The IRS was nor required to withdraw the notice of federal tax lien with respect to an unpaid tax liability. Under Code Sec. 6322, the lien arose by operation of law as of the date the unpaid tax liability was assessed, and once imposed continued until the lien was either satisfied or became legally unenforceable. The taxpayer had entered into an offer-in-compromise (which the IRS accepted prior to issuing the assessment) and begun making the required monthly payments. However, the IRS was not required to release the federal tax lien until the entire amount of the offer-in-compromise was satisfied. In addition, the notice of lien was not filed prematurely or in violation of any IRS procedures, it protected the government's interest against other creditors, and the notice of balance due under Code Sec. 6203(a) issued to the taxpayer constituted a reasonable effort to advise the taxpayer, as required by Part 5.12.2.3(1) of the Internal Revenue Manual, that a notice of lien may be filed. Consistent with section 6325(a)(1), part 5.17.2.7.3(2) of the IRM (Oct. 31, 2000) provides that "A Certificate of Release of the federal tax lien is authorized" where the "amount assessed (plus interest) is paid.







Nacoleon James Hillsman, Jr. v. Commissioner. TC Memo. 2008-240, October 28, 2008.







MEMORANDUM OPINION



CHIECHI, Judge: This case is before the Court on respondent's motion for summary judgment as supplemented. 1 We shall grant respondent's motion.





Background



The record establishes and/or the parties do not dispute the following.



Petitioner's address shown in the petition in this case was in Chicago, Illinois.



On December 30, 2002, respondent prepared a substitute for return for petitioner's taxable year 1999.



On September 19, 2005, petitioner filed a Federal income tax (tax) return for his taxable year 1999 (1999 return). In that return, petitioner showed total tax of $37,819 and tax due of $29,052. When petitioner filed his 1999 return, he did not pay the tax due shown in that return.



On February 6, 2006, respondent assessed the total tax shown in petitioner's 1999 return, additions to tax under sections 6651(a)(1) 2 and 6654(a) of $6,943 and $1,280, respectively, and interest as provided by law of $14,051.07 for petitioner's taxable year 1999. 3 (We shall refer to any unpaid assessed amounts with respect to petitioner's taxable year 1999, as well as interest as provided by law accrued after February 6, 2006, as petitioner's unpaid 1999 liability.)



On February 6, 2006, respondent issued to petitioner a notice of balance due with respect to petitioner's unpaid 1999 liability.



On April 15, 2006, respondent issued to petitioner a final notice of intent to levy and notice of your right to a hearing (notice of intent to levy) with respect to petitioner's unpaid 1999 liability. 4



On June 7, 2006, petitioner submitted to respondent Form 656, Offer in Compromise, in which petitioner offered to compromise petitioner's unpaid 1999 liability (petitioner's June 7, 2006 offer-in-compromise). In that form, petitioner offered to compromise that liability by paying $11,716 over a 24-month period. On July 19, 2006, respondent rejected petitioner's June 7, 2006 offer-in-compromise.



On July 20, 2006, respondent filed a notice of Federal tax lien with respect to petitioner's unpaid 1999 liability. On July 21, 2006, respondent issued to petitioner a notice of Federal tax lien filing and your right to a hearing under IRC 6320 (notice of tax lien) with respect to petitioner's unpaid 1999 liability.



On August 18, 2006, petitioner submitted to respondent Form 13711, Request for Appeal of Offer in Compromise, in which he appealed respondent's rejection of petitioner's June 7, 2006 offer-in-compromise.



On August 28, 2006, petitioner timely submitted to respondent Form 12153, Request for a Collection Due Process Hearing (petitioner's Form 12153), with respect to the notice of tax lien. In that form, petitioner indicated his disagreement with the notice of tax lien and requested a hearing with the Appeals Office. In petitioner's Form 12153, petitioner stated in pertinent part: "My initial Offer in Compromise * * * has been forwarded to the Office of Appeals. A final determination regarding the outcome has not been issued, therefore, the Federal Tax Lien should be removed until * * * final resolution has been issued."



By letter dated October 19, 2006, a settlement officer with the Appeals Office who was assigned petitioner's Form 12153 (settlement officer) acknowledged receipt of that form. That letter stated in pertinent part:



I have scheduled a telephone conference call for you on November 21, 2006 at 9:00AM [sic]. This call will be your primary opportunity to discuss with me the reasons you disagree with the collection action and/or to discuss alternatives to the collection action.



On or about November 30, 2006, the settlement officer sent petitioner a letter that stated in pertinent part:



I sent you a letter offering you a telephonic Collection Due Process conference. The conference was scheduled for 11/21/2006.



I confirmed your rejected offer has been assigned to someone in the New York Appeals Office. I will reschedule your due process hearing on the filed tax lien for January 2 * * * [illegible], 2006 [sic] @ 10:00AM [sic]. I hope that a decision would have been made on the offer before the scheduled hearing date. * * * At this time, the Appeals Office will not recommend a release of the tax lien.



Once I complete your hearing on the tax lien issue we will make a determination in the Collection Due Process hearing you requested by reviewing the Collection administrative file and whatever information you have already provided.



On a date not disclosed by the record, petitioner made a so-called short-term deferred payment offer 5 of $15,000.02 to be paid over a period of 24 months to compromise petitioner's unpaid 1999 liability. On January 24, 2007, respondent accepted that offer (petitioner's accepted offer-in-compromise).



On April 23, 2007, the Appeals Office issued to petitioner a notice of determination concerning collection action(s) under section 6320 and/or 6330 (notice of determination) with respect to petitioner's taxable year 1999. That notice stated in pertinent part:





Summary of Determination



Based on all the documents that were presented we determined the filing of the tax lien was appropriate. The Service followed all applicable procedures and guidelines in the filing of the Notice of Federal Tax Lien.



Since the filing of the tax lien your offer-in-compro-mise was submitted for acceptance. The Offer Unit determined the amount offered was adequate. The tax lien will be released once you have met the terms of the offer-in-compromise.



The notice of determination included an attachment that stated in pertinent part:





SUMMARY AND RECOMMENDATION



You requested a hearing from Appeals under the provisions of Internal Revenue Code (IRC) [section] 6320 on the above income tax periods. The Form 12153, Request for a Due Process Hearing was timely filed. You were provided the opportunity to a telephone, correspondence or face-to-face hearing. A telephone hearing was conducted.



The Internal Revenue Service followed all legal and administrative requirements in filing the tax lien against you. It was determined that this action was the most efficient collection method when the Notice of Federal Tax Lien was requested.



The Offer Unit filed the offer [sic] after rejecting your submitted offer-in-compromise. You filed a timely appeal with the Offer Unit protesting the rejection. The Offer Unit reinvestigated your offer and has recommended acceptance of your offer. The tax lien will be released as soon as the terms of the offer are met.





BRIEF BACKGROUND



A tax lien was filed against you because of your outstanding tax liability amount. Your income tax return was prepared by the Service because you neglected to file the tax return.



You filed an offer-in-compromise to resolve the tax liability. Your offer was rejected and you filed a timely appeal protesting the rejection. The Settlement Officer contacted the Offer Unit on the status of your offer. The Settlement Officer was notified your offer was recommended and submitted for approval.





DISCUSSION AND ANALYSIS



Verification of legal procedural requirements:



Appeals has obtained verification from the IRS office collecting the tax that the requirements of any applicable law, regulation or administrative procedure with respect to the proposed levy or NFTL filing 6 have been met. Computer records indicate that the notice and demand, notice of intent to levy and/or notice of federal tax lien filing, and notice of a right to a Collection Due Process hearing were issued.



Assessment was properly made per IRC § 6201 for each tax and period listed on the CDP notice.



The notice and demand for payment letter was mailed to the taxpayer's last known [address.]



IRC [section] 6321 states that a statutory lien arises when a taxpayer neglects or refuses to pay a tax liability after notice demand [sic] and demand. To be valid against third parties except government entities, notice of the lien must be filed in the proper place for filing per IRC [section] 6323(a) and (f). A review of your account indicates that you neglected or refused to pay after notice and demand.



IRC [section] 6323(j) allows the Internal Revenue Service to withdraw a Notice of Federal Tax Lien (NFTL). A NFTL may be withdrawn if the filing of the notice was premature or otherwise not in accordance with the Service's administrative procedures, if the taxpayer entered into an [installment] payment agreement under Section 6159 to satisfy the tax liability for which the lien was imposed by means of the agreement unless such agreement provides otherwise, if withdrawal of such notice will facilitate the collection of the tax liability, or if with the consent of the taxpayer or National Taxpayer Advocate, the withdrawal of the notice would not [sic] be in the best interest of the taxpayer (as determined by the National Taxpayer Advocate) and the United States (as determined by the IRS).



® The filing of the NFTL was not premature and followed administrative guidelines.



® There was no [installment] payment agreement [under section 6159] or the agreement provided for the filing of the NFTL.



® Neither the taxpayer nor Appeals contends that withdrawal would facilitate collection.



Withdrawal is considered not to be in the best interest of the Government.



There was a balance due when the CDP levy notice was issued or when the NFTL filing was requested.





Prior involvement:



I had no prior involvement with respect to the specific tax periods either in Appeals or Compliance Collection.





Collection statute verification:



The collection statute has been suspended; the collection period allowed by statute to collect these taxes has been suspended by the appropriate computer codes for the tax periods at issue.



Collection followed all legal procedural requirements and the actions taken or proposed were appropriate under the circumstances.





Issues raised by the taxpayer





Collection Alternatives Offered by Taxpayer



Your due process request form indicated your initial offer was rejected and you appealed the decision. You believe the filing of the tax lien was premature and the tax lien should be removed until a final resolution was made on your offer.



A review of your account revealed you had an outstanding tax liability totaling over $50,000.00. Because of your outstanding tax liability amount and the rejection of your offer, the filing of the tax lien was not premature.



A telephone hearing was conducted with you and you notified the Settlement Officer that your offer has been approved. The Settlement Officer contacted the Offer Unit, Ms. Smeck and verified the acceptance of your offer.



You were notified the tax lien would be released once the terms of your offer were met. Because you chose not to sign the Waiver form this determination letter was issued to you.





Challenges to the Existence of Amount of Liability



You did not challenge the liability at your hearing.



You raised no other relevant issues.





Balancing of need for efficient collection with taxpayer concern that the collection action be no more intrusive than necessary.



The tax lien will not be withdrawn by Appeals and is believed to be [the] most appropriate action. IRC [sections] 6320 and 6330 require that the Appeals Office consider whether a proposed collection action balances the need for efficient collection of taxes with the legitimate concern that any collection be no more intrusive than necessary. The filing of the tax lien was determined to be the most effective method of collection when it was filed.



The tax lien will be released as soon as the terms of your offer are met.



As of April 23, 2007, the date on which the Appeals Office issued to petitioner the notice of determination, petitioner had not begun making the 24 monthly payments required under the terms of petitioner's accepted offer-in-compromise. Since May 18, 2007, petitioner has made, and as of August 4, 2008, has continued to make, those required monthly payments.





Discussion



The Court may grant summary judgment where there is no genuine issue of material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). We conclude that there are no genuine issues of material fact regarding the questions raised in respondent's motion.



In petitioner's response to respondent's motion, petitioner does not dispute the existence or the amount of petitioner's unpaid 1999 liability. Where, as is the case here, the validity of the underlying tax liability is not properly placed at issue, the Court will review the determination of the Commissioner for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).



It is petitioner's position that the Appeals Office abused its discretion in determining in the notice of determination to sustain the Federal tax lien with respect to petitioner's unpaid 1999 liability and the filing of the notice of that lien. 7 According to petitioner, the Federal tax lien with respect to that liability "was pre-maturely placed on my account" and should be "removed" because he has been making the payments required under the terms of petitioner's accepted offer-in-compromise.



Section 6321 provides:



SEC. 6321. LIEN FOR TAXES.



If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.



Section 6322 provides that "the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed * * * is satisfied or becomes unenforceable by reason of lapse of time." As pertinent here, section 6325(a)(1) provides that the Secretary of the Treasury shall issue a certificate of release of a Federal tax lien no later than 30 days after the day on which the "Secretary finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable".



Consistent with section 6325(a)(1), part 5.17.2.7.3(2) of the IRM (Oct. 31, 2000) provides that "A Certificate of Release of the federal tax lien is authorized" where, inter alia, the "amount assessed (plus interest) is paid." Part 5.17.2.7.3.2(1) of the IRM (Oct. 31, 2000) provides in pertinent part:



(1) When the Service accepts an offer in compromise, * * * the lien against the taxpayer is released, provided that all of the following conditions are met:



a. It is a cash offer, or all installments under the terms of the offer, including any accrued interest, have been paid.



If a taxpayer makes a cash offer to compromise a tax liability, the offer amount must be paid within 90 days after the date on which the Commissioner accepts the offer. IRM pt. 5.8.1.9.4(3) (Sept. 1, 2005).



On February 6, 2006, respondent assessed petitioner's unpaid 1999 liability and issued to petitioner a notice of balance due with respect to that liability. On that date, a Federal tax lien arose by operation of law in favor of the United States on all property and rights to property belonging to petitioner with respect to petitioner's unpaid 1999 liability. See sec. 6322. On a date not disclosed by the record, petitioner made a short- term deferred payment offer of $15,000.02 to compromise that liability. 8 Pursuant to that offer, petitioner agreed to pay $15,000.02 in 24 monthly payments to commence after written notice of respondent's acceptance of that offered amount. On January 24, 2007, respondent accepted petitioner's offer of $15,000.02 to compromise petitioner's unpaid 1999 liability. As of April 23, 2007, the date on which the Appeals Office issued to petitioner the notice of determination, petitioner had not made all of the 24 monthly payments required under the terms of petitioner's accepted offer-in-compromise. We conclude that respondent was not required to release the Federal tax lien with respect to petitioner's unpaid 1999 liability. 9 See sec. 6325(a)(1); IRM pt. 5.17.2.7.3(2), 5.17.2.7.3.2(1).



Nor was respondent required to withdraw the notice of Federal tax lien filed with respect to petitioner's unpaid 1999 liability. Section 6323(a) provides that the "lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary." When respondent assessed petitioner's unpaid 1999 liability on February 6, 2006, a Federal tax lien arose by operation of law in favor of the United States on all property and rights to property belonging to petitioner with respect to petitioner's unpaid 1999 liability. Pursuant to section 6323(a), on July 20, 2006, respondent filed a notice of Federal tax lien with respect to that liability in order to protect respondent's interest in petitioner's property against other creditors of petitioner. 10



Section 6323(j)(1) provides in pertinent part:



(1) In general. --The Secretary may withdraw a notice of a lien filed under this section * * * if the Secretary determines that --



(A) the filing of such notice was premature or otherwise not in accordance with administrative procedures of the Secretary * * *



We conclude that the filing of the notice of Federal tax lien with respect to petitioner's unpaid 1999 liability was not premature.



We also conclude that the filing of the notice of Federal tax lien with respect to petitioner's unpaid 1999 liability was otherwise "in accordance with administrative procedures of the Secretary". Cf. sec. 6323(j)(1)(A). Part 5.12.2.3(1) of the IRM (May 20, 2005) provides that the Commissioner must make reasonable efforts to contact a taxpayer before filing a notice of Federal tax lien in order to advise the taxpayer that such a notice may be filed if the taxpayer does not make full payment of a tax liability when requested. Part 5.12.2.3(1) of the IRM further provides that the issuance of a notice of balance due under section 6303(a) constitutes reasonable efforts to contact the taxpayer. Before filing the notice of Federal tax lien, respondent issued to petitioner a notice of balance due with respect to petitioner's unpaid 1999 liability and thereby made reasonable efforts to contact him, as required by the Internal Revenue Manual.



