5.8.9 Actions on Post-Accepted Offers

Manual Transmittal

January 12, 2017

Purpose

(1) This transmits a revision for IRM 5.8.9, Offer in Compromise, Actions on Post-Accepted Offers.

Material Changes

(1) Changes included in this revision:

IRM Reference Change
5.8.9 Updated IRM references and other minor errors throughout this IRM to improve flow and clarity.
5.8.9.2; 5.8.9.2.1 - 5.8.9.2.4
  • Added new paragraph 3 defining 4 reasons an offer can be rescinded.

  • Added back in language that was mistakenly removed in 2008, which clarifies that a mutual mistake which would allow for a rescission of an OIC, includes a mistake of law.

  • Separated each situation into separate sub-sections.

  • Added code references to each of the four reasons for rescinding an offer.

5.8.9.2.2(1) Included language that the office issuing the rescission letter will also be responsible for inputting any related transaction codes.
5.8.9.2.2(2) Clarified that all approvals include Counsel. Added a new bullet stating that if the rescission is within 1 year of acceptance, the Public Inspection File (PIF) should be removed from public access. If the rescission is due to death of the taxpayer the date of the TC 482 will be the date of death.
5.8.9.3(3) Removed
5.8.9.3(4) Added The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) payments to be refunded if the offer was accepted while the period was under the jurisdiction of Department of Justice (DOJ).
5.8.9.3(5) Removed reference to "acceptance letter " as the acceptance letter is not included as part of the PIF.
5.8.9.4(3) Changed the language to state that Monitoring Offer in Compromise (MOIC)may default the offer for delinquent returns and payments if it is deemed that default is the appropriate decision.
5.8.9.5(2) Removed the reference to code Integrated Collection System (ICS) as priority code 100. Changed the language to state it should be treated as a priority assignment. Also included language that the Area Office (AO)should document both the receipt and assignment of the Form 2209 in the Automated OIC (AOIC) Remarks.
5.8.9.5.1(3) Added a new (3) to state the taxpayer must also provide a new financial statement and all supporting documents.
5.8.9.5.2(1) Moved the first sentence to 5.8.9.2.2.
5.8.9.5.2(2) 1st bullet added inclusion of the Command Code (CC) RTVUE/BRTVU print in lieu of a copy of the most recent tax return. Added new 2nd bullet requiring verification of the CSED when considering an offer on an offer.
5.8.9.5.3(4) 1st If/Then box added a note that the new Form 7249 must be generated through the Publishing website.
5.8.9.5.3(6) Added to the existing note the new Form 7249 and transcripts must be manually redacted and forwarded for inclusion in the PIF at the appropriate location.
Exhibit 5.8.9-1 Included language mirroring the Form 656 stating that the taxpayer agrees to file and pay all taxes as required by the Internal Revenue Code for five years, including any extensions.

Effect on Other Documents

IRM 5.8.9 dated 12/18/15 (effective 1/1/16) is superseded.

Audience

SB/SE Collection and Campus Compliance employees

Effective Date

(01-12-2017)

Kristen E. Bailey
Director, Collection Policy

Overview

  1. Once an Offer in Compromise (offer) is accepted, it may be necessary to consider a request to rescind or terminate an offer or revise an existing offer. This section provides guidance for these situations.

Rescission of Accepted Offers

  1. An offer is an agreement that is binding on both the government and the taxpayer, and precludes further inquiry into the matters to which it relates unless false information, fraud, a mutual mistake of fact is identified, or the taxpayer was ordered to pay restitution.

  2. The function that accepted the offer is also responsible for making the determination to rescind the offer and will also be responsible for completion of all required actions identified in IRM 5.8.9.2.1 through 5.8.9.2.3 below.

  3. After acceptance of the offer, Treas. Reg. section § 301.7122-1(e)(5) provides that neither the taxpayer nor the IRS is permitted to reopen the case, except in limited situations:

    • False information or documents are supplied in conjunction with the offer;

    • The assets of the taxpayer or the ability to pay are concealed;

    • A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered; or

    • Restitution

    Note:

    Under section 164, comment (a) of the Restatement 2d of Contracts, false information or concealment may allow the IRS to rescind an accepted offer. To do so, the IRS must be able to show that (1) the misrepresentation was material; (2) the misrepresentation must have induced the IRS to accept the offer; and (3) the IRS was justified in relying on the misrepresentation.

