. An offer is effective for the entire assessed liability for tax, penalties, and interest for the years or periods covered by the offer. All questions of tax liability for the years or periods covered by the agreement are conclusively settled. Neither the taxpayer nor the government can reopen a compromised tax year or period unless there was falsification of information or documents, concealment of ability to pay and/or assets, or a mutual mistake of a material fact that would be sufficient to cause the agreement to be set aside or reformed, even if the offer is subsequently defaulted.

Passport Certification Under the Fixing America’s Surface Transportation (FAST) Act

  1. The FAST Act, signed into law December 4, 2015, created new code section IRC § 7345. Under this code section, the IRS may certify that a taxpayer has a seriously delinquent tax debt, and if it does make that certification, it is then required to notify The Department of State (DOS) of that certification. The DOS generally will not issue or renew a passport to an individual after receiving the certification from the IRS.

  2. For the purpose of passport certification, seriously delinquent tax debt is the unpaid, legally enforceable and assessed Federal tax liabilities of an individual totaling more than $50,000 (including interest and penalties) for which a Notice of Federal Tax Lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or a levy has been issued. Paying the account below $50,000 will not result in decertification unless all certified modules have been resolved or meet the exclusions. The $50,000 amount is adjusted for inflation each calendar year beginning after 2016.

  3. Exclusions include those taxpayers who are:

    • Debt being timely paid under an approved installment agreement;

    • Debt being timely paid under an accepted offer or under the terms of a settlement agreement with the Department of Justice;

    • A levy Collection Due Process hearing is requested or is pending; or

      Note:

      An Equivalent Hearing (EH) in connection with a levy to collect the debt does not meet the criteria for exclusion.

    • An election or request for innocent spouse relief under IRC 6015 has been made.

      Note:

      Certification is postponed under IRC 7508(a) for taxpayers serving in a combat zone.

  4. When a taxpayer meets the criteria for owing a seriously delinquent tax debt, a TC 971 AC 641 will systemically upload to identify certified cases. The TC 971 AC 641 will be added to Command Code (CC) ENMOD or CC IMFOLE, identifying the certified individual by their Social Security Number (SSN) and date of their certification notice (CP 508C).

  5. In addition, IRC § 7345 provides the IRS discretion to exclude categories of tax debt from certification, even if the debt meets the criteria. The exceptions include:

    • Debt that is currently not collectible (CNC) due to hardship;

    • Debt that resulted from identity theft;

    • Debt as a result of criminal restitution assessments;

    • Debt of a taxpayer in bankruptcy;

    • Debt of a deceased taxpayer;

    • Debt that is included in a pending offer; or

    • Debt that is included in a pending installment agreement.

  6. Cases meeting this criteria will not receive expedite consideration solely because they are traveling in or out of the country in a short period of time. The exception is if they meet the criteria in IRM 5.8.4.27, Expedite Handling. Once an offer is received and it is noted that a TC 971 AC 641 is on the module(s), ensure the TC 480 is on all modules being compromised. Some modules may require manual input of the TC 480. In those cases, notate AOIC Remarks that the 480 was input manually and will require manual release.

Exceptions to Liabilities to be Compromised

  1. An offer may not be appropriate in the following situations. As always, each case must be evaluated on its own merit before returning an offer under the identified basis. If appropriate, the offer may be returned without further consideration or investigation. See IRM 5.8.4.23, Other Cases, for additional information on liabilities that may be considered during an offer investigation.

Unassessed Liability When No Other Tax Periods With Liabilities Exists

  1. The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed due to non-filing situations, unless IDRS indicates a return has been received or an assessment is pending. See paragraph (3) below.

    Note:

    The Service may consider an offer with an open, unassessed liability(ies) under Examination or Automated Underreporter (AUR). See IRM 5.8.4.15, Pending Assessments, for additional instruction.

  2. Taxpayers may submit, and the Service will consider, an offer to compromise taxes due on tax returns that have been filed but have not yet been assessed when unpaid liabilities already exist on IDRS. However, before the offer can be accepted, unassessed taxes should be assessed. See paragraph (3) below.

  3. OE/OS should continue to investigate, and may accept, an offer when the taxpayer has submitted a tax return for which there may be a refund or an assessment. If the offer is accepted, document the AOIC Remarks to alert MOIC of the possible assessment or refund.

    If... Then the OE/OS must...
    The TP filed the return and wants the liability added to the offer Wait for the liability to become pending or posts to IDRS.
    The TP does not want the liability added to the offer but the return is required for compliance Process the return. Do not wait for the return to be processed or assessment to post but move forward with acceptance of the offer. Clearly document the AOIC Remarks for MOIC.