Based upon our examination of the entire record before us, we find that the Appeals Office did not abuse its discretion in making the determinations in the notice of determination with respect to petitioner's taxable year 1999.



We have considered all of the contentions and arguments of the parties that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot.



On the record before us, we shall grant respondent's motion.



To reflect the foregoing,



An order granting respondent's motion and decision for respondent will be entered.


1 Respondent filed a declaration of Appeals Team Manager Debra Dufek in support of respondent's motion for summary judgment (respondent's declaration). We shall refer collectively to respondent's motion for summary judgment as supplemented and respondent's declaration as respondent's motion.

2 All section references are to the Internal Revenue Code in effect at all relevant times. All Rule references are to the Tax Court Rules of Practice and Procedure.

3 On Apr. 15, 2006, respondent credited a refund of $1,402 due to petitioner for his taxable year 2005 against the liability for petitioner's taxable year 1999.

4 The record does not establish that petitioner requested a hearing with respondent's Appeals Office (Appeals Office) with respect to the notice of intent to levy.

5 The term "short-term deferred payment offer" refers to an amount that a taxpayer offers to compromise the taxpayer's tax liability and that is to be paid in more than 90 days, but within 24 months, after written notice of acceptance by the Commissioner of Internal Revenue (Commissioner) of the offered amount. See Internal Revenue Manual (IRM) pt. 5.8.1.9.4(3) (Sept. 1, 2005).

6 See supra note 4. Although the notice of determination refers to "the proposed levy or NFTL filing", the only collection action that the Appeals Office sustained in that notice was the filing of the notice of Federal tax lien with respect to petitioner's taxable year 1999.

7 In the notice of determination, the Appeals Office determined that "The tax lien will be released once * * * [petitioner has] met the terms of the offer-in-compromise." The Appeals Office also determined in the notice of determination that respondent followed all applicable procedures and guidelines in filing the notice of Federal tax lien with respect to petitioner's unpaid 1999 liability and that withdrawal of that notice is not appropriate at this time.

8 Thus, petitioner's offer was not a cash offer.

9 Form 656, Offer in Compromise, indicates that, where the Commissioner has accepted an offer to compromise a tax liability, the taxpayer remains liable for that liability until the taxpayer has satisfied all of the terms of the offer-in-compromise. See IRM pt. 5.9.4.9.1(1) (Jan. 1, 2006). Petitioner remains liable for petitioner's unpaid 1999 liability until he satisfies all of the terms of petitioner's accepted offer-in-compromise.

10 See also pt. 5.12.2.4.1(1) of the IRM (May 20, 2005) (generally a notice of Federal tax lien should be filed if "the aggregate * * * [unpaid balance of assessment] is $5,000 or more"). As of the date on which respondent filed the notice of Federal tax lien with respect to petitioner's unpaid 1999 liability, petitioner's unpaid 1999 liability was substantially in excess of $5,000.

Missouri Offer in Compromise

How do I submit an Offer in Compromise proposal?
You may request an Offer in Compromise (OIC) by submitting a letter to the Missouri Department of Revenue (department).

The offer must include a proposal to pay a sum of money. Missouri law provides three reasons as a basis for an OIC: doubt as to collectibility, doubt as to liability, or to promote effective tax administration.
Depending upon the basis of the offer, the following information must be included:
• A completed Form MO-656 . http://dor.mo.gov/tax/personal/individual/forms/2007/m656f.pdf
• If submitting an OIC based upon doubt as to collectibility, complete a Collection Information Statement, Federal Form 433A and/or B . http://www.irs.gov/pub/irs-pdf/f433a.pdf
• If the OIC is based upon doubt as to liability, enclose any relevant documentation or information supporting your claim.
• If your offer is based upon effective tax administration, state how acceptance promotes effective tax administration.
Where do I send a proposal for an Offer in Compromise?
An OIC may be submitted to the address on the balance due notice.
Corporate Income Tax:
Corporate Tax
P.O. Box 3365
Jefferson City, MO 65105-3365
Individual Income Tax:
Personal Tax
P.O. Box 385
Jefferson City, MO 65105-0385
Sales/Use Tax:
Sales Tax
P.O. Box 3390
Jefferson City, MO 65105-3390
Withholding Tax:
Withholding Tax
P.O. Box 3375
Jefferson City, MO 65105-3375
What if I owe for more than one type of tax?
If you owe for more than one tax type, send one OIC to any appropriate address. The OIC should list all tax debts.
Can I appeal if the department rejects my offer?

Georgia Offer in Compromise

Offers in Compromise Business & Personal Taxes - Forms

Please be advised of the following policy changes to the Offer in Compromise Program effective July 1, 2005:

Notice: $100 Processing Fee Required as of July 1, 2005

Any payment submitted with an offer will be applied as a partial payment to the tax debt. The payment will not be refunded if the offer is declined or withdrawn.
Payment of an accepted offer must be made within 30 days of notification of acceptance.
Statutory collection activity will not be suspended while an offer is pending.
Taxpayers are restricted to one offer application only in a 10 year period.
Taxpayers must remain in compliance for filing and paying any required state tax return for ten years following offer acceptance.
Only applications with a revision date of 7/05 or later will be accepted after 9/1/2005.
Notice: $100 Processing Fee Required as of July 1, 2005

Effective July 1, 2005, a processing fee of $100 must accompany all Offer in Compromise applications submitted on Form OIC-1. The application fee does not apply to individuals whose income falls at or below levels based on poverty guidelines established by the U.S. Department of Health and Human Services (HHS) under authority of section 673(2) of the Omnibus Reconciliation Act of 1981 (95 Stat. 357, 511). The exception for taxpayers with incomes below these levels only applies to individuals; it does not apply to other entities such as corporations, proprietorships or partnerships.

Your offer must include the $100 application fee or a completed Form OIC-11 (Income Certification of Offer in Compromise Application Fee), if you are requesting an exception of the fee because of your income. Offers received without the $100 fee or a completed OIC-11 will not be accepted for processing. Any payment over and above the $100 fee made with the offer will be applied as a partial payment to the applicant’s tax liability regardless of the disposition of the offer. The application fee is nonrefundable and will be credited to the tax debt only if the offer is accepted. The application fee will not be credited to the tax debt if the offer is declined.

California offer in compromise questions and answers.

I had a case where special circumstances were taken into account (age and health).



Questions and Answers | Personal Income Tax - OIC FTB Application (4905PIT) - OIC Multi-Agency Application (DE 999CA) | Business Entities Tax - OIC FTB Application (4905BE)

What you should know before preparing an Offer in Compromise

Are you an Offer in Compromise candidate?

If you are an individual or business taxpayer that does not have the income, assets, or means to pay your tax liability now or in the foreseeable future, you may be a candidate. The Offer in Compromise program allows you to offer a lesser amount for payment of a non-disputed final tax liability.

Generally, we approve an Offer in Compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.

Although we evaluate each case based on its own unique set of facts and circumstances, we give the following factors strong consideration:

The taxpayer's ability to pay.
The amount of equity in the taxpayer's assets.
The taxpayer's present and future income.
The taxpayer's present and future expenses.
The potential for changed circumstances.
Whether the offer is in the best interest of the state.
Can we process your application?

We will only process your Offer in Compromise application if you have done all of the following:

You have filed all of the required tax returns. If you have no filing requirement, note it on the application.
You have fully completed the Offer in Compromise application, and provided all supporting documentation.
You agreed with the Franchise Tax Board on the amount of tax that you owe.
You authorized the Franchise Tax board to obtain your consumer credit report and to investigate and verify the information you provided on the application.
Will a collateral agreement be required?

Upon approval, we may require you to enter into a collateral agreement for a term of five years. Generally, a collateral agreement will be required if you have significant potential for increased earnings. A collateral agreement requires you to:

Pay us a percentage of your future earnings that exceed an agreed upon threshold.
Are collections suspended?

Collection activity is not automatically suspended. If delaying collection activity jeopardizes our ability to collect the tax, we may continue with collection efforts. Interest will continue to accrue.

When should offered funds be submitted?

You should not submit the offered funds until we request them. When we do ask for the funds, submit them by cashiers check or money order.

What documentation is required with the application?

For a check list of required items:

Personal Income Tax - see page 3 of FTB 4905PIT
Business Income Tax - see page 4 of FTB 4905BE
Questions and Answers

What does the Franchise Tax Board consider a fair offer in relation to the amount due?
How long will it take to get a decision on my Offer in Compromise?
Can I make payments on the offered amount?
Can I apply prior payments to the offered amount?
My Internal Revenue Service Offer in Compromise has been accepted. Will the Franchise Tax Board automatically approve my offer?
If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
Will state tax liens be released if my offer is accepted?
Do I need to have someone represent me?
Can I get relief from the tax liability by filing bankruptcy?
Can I apply for an Offer in Compromise if I have no funds to offer?
What is a collateral agreement?
If my offer is approved, will I have to sign a collateral agreement?
I am single now. If I marry while the collateral agreement is in effect, how will this affect me?
Can I complete one application if I owe the Employment Development Department, Board of Equalization, or the Franchise Tax Board?
What does the Franchise Tax Board consider a fair offer in relation to the amount due?
Generally, an offer will be accepted when the amount offered is the most the Franchise Tax Board can expect to collect within a reasonable period of time.

How long will it take to get a decision on my Offer in Compromise?
Generally, if we accept your offer for processing, we will have a decision to you within 90 days after receiving your offer. If your account is more complex, it may take longer than 90 days.

Can I make payments on the offered amount?
No. We require a lump sum payment of the offered amount.

Can I apply prior payments to the offered amount?
We cannot apply prior payments toward the offered amount. However, we will consider prior payments and the offered amount compared to the total liability when evaluating your offer.

My Internal Revenue Service Offer in Compromise has been accepted. Will the Franchise Tax Board automatically approve my offer?
No. We will evaluate your Franchise Tax Board offer separately from your Internal Revenue Service offer.

If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
Yes. We will contact you to discuss your account and to determine the most appropriate resolution. For example, if it is determined that you will have the ability to make monthly payments that will exceed the amount offered, we will work with you to establish an installment agreement.

Will state tax liens be released if the Franchise Tax Board accepts my offer?
Generally, we release state tax liens upon final approval of your Offer in Compromise.

Do I need to have someone represent me?
Representation is not required. The Offer in Compromise program is available to all taxpayers, whether or not they are represented.

Can I get relief from the tax liability by filing bankruptcy?
Part or all of your taxes may be dischargeable under the bankruptcy code. If this is a consideration, you may want to seek legal advice.

Can I apply for an Offer in Compromise if I have no funds to offer?
No. We will not accept a zero dollar offer. Your offer must represent the most the Franchise Tax Board can expect to collect over a reasonable period of time.

What is a collateral agreement?
A collateral agreement is a contractual agreement between you and the Franchise Tax Board. By signing the agreement, you agree to pledge to us a percentage of income that exceeds an agreed upon threshold. Generally, the collateral agreement period is five years.

If my offer is approved, will I have to sign a collateral agreement?
If you are on a fixed income or have limited potential for increased earnings, a collateral agreement will generally not be required.

I am single now. If I marry while the collateral agreement is in effect, how will this affect me?
If you marry or enter into a Registered Domestic Partnership (RDP) while the collateral agreement is in effect, we will review any joint tax returns you are required to file. Generally, we consider your joint annual income in the collateral agreement. If you are married or a RDP filing separately, the evaluation will be based on your separate income.

Can I complete one application if I owe the Employment Development Department, the Board of Equalization, or the Franchise Tax Board?
To relieve some of the paperwork burden for taxpayers or their representatives, the State's three taxing agencies developed a single offer in compromise application. Individual taxpayers can use
DE 999CA (OIC Multi-Agency Application) to apply with any or all of the three agencies.

Offer in Compromise (OIC) applications:

Personal Income Tax (Individuals)
OIC FTB Application - FTB 4905PIT
OIC Multi-Agency Application - DE 999CA
Business Income Tax
OIC FTB Application - FTB 4905BE
By telephone:
Call 1-(800)-338-0505
Select personal income tax form requests
Enter Code 971 when prompted
For more information:

Call (916) 845-4787

Maryland Offer in Compromise Tax Liability Resolution Program

The Offer in Compromise Program is used to resolve tax liabilities with the Comptroller when the taxpayer is unable to pay in full and all other efforts to resolve the liability have been unsuccessful. This program can be used for all taxes administered by the Comptroller including the Admissions and Amusement Tax, Income Tax, Sales and Use Tax and Withholding Tax.


The Offer in Compromise Program is not an appeal of the taxpayer's liability. Instead, under the program we look at your available resources, consider the resources in the light of your circumstances, and arrive at an equitable resolution of your liability by considering a reduction or abatement of the amount due.
In order to apply for this program you must meet certain eligibility requirements and you must submit Form MD656 to:


Offer in Compromise Program
Comptroller of Maryland
301 West Preston Street, Room 203
Baltimore, Maryland 21201


Eligibility Requirements for Offers in Compromise Program
Before you can apply to this program, you must meet the following requirements:
• You have incurred a delinquent tax liability that has resulted in an assessment.
• You have exhausted all other avenues of administrative appeal.
• You cannot make an offer in compromise if there is any issue remaining that can be appealed.
• Two years must have passed since you became liable for the tax.
• You must be current with respect to all returns filed or required to be filed to the Comptroller's Office.
• You must not be currently involved in an open bankruptcy proceeding.
• You are unlikely to be able to make payment in full any time in the foreseeable future due to your financial situation.
• You either are without resources or unable to apply present and/or future resources to paying the outstanding tax liability.
Offer in Compromise Tax Liability Resolution Program
What is the Comptroller of Maryland's Offer in Compromise Program?
The Offer in Compromise Program is used to resolve tax liabilities for admissions and amusement tax, income tax, sales and use tax, employer withholding tax, or any other tax administered by the Comptroller's Office when the taxpayer is unable to pay in full and all other efforts to resolve the liability have been unsuccessful.
The Offer in Compromise Program is not an appeal of the taxpayer's liability. Instead, under the program, the Comptroller's Office looks at the taxpayer's available resources, considers the resources in the light of the taxpayer's circumstances, and arrives at an equitable resolution of the taxpayer's liability by considering a reduction or abatement of the amount due. See Section 6-219 of the State Finance and Procurement Article, Annotated Code of Maryland.
When can I resolve my liability under the Offer in Compromise Program?
Before you can apply to this program, you must meet the following requirements:
• You have incurred a delinquent tax liability that has resulted in an assessment.
• You have exhausted all other avenues of administrative appeal. You cannot make an offer in compromise if there is any issue remaining which can be appealed.
• Two years must have passed since you became liable for the tax.
• You must be current with respect to all returns filed or required to be filed to the Comptroller's Office.
• You must not be currently involved in an open bankruptcy proceeding.
• You are unlikely to be able to make payment in full any time in the foreseeable future due to your financial situation. You either are without resources or unable to apply present and/or future resources to paying the outstanding tax liability.
How can I apply for an Offer in Compromise?
To apply for an Offer in Compromise, taxpayers must submit Form MD 656 to:
Offer in Compromise Program
Comptroller of Maryland
301 West Preston Street, Rm. 203
Baltimore, Maryland 21201
When you complete Form MD 656, you should address all of the reasons you believe you cannot, or should not, pay the full amount due. You should offer an amount you are able to pay. A mere unwillingness to pay will not excuse you. The Comptroller will consider the following circumstances when deciding whether or not to accept an Offer in Compromise:
• Doubt as to liability. If you believe you don't owe the amount due, you must include with Form MD 656 a detailed explanation of the reason(s) you believe you do not owe the tax.
• Insufficient resources. If you don't have enough assets or income to pay the full amount, you must include with Form MD 656 a complete financial statement, Form MD 433-A for individuals and/or Form MD 433-B for businesses.
• Economic or other hardship. If you have enough assets to pay the full amount, but believe that because of your exceptional circumstances requiring full payment would cause an economic hardship or would be unfair and inequitable, you must include with Form MD 656 a complete financial statement, Form MD 433-A and/or Form MD 433-B.
Will my application be kept confidential?
Yes, All materials and statements submitted under the Offer in Compromise Program will remain confidential.
What are the Comptroller's procedures for Offers in Compromise?
All decisions under the Offer in Compromise Program are final and cannot be appealed. For this reason, you should carefully consider the facts and arguments you submit with the original offer.
You must remain current with respect to future filings for at least three years after the Offer in Compromise is accepted. If you do not, the full liability will become due immediately, and the comptroller will take all necessary action to collect.
The Comptroller's Office will review the Offer in Compromise and determine if there is sufficient reason for a reduction or abatement of the assessment.
If we determine that no grounds for adjustment exist, then you will be notified that your offer has been declined. The Comptroller's Office will consider another offer in compromise if circumstances change. If we determine that grounds for adjustment exist but that the amount offered is insufficient, we may advise you to increase your offer to an acceptable amount. If we determine that your offer is acceptable, you will be notified so payment can be made.