False Information

  1. Under section 159 of the Restatement 2d of Contracts, false information is a misrepresentation, which is defined as an assertion that is not in accord with the facts. False information does not have to be fraudulent. Misrepresentation should not be automatically defined as fraudulent. Misrepresentation may be due to ignorance or carelessness. A half-truth may be a misrepresentation: a statement may be true with respect to the facts stated, but may fail to include qualifying matter necessary to prevent the implication of an assertion that is false with respect to other facts. A half-truth could also be used to conceal relevant information that would have made a material difference in the determination to accept the offer. A misrepresentation must relate to something that is a fact at the time that it is made; a fact does not include a future event.

  2. False information or concealment may allow the IRS to rescind an accepted offer. To do so, the IRS must be able to show that:

    1. the misrepresentation was material;

    2. the misrepresentation must have induced the IRS to accept the offer; and

    3. the IRS was justified in relying on the misrepresentation.

Concealment of Assets or Ability to Pay

  1. Under section 160 of the Restatement 2d of Contracts, concealment is an affirmative act intended or known to be likely to keep the IRS from learning of a fact that it would otherwise have learned. Concealment is the equivalent of a misrepresentation. Concealment, however, is not the equivalent of non-disclosure. The significance is that Treas. Reg. section 301.7211-1(e)(5)(ii) provides that an accepted offer may be reopened where there has been concealment of the ability to pay or the assets of the taxpayer. If you have a case that requires a distinction between concealment and non-disclosure, contact Area Counsel.

Mutual Mistake of a Material Fact

  1. Under sections 151 and 152 of the Restatement 2d of Contracts, a mutual mistake of fact is defined as an erroneous belief held by both parties about an existing fact at the time the contract was entered. The law in existence at the time of the making of the contract is part of total state of facts at the time. the parties’ mutual mistake with respect to the law, as found in statute, regulations, judicial decisions, or elsewhere, may render the compromise subject to rescission. The mere fact that both parties are mistaken with respect to the same basic belief about an existing fact does not, of itself, provide a reason for the affected party to void the agreed offer. Rescission is only appropriate in situations where a mistake of both parties has such a material effect on the agreed exchange of performances that it upsets the very basis of the agreed offer.

Restitution

  1. The IRS should consider an OIC to pay additional taxes, penalties, and interest for the same tax periods for which restitution was ordered only if the defendant has paid or will pay as part of the offer the full amount of the restitution.

  2. The IRS may not accept an offer in compromise that is inconsistent with a restitution order. The terms of the offer cannot be inconsistent with any provision of an existing court ordered restitution payment plan. For example, an offer cannot provide for payment of an amount less than the amount of restitution or provide for payments to be made less frequently than the restitution plan requires. Taxpayers submitting such offers should be informed that only the district court that entered the restitution order can modify the order.

  3. The defendant must notify the court and the Department of Justice of any material change in the defendant's economic circumstances that might affect the defendant’s ability to pay. The United States may also notify the court of a change in the defendant’s economic circumstances.

  4. See IRM 5.1.5, Field Collecting Procedures, Balancing Civil and Criminal Cases, and IRM 5.8.4.23.2, Offers in Compromise Submitted that Include Restitution, for more information on restitution.

Rescission Procedures

  1. When rescinding the offer, the office responsible for completing the letter will also be responsible for inputting the appropriate transaction code (TC). Prior to rescinding an offer , send a preliminary letter to the taxpayer advising of the proposed rescission of their offer. The letter will contain the grounds for the proposed rescission and will give the taxpayer 15 days to respond and provide any additional information related to the proposal.

    Note:

    AOIC Remarks must be noted with the date the preliminary proposal letter was mailed, the taxpayer's response and the analysis of any additional information provided.

  2. If the rescission is within one year of acceptance, the PIF should be removed from public access. Send an email to the contact person at the specific Public Inspection File (PIF) location to request removal. If the date of the acceptance letter is more than a year old, a request to remove the PIF will not be required.

  3. Rescind the offer in the following manner:

    • Prepare a letter to the taxpayer identifying the offer by the day it was accepted, and advising that the acceptance is rescinded and the acceptance letter is revoked.