    Note:

    The OE/OS may accept the offer but must warn the taxpayer that when the assessment is made, the liability must be paid in full or the offer will be defaulted.

  4. If IDRS does not indicate a return has been received, an assessment or refund is pending, or unpaid liabilities already exist, the offer should be returned to the taxpayer. See IRM 5.8.2.3, Determining Processability, for more information.

Expired Liability

  1. An offer will not be accepted on any tax liability that has become unenforceable due to the expiration of the statutory period for collecting the debt.

  2. If a taxpayer makes a voluntary payment to a liability barred by statute, inform the taxpayer that the payment is not required and ask if they want the payment applied to the account or returned. The taxpayer must be advised that the payment is purely voluntary. If the taxpayer’s intentions cannot be determined, return the payment to the taxpayer.

  3. Document the case history.

Erroneous Refund (Category D)

  1. IRM 21.4.5.1 defines an erroneous refund as "the receipt of any money from the Service to which the recipient is not entitled" . Definitions of the categories of an erroneous refund may be found in IRM 21.4.5.4. These cases may be identified by the following transaction codes:

    • Transaction code 844 (generates the –U freeze)

    • Transaction code 700 with a document code 58 and blocking series 950 – 999

    • Transaction code 470 closing code 93

  2. If an erroneous refund is discovered and there are less than two years remaining on the collection statute, COIC should prepare a Form 4844 to forward to Accounts Management. Field offer groups should advise the SBSE Designated Identity Theft Adjustment (DITA) group of the erroneous refund. DITA will then be responsible for taking the appropriate action. The DITA group may be contacted via email at *SBSE CCS DITA with the subject line reading Identity Theft case – Expedite Form 4442/4844. See http://mysbse.web.irs.gov/examination/tip/idtheftassistance/contacts/29292.aspx for more information.

  3. If an offer is submitted, the offer will be returned to the taxpayer and closed as a processable return. See IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing, for additional information on closing a case as a processable return.

  4. Category D refunds are defined as erroneous refunds that do not fall under any other category where the ASED has expired but the ERSED remains open. See IRM 21.4.5.14.1.1 , Statutes of Limitations Category D Erroneous Refunds IRC 6532(b) ERSED, for more information.

    Example:

    (1) Misapplied Payments: A payment is misapplied to the wrong TIN, overpays the account and generates an erroneous refund; (2) A taxpayer receives both a manual refund (TC 840) and generated refund (TC 846); (3) A taxpayer files a non-receipt claim on a refund check and receives a replacement check. The taxpayer cashes both checks; (4) A direct deposit is applied to the wrong taxpayer's bank account (unintended recipient) due to IRS error; (5) A refund of court ordered restitution; (6) An AUR reply received with a payment and the payment is processed and refunded before AUR has input the proposed tax assessment (See IRM 21.4.5.4.5(5) f), Overview of Category D Erroneous Refunds.

  5. These refunds can only be recovered by an erroneous refund lawsuit, refund offset or voluntary repayment. Administrative collection actions such as the issuance of a lien or a levy cannot be taken to recover Category D erroneous refunds.

  6. All fees and payments received should be applied to the liability(s) in accordance to current TIPRA procedures. See IRM 5.8.4, Investigation, for additional information.

  7. If the erroneous refund was due to identity theft or practitioner fraud or misconduct, refer to IRM 5.8.4.23.8, Identity Theft, and IRM 5.8.4.23.9, Return Preparer Fraud or Misconduct, for additional information.

Child Support Obligations

  1. While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise non-tax liabilities. These accounts are identified on the Non-Master-File with an Master File Tax (MFT) code 59.

  2. IRC § 6305 requires the Secretary of the Treasury to assess and collect certain child support obligations certified by the Secretary of Health and Human Services. The Secretary of the Treasury is not authorized to compromise these liabilities. The individual may seek to pursue any available, equitable, or administrative action in a state court or before a state agency to determine the correct liability or to recover an amount collected under this section.

  3. If a taxpayer proposes a compromise that includes a child support liability, Service employees should request that the offer be amended to remove the child support obligation. If the offer is to be accepted, the liabilities can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be returned using the open paragraph stating that, "We do not have authority to compromise child support obligations" and close the case as a processable return following procedures defined in IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing.

    Note:

    Consideration of the offer may continue if the taxpayer agrees to remove the non-tax liability.