West Virginia State Tax Department Offer In Compromise Form CD-3 (Revised 4/05)

Taxpayer RepresentativeNames and Address of TaxpayerSocial Security or Tax Identification NumberName: Address Phone To: State Tax Commissioner Date Amount of Offer $ Total Liability$[1]This offer is submitted by the taxpayer to compromise a state tax liability for the following taxes and periods: TYPE TAXPERIODSTAXINTERESTADDITIONSTOTAL[2]The total amount of $__________________ is offered to compromise this liability. The total amount will be paid as follows: a) Initial Payment (with this offer): $_____________ b) Payment on Acceptance of Offer: $____________ c) Monthly Payment: $_______________ for ________ Month Interest at the legal rate under W. Va. Code §11-10-17 will accrue on the balance, if any, until it is paid in full. As a part of the consideration for this offer, the Taxpayer agrees that:[3]The State shall retain all payments and credits made to this liability prior to submission of this offer, and the State shall retain any overpayments or refunds to which the taxpayer may be entitled for periods extending to the end of the year in which this offer is accepted, or until the amount of the offer is paid in full. Any such refund received by the taxpayer after this offer is filed will be returned immediately.[4] All payments made under the terms of this offer shall be applied in the best interest of the State. [5]Upon acceptance of this offer, the taxpayers will have no right to contest the amount of the liability compromised. [6]If there is a default in any payment or other terms, including Item B, the State may collect the entire unpaid balance of the offer, or may disregard the amount of the offer and apply all amounts previously paid under the offer against the liability sought to be compromised and, without further notice of any kind, assess and collect the total liability.[7]The taxpayer agrees to the suspension of the period of limitations on assessment and collection until the total amount of the offer is paid, and there is full compliance with all terms and conditions of the compromise and for one year thereafter. Any compromise shall constitute an agreement to extend the statutes of limitation under Code §11-10-15(c)(1) and §11-10-16(e). [8]Any compromise is conditioned upon the taxpayer timely complying with all state tax laws regarding filing returns and payment of taxes for a period of 5 years after the offer is accepted. [9]A financial statement (433A and/or 433B), and a statement of the facts and reasons as grounds for this compromise, must be attached. [10] The taxpayer remains liable for the full amount of the liability, unless and until the offer is accepted in writing by the Commissioner or a delegated official, and there has been full compliance with the terms of the offer. Under penalties of perjury, I declare that I (we) have examined this offer, including accompanying statements, and to best of my (our) knowledge and belief it is true and correct and complete, and that I am authorized to make this offer on behalf of the taxpayer. Name of Taxpayer(s) ByIts Signature Date
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OFFERS IN COMPROMISE - INSTRUCTIONSAuthorityW. Va. Code §11-10-5q(c) allows the State Tax Commissioner to compromise a tax liability, which includes all tax, penalty, interest, or additions to tax.Reason for CompromiseWe are allowed to compromise a liability for one or both of the following two (2) reasons: (1) doubt as to whether the taxpayer owes the liability; (2) doubt that we can collect the full amount of the liability. This form and instructions is only used in cases of doubt as to collectibility.PolicyWe will accept an offer in compromise when it is unlikely that we can collect the tax liability in full, and the amount offered reasonably reflects the amount we can collect. An offer in compromise is a legitimate alternative to declaring a case as currently not collectible or to a long-term installment agreement. Our goal is to collect what is potentially collectible at the earliestpossible time and at the least cost to the State.The success of the compromise will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay the State. Taxpayers are expected to providereasonable documentation to verify their ability to pay. The goal is a compromise which is in the best interest of both the taxpayer and the State. Where an offer in compromise appears to be a workable solution, the employee assigned the case will discuss the compromise with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for making the first offer for compromise.Practical ConsiderationIt is the taxpayer's responsibility to show us why it would be in our best interest to accept your proposal. When we consider your offer we ask the following questions: (1) Could we collectthe amount owed through liquidation of your assets or through an installment agreement? (2) Could we collect more from your assets and future income than is offered? (3) Would collection in the future result in more payment than is offered? (4) Would the public believe that the acceptance of your offer was a reasonable action? The fact that you have no assets or income at this time from which the State could collect the liability does not mean that the State should simply accept any offer because it is all we can collect now. It would generally be better for us to reject a nominal amount and wait to see what collection potential would arise during the remainder of our ten-year collection period.Additional ConsiderationWe believe that you benefit if we accept your offer because you can manage your finances without the burden of a tax liability. Therefore, we may require either: (1) A written agreementthat will require you to pay a percentage of future earnings; and/or (2) A written agreement to give up present or future tax refunds.Tax Compliance(1) We will not accept your offer if you have not filed all tax returns. (2) We will also require that the taxpayer comply with all future filing and payment requirements. The terms of the offer require future compliance for a period of five (5) years.Collection and PaymentsThe submission of an offer does not automatically suspend collection. If it appears the offer was filed to delay collection of the tax or that delay would hinder our ability to collect the tax,we will continue collection efforts. If you have agreed to make installment payments before you made the offer, those payments should continue.Special Instructions for Offer in Compromise Form(1) The Offer in Compromise form must be used to submit an offer. The form must be filed with the Compliance Division. If you have been working with a specific employee on your case,file the offer with that employee.(2) Your full name, address and taxpayer identification number(s) must be entered at the top of the Offer form. If this is a joint liability (husband and wife) and both wish to make an offer,both names must be shown. If you are individually liable for a liability and are also jointly liable for another liability, and only one person is submitting an offer, only one offer must be submitted. If you are individually liable for one liability and jointly liable for another and both joint parties are submitting an offer, two (2) Offers must be submitted, one (1) for separate liabilityand one (1) for the joint liability.(3) You must list all liabilities to be compromised in item (1). The types of tax, the periods, and the amounts must be specifically identified.(4) The total amount you offer must be entered in item (2). The amount must not include any amount which has already been paid or collected on the liability. The amount submitted withthe offer is entered in 2(a); the amount is to be paid on acceptance of the offer is entered in (2) (b) and any amount to be paid in installments, is entered in 2(c) in item 2. You should pay the amount of the offer in the shortest time possible, or we will reject your offer. Under no circumstances should the payment extend beyond two (2) years. Interest is due at the legal rate from the date of acceptance to the date of full payment.(5) You must state in detail in item (9) why the State should accept your offer. Attach additional pages as necessary. Describes in detail why you believe the State cannot collect more than offered from your assets and your present and future income.(6) The taxpayer(s) must sign and date the offer. If a person other than the taxpayer signs the offer, a power of attorney must be submitted with the offer.(7) Form 433-A, Collection Information Statement for Individuals and/or Form 433-B Collection Information Statement for Business must accompany the Offer. A sole proprietorship liability requires 433-A for the individual and 433-B for the business. A business tax liability requires a 433-B for the business, and 433-A for the sole proprietor, partner(s) or responsible officer(s) seeking a compromise of personal liability. All blocks on forms 433-A and 433-B must be completed. When you submit Form 433-A and/or 433-B, documentation should be submitted to verify values of assets, encumbrances and income and expense information listed on the collection information statement.What You Are Agreeing ToPlease read the Offer in Compromise Form carefully so that you understand that you are agreeing to: (1) The period for collection is suspended while the offer is pending, while any amount offered remains unpaid, and for one (1) year after all terms and conditions of the offer are fulfilled.(2) You won't contest or appeal the amount of the liability if your offer is accepted.(3) You give up of overpayments (refunds) for all tax periods through the year the offer is accepted, and until the amount of the offer is paid in full.(4) The collection of the entire tax liability, if you do not comply with all the terms of the offer, i.e. payment, future compliance.

New York State Offer in Compromise Program

Offer in Compromise Program

The New York State Offer in Compromise Program allows qualifying, financially distressed taxpayers the opportunity to putoverwhelming tax liabilities behind them by paying a reasonableamount in compromise.

The Tax Department will not necessarily,however, accept every offer in compromise (also referred to asoffer throughout this publication).The Commissioner of Taxation and Finance is empowered tocompromise taxes for qualifying taxpayers under Tax Lawsections 171.15th, for liabilities considered fixed and final;171.18th-a, for liabilities still subject to administrative review;and 171.18th-d, for certain joint personal income tax liabilities.Under section 171.15th, if the tax portion of the liability is morethan $100,000 (not including penalties and interest),compromises must be approved by a New York State SupremeCourt justice. Other standards set forth in the Tax Law, andrequirements in Parts 5000 and 5005 of the New York StateOfficial Compilation of Codes, Rules, and Regulations(NYCRR), are described below.In most cases, to be eligible for an offer in compromise,taxpayers must be insolvent (liabilities exceed assets), and theTax Department’s ability to collect more than the amount offeredmust be in doubt. In addition, taxpayers making an offer musthave filed all applicable New York State tax returns.The taxpayer should make a reasonable monetary offer basedon his or her financial situation. If an offer is withdrawn orrejected, any money sent in by the taxpayer with the offer incompromise will be promptly refunded without interest or, atthe taxpayer’s request, applied to the tax liability. In addition,collection activities may continue while an offer is under review.InsolvencyA taxpayer is considered insolvent when the taxpayer’sliabilities, including tax liabilities, exceed the fair market value ofhis or her assets.The taxpayer must conclusively demonstratethis insolvency.

Collectibility

The department, after an evaluation, determines an amount thatit realistically expects could be collected within a reasonableperiod of time from the taxpayer’s assets.The amountacceptable in compromise cannot be less than what could beexpected to be collected from the taxpayer over that periodthrough legal proceedings, such as levies, income executions,and seizures.Offer in compromise formsForm DTF-4, Offer in Compromise, or DTF-4.1, Offer inCompromise – Fully Determined Liability, must be filed torequest an offer in compromise.A completed Form DTF-5, Statement of Financial Condition andOther Information, must be submitted with the last three yearsof federal income tax returns, a credit report less than 30 daysold, the last 12 months of bank statements, and Form DTF-4 orDTF-4.1 to:NYS TAX DEPARTMENTOIC PROGRAMPO BOX 5100ALBANY NY 12205-0100Offers in compromise when the liabilities areconsidered fixed and final (Tax Law section 171.15th)Offers under this subdivision apply to tax liabilities for whichfurther administrative or judicial review is not available.Therefore, the primary consideration is collectibility. An offerwould be considered if the taxpayer has been discharged frombankruptcy within the last year or is shown to be insolvent.Theamount accepted cannot be less than what could realistically beexpected to be collected from the taxpayer through legalproceedings.Offers in compromise when the liabilities are stillsubject to administrative review (Tax Lawsection 171.18th-a)Offers under this subdivision apply to tax liabilities that are stillsubject to administrative review, and are not fixed and final. Theoffer may be based on doubt as to the taxpayer’s liability for thetaxes due, or doubt as to the taxpayer’s ability to pay the taxesdue, in full, over a reasonable period.Trust tax liabilitiesFor trust tax liabilities (e.g., withholding tax, sales tax), anamount less than the tax amount owed, exclusive of penaltiesand interest, will not normally be accepted. However, uponevaluation of the facts of the specific case, the department maydetermine that a lesser amount is acceptable if it is in the bestinterest of all parties concerned.The department considerswhether the business is still in operation, and whether the trusttaxes were actually collected.Joint income tax liabilitiesFor joint income tax liabilities, the taxpayers may file an offerjointly on one Form DTF-4 or DTF-4.1, or may each file aseparate offer. If only one taxpayer’s offer is accepted and paid,the remaining taxpayer continues to be liable for the outstandingbalance of the liability. An accepted offer forgives furtherpayment only for the taxpayer whose offer was accepted.Responsible personA taxpayer assessed as a responsible person liable for thecollection and payment of trust taxes for a business maycompromise his or her trust tax liability separately from thebusiness. Any or all of the responsible persons may apply for anindividual offer in compromise.The department will make aseparate determination on each offer, based on thecircumstances of each responsible person who applies. If theoffer is accepted, the payments made toward the offer willreduce the business’s liability by that same amount. While thetaxpayer’s responsible person assessments are abated upon fullpayment of the accepted offer, the business’s assessments andthe assessments of any other responsible person will remainopen and collectible, less all payments made under the offer.If a business applies for an offer in compromise and theresponsible persons do not apply individually, acceptance of the
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Internet access:www.nystax.govAccess our Answer Center for answers tofrequently-asked questions; check your refund status;check your estimated tax account; download forms,publications; get tax updates and other information.Fax-on-demand forms: Forms areavailable 24 hours a day,7 days a week.1 800 748-3676Telephone assistance is available from 8:00 A.M.to 5:00 P.M.(eastern time), Monday through Friday.Refund status:1 800 443-3200(Automated service for refund status is available24 hours a day, 7 days a week.)To order forms and publications:1 800 462-8100Personal Income Tax Information Center:1 800 225-5829From areas outside the U.S. and outside Canada:(518) 485-6800Hearing and speech impaired: (telecommunications device for the deaf(TDD) callers only): 1 800 634-2110 (8:00 A.M. to 5:00 P.M., eastern time).Persons with disabilities: In compliance with theAmericans with Disabilities Act, we will ensure that ourlobbies, offices, meeting rooms, and other facilities areaccessible to persons with disabilities. If you havequestions about special accommodations for persons with disabilities,please call 1 800 225-5829.Need help?business’s offer would have no effect on a responsible person’sliability other than reducing his or her individual liability by anamount equal to that paid by the business.Offers in compromise when the liabilities concerncertain joint personal income tax liabilities(Tax Law section 171.18th-d)To qualify for an offer under this subdivision, a taxpayer musthave a liability on a previously filed joint income tax return and,at the time of the offer, the taxpayer and his or her spouse mustbe separated under a decree of divorce or separatemaintenance or a written separation agreement, or a judicialdecree of separation, or living apart and not considered marriedunder section 7703(b) of the Internal Revenue Code. It mustalso be determined that the collection of the spouse’s share ofthe liability from the taxpayer cannot be accomplished within areasonable period without imposing substantial economichardship on the taxpayer.Offer in compromise withdrawalThe taxpayer or the taxpayer’s representative may withdraw anoffer before an official review has been completed and before afinal decision has been made on the offer. In some cases, suchas when a taxpayer fails to supply requested information, thedepartment considers the offer to be withdrawn as incompleteand advises the taxpayer in writing of the decision.Offer in compromise acceptanceUpon acceptance of an offer, written notification will beprovided to the taxpayer or the taxpayer’s designatedrepresentative specifying the terms and conditions. Under theterms of the accepted offer, the taxpayer agrees to remainfully compliant with all Tax Law requirements, including filingreturns and paying tax when required for the next five years.Any state tax refunds payable to the taxpayer for periodsprior to and including the calendar year in which the offer isaccepted will be applied to the original outstanding liability.Any excess will be refunded to the taxpayer.Offer in compromise rejectionWritten notification is provided if an offer is rejected.Examples of reasons for rejection include, but are not limitedto:• The taxpayer does not meet the statutory requirements setforth in the New York State Tax Law.• The taxpayer submits false or misleading information.• The taxpayer submits a frivolous offer.• The taxpayer fails to make full financial disclosure.• There is evidence that assets were transferred for less thanthe fair market value.• The taxpayer shows a lack of a good faith effort to repaythe liability.• The tax liability sought to be compromised directly relatesto a crime for which the taxpayer has pleaded or beenfound guilty.Publication 220 (6/04) (back)Depending on the circumstances, the department mayreconsider a rejected offer if there is a material change in thetaxpayer’s circumstances, if the department misinterpretedinformation contained in the original offer, or if the taxpayeroffers a substantial increase in the amount that was originallyoffered.Defaulted offersIf a taxpayer fails to abide by all of the terms and conditions ofthe offer in compromise, the offer is in default. Upon default andrevocation, the original liability is reinstated, including allappropriate penalty and interest, minus any payments receivedon the offer.Offers made to the Internal Revenue ServiceThe New York State Offer in Compromise Program is distinctfrom similar programs offered by the federal government. Forexample, the guidelines for the acceptance of offers differ.However, the department will accept a copy of the federal offerin compromise collection information statement as part of theapplication process.If you have questions about the NewYork State Offer inCompromise Program, please call (518) 457-9086 from8:00 a.m. to 4:25 p.m. (eastern time), Monday through Friday.For forms and other information, see Need help? below.