    • Include in the letter the grounds for rescission in general terms with a demand for payment of the original unpaid tax liability, less any payments made on the offer.

    • All rescission determinations must be reviewed and approved by Counsel before being sent to the taxpayer.

      Note:

      The letter must be signed by the same level of approval that signed the acceptance.

    • Document the case history with the basis for the decision to rescind and any taxpayer contact.

    • After all approvals have been received, including Counsel, notify the appropriate MOIC liaison of the rescission.

    • Input the appropriate TC 78X or the 48X and reassign to the field for collection action, if appropriate. TC 781 indicates fraud, TC 782 indicates DOJ, TC 482 indicates death of a taxpayer, and TC 483 indicates mutual mistake or restitution.

      Note:

      If an offer was erroneously accepted after the death of a taxpayer, the office responsible for completing the letter will also be responsible for inputting the TC 482. The date of death should be used as the date for the TC 482. See IRM 5.8.7.5, Termination of Consideration.

Department of Justice Controlled Cases

  1. Occasionally an offer is purportedly accepted while a period is under the settlement jurisdiction of the DOJ. In these cases, although the offer was processed as an acceptance, the IRS never actually accepted the offer because it lacked the legal authority to do so. See IRM 5.8.1.3.1, Tax Cases Controlled by Department of Justice, for additional information.

  2. The offer cannot be rescinded but must be returned as not processable because the IRS had no authority to accept an offer on any period controlled by DOJ.

  3. These offers will be returned to the COIC site to change the processability criteria, issue the not processable letter, and refund the application fee. See IRM 5.8.2.6, Erroneous Processability Determinations.

  4. If the not processable determination is made within one year of acceptance, the PIF should be removed from public access. Send an email to the contact person at the specific PIF location to request removal of the PIF. If the date of the acceptance letter is more than a year old, a request to remove the PIF will not be required.

Potential Default Cases

  1. An offer can reach a potential default status in one of four ways:

    1. The taxpayer failed to fulfill the payment terms;

    2. The taxpayer failed to fulfill the terms of a related collateral agreement;

    3. The taxpayer failed to adhere to the compliance provisions; or

    4. The taxpayer failed to return an erroneously issued refund.

    Note:

    MFT 35 and/or MFT 65 — The taxpayer's failure to report or pay an individual shared responsibility payment (SRP) liability made under IRC § 5000A and/or any individual SRP liability assessment made after acceptance will not default the OIC.

  2. Campus MOIC units have responsibility and authority to make determinations on potentially defaulted offers where the taxpayer has not proposed an alternative to the default.

  3. The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns or payments, the MOIC unit may default the offer. After all appropriate letters have been sent and it has been determined default of the offer is the appropriate decision, MOIC will input reversal codes to put the liability(ies) back to the collection stream and close the case as a default.

Compromise of a Compromise

  1. The compromise of a compromise should be rare in light of the investigation completed in connection with the original offer. In some cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement and the investigation reveals that extreme hardship or special circumstances exist, the Service may determine that the Government would better benefit to not accept a compromise on a compromise but it may be in the best interest of the government to:

    1. Adjust the payment terms,

    2. Formally compromise the existing compromise, or

    3. Obtain managerial approval to settle for the amount already paid and not default the offer.

  2. A Form 2209, Courtesy Investigation, request will be issued by MOIC to the office that accepted the offer when a request to compromise a previously accepted offer is received. A request for a courtesy investigation should be rare, but when issued the courtesy investigation should be worked in an expeditious manner and if ICS is used, treated as a priority assignment. The Area Office should document both receipt and assignment of the Form 2209 in AOIC Remarks.

    Note:

    A Courtesy Investigation should only be issued by the MOIC function if a compromise on a compromise is received or the terms of an agreed collateral agreement cannot be properly monitored.

  3. A proposal to compromise the balance of an accepted offer must rest on Doubt as to Collectibility (DATC), DATC with special circumstances (DATCSC), or effective tax administration (ETA).

Receipt and Processing

  1. The proposal must be in writing and in the form of a letter.

    Note:

    Do not secure a new Form 656. No TIPRA payments are required if the terms (lump sum cash or periodic payment) of the new proposal are the same as the original, accepted offer.