Offers from a Minor Child

  1. IRC § 7122 and the regulations govern the formation and legal effect of offers. The courts also apply generally applicable principles of contract law. Under these principles, a minor child does not possess the legal capacity to form a binding contract and in turn has the power to repudiate or disaffirm most contractual obligations. A minor child would also have the ability to repudiate or disaffirm a compromise signed on behalf of the minor child by a parent or power of attorney. Notice 89-7 states, "a parent or guardian named in Form 2848-D may not legally bind the child with respect to a tax liability unless authorized to do so by the law of the state in which the child resides" .

  2. Because a compromise under IRC § 7122 may not legally bind a minor, it is recommended that the Service not enter into compromises with minors or with a parent on behalf of a minor. In these cases, the offer will be returned as a processable return as defined in IRM 5.8.7, Return, Terminate, Withdraw, and Reject.

Report of Foreign Bank and Financial Accounts Civil Penalties (FBAR)

  1. As of April 8, 2003, the IRS was delegated the authority to assess and collect Report of Foreign Bank and Financial Accounts (FBAR) civil penalties under Title 31 C.F.R. §103.56(g). The delegation includes the authority to investigate possible FBAR civil violations, provided in Treasury Directive No. 15-41 (Dec. 1, 1992), and the authority to assess and collect the penalties for violations of the reporting and record keeping requirements. See IRM 4.26.16.4.1, FBAR Penalty Authority, for more information.

  2. FBAR assessments cannot be compromised under IRC § 7122 because the assessment is based on Title 31 violations and IRC § 7122 allows the IRS to compromise only Title 26 liabilities.

  3. Title 31 penalties do not post to IDRS. If the taxpayer lists any non-IDRS FBAR penalties on Form 656 and refuses to remove them, the offer must be returned without further consideration. See IRM 5.8.10.15, Offers Submitted on Offshore Voluntary Disclosure Initiative, for additional information.

  4. FBAR penalties are separate from penalties applicable to Form 8938, Statement of Specified Foreign Financial Assets. See IRM 5.21.6.8, Foreign Account Tax Compliance Act (FATCA), for information on the differences between FBAR and Form 8983. See IRM 20.1.9.22, IRC 6038D – Information With Respect to Specified Foreign Financial Assets, for the obligations to file Form 8938 applicable to individual taxpayers and certain entities and the penalties for non-compliance.

Application Fee

  1. Effective November 1, 2003, the Service began charging an application fee for offers submitted after that date.

  2. The application fee applies only to certain offers processed under IRC § 7122. It does not apply to offers in settlement under the jurisdiction of the DOJ or offers submitted for doubt as to liability.

The Tax Increase Prevention and Reconciliation Act of 2005

  1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted on May 17, 2006. TIPRA made major changes to the offer program effective for all offers received by the IRS on or after July 16, 2006.

  2. Taxpayers submitting requests for lump sum cash offers must include with the offer a payment equal to 20% of the offer amount, unless they qualify for the low income certification or are filing a DATL offer. A lump sum cash offer means any offer of payments made in five or fewer installments within five months of offer acceptance, unless an exception as noted in IRM 5.8.1.13.4(3) exists. The payment is treated as a payment of tax and is nonrefundable. That is, it will not be returned even if the offer is later returned, withdrawn, terminated, or rejected. If the offer is deemed to be not processable and meets certain criteria defined in IRM 5.8.2.3.1, Determining Processability, the payment will be returned.

  3. Taxpayers submitting requests for periodic payment offers must include the first proposed installment payment with their offer, unless they qualify for the low income certification or are filing a DATL offer. A periodic payment offer is any offer of payments made in six to 24 months. The total months may not exceed 24. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. The payments are treated as a payment of tax and are nonrefundable. That is, they will not be returned if the offer is later returned, withdrawn, terminated, or rejected. In certain circumstances, the payment will be returned if the offer is deemed to be not processable. See IRM 5.8.2.3.1, Determining Processability, for additional information.

  4. Under TIPRA, taxpayers who qualify as low-income, based on current criteria, and check the Low-Income Certification box on Form 656, are not required to submit the application fee or any TIPRA payment(s) while the offer is being investigated.

    Note:

    No TIPRA payment or application fee is required with a DATL offer.

  5. If the IRS does not make a determination on an offer within 24 months, the offer will be deemed accepted. If a liability included in the offer amount is disputed in any court proceeding, that time period is omitted from the calculation of the two-year period.