Utah offer in compromise

Publication 22Revised 1/04General Information

An Offer in Compromise is the settlement of a tax liability for less than full payment when it is determined that no other means is available to the Tax Commission to collect the full amount. The taxpayer has the burden of proof to establish the grounds of the settlement, and must provide sufficient documentation to prove the case.It is the policy of the Utah State Tax Commission to imple-ment the Offer in Compromise procedure in a fair and expe-ditious manner.The taxpayer does not have a legal right to have a tax liability settled through an Offer in Compromise.Who Qualifies?The following provides helpful information about the Offer in Compromise procedure of the Utah State Tax Commission.When an analysis of taxpayer’s assets, liabilities, income and expenses shows that a liability cannot realistically be paid in full in the foreseeable future, an offer in compromise may be considered.An Offer in Compromise must cover the liability for tax, penalty and interest for the taxpayer’s entire account. If the offer is accepted by the Tax Commission, the liability for the period(s) covered by the offer are conclusively and finally settled (with the exception of future audits).When an offer is submitted and there is no reason to believethat collection of the tax liability sought to be compromised would be jeopardized, collection activity is normally suspend-ed. However, the submission of an offer is not an automatic stay, particularly if the proposal is frivolous or appears to be a delaying tactic.If an offer is accepted, the taxpayer will be notified in writing. Allaction prior to that point constitutes a recommendation only.Offer in Compromise ProceduresA request for an Offer in Compromise must contain the fol-lowing documentation before it will be considered:• A signed statement from the taxpayer requesting the offer, detailing the terms of the offer, and providing the grounds for its acceptance.• A current financial statement from the taxpayer.• Written evidence to support the offer. Oral statements are not considered tangible evidence on which to base a deci-sion.Once a complete offer in compromise proposal has been received, the Tax Commission will:• Review the reason for the request and the documentation provided.• Determine if more documentation is needed to consider the request. If additional information is required, the tax-payer will be asked to provide the necessary documenta-tion.• Conduct an investigation to determine the appropriate decision.Capacity to PayAn offer must reflect the taxpayer’s maximum capacity to pay.The following circumstances are considered in making that determination:• Liquidation of assets and payments from present and futureincome will not result in full payment of the tax liability.• A non-liable spouse has property which he or she may be willing to utilize in order to secure a compromise of the spouse’s tax debt.• A non-liable third party may be interested in purchasing the taxpayer’s business assets.• The taxpayer is selling an interest in assets, against which collection action cannot be taken.
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page 222• Amounts that may be collectable through the successor liability or personal assessments programs.• Collateral agreements may be secured as additional con-sideration for acceptance of the offer.Collateral AgreementsIf a collateral agreement is needed for an offer to be ap-proved, the taxpayer will be notified. Collateral agreements may provide for:• Payments from future income.• Waiver of net operating loss or unused investment credit carrybacks or carryovers.• Waiver of bad debt loss or other deductions.Approved OffersIf the offer is approved, the taxpayer will be notified in writing.The taxpayer will be given an appropriate amount of time inwhich to submit the amount of the offer to the Tax Commission.If the offer is approved, the taxpayer may be required to waive certain refunds or credits. These refunds or credits cover periods that end before, within, or as of the end of the calendar year in which the offer is accepted. Offsets are lim-ited to the difference between the tax liability and the amount of the offer accepted and paid.Denied OffersAn offer will be denied if any of the following circumstances are found:• There is no question as to the collectability. (The taxpayer can pay the account in full, via assets, payment agree-ment, etc.)• The offer is determined to be frivolous.• The offer was filed merely to delay collection action.• The taxpayer has submitted an amended offer which is not significantly different from a previously denied offer.The taxpayer will be notified, in writing, that the offer has been denied. The taxpayer may submit a new or amended offer. The new or amended offer will be considered if it re-solves all issues which caused the prior offer to be denied.Amending an OfferAn amended offer changes the amount and/or terms of the Offer in Compromise. Taxpayers may amend an offer by:• Making and initialing a change on the original offer.• Submitting a separate statement outlining the change.• Submitting a new offer.If the taxpayer amends an offer by submitting a separate statement, the statement should be signed, dated, and prop-erly referenced to the original offer.

MAINE OFFER IN COMPROMISE

Generally.

The State Tax Assessor has the authority under 36 MRSA §143 to settle (compromise) any tax liability owed to the State of Maine. While anyone with an existing tax debt may submit an offer in compromise of that debt, the Assessor’s authority is wholly discretionary; no taxpayer has a right to settle a state tax debt. A settlement must be grounded upon doubt as to liability, doubt as to collectibility or both. Please note the following:

“Tax liability” means all of the tax, interest, and penalties owed by the taxpayer. In some cases, it may also include certain fees and costs.
“Doubt as to liability” means there is reasonable doubt that you legally owe all of the tax liability that has been assessed, based upon the facts and circumstances of the specific case.

“Doubt as to collectibility” means there is doubt that you are able to pay the debt in the foreseeable future; or the risk that the debt will become uncollectible is sufficient to warrant acceptance of less than the full amount owed.

Requirements for submitting an offer.
The following requirements must be met before your offer will receive consideration:

You must generally have filed all tax returns due, or show why the returns do not need to be filed. This includes both individual income tax returns and all business-related tax returns for which you are responsible.

A settlement offer based wholly or partly on doubt as to liability requires a detailed explanation and should be accompanied by documents supporting your case. Remember that the essence of doubt as to liability is that under the relevant law, there is at least a reasonable argument that you don’t owe either all or part of the assessed tax.

An offer based wholly or partly on doubt as to collectibility requires a complete and accurate personal financial statement. If you own or control a business, you may be required to submit financial statements for your business as well. Your statements must identify all of your income and all assets and liabilities. A financial statement later determined to be false in any material way may result in charges of perjury and may cause the agreement to be set aside and the debt reinstated.

The State Tax Assessor will never settle a tax liability if the assessor finds that the taxpayer has acted with intent to defraud. Frivolous offers and offers submitted to delay collection of tax will be rejected immediately.


Factors considered.
The State Tax Assessor considers many factors in determining whether or not to accept an offer in compromise. Each case is evaluated on its own merits; Maine Revenue Services (MRS) does not employ a formula in considering offers. In one case a payment offer of 20% of the tax debt may be deemed acceptable, while in another payment of 50% may be considered in the State’s best interests, and in yet a third, MRS may not settle for less than payment of all tax principal, together with some or all accrued interest – or may decide not to compromise the debt at all. When determining whether to accept a compromise offer based wholly or partly on doubt as to liability, the following factors will be considered:


The likelihood of the State prevailing on the issue were it to be litigated;
Any ambiguity in the applicable laws or rules, as demonstrated by both the laws and rules themselves and the common interpretation and application of the same among tax practitioners and/or similarly-situated taxpayers; and
Whether tax was collected but not remitted to the State by the taxpayer.
In addition, the following factors are important:

Repeated non-compliance or attempts to avoid paying a tax obligation over time;
Evidence that the taxpayer has the ability to pay the tax in full or to pay significantly more than the amount offered, either by liquidating assets, including pension funds, or by means of a payment agreement over a reasonable period of time;
The potential for an increase in the taxpayer’s earnings, the value of their assets or a decrease in expenses or the value of liabilities, particularly when collection activity has been pursued for only a limited period of time;
The omission of information about assets or income on present or previously-submitted financial statements, or a failure to respond to requests to clarify or document information on the financial statement;
Prior attempts by MRS to collect the tax. Generally, the longer and more thorough the history of collection activity by MRS, the more likely the collectibility of the account will be considered doubtful.

Where to send the offer:
Mail the offer to the address noted below. You may attach a check payable to the Treasurer, State of Maine, together with any supporting documents.


Maine Revenue Services
Compliance Division
PO Box 9113
Augusta, ME 04332-9113

If you know the name of the examiner or agent handling your case, please include his/her name in the lower left hand corner of the envelope.


Collection actions.
Merely submitting an offer will not stop ongoing collection operations. If your offer is based on doubt as to liability, you may request that collection operations be suspended while the offer is being considered, but the Assessor is not required to honor your request.

Acceptance or rejection. MRS may accept your offer as presented, may make a counteroffer of an acceptable amount or may reject your offer without explanation. A decision to reject your offer is not subject to administrative or judicial review under 36 MRSA §151. Generally, you will be notified of the decision by mail.

If an agreement is reached, MRS will prepare a written agreement for your signature. When the agreement has been signed and returned, it will be authenticated on behalf of the State Tax Assessor and a copy provided for your permanent records. Keep the copy in a safe place along with evidence of payment.


Interim billing.
You will remain responsible for the entire tax liability until all terms and conditions of the agreement have been met. MRS will not alter its records and normal billing will continue during the time your offer is under consideration and completion of the terms and conditions is pending.

Form and amount of offer. The offer should be submitted in the form of a letter detailing what you are offering and why you believe that acceptance of the offer is in the best interest of the State of Maine . Include the following in your letter:

The exact amount offered and any proposed terms or conditions associated with your offer.
If your offer is based on doubt as to liability, include a detailed explanation of why doubt exists and attach any available documents that show that you do not owe the amount assessed.
If your offer is based partly or wholly on doubt as to collectibility, attach complete and accurate financial statements. Personal financial statements include the requirements that you attach a copy of your most recent federal income tax return and, unless you are self-employed, copies of two recent pay vouchers.
Upon request, MRS will provide you with a detailed breakdown showing how much you owe by account and period. Further, a list of unfiled returns will be provided for all known accounts.


Payment.
The preferred method of payment for any offer is a single payment in cash, certified or bank check or money order within 30 days of reaching an agreement to compromise a tax liability. When necessary, the terms of your offer may include installment payments over a specific period of time. Your ability to pay the debt will govern whether installment payments are acceptable.

Refunds, state or federal, will be offset against state tax debts. A refund received or setoff before completion of the terms and conditions of the agreement will not be counted towards the agreement amount unless specifically included in the agreement. Generally, to be included in the agreement, you must provide evidence of the amount of any expected refund.
Installment payments received prior to submission of the offer or while the offer is being considered may not be counted against the agreement amount unless specifically included in the agreement. Similarly, payments received from levies issued prior to receipt of your offer and received after the agreement has been reached will not be applied against the agreement amount unless specifically included in the agreement. MRS will not collect more than the full amount of tax, interest and penalty that is owed.

Responsible individuals and business successors.
In some cases an individual taxpayer may be assessed as a “responsible individual” for the tax debts of a corporation, partnership or other business entity. A person who has purchased a business that owes state withholding and sales taxes may also be assessed for some or all of those taxes if the buyer has failed to set aside money from the purchase price. In some cases, more than one person will be held responsible for the same debts and collection steps may be taken against them jointly and severally. Your offer will normally be construed to relate only to your own individual responsibility for the tax debt. If an agreement is reached in which an amount of the “responsible individual” debt remains after the terms and conditions have been completed, MRS may continue collection action against the other responsible individuals in order to recover the remainder of the debt. If you intend that your offer satisfy the debt for all responsible individuals, you must clearly state that as a condition of your offer. If acceptable to the State, this condition will be included in the agreement prepared for your signature.

Liens. Liens filed in registries of deeds or with the Maine Secretary of State will not be released until all conditions of the agreement have been met. If you need the liens released immediately upon payment, make the payment by bank check and request copies of the lien releases be sent to you.


Bankruptcy.
If you are the debtor in a Chapter 7 bankruptcy proceeding, MRS generally will not consider an offer in compromise until you have received a discharge from the Bankruptcy Court. If you are in a Chapter 13 or Chapter 11 case and want to submit an offer in compromise, the matter will be referred to the MRS General Counsel.


Conclusively settled.
Upon acceptance by the State Tax Assessor, your liability will be conclusively settled and neither you nor MRS may reopen the case unless there has been falsification or concealment of assets on your part or there has been a mutual mistake of a material fact. The State Tax Assessor has discretionary authority to reopen the case if justice requires.


Default.
If you default on the agreement, you will be held responsible for the full amount of your tax liability including any additional interest or penalty accruals. Upon default, any payments made will be applied against your original tax liability and enforced collection measures may be used, without further warning, to collect the balance of the debt.