  2. Upon receipt of the proposal:

    • COIC will add a history entry to AOIC indicating that an offer on an offer has been received.

    • The field should create an Other Investigation (OI) or Collection Initiative Program (CIP) on Integrated Collection System (ICS) to open a control until the taxpayer's proposal has been considered.

    • Both the field and COIC should notify the appropriate MOIC unit that the offer should not be defaulted until the investigation has been completed.

  3. The taxpayer must submit a current financial statement(s) and all required supporting documentation.

  4. When closing, AOIC must be noted with the results of the investigation.

  5. The proposal letter submitted by the taxpayer should be addressed to the Commissioner of Internal Revenue Service and include language shown in Pattern Letter 1603(P). See Exhibit 5.8.9–1 below.

    Note:

    The OE or OS should share a copy of the required language, an example, or copy of Exhibit 5.8.9–1 with the taxpayer.

Consideration of Proposal

  1. Acceptance will depend on:

    1. If it is in the best interest of the Government; and

    2. If the same considerations and merits were applied as if it were submitted on a Form 656.

  2. The information required to support the proposal should fit the case, such as:

    • Command Code (CC) RTVUE/BRTVU print or if no data is available a copy of the taxpayer's most recently filed income tax return.

      Note:

      A request for a copy of the taxpayer’s tax return should be rare. Generally, this information should be secured through internal sources such as AMS and EUP. A tax return should never be requested if it is not legally due, including any extension of time to file.

    • Review the CSED to make sure no CSEDs have expired or are about to expire.

    • Estimate of the remaining liability under the terms of the future income collateral agreement, if applicable.

    • Reasons why the request is being made to compromise the existing agreement.

    • Full compliance check.

    • Statement of current financial condition.

    • Description of future prospects and any other information that might have a bearing on the acceptability of the offer.

    • Estimated and projected amount of future income over the period covered by the remaining terms of the original agreement.

Processing Completed Investigations

  1. When the investigation is complete, the taxpayer's proposal, investigative report, and memorandum containing a complete statement of the facts in the case, including the recommendation, should be forwarded to the next level of authority for approval.

  2. An acceptance or denial letter should be prepared for the delegated official. See Exhibits 5.8.9–2 and 5.8.9–3 below.

  3. If the taxpayer's proposal is acceptable, the procedures for acceptance of the original offer will be followed including an opinion of Counsel as set forth in IRM 5.8.8.12, Legal Opinion of Counsel.

  4. Follow the below "If/Then" chart for preparation of the file.

    If... Then....
    The proposal is acceptable Forward the case file to the delegated official for approval and signature. Include:
    • Copy of the Acceptance Letter

    • Taxpayer's proposal

    • Memorandum supporting the compromise of a compromise

    • Work papers and financial information

    • Generate a new Form 7249

      Note:

      The new Form 7249 must be generated through the Publishing Website.

    Note:

    See IRM 5.8.8.8, Public Inspection File, for additional information.

    The proposal is not acceptable Forward the case file to the delegated official for approval and signature. Include:
    • Copy of the Denial Letter

    • Taxpayer's proposal

    • Memorandum supporting the recommendation

    Note:

    No appeal rights are granted to the taxpayer.

  5. Update the AOIC history and, if it is a field offer, the ICS history with the results of the investigation. If the proposal is accepted, include the amount of the accepted proposal and the terms for payment in the AOIC history and ICS, if appropriate.

  6. Once the decision letter has been signed and mailed, the OI or CIP should be closed.

    Note:

    There will be no ability to assign this action on AOIC as there is no open AOIC record. The new Form 7249, letter, and transcripts must be manually generated. The manually redacted Form 7249 and transcripts must be forwarded for inclusion in the Public Inspection File at the appropriate location.

  7. Document the case history indicating that the OI is closed and the final resolution.

  8. The closing documents should be mailed or E-faxed to the appropriate MOIC unit with instruction to either monitor if it is to be accepted, or default if it is not accepted.

Pattern Letter 1603(P)

This is an example of a proposal letter to compromise a balance due on an offer or to compromise future income collateral agreements. This letter should be provided to the taxpayer as an example.

Note:

This letter format must be shared with the taxpayer and/or POA.