  6. Once a determination letter is issued by the offer examiner or offer specialist, the 24-month time frame will be considered stopped.

Initial Receipt of Offers

  1. All initial offer receipts that are submitted based on DATC, ETA, or DATL for either TFRP or PLET must be processed by the appropriate COIC site, based on the taxpayer's state of residence.

    • If the taxpayer resides in Alaska, Alabama, Arkansas, Arizona, Colorado, Florida, Georgia, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, North Carolina, New Mexico, Nevada, Oklahoma, Oregon, Tennessee, Texas, Utah, Washington, or Wisconsin the offer will be processed by the Memphis COIC Unit.

    • If the taxpayer resides in California, Connecticut, Delaware, Iowa, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, North Dakota, Nebraska, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, West Virginia, Wyoming, District of Columbia, Puerto Rico, or a foreign address the offer will be processed by the Brookhaven COIC Unit.

  2. If an offer requires to be mailed via overnight mail, based on the location of the taxpayer the package should be mailed to (see paragraph (1) above):

    Memphis Internal Revenue Service Center
    COIC Unit
    5333 Getwell Rd.
    Stop 880
    Memphis, TN 38118

    Brookhaven Internal Revenue Service Center
    COIC Unit
    5000 Corporate Court
    Stop 680
    Holtsville, NY 11742

Initial Receipts of Offers Received Elsewhere in the Service

  1. Offers that are received elsewhere by a Service employee must be immediately date stamped and forwarded to their respective COIC site for processing within 24 hours of receipt of the Form 656, Offer in Compromise.

    Note:

    The RO should make sure all taxpayer signatures are secured on the Form 656 and financial statements before forwarding the package to the COIC site for processing. The Process Examiners in the COIC site are the only IRS officials that are authorized to determine processability and sign the Form 656.

  2. When an offer is received on an assigned case by a field revenue officer (RO), Form 657, Offer in Compromise Revenue Officer Report, must be completed and attached to the offer package. This form is to be signed by the RO. Managerial approval and signature is only required if the RO is recommending the offer be returned as solely to delay. The RO should retain all information related to the collection case and forward only the following information to COIC:

    • Form 656, Offer in Compromise

    • Form 657, Offer in Compromise/Revenue Officer Report

    • Collection Information Statement (CIS) with attached substantiation

    • Current Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization, if applicable

    • Any information gathered during the field investigation that verifies or refutes amounts claimed on the CIS submitted with the offer

    • Application fee and any applicable TIPRA payments (20% of offer amount for lump sum cash offers or first proposed payment for periodic payment offers)

  3. The above information should be transmitted to the appropriate COIC site using Form 3210, Document Transmittal, within 48 hours of receipt, and must be sent by traceable methods if an application fee and/or payment is attached.

Receipt of Doubt as to Liability Offers (Other than PLET or TFRP)

  1. DATL offers, other than for PLET or TFRP, must be submitted on a Form 656-L, Offer in Compromise (Doubt as to Liability), and forwarded to the centralized DATL processing unit located at the Brookhaven campus for screening and processing. The offer should be immediately forwarded using the Form 3210, Document Transmittal, to:

    Internal Revenue Service - DATL Unit
    P.O. Box 9008 Stop 681-D
    Holtsville, NY 11742–9008

  2. Follow procedures in IRM 10.2.13.4.4.1, Shipping Personally Identifiable Information (PII), when shipping through a private delivery carrier, such as UPS or FedEx. Below is the physical address to use for shipment.

    Brookhaven Internal Revenue Service Center
    COIC Unit
    5000 Corporate Court
    Stop 680
    Holtsville, NY 11742

Form 656, Offer in Compromise

  1. A request for an offer is submitted on Form 656, Offer in Compromise, which is included in the Form 656-B Booklet , Offer in Compromise, package.

  2. The Form 656-B Booklet , Offer in Compromise, provides detailed instructions for completing an offer and includes all of the necessary financial forms. When submitting Form 656, taxpayers must include an application fee and the required TIPRA payment, depending on the terms of the offer, unless they qualify for the low-income certification or are filing a DATL offer.

    Note:

    Low income certification applies to individuals, sole proprietorships, an individual who operates as a disregarded single member Limited Liability Company (LLC) taxed as a sole proprietor with accrued liabilities before January 1, 2009, or an individual who is submitting an offer on behalf of a deceased person.

    Note:

    Excluded from low income certifications are corporations, partnerships, estates, trusts, all LLCs with a liability after January 1, 2009, non-single member LLCs regardless of year, and any other non-individual entities.