Hypothetical Examples.
Example 1: John has a history of repeatedly failing to file his tax returns, being audited and paying up only after the audit. This time, John submits an offer in compromise instead of paying the bill in full. The offer may be rejected if John’s compliance history indicates he will continue his historical pattern.
Example 2: Jane has rebuffed all collection efforts until a notice of intent to revoke her seller’s certificate is delivered to her business. Jane files an offer in compromise proposing to pay part of the amount owed two years after acceptance in full settlement of the liability. This offer may be rejected as another attempt to avoid payment of the taxes due.
Example 3: Mike is the owner and manager of Mike’s Pub. Upon being assessed by the state as a responsible person for the unpaid sales and withholding taxes, he transfers title to his house to his wife for nominal consideration; he doesn’t appeal the assessment but ultimately submits an offer in compromise, and doesn’t list the house as an asset. This offer may be rejected based on the apparent attempt to place assets beyond the State’s reach.
Example 4: Paul has a retirement account worth $1,000,000 which is protected from his creditors but from which he is receiving monthly payments. He has the ability to withdraw funds if he chooses to pay his $50,000 tax bill. He proposes to make an offer in compromise using funds received on a monthly basis from his retirement plan although he could pay in full by making a withdrawal. This offer is likely to be rejected based on his ability to pay in full.
Example 5: Helen has minimal assets but has a job that currently pays her $6,000 per month with the potential for her to earn more. Her normal living expenses are $3,500 although she is also paying $2,500 per month for the remainder of the year to settle a Federal tax obligation. Helen’s offer in compromise on her $50,000 tax bill is likely to be rejected, as she could make a payment agreement that would allow her to pay in full fairly quickly once her IRS obligation is met.
Example 6: Judy was the general manager and responsible officer for XYZ Inc., which has just been forced into Chapter 7 Bankruptcy. Judy is personally responsible for some unpaid sales and withholding taxes. She is also liable, as a guarantor, for most of XYZ’s bank debt and the bank has a lien on her home to secure this. An offer in compromise submitted by Judy at this point may be rejected as premature because of the difficulty in evaluating what her earnings will be over the next several years and the difficulty in evaluating the value of her assets until the corporate bankruptcy is completed.
Example 7: Heather submitted an offer in compromise failing to disclose her ownership of an expensive sports car. MRS discovered this during an investigation of her financial status and her offer was rejected. Heather files a new, increased, offer with a new financial statement that does list the automobile. This new offer may be rejected because of the prior deliberate omission; the State Tax Assessor must be able to rely on the information provided.
Example 8: James submitted a financial statement, which listed monthly expenses of $3,700 and monthly income of $1,900 from his business and $1,800 in gifts from friends and relatives. When asked to document the monthly gifts, James failed to do so other than to reiterate that every month he did receive $1,800 from unnamed sources. James’s offer in compromise may be rejected due to unresolved doubts about the accuracy of the information he has submitted.
Example 9: Sarah files for Chapter 7 and submits an offer in compromise. The offer will be rejected. Sarah may submit a new offer in compromise after the bankruptcy is completed. Sarah’s ability to pay the taxes may be increased by the discharge of her other liabilities.
Example 10: ABC Sports Cards has been collecting but not paying over the sales tax for 2 years. They finally file delinquent returns along with an offer in compromise proposing to pay only 25% of the amount collected. Due to the nature of the tax, this offer may be rejected as not being in the best interest of the State of Maine.
Use the following address for Rapid Delivery: For Express Mail, Courier and Package Delivery Services:


Maine Revenue Services
Compliance Division (Cummings)
26 Edison Drive
Augusta , ME 04330

CONTACT:
TELEPHONE: (207) 624-9595
FAX:(207) 287-6627

Offer in Compromise
The State of Ohio has established a formal Offer in Compromise Program with respect to claims certified by various state agencies, including the State of Ohio, Department of Taxation, to the Office of the Attorney General for collection. Pursuant to Ohio Revised Code §131.02 and 5703.06, the Offer in Compromise Program allows the Attorney General with the consent of the state agency to compromise a claim for less than the tax, premium or principal liability, without reference to penalties or interest, due to (1) economic hardship, (2) doubt as to liability, or (3) in limited instances, a substantial probability that the claim, if collected, would be subject to refund under the respective agencies' statutes, rules or regulations. (The State of Ohio, Department of Taxation could not previously compromise a claim for less than the tax amount.) To the extent an individual or entity (including innocent spouse) seeks only to waive all or a portion of penalty or interest, such request may be processed through the Office of the Attorney General.

Delaware Offer in Compromise

OFFER IN COMPROMISE
Submitting An Offer In Compromise -

In some accounts, the amount of accruing penalties and interest is so large that the monthly payments may never pay off the tax. An Offer in Compromise may be a practical way for you to resolve your outstanding tax bill. Under certain conditions the DE DOR will settle unpaid accounts for less than the full amount of the balance due. This applies to all tax types arising under the DE DOR administration.

How To File An Offer In Compromise

An Offer in Compromise must be made in writing, addressed to the attention of your account assignee, Delaware Division of Revenue, 820 N. French Street, Wilmington, Delaware 19801, requesting a reduction in the penalty and interest on your account.

A collection information statement must be completed and returned. This can be mailed to you or obtained from The Delaware Division of Revenue web site.

All past tax returns must be filed with DE DOR before an Offer would be considered.

Grounds For Filing An Offer In Compromise - You can submit a letter for an Offer in Compromise if it is made on one or both of the following grounds:

(1) Doubt as to the liability for the amount owed;
or
(2) Doubt as to your ability to fully pay the amount owed. (If this is due to health reasons, documentation from your physician should also be submitted.)
Upon receipt of your letter, your account is forwarded for calculation of a compromise amount. Please allow 2 to 3 months. If you have previously compromised with the Internal Revenue Service, include a copy of that compromise acceptance and documentation of the total due to the IRS before the compromise. This will make a difference in the method used to calculate the amount of the compromise.

Due to the fact that compromises are given under the assumption that the debt can not be paid in full, if you live in the State of Delaware, or a State that Delaware has an agreement with to intercept refunds, compromises are not calculated January 1 through April 30th. If your refund will pay the balance due, then it is assumed you have the ability to pay. Once you file your current year return and provide a copy of your current year federal return, a compromise will be considered.

Agreement of an Offer In Compromise

Upon receipt of the offer in compromise agreement, you are required to sign and return the agreement to make the compromise valid. When signing this agreement, you agree to file, timely, and pay all future tax returns for the next 5 years.

If you do not file your taxes timely, any amount abated from your account due to the compromise will be added back and collected in full. If a tax lien had been satisfied, it will be stricken in the court and remain valid on your credit record until the amount is paid in full.

If you file timely but are not able to pay the balance in full, you must enter in to a payment plan to keep your compromise valid. Any default in the payment plan may make your compromise null and void. No compromise will be given on any future tax liabilities.

Note: Submission of an Offer in Compromise does not automatically stop collection action on your account. If there is any indication that you filed the offer simply to delay collection of the tax or that the delay would interfere with collecting tax, we will immediately continue our collection efforts.

What is an Offer in Compromise

What You Must Know Before You File an Offer in Compromise

Do You Qualify for an Offer in Compromise

How to File an Offer in Compromise

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.

Taxpayers should beware of promoters’ claims that tax debts can be settled through the offer in compromise program for "pennies on the dollar".

Three Types of OICs

The IRS may accept an offer in compromise based on three grounds:

1. Doubt as to Collectibility - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.

2. Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.

Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005. Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.

3. Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.

OIC Payment Options
In general, a taxpayer must submit a $150 application fee and initial payment along with the Form 656, Offer in Compromise. Taxpayers may chose to pay their offer in compromise in one of three payment options:

1. Lump Sum Cash Offer - Payable in non-refundable installments, the offer amount must be paid in five or fewer installments upon written notice of acceptance. A non-refundable payment of 20 percent of the offer amount along with the $150 application fee is due upon filing the Form 656.

If the offer will be paid in 5 or fewer installments in 5 months or less, use the realizable value of assets plus the amount that could be collected over 48 months of payments or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 5 months and within 24 months, use the realizable value of assets plus the amount that could be collected over 60 months of payments, or the time remaining on the statute, whichever is less.

If the offer will be paid in 5 or fewer installments in more than 24 months, use the realizable value of assets plus the amount that could be collected over the time remaining on the statute.

2. Short Term Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid within 24 months of the date the IRS received the offer. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the offer investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect over 60 months of payments or the remainder of the statutory period for collection, whichever is less.

3. Deferred Periodic Payment Offer - Payable in non-refundable installments; the offer amount must be paid over the remaining statutory period for collecting the tax. The first payment and the $150 application fee are due upon filing the Form 656. Regular payments must be made during the investigation.

The offer amount must include the realizable value of assets plus the total amount the IRS could collect through monthly payments during the remaining life of the statutory period for collection.

The IRS is not bound by either the offer amount or the terms proposed by the taxpayer. The OIC investigator may negotiate a different offer amount and terms, when appropriate. The investigator may determine that the proposed offer amount is too low or the payment terms are too protracted to recommend acceptance. In this situation, the OIC investigator may advise the taxpayer as to what larger amount or different terms would likely be recommended for acceptance.

An offer in compromise payment options comparison table is available for taxpayers to compare the requirements associated with each payment option.

Payments and Application Fees
When filing an offer in compromise, two separate remittance documents should be sent, one for the application fee and the other for the required offer payment. All payments should be made by check or money order made payable to the United States Treasury. Practitioners who file multiple OICs at the same time should not combine application fees for multiple clients.

The Form 656-PPV, Offer in Compromise Payment Voucher, included in the Form 656, should be completed and attached to any periodic payment(s) that becomes due. Failure to submit any required periodic payments, after the initial payment has been submitted, will result in the offer being declared withdrawn. For offers originally sent to Holtsville, NY, send payments to: P.O. Box 9011, Holtsville, NY 11742. For offers originally sent to Memphis, TN, send payments to: AMC Stop 880, P.O. Box 30834, Memphis, TN 38130-0634.

The OIC application fee reduces the assessed tax or other amounts due. The application fee will be returned if the OIC is deemed not to be processable. Unless the offer in compromise has been submitted under doubt as to liability or a completed Form 656-A and Offer in Compromise Application Fee and Payment Worksheet is included with the Form 656, the $150 application fee must be included with the offer or the IRS will return the offer.

All Taxpayers Do Not Qualify for an Offer in Compromise

Absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an offer in compromise will not be accepted.

Offer in Compromise Payments are Non-refundable

The IRS considers the 20 percent payment for a lump sum offer and any periodic payments as “payments on tax” and are not refundable, regardless of whether the offer is declared not-processable or is later returned, withdrawn, rejected or terminated by the IRS.

Federal Tax Liens are Not Released

If there is a Notice of Federal Tax Lien on record prior to acceptance of the offer, the lien is not released until the OIC terms are satisfied or until the liability is paid, whichever comes first. A Notice of Federal Tax Lien may be filed during the course of the OIC investigation.

Payments May be Designated

You may designate in writing how the IRS should apply payments made with the filing of the offer and while an offer is under investigation. Without a written designation, payments will be applied to the tax liability and in the government’s best interest. The $150 application fee cannot be designated, but is applied to the tax liability and in the government’s best interest.

Refunds

The IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts the OIC.

Exception: Offers submitted under the basis of doubt as to liability.

Levies

The IRS will keep all payments and credits made, received or applied to the total original tax liability before the OIC was submitted. The IRS may also keep any proceeds from a levy that was served prior to the submission of an OIC, but which were not received at the time the OIC was submitted.

Statutory Period for Collection Suspended

The statutory period for collection is suspended during the period that the OIC is under consideration (pending) and is further suspended if the OIC is rejected by the IRS and you appeal the rejection.

Five Year Compliance

If your offer is accepted, you must timely file all tax returns and timely pay all tax for five years or until the offered amount is paid in full, whichever period is longer. Failure to adhere to these terms will result in default of the offer and the IRS may then collect the amounts originally owed plus penalties and interest.

OIC Payment and Application Fee Exceptions

If you qualify for a low-income exception waiver or you submit a doubt as to liability offer you are exempt from the $150 application fee and any OIC payments due upon submission of the OIC or during the course of the investigation. The low income waiver does not apply to businesses.

Appeal

If your OIC is rejected, you will have the opportunity to file an appeal which will be heard by the IRS Office of Appeals. There are no appeal rights associated with offers that are returned, withdrawn or terminated.

Approved Installment Agreement

If you have an approved installment agreement and submit a periodic payment offer, you are not required to continue to make the installment agreement payments while the offer is being investigated. You will, however, be required to make the OIC periodic payments as they become due.

Mandatory Acceptance

Per IRC 7122(f), the IRS will deem an offer “accepted” if it is not withdrawn, returned or rejected within 24 months of the IRS receipt date. If a liability included in the offer amount is disputed in any judicial proceeding, that time period is omitted from calculating the 24-month time frame.

Califoria Offer in Compromise (OIC)

Questions and Answers | Personal Income Tax - OIC FTB Application (4905PIT) - OIC Multi-Agency Application (DE 999CA) | Business Entities Tax - OIC FTB Application (4905BE)

What you should know before preparing an Offer in Compromise

Are you an Offer in Compromise candidate?

If you are an individual or business taxpayer that does not have the income, assets, or means to pay your tax liability now or in the foreseeable future, you may be a candidate. The Offer in Compromise program allows you to offer a lesser amount for payment of a non-disputed final tax liability.

Generally, we approve an Offer in Compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.

Although we evaluate each case based on its own unique set of facts and circumstances, we give the following factors strong consideration:

The taxpayer's ability to pay.
The amount of equity in the taxpayer's assets.
The taxpayer's present and future income.
The taxpayer's present and future expenses.
The potential for changed circumstances.
Whether the offer is in the best interest of the state.
Can we process your application?

We will only process your Offer in Compromise application if you have done all of the following:

You have filed all of the required tax returns. If you have no filing requirement, note it on the application.
You have fully completed the Offer in Compromise application, and provided all supporting documentation.
You agreed with the Franchise Tax Board on the amount of tax that you owe.
You authorized the Franchise Tax board to obtain your consumer credit report and to investigate and verify the information you provided on the application.
Will a collateral agreement be required?

Upon approval, we may require you to enter into a collateral agreement for a term of five years. Generally, a collateral agreement will be required if you have significant potential for increased earnings. A collateral agreement requires you to:

Pay us a percentage of your future earnings that exceed an agreed upon threshold.
Are collections suspended?

Collection activity is not automatically suspended. If delaying collection activity jeopardizes our ability to collect the tax, we may continue with collection efforts. Interest will continue to accrue.

When should offered funds be submitted?

You should not submit the offered funds until we request them. When we do ask for the funds, submit them by cashiers check or money order.

What documentation is required with the application?

For a check list of required items:

Personal Income Tax - see page 3 of FTB 4905PIT
Business Income Tax - see page 4 of FTB 4905BE
Questions and Answers

What does the Franchise Tax Board consider a fair offer in relation to the amount due?
How long will it take to get a decision on my Offer in Compromise?
Can I make payments on the offered amount?
Can I apply prior payments to the offered amount?
My Internal Revenue Service Offer in Compromise has been accepted. Will the Franchise Tax Board automatically approve my offer?
If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
Will state tax liens be released if my offer is accepted?
Do I need to have someone represent me?
Can I get relief from the tax liability by filing bankruptcy?
Can I apply for an Offer in Compromise if I have no funds to offer?
What is a collateral agreement?
If my offer is approved, will I have to sign a collateral agreement?
I am single now. If I marry while the collateral agreement is in effect, how will this affect me?
Can I complete one application if I owe the Employment Development Department, Board of Equalization, or the Franchise Tax Board?
What does the Franchise Tax Board consider a fair offer in relation to the amount due?
Generally, an offer will be accepted when the amount offered is the most the Franchise Tax Board can expect to collect within a reasonable period of time.

How long will it take to get a decision on my Offer in Compromise?
Generally, if we accept your offer for processing, we will have a decision to you within 90 days after receiving your offer. If your account is more complex, it may take longer than 90 days.

Can I make payments on the offered amount?
No. We require a lump sum payment of the offered amount.

Can I apply prior payments to the offered amount?
We cannot apply prior payments toward the offered amount. However, we will consider prior payments and the offered amount compared to the total liability when evaluating your offer.

My Internal Revenue Service Offer in Compromise has been accepted. Will the Franchise Tax Board automatically approve my offer?
No. We will evaluate your Franchise Tax Board offer separately from your Internal Revenue Service offer.

If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
Yes. We will contact you to discuss your account and to determine the most appropriate resolution. For example, if it is determined that you will have the ability to make monthly payments that will exceed the amount offered, we will work with you to establish an installment agreement.