The information that is printed in bold letters should be included if there was a collateral agreement with the original offer or if the original offer had an attached collateral agreement.
Date Name
Address
City, State Zip
Commissioner of Internal Revenue
Washington, DC 20224
On [enter date of acceptance letter] you accepted [my/our] offer in compromise and the related Form 2261, Collateral Agreement, Future Income – Individual; or 2261 – A, Collateral Agreement, Future Income – Corporation. [I/we] agreed to pay $[enter the agreed offer amount from the signed, dated Form 656, Offer in Compromise] to compromise the tax liability(s) listed below:
[List type(s) of tax and period(s) ]
Instead of future payments specified in Form 2261, Collateral Agreement, Future Income – Individual; or 2261 – A, Collateral Agreement, Future Income – Corporation [I/we] propose to pay $[enter amount you are offering to pay] in full settlement of the original offer and the collateral agreement.
[Also select one of the following sentences to describe how you will pay the amount you entered in the previous sentence:]
[I/we] have enclosed full payment of the proposed amount.
[I/we] will make full payment of the proposed amount when you notify [me/us] that you have accepted [my/our] proposal.
[I/we] have enclosed a payment of $[Enter Amount] as the initial payment with the balance of $[Enter Amount] paid over [Enter number 1-23 months] when you notify [me/us] that you have accepted [my/our] proposal.
[I/we] have enclosed $[Enter amount you are sending with this letter] and will pay the balance when you notify [me/us] that you have accepted [my/our] proposal.
[The below paragraphs must be included in all proposal letters.]
[I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years, including any extensions, from the date of acceptance of the proposed, revised offer. [I/we] further agree to promptly pay any liabilities assessed after acceptance of this revised offer for tax years ending prior to acceptance that are not otherwise included in the revised offer.
[I/we] agree to waive any and all claims to overpayments of tax or other liabilities, including interest on those payments, that [I/we] may be entitled to receive under the Internal Revenue Code. This waiver is limited to overpayments which haven't already been refunded to me for any years or tax periods which end before or during the year you accept this proposal.
[I/we] have enclosed a letter with this proposal which contains the detailed reasons for submitting this offer and a completed financial statement showing [my/our] current financial condition.
[Sign and Date]
[Each person who is submitting this proposal must sign and date the letter.]

Pattern Letter 1604(P)

This is an example of an acceptance letter for a compromise of a compromise.

Acceptance letter for proposal to compromise balance due on offer in compromise and/or collateral agreement. The information that is printed in bold should be added for a collateral agreement.
Date: Person to Contact:
Address
Telephone Number:
Salutation
We accept your proposal to pay $[Enter Amount] to settle the remaining liability under the offer in compromise accepted on [Enter Date]and/or the related collateral agreement.
[Pick one]
Since you have paid the amount proposed, you do not need to take further action.
Since you enclosed $[Enter Amount] with your proposal, please send the balance of $[Enter Amount] by [Enter Date].
Since your payment was to be made on notice of acceptance of your proposal, please send $[Enter Amount] by [Enter Date].
Since you chose to pay your proposed amount over [Enter number of months] months, you must make the payments on the [Enter the day of the month each payment is due] of each month until the accepted offer amount is paid in full.
Make your check or money order payable to the "United States Treasury" and mail to [enter the service center address "Attn.: Collection Offer Unit" ].
If you receive a refund that you specifically waived under the terms of your proposal, please return it promptly to the address above.
If you have any questions, please contact the person whose name and telephone number are shown above.
Sincerely yours,
(Signature and title)

Pattern Letter 1607(P)

This is an example of a denial of a proposal of an offer on an offer.

Denial of proposal to compromise balance due on offer in compromise and/ or collateral agreement. The information that is printed in bold letters should be added for a collateral agreement.
Date: Person to Contact
Address
Telephone Number
Salutation
We are sorry, but we cannot accept your proposal dated [Enter Date] to compromise the remaining liability under the offer in compromise accepted on [Enter Date] and/or related collateral agreement.
[Explain reasons]
We must, therefore, ask you to comply with the terms of the offer in compromise including any collateral agreement. If you have any questions, please contact the person whose name and telephone number are shown above.
Sincerely yours,
(Signature and title)