  3. Offers submitted on the basis of DATC or ETA should include a collection information statement.

    Note:

    See IRM 5.8.11.4.2, Financial Statement Analysis, for information on when complete financial information may or may not be required on certain offers involving fraudulent acts of a Payroll Service Provider (PSP).

  4. Offers based solely on DATL, do not require a collection information statement. However, the taxpayer must include a written statement explaining why the liability is incorrect and must include a statement addressing the validity of the actual assessment(s) or a portion of the assessment(s).

Name, Address, Social Security Number and/or Employer Identification Number

  1. The full name, address, Social Security Number (SSN), Employer Identification Number (EIN), and/or Individual Taxpayer Identification Number (ITIN) of the taxpayer must be entered on Form 656. If the taxpayer(s) uses a mailing address that is different from the street address, the physical home address must be included as well.

  2. A taxpayer not eligible for a SSN must use an ITIN when filing their return. ITIN is governed by rules described in IRC § 6109, Identifying Numbers, and the corresponding regulations provide the rules that govern ITINs. ITIN applicants are generally resident (green card or substantial presence test) or nonresident (not a U.S. citizen) aliens. While an ITIN does not give the individual the right to work, many employers hire and pay the taxpayer using the ITIN for reporting purposes. The OE/OS should not question the appropriate use of an ITIN by the employer. Once ITIN information is verified, normal offer procedures should be followed if the information does not rise to the level of fraud and/or identity theft. If fraud and/or identity theft is present and documented, then the offer should be closed as a public policy rejection.

Basis for Compromise

  1. When submitting an offer, taxpayers must indicate the basis(es) upon which they propose to compromise: DATC and/or to promote ETA. See IRM 5.8.8.2.2, Form 14640, Addendum to Form 656, for instruction on securing an Addendum when changing the basis of the offer.

  2. If the taxpayer submits a Form 656-L, the basis for compromise will be DATL only.

  3. If a taxpayer submits a DATC/ETA and DATL offer concurrently, contact must be made to ask the taxpayer which offer they would like considered. Only one basis can be considered at a time. The OE/OS will consider the DATL or the DATC/ETA offer but not both concurrently. See IRM 5.8.10.14, Taxpayer Files Both Doubt as to Liability and Doubt as to Collectibility Offers, if a taxpayer submits a DATC/ETA and DATL offer concurrently.

Amount Offered

  1. The total amount of money offered must be indicated and must be more than zero. The amount offered may not include money already paid, expected future refunds, funds attached by levy, or anticipated benefits from capital/net operating losses.

Payments

  1. Taxpayers are expected to pay the entire amount offered in as short a time as reasonably possible. Acceptable offer payment terms should be determined by the OE or the OS and should not be limited to the proposal of the taxpayer.

  2. The amounts and due dates of payments must be specified.

  3. There are two types of payment terms offered on the Form 656 that the Service and the taxpayer may agree to:

    1. Lump Sum Offer — A lump sum cash offer (one payable in five or fewer installments within five months of offer acceptance) must be accompanied by the payment of 20% of the amount of the offer.

      Note:

      An exception may be allowed to the five month payment requirement when instances such as the ones shown in the examples below exist (not all inclusive). In these cases, more flexible payment terms may be warranted, yet the payment terms may not exceed 24 months. Also, in these cases, while they may be submitted and considered as cash offers, the RCP should be calculated as a periodic payment offer (24 months).

      Example:

      A non-profit organization submits a Doubt as to Collectibility with Special Circumstances offer. This organization's services are critical to the community and it receives funding through grants from federal and state sources. Based on when the grant funds are received, monies to pay out the offer will be available in months six, nine and twelve. The financial statement appears to support the offer and the taxpayer’s overall compliance history does not weigh against acceptance. Therefore, the offer is accepted as a lump sum cash payment offer payable in months six, nine and twelve.

      Example:

      The taxpayer submits an offer under Effective Tax Administration based on non-economic hardship. The taxpayer was using a PSP who deducted all tax payments from the taxpayer’s bank account, yet did not remit them to the Service. The taxpayer is a food service company who has been in business since 1987. Their main customer is Department of Defense. Their overall compliance history has been positive. The majority of funding from DOD is received in October and January. The financial statement appears to support the offer. The offer is accepted as a lump sum cash payment offer payable in months eleven and two.

    2. Periodic Payment Offer A periodic payment offer (one payable in six or more installments) must be accompanied by the payment of the amount of the first proposed installment and additional installments must be paid while the offer is being evaluated by the Internal Revenue Service. The total installments may not exceed 24 months.