Will state tax liens be released if the Franchise Tax Board accepts my offer?
Generally, we release state tax liens upon final approval of your Offer in Compromise.

Do I need to have someone represent me?
Representation is not required. The Offer in Compromise program is available to all taxpayers, whether or not they are represented.

Can I get relief from the tax liability by filing bankruptcy?
Part or all of your taxes may be dischargeable under the bankruptcy code. If this is a consideration, you may want to seek legal advice.

Can I apply for an Offer in Compromise if I have no funds to offer?
No. We will not accept a zero dollar offer. Your offer must represent the most the Franchise Tax Board can expect to collect over a reasonable period of time.

What is a collateral agreement?
A collateral agreement is a contractual agreement between you and the Franchise Tax Board. By signing the agreement, you agree to pledge to us a percentage of income that exceeds an agreed upon threshold. Generally, the collateral agreement period is five years.

If my offer is approved, will I have to sign a collateral agreement?
If you are on a fixed income or have limited potential for increased earnings, a collateral agreement will generally not be required.

I am single now. If I marry while the collateral agreement is in effect, how will this affect me?
If you marry or enter into a Registered Domestic Partnership (RDP) while the collateral agreement is in effect, we will review any joint tax returns you are required to file. Generally, we consider your joint annual income in the collateral agreement. If you are married or a RDP filing separately, the evaluation will be based on your separate income.

Can I complete one application if I owe the Employment Development Department, the Board of Equalization, or the Franchise Tax Board?
To relieve some of the paperwork burden for taxpayers or their representatives, the State's three taxing agencies developed a single offer in compromise application. Individual taxpayers can use
DE 999CA (OIC Multi-Agency Application) to apply with any or all of the three agencies.

Offer in Compromise (OIC) applications:

Personal Income Tax (Individuals)
OIC FTB Application - FTB 4905PIT
OIC Multi-Agency Application - DE 999CA
Business Income Tax
OIC FTB Application - FTB 4905BE
By telephone:
Call 1-(800)-338-0505
Select personal income tax form requests
Enter Code 971 when prompted
For more information:

Call (916) 845-4787

Section 5.11.1 of the Internal Revenue Manual provides background information on notices of levy. The Internal Revenue Code (IRC) authorizes levies to collect delinquent tax. See IRC 6331. Any property or right to property that belongs to the taxpayer or on which there is a Federal tax lien can be levied, unless it is exempt. See IRM 5.11.1.3 for restrictions on levy issuance.

There is no legal distinction between levy and seizure. Generally, use a notice of levy (Form 668-A/668-W) to take a taxpayer's property held by someone else if it can be turned over by writing a check.

Example:

Notice of Levy is often used to take a taxpayer's bank account, wages, other income, or accounts receivables.

• If the taxpayer is holding the property, use the procedures in IRM 5.10, Seizure and Sale.

Example:

Seizure procedures are used to take a taxpayer's car, house, or business property.
• If a third party is holding property that cannot be turned over by writing a check, use seizure procedures. Also, give a Form 668-A, Notice of Levy, to the third party holding the property. This is the demand to turn over the taxpayer's property. See IRM 5.10.3.5,Seizing the Property.

Example:

If a taxpayer's car is seized in a commercial parking lot, seizure procedures include giving the attendant a Form 668-A, Notice of Levy, to demand that the car be turned over.

2. There is no required sequence for levying. Generally, though, levy funds that are held by a third party first. This is usually less time consuming.