      Note:

      The 24-month timeframe for periodic payment offers may be revised to include 24 months from the date of acceptance or by using the original 24-month timeframe based on the taxpayer’s circumstances.

      Example:

      The original offer was in the amount of $2,400 payable in 24 months at $100 per month. An amended offer was secured increasing the offer amount to $25,500 payable at $1,000 per month. Because the increase is significant, it would be unreasonable in this case to require the taxpayer to pay the balance of the agreed offer amount in the remaining 10 months. In this case, it would benefit the taxpayer and the government to begin the 24 months with the acceptance of the offer. Part 2 of the addendum will read as follows: Accordingly, I/we offer to pay $25,400, which includes the following amounts already paid or include with this addendum: (A) $100 paid with the original offer dated 11/28/2016. (D) $1,400 periodic payments made since original offer was submitted. Then Part 4 of the addendum will read as follows: $1,000 will be sent beginning on the 20th day of January 2017 and then $1,000 will be sent on the 20th day of each month for a total of 24 months with a final payment of $1,000 due on the 20th day of the 24th month.

      Example:

      An offer was made for $3,600 with payments set at $150 per month for 24 months. The offer has been deemed acceptable with an increase to $5,000. After discussion, the taxpayer agreed to increase the payments to $250 per month paying the entire offer amount within the original 24-month timeframe. Part 2 will read as follows: Accordingly, I/we offer to pay $5,000, which includes the following amounts already paid or included with this addendum: (A) $150 paid with the original offer dated 11/28/2016. (D) $2,100 periodic payments made since original offer was submitted. Then Part 4 of the addendum will read as follows: "$250 will be sent beginning on the 18th day of January 2017 and then $250 will be sent on the 18th of each month for a total of 10 months with a final payment of $250 due on the 18th day of the 10th month of the agreement" .

  4. A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund. Once the offer has been accepted, the funds are applied in the government’s best interest and the taxpayer no longer has the right to designate payments.

    Note:

    Pre-acceptance payments designated to the trust fund portion of a liability must be posted using Designated Payment Code (DPC) 02.

  5. The application fee may not be designated.

Standard Conditions

  1. Taxpayers must agree to all the standard conditions of the agreement as they are printed on the Form 656.

  2. Offers accepted under DATL, DATC with Special Circumstance, or ETA based on Public Policy/Equity are not subject to the waiver of refund condition. See IRM 5.8.11, Effective Tax Administration, discussing public policy/equity offers.

  3. If the taxpayer submitted the Form 656 altering any of the provisions of Form 656, Section 8, the offer should be immediately deemed a processable return based on an altered Form 656.

Total Liability

  1. Each separate tax period and type of tax must be indicated on the Form 656. TFRP assessments made prior to August 2000, will be assessed on the last quarter only, while those made after August 2000, will include an assessment for each quarter. Verification on IDRS will be required to determine how the assessment was completed.

  2. Taxpayer may submit an offer that does not include all outstanding liabilities. Prior to accepting the offer, the OE/OS must include all outstanding liabilities on the Form 656 and make sure they are included on AOIC. No amended Form 656 is required.

  3. An offer submitted on Form 656-L, under DATL criteria, will be accepted for only the tax periods that are in question.

Explanation of Circumstances

  1. Taxpayers may use the designated space on the Form 656, Offer in Compromise, or attach a separate statement to explain why they are submitting the offer.

  2. If a special circumstance exists, the taxpayer should explain the situation and include all supporting documents to assist in verification of the special circumstance that is being claimed.

Signatures

  1. Each taxpayer that is party to an offer should personally sign the Form 656. When unusual circumstances prevent this (e.g., the taxpayer is incapacitated), an authorized representative or court appointed representative may sign for the taxpayer.

  2. In the case of joint offers, all parties, or their designated representative as explained above, must sign the Form 656 to ensure the provisions of the agreement bind all parties.

  3. The case file should include a copy of the properly executed Form 2848, Power of Attorney and Declaration of Representative, Form 8821, Tax Information Authorization; or verified CFINQ print as verification of the representative's authority.

    Note:

    Geographic distance between the representative and the taxpayer is not an acceptable reason for a representative to sign on the taxpayer's behalf.

  4. The Form 656 may be accepted by fax if there is an open offer and if contact has been made with the taxpayer by phone or in-person and the taxpayer history file is documented with the date of contact and notation is made that the taxpayer wishes to send the document/form/letter by fax. Confirmation of the fax sender's identity may be verified after receipt of the Form 656.