5.11.1.1.3 (07-26-2002)
Appeals
1. Taxpayers may be entitled to a Collection Due Process (CDP) hearing under IRC 6330, or an equivalent hearing. See IRM 5.1.9.3, Collection Due Process.
2. Notices of levy can also be appealed under the Collection Appeals Program (CAP) regardless of whether the taxpayer can appeal under IRC 6330. CAP was created to give taxpayers a chance for administrative review that is independent from the Collection function. See IRM 5.1.9.4,Collection Appeals Program.
5.11.1.2 (01-01-2006)
Pre-Levy Actions
1. This subsection contains guidance on pre-levy actions.
5.11.1.2.1 (01-01-2006)
Required Notices
1. Before property can be levied, the taxpayer must be given a
• Notice and demand
• Notice of intent to levy, and
• Notice of a right to a Collection Due Process (CDP) hearing
Note:
When a notice of levy is issued to a third party, it is a third party contact. Unless an exception applies, IRC 7602(c) states taxpayers must be given reasonable notice the Service plans to make such contacts to collect delinquent tax. Make sure the taxpayer has been advised of potential third party contacts. See IRM 5.1.17,Third Party Contacts, prior to issuing a levy.
2. The notice and demand required by IRC 6331(a) must be left at the taxpayer's home or business, or mailed to the taxpayer's last known address. This is normally taken care of by a master file notice mailed shortly after there is an assessment. This is commonly referred to as the first notice. The taxpayer has 10 days to pay the amount that is owed. If the taxpayer neglects or refuses to pay the amount due, a Federal tax lien arises.
Note:
If less than $100,000 is owed, no additional interest is compounded for 21 calendar days after the notice and demand. If at least $100,000 is owed, no additional interest is compounded for 10 business days after the notice and demand. The interest computation does not affect the 10 days the taxpayer is given to pay by the notice and demand.
3. In addition, the taxpayer must be given a notice of intent to levy. The taxpayer has 30 days to pay the amount that is owed before property can be levied. See IRC 6331(d). This notice must be:
A. Given in person
B. Left at the taxpayer's home or business, or
C. Sent to the taxpayer's last known address by certified or registered mail
Note:
Use registered mail only if the taxpayer is outside the United States. There is no international certified mail. See (9) below.
Exception:
If collection is in jeopardy, property can be levied immediately if the taxpayer has been provided notice and demand for immediate payment. See IRM 5.11.3,Jeopardy Levy Without a Jeopardy Assessment.
4. When a levy is to be served, the taxpayer must also be given a notice of a right to a hearing per IRC 6330. The taxpayer has 30 days after this notice is given or mailed to ask for a hearing, before property can be levied. This notice is given to the taxpayer in the same manner as the notice of intent to levy, except that if it is mailed, a return receipt MUST be included. See IRM 5.1.9.3,Collection Due Process, for instructions about the taxpayer's right to a hearing, including whether the taxpayer can appeal, when the taxpayer can appeal, and the consequences of asking for an appeal.
Exception:
The exception for jeopardy in (3) also applies to the notice of a right to a hearing. If collection is in jeopardy, the taxpayer must still be given the opportunity for a hearing within a reasonable time AFTER the levy. See IRM 5.11.3,Jeopardy Levy without a Jeopardy Assessment .
Exception:
A taxpayer's state tax refund can be levied, even though the taxpayer may not have already been sent a notice of a right to a hearing. However, the taxpayer must be given the opportunity for a hearing within a reasonable time AFTER the levy.
Exception:
The taxpayer can waive the right to a hearing. See IRM 5.11.1.2.2.9.
Exception:
There is no right to a hearing when child support obligations are being collected. See IRM 5.11.1.2.2.10.
5. When counting the 10 day or 30 day periods, do not count the day that the notice is given or mailed to the taxpayer. Then, when the time to pay has run out, the next action can be taken on the following day.
Caution:
As long as a request for a hearing is correctly addressed and postmarked timely, it is timely. Allow 15 additional days after the 30 day period ends before levying in case the taxpayer mails a request for a hearing on the 30th day.
Example:
A notice of a right to a hearing is given to the taxpayer on March 1. The taxpayer has until the close of business on March 31 to pay or request a CDP hearing. On April 1, the Code allows property to be levied, unless something has happened to prevent it, e.g., payment, request for a hearing, installment agreement made or pending, etc. However, counting the additional 15 days, property will not be levied until April 16.
Exception:
After 30 days, if the taxpayer confirms that no hearing has been requested, there is no need to wait the additional 15 days.
Exception:
If the notice was unclaimed, returned undeliverable, or delivery was refused, there is no need to wait the additional 15 days, as long as the notice has only been sent to one address. If multiple notices have been sent, as described in IRM 5.11.1.2.1.1(3), wait the additional 15 days, unless all of them are returned undeliverable, unclaimed, or refused.
Exception:
If collection is in jeopardy, a notice of levy can be served without waiting the additional 15 days. The notice of levy must be approved by the territory manager or a second level Insolvency/Technical Services-Advisory manager. Consult with counsel before the levy is served. The appeal process in IRM 5.11.3.6,Appealing the Jeopardy Levy, does not apply because the 30 day waiting period has passed. A CDP hearing will be held if the taxpayer mailed or delivered the request for a CDP appeal before the 30 days ran out. If a CDP hearing request is not made, the taxpayer can still discuss the levy with the group manager or the Taxpayer Advocate Service, as well as discussing it with Appeals under the Collection Appeals Program.
6. The required notices must be sent for each module included on a levy.
Caution:
If the required notices for a module have been issued, and then additional tax is assessed, a new notice offering a CDP hearing for the additional assessment must be issued before that additional assessment may be included in a levy.
Example:
The required notices have been issued for the tax owed on a taxpayer's 2002 income tax return, and nothing has happened to stop collection action for that assessment, e.g., a timely request for a CDP hearing. A notice of levy can be issued to collect this tax. If a TC 290 posts on that module later, a notice and demand will be sent from the campus. A new Notice of Intent to Levy and Notice of Your Right to a Hearing must also be issued for this additional assessment before it can be included in a notice of levy.
7. Also, see IRM 5.11.6.11.2, Notice to the Non-Liable Spouse, when a levy is to be served on a non-liable spouse in a community property state.
8. The Notice of Intent to Levy and Notice of Your Right to a Hearing (L1058) should be issued to the taxpayer who is liable to pay the tax. In the case of a disregarded single member limited liability company (LLC), issue the L1058 to the single member of the disregarded LLC. If the L1058 was originally issued to the disregarded LLC, issue a new L1058 to the single member to ensure the member's rights are protected.
Note:
If a single member LLC was issued an L1058 that was proper because the LLC was not a disregarded entity for the period covered by the notice, it is not necessary to issue a new L1058 to the later disregarded LLC.
Note:
If the single member of the disregarded LLC is another disregarded LLC, look to the single member of that LLC to determine who the taxpayer is.
9. United States Postal Service registered mail service is not available in certain U.S. Possessions and Territories, including the Federated States of Micronesia, Republic of the Marshall Islands, Republic of Palau, Palmyra Atoll, Johnson Atoll, and Midway Islands. A private delivery service (UPS, FedEx, DHL, etc.) may be used to provide delivery in person or to the taxpayer's residence or usual place of business, in accordance with IRC 6330(a)(2)(A) and (B). You must retain a copy of the taxpayer's or recipient's signature accepting receipt or the signature of the private delivery service employee affirming that they left the notice at the taxpayer's residence or usual place of business. Where use of a private delivery service may be prohibitively expensive in relation to the amount of tax expected to be collected, contact Counsel for guidance.
5.11.1.2.1.1 (03-21-2008)
Last Known Address
1. Generally, the last known address is the master file address that posted from the most recently filed and properly processed return. A list of returns that are used to update this address is in Rev. Proc. 2001–18. This revenue procedure also describes how taxpayers can give a new address to the Service.
2. A last known address may be obtained or changed by information received from the United States Postal Service National Change of Address (NCOA). As provided in Treas. Reg.§ 301.6213(b)(2), an address obtained from the NCOA database becomes the taxpayer's last known address unless the taxpayer provides clear and concise notification of a change of address (as set out in Rev. Proc. 2001–18) or the Service properly processes a taxpayer's federal income tax return with a different address.
3. If a third party provides a new address for the taxpayer, this is not the taxpayer's last known address, unless the taxpayer verifies it and requests it be used as such by the Service.
4. When a Notice of Intent to Levy and Notice of Your Right to a Hearing (L1058) is mailed to the taxpayer, it must be sent to the last known address. If other addresses have been received from third parties without a change to the official last known address, send a copy of the L1058 and the enclosures to the taxpayer at these other addresses on the same date that the L1058 is sent to the last known address. Use regular mail for the copies sent to other addresses.
Note:
There is no need to check for additional taxpayer addresses before sending the L1058, unless there is reason to believe that the last known address is not valid, e.g., mail has already been returned undeliverable, information gathered during a field call raises doubt that the address is valid, etc. Checking third party sources that are reasonably available at the office where the case is assigned is a normal part of skip tracing to try to locate the taxpayer. Try to find a valid address before sending the L1058 to a last known address that is not current.
5. If the taxpayer has already been sent an L1058 and another address is found later, do not send an additional L1058 for the same Bal Dues to this new address, as long as the original notice was correctly sent to the address that was the last known address when it was mailed. If another written notice to the taxpayer at this new address is needed, use Letter 3174(CG), New Warning of Enforcement, or 3174-A(CG), New Warning of Enforcement for Joint Filers.
Example:
The L1058 was mailed and was returned unclaimed, but it was correctly sent to the taxpayer's last known address. While working the account later, a new address for the taxpayer was found. Attempts to contact the taxpayer at the new address to demand payment are unsuccessful. Letter 3174(CG) or Letter 3174-A(CG) may be sent or left at the new address to try to get the taxpayer to pay the amount owed or to contact the revenue officer.
6. If a mailed L1058 is mistakenly not sent to the last known address, issue another L1058 to substitute for the one that was not sent to the last known address. Release any levies that had been served for liabilities included in the improperly mailed L1058. Also see IRM 5.11.2.3, Returning Levied Property to the Taxpayer.
5.11.1.2.2 (01-01-2006)
Satisfying the Notice Requirements
1. Generally, a notice and demand is sent before a revenue officer receives a Bal Due account.
2. The campus sends the taxpayer the notice and demand, unless there is a jeopardy, quick, termination, or prompt assessment.
3. The Notice of Intent to Levy and Notice of Your Right to a Hearing (L1058) is usually issued on initial contact with a BMF or combination BMF/IMF taxpayer when a deadline is set for the taxpayer to take specific action, e.g., provide proof of payment, proof of Federal Tax Deposits, financial statement information, substantiation for a request for abatement or adjustment, etc. Use of Form 9297, Summary of Taxpayer Contact, is required to establish what is due and the deadline for receipt.
Note:
It is not necessary to have a levy source at the time the L1058 is issued.
Note:
To avoid an incorrect FTP penalty computation on L1058s issued on ICS, the date for the penalty and interest computation will systemically default to 10 days from the date of the L1058. If the 504 notice (status 58) has been issued on every module to be included on the letter, then, if you so choose, 10 days can be overridden and 30 days used. See IRC 6651(d) and IRC 6331(d).
Reminder:
L1058 and L1058-A are available in Spanish.
4. Use discretion when issuing the L1058 on initial contact with an IMF only balance due taxpayer. Consider the circumstances of the case and the compliance history of the taxpayer in determining whether to issue the L1058.
5.11.1.2.2.1 (06-29-2001)
Recognizing if ACS Issued a Notice of Intent to Levy/Notice of a Right to a Hearing
1. ACS also issues a Notice of Intent to Levy/Notice of a Right to a Hearing.
2. If the ACS transcript shows action code LT11 on or after 1-19-1999 for the same liabilities that a revenue officer will be levying to collect, do not issue an L1058. An LT11 issued before 1–19–1999 was only a notice of intent to levy. It did not include the notice of a right to a hearing.
Exception:
The ACS transcript may show LT11, but the notice may have been stopped before it was sent.
If And Then
Action Code CLnn (nn is a two digit number) is on the ACS transcript. This Code is the same date as the LT11. The LT11 was not sent.
Action Code MCLT is on the transcript. The LT11 is the most recent LTnn (nn is a two digit number) before the MCLT. The LT11 was not sent.
3. Another way to recognize if the notice has been issued already is to see if there is a Transaction Code (TC) 971, Action Code (AC) 069 on the module. This is input after the campus mails the ACS notice. Then, the results of mailing the notice, if known, are shown by a second TC 971.
• AC 066 - the return receipt was signed (not necessarily by the taxpayer) , so the notice was delivered. See second Note in IRM 5.11.1.2.2.2(9)
• AC 067 - delivery was refused or the notice was unclaimed
• AC 068 - the notice was returned, undelivered
Note:
Action Codes 066–069 cannot be input on IRAF modules.
5.11.1.2.2.2 (03-21-2008)
Issuing Notice of Intent to Levy/Notice of a Right to a Hearing in CFf
1. When, on initial contact, a deadline is set for a BMF or BMF/IMF combination taxpayer to take specific action, the L1058 will be issued with all required enclosures. Explain to the taxpayer:
A. If they meet the deadline, the enforcement action warned of will not take place
B. If they do not meet the deadline, the enforcement action warned of may take place after 30 days, and
C. That only by making a request for a CDP hearing, using Form 12153, Request for a Collection Due Process Hearing, within the next 30 days, will the right to go to court be preserved.
Note:
If the taxpayer does request a hearing, continue to work with the taxpayer pursuant to IRM 5.1.9.3.3, Processing CDP and Equivalent Hearing Requests.
2. When the L1058 is delivered in person, update IDRS through ICS by inputting Transaction Code (TC) 971, Action Code (AC) 069 and TC 971, AC 066 on the same date.
3. If no contact is made on the attempted initial contact, the L1058 and all required enclosures may be left in an envelope at the taxpayer's home or business or mailed certified the next business day. Note Caution below (4).
4. When the L1058 is left at the taxpayer's home or business, update IDRS by inputting TC 971, AC 069, and TC 971, AC 067 on the same date.
Caution:
The date on the L1058 must be the date it is given to, left for, or mailed (return receipt requested) to the taxpayer.
5. If initial contact is made with the authorized representative only and a deadline is set for specific action to be taken, provide a copy of the L1058 to the representative and mail the original and all required enclosures to the taxpayer by certified or registered mail, return receipt requested. Input TC 971, AC 069, and follow-up with the appropriate transaction code per IRM 5.11.1.2.2.1(3) when the results of the delivery are known.
6. When extenuating circumstances exist such as assigned inventory covering a large geographical area, and initial contact with the taxpayer is not in the field, L1058 should still be issued if a deadline is set for the taxpayer to take specific action.
7. Issuing L1058 in any case is not appropriate or may not be appropriate when:
A. Levy action is prohibited, such as when the taxpayer requests an installment agreement on initial contact or the pending installment agreement transaction code has already posted
B. A levy would not be issued if the taxpayer did not comply with the deadline, e.g., the taxpayer is in a hardship situation or there is doubt as to the correctness of the liability
C. Information obtained during the attempted contact indicates the taxpayer may no longer be at the last known address
D. IMF accounts have been in a suspended status, e.g., assigned to the Queue or reported currently not collectible for more than 12 months
E. The taxpayer satisfactorily demonstrates that the deadline set will be complied with, e.g., the taxpayer provides documentation that a loan is in process to full pay the liability
8. Because taxpayers only have the right to one Collection Due Process hearing for each taxable period, do not list liabilities on L1058 that have already been included in such a notice. Issuing more than one notice for a taxable period may give taxpayers the impression they can have another CDP hearing for that liability.
Reminder:
None of the campus IDRS notices are notices of a right to a hearing.
Reminder:
If the L1058 is mailed, it must be sent by certified or registered mail WITH A RETURN RECEIPT.
9. When the L1058 is mailed, update IDRS through ICS with TC 971, AC 069. When the results of the delivery are known, upload AC 066, 067, or 068, as shown in IRM 5.11.1.2.2.1 (3). For modules that are not in status 26 or when the TC 971, AC 069, should be input for a date that is more than 30 days before the current date, prepare Form 4844, Request for Terminal Action, for manual terminal input to IDRS. Ask the terminal operator to input the date the action took place, rather than the date of the input. If the delivery results cannot be determined, no additional input is required.
Example:
The L1058 is mailed on March 10. The TC 971, AC 069, is input on March 12. The date of the TC is March 10.
Note:
Inputting AC 067 on the same date as the AC 069 shows the notice was left at the taxpayer's home or business. Refused delivery is distinguished from this by the AC 067 being a later date than the AC 069.
Note:
If the return receipt comes back unsigned, but the envelope is not attached, use AC 066. If there is a postmark date on the receipt, use that as the date of the transaction. If there is no postmark date, use the date that the return receipt is received.
Note:
In the past, if an IDRS 504 notice (status 58) had never been issued for a module, TC 971 Action Code 35 was input to increase the failure to pay rate to 1% after L1058 was issued. Action Code 069 now causes this change. If the higher rate has not already gone into effect because of a 504 notice, Action Code 35 is not necessary.
10. If the L1058 was not issued on initial contact, do not issue it when, after consultation with the Fraud Technical Advisor (FTA), it is determined that a firm indication of fraud has been established. (See IRM 25.1.3.2 ,Preparation of Form 2797).
11. Except in cases involving a taxpayer identified as an in-business repeater trust fund taxpayer ( IRM 5.7.8.2, Identifying Repeater Trust Fund Taxpayers), or pyramiding trust fund taxpayer ( IRM 5.7.8.3Pyramiding Trust Fund Taxpayers) avoid issuing the L1058 if you have issued a Collection summons to the same taxpayer for the same tax periods and the summons is still pending. Issuing the notice while the summons is pending could conflict with the taxpayer's opportunity in CDP to resolve any issues or disputes.
12. A summons is considered pending when:
• Issuance of the summons will occur during the 30 days the taxpayer has to exercise CDP rights
• Compliance with the summons will occur during the 30 days the taxpayer has to exercise CDP rights
• Referral of the summons will occur during the 30 days the taxpayer has to exercise appeal rights
• The taxpayer exercises the right to a hearing and the compliance date for the summons will occur during the time the hearing is pending in Appeals
Note:
The L1058 may be issued when the pending summons was issued to a third party.
5.11.1.2.2.3 (03-21-2008)
Issuing Notice of Intent to Levy/Notice of a Right to a Hearing for Joint IMF Bal Due account
1. If there are Bal Dues for jointly filed income tax returns, prepare two copies of L1058-A.
A. If they are not delivered in separate envelopes in person or left at the taxpayers' home or business, mail them in separate envelopes to the taxpayers. Address one envelope to the primary taxpayer and one to the secondary taxpayer, although both taxpayers' names will be on each of the notices. Do not use a window envelope. Do this regardless of whether the taxpayers live at the same address or different addresses. If there are joint and separate liabilities, be careful that taxpayers are not sent a notice for taxes they do not owe.
Example:
John and Mary Doe owe tax for their 2005 joint income tax return. John Doe also owes tax for his single return for 2004. John must be sent a notice for both years, but only send Mary a notice for 2005.
B. If the notices are going to different addresses, do not reveal one person's address to the other.
Example:
William and Barbara White owe tax for a joint income tax return. They now have different addresses. ICS users must make two passes of the application to generate two letters, one pass to generate a letter for William and a second pass to generate a letter for Barbara. "William and Barbara White" will appear next to, "For Account of" in the upper right hand corner of the letter.
C. Before sending the L1058-A to joint taxpayers living at different addresses, try to contact both of them, so the letter is not a surprise to either of them. If one of the taxpayers is living in a different jurisdiction, try to get a telephone number to call this person before sending the L1058-A. If a number cannot be found or the attempted call fails, the letters can still be sent.
2. Before sending the L1058-A to the secondary taxpayer, check master file on-line to find out if this person has filed a return with a different address since the joint return(s) that generated the Bal Dues. This step is not necessary when there has been contact with the taxpayers confirming the secondary taxpayer’s address or when the Bal Dues are for the most recent tax year.
Example:
There are Bal Dues for Steven and Marcia Brown for their joint income tax return for 2000. The revenue officer has not been able to contact the taxpayers but has found a joint levy source, so two L1058-As are going to be sent. Before sending them, the revenue officer uses master file on line to check Marcia Brown’s social security number and finds that she has filed a more recent return with a married filing separate filing status and a different address. The L1058-A issued to Marcia is mailed to the address on her most recent return rather than the same address where Steven Brown’s L1058-A will be mailed.
3. If levy on one of the taxpayer's property is prohibited, use the L1058 rather than the L1058-A and do not issue a separate L1058 to that person. Instead, prepare a notice with both taxpayers’ names on it, and deliver or mail it in an envelope addressed to the taxpayer whose property can be levied. When the condition that prohibits levy no longer exists, an L1058 can be issued to that person. Also, see IRM 5.11.2.1.2(4), Preparing the Notice of Levy.
Example:
John and Mary Doe owe tax for a joint return. They are separated, and Mary is making payments on an installment agreement for the joint liability. John is not a party to the installment agreement. The L1058 will have both names on it, but it will only be issued to John. Issuing an L1058 to Mary would be improper, because her installment agreement prevents levy on her property. Later, Mary defaults on her agreement; she has the right to appeal the default. She must also be issued an L1058 giving her the right to a CDP hearing if she has not already received that right for each liability. During her appeal and during the 30 days she has to request a CDP hearing, collection can continue against John.