  5. A Form 656 signed with an "X " must also include signature of a witness.

  6. Since the CIS requires certification under penalty of perjury, the taxpayer(s) must personally sign the Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (OIC) , Collection Information Statement for Businesses.

  7. Offers submitted for corporations should reflect the corporate name on the first signature line of the Form 656. The signature name and title of the authorized officer should be reflected on the second line of the Form 656.

  8. An offer submitted by the fiduciary of an estate of a deceased taxpayer will be binding on the taxpayer's estate to the extent that it would be binding on a taxpayer who submits an offer on their own behalf. Include in the case file a copy of the fiduciary's appointment document.

  9. If an offer is submitted on behalf of a deceased taxpayer, when there is no estate, the individual who signs the offer must have authority. This authority can be designated by a will appointing that individual as the executor or by written authorization from the probate court.

Withholding Collection

  1. For offers pending on or after December 31, 1999, collection by levy on property owned by the offer taxpayer is prohibited while the offer is pending unless collection is in jeopardy and for 30 days thereafter if the offer is rejected. If the taxpayer appeals the rejection of the offer, levy is also prohibited while the appeal is pending.

    Exception:

    If an offer is returned, withdrawn (either mandatory or voluntary), or terminated, it is no longer considered pending and the IRS may levy to collect the liability(ies) that were included on the Form 656.

  2. The term jeopardy is defined in Policy Statement P-4-88, which states that jeopardy assessments are to be used sparingly and assessments will be reasonable in amount. Collection is not considered to be in jeopardy because an undisclosed asset was discovered during the investigation. See IRM 1.2.13.1.27, Policy Statement 4–88.

  3. Upon receiving information that a jeopardy levy has been approved, contact the employee issuing the levy. See IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment, for additional information. If it is agreed that the offer was filed to hinder or delay collection, follow procedures in IRM 5.8.4.20.2, Procedures for Return of Offers Submitted Solely to Delay Collection, to return the offer. If an offer is returned, withdrawn (either mandatory or voluntary), or terminated, it is no longer considered pending and the IRS may levy to collect the liability(ies) that were included on the Form 656.

  4. The prohibition on levy does not require release of a levy that was served prior to the offer submission. The taxpayer's circumstances should be considered when making a determination to release a levy or keep it in place while the offer is pending.

    Note:

    Collection by levy is not prohibited (and the collection statute is not suspended) if the taxpayer has filed a written notice waiving the restrictions on levy. However, if the taxpayer submitted the Form 656 altering any of the provisions of Form 656, Section 7, Offer Terms, the offer should be immediately deemed a processable return based on an altered Form 656.

  5. While an offer is pending there is no prohibition on filing Notices of Federal Tax Lien (NFTL). See IRM 5.8.4.13, Notice of Federal Tax Lien Filing, for a discussion of filing a NFTL while an offer is pending. Unless a jeopardy situation exists, a request for NFTL will usually not be made until a final determination has been made on the offer.

    Note:

    If SRP/MFT 35 or the mirrored SRP/MFT 65 liabilities were included in the offer, the related periods will not be included in the NFTL.

  6. All collection action must be suspended when a taxpayer is identified as being located in a Combat Zone (CZ) area. This action includes filing of a NFTL. See IRM 5.8.3, Centralized Offer in Compromise Transfers, Perfection, and Case Building, for Combat Zone processing and IRM 5.19.10.6.3Combat Zone Freeze Codes, for additional information.

Interest on Compromise Amount

  1. For all offers accepted after December 31, 1999, interest on the compromise amount is also compromised.

  2. For all offers accepted before January 1, 2000, on Form 656 revisions prior to 1-2000, interest continues to accrue until the compromise amount is paid in full.

Effect on Previous Offers on Collection Statute

  1. Over the years various changes in the tax law have had an effect on the statutory collection period. See IRM 5.8.10, Special Case Processing, for additional guidance.

Common Abbreviations Used in the IRM

Below is a list of common abbreviations used throughout this IRM.

AET – Asset Equity Table – A table listing all the taxpayers assets, encumbrances, and exemptions. It then calculates the equity which is included in the reasonable collection potential (RCP) calculation.

AOIC – Automated Offer in Compromise – Computer application where offers in compromise are recorded and monitored from receipt to closure. History of the offer investigations conducted by COIC employees and of actions taken by Monitoring OIC (MOIC) units are also maintained on this system.

ARI – Appeals Referral Investigation – A request from Appeals for assistance from the appropriate Collection function on verifying the accuracy of information reported on a CIS or assistance in completing the offers investigation.

ASED – Assessment Statute Expiration Date – The date the statutory period for assessing tax expires.

ATAT – Abusive Tax Avoidance Transactions – Abusive transactions taken by taxpayers to avoid paying, such as creating trusts, using off shore credit cards, etc.

CDP – Collection Due Process - Allows taxpayers a right to a hearing before Appeals regarding proposed collection enforcement actions or filed Notice of Federal Tax Lien.

CIS – Collection Information Statement – A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer. This financial statement can be submitted on Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B (OIC), Collection Information Statement for Businesses.

COIC – Centralized Offer in Compromise – Units located in Brookhaven and Memphis campus that complete initial processing and work less complicated offers to completion. Do not confuse this with MOIC – COIC units do not monitor or default accepted offers.

CSED – Collection Statute Expiration Date – The date the statutory period for collecting the tax expires.

DATC – Doubt as to Collectibility – Basis for acceptance of an offer where there is doubt that the tax can be paid in full.

DATL – Doubt as to Liability – Basis for acceptance of an offer where there is doubt that the liability is correct.

DCSC – Doubt as to Collectibility with Special Circumstance – Basis for acceptance of an offer where there is doubt that the tax can be paid in full and special circumstances exist that warrants accepting the offer for less than the reasonable collection potential (RCP).


ERSED – Erroneous Refund Statute Expiration Date (ERSED) – The ERSED for recovering Category D erroneous refunds is two or five years from the date the refund check or direct deposit clears the bank.


ETA – Effective Tax Administration – Basis for acceptance of an offer where this is no doubt that the liability is correct or can be paid in full. However, requiring the taxpayer to fully pay the tax would either create an economic hardship or be a public policy/equity issue.

FICA – Future Income Collateral Agreement – An agreement secured in connection with an accepted offer that requires a taxpayer to pay a percentage of future income for a set number of years as additional consideration for acceptance of the offer.

FMV – Fair Market Value – The value a taxpayer would receive if an asset was sold to a willing buyer given time to obtain the best and highest possible price.

IA – Installment Agreement – An agreement under IRC § 6159 to pay the liability over an established period of time.

IAR – Independent Administrative Reviewer – An independent third party who reviews a decision to reject an offer prior to that decision being conveyed to a taxpayer. This person is not in the chain of command of the employees responsible for the rejection of the offer.

IBTF – In Business Trust Fund – A taxpayer who is in business and owes trust fund (e.g. – Form 941) taxes.

ICS – Integrated Collection System – Computer application used by Compliance employees to monitor inventory. Histories of OIC investigations conducted by area office employees are maintained on this system.

IET – Income/Expense Table – A table that lists the income and expenses both claimed and allowed for purposes of calculating reasonable collection potential (RCP).

MOIC – Monitoring OIC Unit – Unit in Compliance Services located in a campus that completes end processing and monitoring of accepted offers.

NFTL – Notice of Federal Tax Lien - The notice of the filed Federal Tax Lien

NRE – Net Realizable Equity – Quick sale value less the amount owed on an asset.

OE – Offer Examiner – A tax examiner appointed as an offer investigator and located in COIC.

OI– Other Investigation – Form 2209, Courtesy Investigation, is used for District investigations in locating taxpayers or to gather information in collecting on assigned cases.

OS – Offer Specialist – A revenue officer appointed as an offer investigator, generally located in an area office.

PE – Process Examiner – A tax examiner who completes initial processability determinations on offers and is located in COIC.

PLET — Personal Liability for Excise Tax – Assessments made on individual taxpayers for withheld excise taxes.

POD – Post of Duty – Internal Revenue Service local office(s).

QSV – Quick Sale Value – The amount that could be obtained if an asset is sold quickly, usually less than FMV.

RCP – Reasonable Collection Potential – The amount that could reasonably be collected from the taxpayer.


SRP – Beginning in 2014, IRC § 5000A required all individuals to have qualifying health care coverage (called minimum essential coverage or MEC) in each month of the year, qualify for an exemption, or make an individual shared responsibility payment (SRP) when they file their tax return for the year.


TFRP – Trust Fund Recovery Penalty – Assessments made on individual taxpayers for the withheld or trust fund portion of delinquent employment taxes.

TIPRA – Tax Increase Prevention and Reconciliation Act of 2005 – Section 509 – Legislation enacted in May, 2006, which made major changes to the OIC program.