4. Input the TC 971 and ACs as explained in IRM 5.11.1.2.2.2(9). However, when separate notices are sent for joint assessments, include the secondary taxpayer's social security number as, "X-Ref XXX-XX-XXXX," in the "Remarks" on the Form 4844 for inputting the record of that person's notice. This will distinguish the primary and secondary taxpayer's ACs.
Example:
John and Mary Doe's notices for their joint 2004 income tax return are both mailed on 1–29–2006. John's return receipt comes back signed, but Mary's is returned undeliverable. There will be two TC 971s with AC 069 on 1–29–2006. One will have Mary's X-Ref SSN. The other will have no X-Ref SSN. There will also be a TC 971 AC 066 with no X-Ref SSN for John's notice and a TC 971 AC 068 with Mary's X-Ref SSN for Mary's notice.
5. Separate notices do not have to be issued when CFf is collecting the same liabilities for which ACS already issued its LT11, Notice of Intent to Levy/Notice of Your Right to a Hearing. While working the Bal Dues in CFf, you may discover that the taxpayers were separated, and one of them was not living at the last known address when the LT11 was sent. As long as that was the person’s last known address when the notice was sent, it was a legally valid notice of a right to a hearing. See IRM 5.11.1.2.1.1. Nevertheless, it may be inequitable to take this person’s property without notice. Give Letter 3174(CG) to the taxpayer who was not living at the address before serving additional notices of levy on that person’s property, and release notices of levy that have been served on that person’s property.
6. You may send two L1058-As for a joint Bal Due and discover later that one of the taxpayers was living at a different address when the letters were sent. Although the notice is legally valid if it is sent to the last known address, it has been administratively determined that Letter 3174(CG) will be sent to this taxpayer before serving additional notices of levy on that person’s property, and notices of levy that have already been served on that person’s property will be released.
Note:
Because of procedures in (2), above, this should only be an issue if the secondary taxpayer has not reported a new address.
5.11.1.2.2.4 (03-21-2008)
Issuing Notice of Intent to Levy/Notice of a Right to a Hearing for Deceased Taxpayers
1. Generally, if a taxpayer has died, a proof of claim may be filed to collect delinquent tax from the estate. Some circumstances may call for the issuance of a notice of levy.
Example:
The estate or certain assets may not be going through probate.
Example:
For a joint return, the assets of the surviving spouse may be levied to collect the delinquent tax.
2. Technical Services-Advisory and/or Associate Area Counsel may need to be consulted to determine whether a notice of levy can be served.
3. If a notice of levy will be issued, L1058 must be sent to the estate administrator or executor. Research probate records to obtain the name of the estate administrator or executor. See IRM 5.5.3.6, Field Collection Actions, for procedures to be followed in investigations involving a deceased taxpayer.
4. For single liabilities
IF THEN
There is no estate administrator or executor Send the L1058 to:
Estate of John Smith (Dec'd)
John Smith's Last Known
Address
IF THEN
There is an estate administrator or executor Send the L1058 to:
Estate of John Smith
Charles Jones, Administrator (or Executor or Personal Representative)
Charles Jones' Last Known Address
5. Note:
6. Consider sending a copy to the address of the fiduciary and/or attorney for the estate.
7. For joint IMF liabilities, one spouse deceased
IF THEN
There is no estate administrator or executor Send two L1058s.
Address both to:
Mary Doe and Estate of James Doe
Use James's last known address on his L1058 and Mary's last known address on hers. Put James's L1058 in a non-window envelope addressed only to him at his last known address. Put Mary's L1058 in a non-window envelope addressed only to her at her last known address or issue it to Mary on initial contact.
IF THEN
There is an estate administrator or executor Send two L1058s.
Address one to:
Mary Doe and Estate of James Doe
William Green, Administrator (or Executor)
William Green's Last Known Address
Put the L1058 in a non-window envelope addressed the same way as the letter, except delete Mary's name.
Address the other L1058 to:
Mary Doe and Estate of James Doe
Mary Doe's Last Known Address
Put the L1058 in a non-window envelope addressed the same way as the letter, except delete James' name. The L1058 can also be delivered on initial contact with Mary.
8. Note:
9. Consider sending a copy to the address of the fiduciary and/or attorney for the estate.
5.11.1.2.2.5 (06-29-2001)
Issuing Notice of Intent to Levy/Notice Of a Right to a Hearing to Partnerships
1. When sending L1058 to a partnership, send it to the last known address of the partnership. See IRM 5.11.1.2.1.1.
2. Do not send additional L1058s to the partners at their addresses.
Exception:
If the partnership is no longer operating, or there is another reason to know the last known address is not current, the L1058 must still be sent to this address. Also send a copy of the letter and the enclosures to any general partners whose addresses are known, e.g., partners who provide their addresses when contacted about the taxes, and partners whose addresses are found through normal skip tracing when a partnership is no longer at its last known address. Use regular mail for the copies sent to the partners.
5.11.1.2.2.6 (03-21-2008)
Timeliness of Notice
1. The purpose of the Notice of Intent to Levy described in IRM 5.11.1.2.1(3) is to warn the taxpayer that failure to respond may result in imminent enforcement. When a long time has passed since the notice was issued and there has not been enforcement action or a warning of enforcement, the notice loses its effectiveness as a warning.
2. A Notice of Intent to Levy is legally sufficient to support subsequent collection action by levy regardless of its age. However, it has been administratively determined that the taxpayer will get a new warning of enforcement action before a notice of levy is issued if there has been no other enforcement action or warning of enforcement for at least 180 days.
A. This warning must be documented in the case file. It may be given orally (in person or by phone) by telling the taxpayer that there is a deadline, e.g., 15 days, 30 days, after which there will be enforcement action. If the taxpayer cannot be contacted in person or by telephone, then the warning may be given in writing. Use Letter 3174(CG), New Warning of Enforcement. Use Letter 3174-A(CG), New Warning of Enforcement for Joint Filers, when the letter is issued to both spouses for joint income taxes.
Note:
Do not issue another L1058 to give the taxpayer a timely warning. The taxpayer gets the opportunity only once for a CDP hearing described in that letter for each liability. Issuing another L1058 will give the incorrect impression that the taxpayer can have a CDP hearing again for the same liability.
B. Exceptions to a new warning of enforcement include the following :
• Collection is at risk. The territory manager or an Insolvency/Technical Services-Advisory manager (second level) must approve the levy. The taxpayer can discuss the levy with the group manager, the Taxpayer Advocate Service, and the Appeals Officer.
• Computer matching programs in which files of liabilities are matched against files of assets/income resulting in immediate payment, e.g., State Income Tax Levy Program, Federal Payment Levy Program.
• The taxpayer requests a CDP hearing. The Notice of Determination in CDP constitutes a warning of imminent enforcement if the levy is supported.
• The taxpayer is a trust fund repeater or pyramider. See IRM 5.7.8.2,Identifying Repeater Trust Fund Taxpayers, and IRM 5.7.8.3, Pyramiding Trust Fund Taxpayers.
• Enforcement action has taken place within the last 180 days or a warning of enforcement has been given in the last 180 days. Enforcement action only includes seizures and notices of levy where the taxpayer should realize there has been enforcement.
Example:
A notice of levy is sent to an employer and it is returned because the taxpayer no longer works there. This notice of levy does not start the count for a new 180 day period because the taxpayer would be unaware of the levy.
Example:
A levy is sent to a bank and a copy is sent to the taxpayer. Even if no proceeds are received, the taxpayer would be aware of the levy action.
C. This new warning of enforcement is in addition to the notices described in IRM 5.11.1.2.1,Required Notices, that are required by law and must have been sent at some point. An oral warning to pay is not adequate to allow a notice of levy to be served if there has never been a 30 day Notice of Intent to Levy and Notice of Your Right to a Hearing.
D. If the most recent warning of enforcement or enforcement action is over 180 days old, give the taxpayer a new warning before taking enforcement. This means that over the life of the liability, there may be a need to give this warning more than once.
Example:
An L1058 is issued to a taxpayer, followed by a notice of levy. After 180 days pass with no additional enforcement action or warning of enforcement, a new warning needs to be given before another notice of levy or a seizure, unless one of the exceptions in b.) exists. Then, a new 180 day count begins.
3. The required notices in IRM 5.11.1.2.1 must have been sent for every taxable period or module that is included in a notice of levy. The taxpayer has had timely notice as long as there has been a recent warning of enforcement or enforcement action for at least one liability included in a notice of levy within the last 180 days. In other words, the requirement for the notices in IRM 5.11.1.2.1 must be met for each liability included in a notice of levy, but the new warning of enforcement is for the entity rather than each liability.
Example:
The required notices (Notice and Demand, Notice of Intent to Levy and Notice of Your Right to a Hearing) have been sent for all modules included in the notice of levy. They are over 180 days old and there has been no enforcement action or warning of enforcement, so the taxpayer is given a new oral warning of enforcement. After the 15 day deadline passes, a new module is received for which a notice of intent to levy and notice of the right to a hearing had been sent more than 30 days ago, so the legal requirement for this module has been met. A new warning is not necessary, even if the notice of intent to levy and notice of the right to a hearing for this new module had been sent more than 180 days earlier, because the taxpayer was warned of enforcement within the last 180 days.
4. If the taxpayer cannot be located, the required notices still must have been sent to the last known address. However, additional notices for these liabilities do not have to be sent to the last known address just to meet the timeliness requirement.
5.11.1.2.2.7 (01-01-2006)
Rescinding a Notice of Intent to Levy/Notice of a Right to a Hearing
1. At times, L1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, is issued and you subsequently learn the case was in a status where levy action is prohibited. If the notice is issued when levy action is prohibited, it may have to be rescinded.
2. Situations warranting possible rescission of the notice include when the taxpayer,
• Has a pending offer-in-compromise
• Has a pending installment agreement
• Has an innocent spouse claim pending
• Is in bankruptcy and levy is prohibited
• Is in a combat zone
• Is in any other situation where levy action is prohibited
3. Use Letter 3876, Rescission of Collection Due Process Levy Notice, to notify the taxpayer. The letter explains the Notice of Intent to Levy and Notice of Your Right to a Hearing is rescinded and any CDP hearing request received as a result is cancelled. It also explains the taxpayer's CDP hearing rights are preserved.
4. The L3876 must be issued whenever a CDP notice is issued in violation of the automatic stay.
5. The L3876 must be issued whenever a CDP notice is issued and the taxpayer is in a combat zone or enters a combat zone during the 30 day period for filing a request for hearing.
6. In other situations when a CDP notice is issued when levy action is prohibited, the L3876 must be issued when the taxpayer timely requests a CDP hearing.
7. When the notice is rescinded, input Transaction Code (TC) 972, Action Code 069, to reverse each TC 971 that has already been input for the rescinded letter. The input date for each TC 972 must be the same as the date for the TC 971 it is reversing.
5.11.1.2.2.8 (07-26-2002)
Verification of Notice of Intent to Levy/Notice of a Right to a Hearing
1. A record will be made in the ICS history showing when and how the Notice of Intent to Levy and Notice of Your Right to a Hearing is given to the taxpayer. This will be automatically generated by ICS when the input described in IRM 5.11.1.2.2.2(9) is done.
2. If the notice is mailed, the Postal Service's rubber stamp imprint on a Certified Mail Receipt (Postal Service Form PS 3800) or a Certified Mail Book (Form PS 3877) is desirable to verify the mailing. However, getting the form stamped may not be practical, e.g., the nearest Post Office may be many miles from a remote post of duty. Even if the postal stamp is not obtained, keep the unstamped Certified Mail Receipt in the case file.
3. If the notice is delivered by the Postal Service, the return receipt (PS Form 3811) should come back. If the notice is not delivered, the envelope with the attached return receipt should come back. Keep the return receipt or the undelivered envelope (with the attached return receipt) in the case file. These can serve as proof the notice was mailed. Sometimes neither the return receipt nor the undelivered envelope comes back. In this case, the number on the Certified Mail Receipt (even if it is unstamped) will allow verification through the Postal Service's web site http://www.usps.com/ for six months.
5.11.1.2.2.9 (07-26-2002)
Waiver of Notice of Intent to Levy/Notice of a Right to a Hearing
1. Occasionally, a taxpayer may want the Service to issue a notice of levy quickly.
Example:
The taxpayer is expecting another creditor to attach assets. The taxpayer may want the assets levied before the other creditor can attach them.
2. Normally, a levy cannot be issued until an L1058 has been issued, and the waiting period has passed. However, in this situation, the taxpayer may have an incentive to waive the waiting period and the right to a hearing, so the notice of levy can be issued promptly.
3. Waiver of this right must be informed and voluntary, or it is not a valid waiver. The waiver must be in writing.
4. First, give the taxpayer an L1058, including all the enclosures so they have an opportunity to understand the rights they are waiving. Discuss those rights with the taxpayer and document the case history accordingly. Then, have the taxpayer sign Form 13207, Waiver of Right to Receive a Collection Due Process Hearing Under Internal Revenue Code Section (IRC) 6330.
5. If this form does not fit the situation, discuss the need for some alternative language with Technical Services-Advisory, which may consult with Associate Area Counsel. The right to Collection Due Process must be waived in its entirety. Do not accept a proposed waiver that is restricted to allowing levy only on a specific asset or class of assets.
6. Input the appropriate codes shown in IRM 5.11.1.2.2.2(9).
5.11.1.2.2.10 (07-26-2002)
Issuing Notice of Intent to Levy for Child Support Obligation Bal Dues
1. IRC 6305 provides that federal courts have no jurisdiction to restrain or review the assessment and collection of Child Support Obligation (CSO) Bal Dues. It also says that the assessment and collection are not, " ...subject to review by the Secretary in any proceeding...."
2. This means that Collection Due Process does not apply to these liabilities, so no notice of a right to a hearing (L1058) will be issued when CSO Bal Dues are being collected. Similarly, the taxpayer can neither request review under the Collection Appeals Program nor by the Taxpayer Advocate Service.
3. Before a notice of levy can be issued to collect a CSO liability, there must be a
• Notice and demand, and
• Notice of intent to levy
4. The notice and demand is issued at the campus when the liability is assessed.
5. Use Letter 3524, Final Notice - Notice of Intent to Levy, Please Respond Immediately, instead of L1058. This is the notice of intent to levy for CSO Bal Dues. It is available as an ICS macro. This must be given to the taxpayer, as described in IRM 5.11.1.2.1(3). If it is mailed, no return receipt is required.
6. If the person who owes child support also owes tax, give L1058 to the taxpayer for delinquent tax modules, but do not include the child support on this letter. Letters 1058 and 3524 can be mailed in the same envelope, but if that is done, a return receipt is required.
7. Because L1058 has not been issued for the CSO Bal Dues, ICS will not allow the revenue officer to issue a notice of levy. Instead, this must be done by the group manager.
Note:
Also see IRM 5.11.1.3.2.
5.11.1.2.3 (06-29-2001)
Delegation Orders
1. See Servicewide Delegation Order 5–3 (Rev. 1), Levy on Property in the Hands of a Third Party (not to include Levy Form 668-B) at IRM 1.2.44.3,Delegation Order 5–3 (Rev. 1) (Formerly DO-191 Rev. 3).
5.11.1.2.4 (07-01-2004)
Managerial Approval
1. Certain notices of levy must be approved by managers. See Servicewide Delegation Order 5–3 (Rev. 1) (formerly DO 191, Rev.3).
2. When submitting a notice of levy for approval, include the following information:
• A summary of any information the taxpayer has provided that may affect the decision to levy, e.g., claims that the assessment is wrong
• If the taxpayer has submitted such information, provide an explanation you have reviewed the information, and why the notice of levy should still be served
• Verification that the amount is still owed, e.g., IDRS confirms the amount is still unpaid
• An explanation that the notice of levy is appropriate in consideration of the amount owed and any circumstances that are known about the taxpayer and the liability
• Other collection alternatives considered and rejected
3. Consider the following when determining if the levy is appropriate,
• The taxpayer's responsiveness to attempts at contact and collection
• Anything that is known about the taxpayer's financial condition
• The taxpayer's compliance history
• The taxpayer's effort to pay the tax
• Whether current taxes are being paid
4. This information must be in writing, but the format can be at local management discretion.
5. The approval must also be in writing, but the method can be at local management discretion. Either the manager must write the approval in the ICS history, or a copy of the manager's written approval must be kept in the case file.
Example:
The revenue officer and manager are at the same location, so the notice of levy is turned in to the group manager who signs the levy. A copy of the notice of levy, with the manager's signature on it, is put in the case file.
Example:
The revenue officer and manager are at the same location, so the revenue officer signs the notice of levy and turns it in to the manager who initials it to show it has been approved. A copy of the notice of levy, with the manager's initials on it, is put in the case file.
Example:
The revenue officer and manager are at different locations. The revenue officer writes an explanation of why the notice of levy should be approved on a copy of the first page of the levy form, includes an "Approved" line on it, and faxes this to the manager. The manager signs on the " Approved" line, and faxes this back to the revenue officer who puts this in the case file to document the approval, and then the revenue officer signs the notice of levy.
Example:
The revenue officer and manager are at different locations. The revenue officer faxes a copy of the first page of the notice of levy to the manager who signs it and faxes it back to the revenue officer. The revenue officer places this in the case file to document the approval, and then the revenue officer signs the notice of levy.
Example:
The revenue officer uses the Integrated Collection System (ICS) to send an E-mail message to the manager asking for approval of the notice of levy. The manager accesses the case and records the approval in the ICS history. The manager’s access to the case generates a notification to the revenue officer who then accesses the case, sees that the levy is approved, prints the notice of levy, and signs it.
6. A notice of levy that requires the approval of the SB/SE Collection Area Director must include a memo explaining the information in (2). If all levels approve the notice of levy, but the Director rejects it, the rejection must be in writing and explain the reason(s). Maintain copies of all approvals and rejections in the case file.
7. If a courtesy levy is involved, indicate the required manager has approved of the notice of levy.
5.11.1.2.5 (03-21-2008)
Approval of Alter-Ego and Nominee Notices of Levy
1. Notices of levy that name alter-egos or nominees often involve complex issues and are likely to result in litigation.
2. See IRM 5.12.2.6.5, Preparing Nominee Liens, and IRM 5.12.2.6.7, Alter Ego Liens, as well as, IRM 5.17.2.5.7.1,Alter Ego Liens, and IRM 5.17.2.5.7.2,Nominee Liens, for guidance about whether the facts support such a determination.
3. Area Counsel or Associate Area Counsel (SBSE) concurrence is required. With that concurrence, the notice of levy can be issued by GS-09 and above Revenue Officers, GS-12 Insolvency employees and Technical Services advisors. See Servicewide Delegation Order 5-3 (Rev. 1) (formerly DO-191, Rev. 3) for the complete list of employees with the delegated authority to issue such levies.
4. Do not issue notices of levy listing alter-egos or nominees without first getting legal review, advice, written direction, and approval from Associate Area Counsel (SBSE) as to the,
• Issuance of the levy
• Language to be included on pre-levy notices and the notice of levy
5.11.1.3 (06-29-2001)
Restrictions on Levy
1. This subsection contains restrictions on levy. See IRM 5.1.9.3.5,Levy Action during the Period of the CDP or Equivalent Hearing, regarding restrictions on levy during CDP hearings.
5.11.1.3.1 (07-01-2004)
Property Exempt from Levy
1. IRC 6334(a) describes property that is exempt from levy. The exempt levy sources include:
• Unemployment benefits
• Certain annuity and pension payments, including payments under the Railroad Retirement Act, Railroad Unemployment Insurance Act, Special Pensions for Medal of Honor Winners, and Retired Serviceman's Family Protection Plan and Survivor Benefit Plan
• Workers Compensation
• Judgments for support of minor children, if the judgment is before the date of the levy
• Certain military service-connected disability payments
• Certain public assistance payments
• Assistance under the Job Training Partnership Act
Note:
IRC 6331(h) allows for levy on 15% of certain previously exempt government payments only under the Federal Payment Levy Program. See IRM 5.11.7.2, Federal Payment Levy Program, for additional information about levies issued under IRC 6331(h).
2. In addition to these exempt sources of income, a portion of a taxpayer's wages, salary, and other income is exempt from levy under IRC 6334. See IRM 5.11.5.4,Exempt Amount, for additional information about this exemption.
3. See IRC 6334(a) for information about other property types exempt from levy.
4. Other than property listed in IRC 6334(a), no property is exempt from levy. No state or local law can exempt property from levy to collect federal tax.
Example:
Even if property is exempt under a state homestead exemption law, it is not exempt from federal levy.
5.11.1.3.2 (07-26-2002)
Property Exempt from Levies Used to Collect Child Support Bal Dues
1. When child support Bal Dues are being collected, three of the items in IRM 5.11.1.3.1(1) are not exempt from levy ( IRC 6305(a)(2). They are:
• Unemployment benefits
• Certain annuity and pension payments
• Amount of income needed to pay a judgment for the support of minor children, however, income withheld for a judgment for child support is not levied, if the judgment is dated before the levy.
2. Use Letter 1696(CG), Property Exempt From Levy Levied to Collect Child Support, to explain the exemptions that do not apply for child support levies.
3. Also, see IRM 5.11.1.2.2.10.
5.11.1.3.3 (07-01-2004)
Property in the Hands of the Courts
1. IRC 6332 (a) provides that property subject to attachment or execution under any judicial process is not subject to levy. Also, the IRS generally does not levy on assets in the custody or control of a court because that would interfere with the court proceeding.
2. Generally, if the taxpayer is in bankruptcy or state insolvency proceedings, do not levy assets in the hands of the court to collect the tax that this person owes. However, a levy can be served to attach assets the court may distribute to another person who is the taxpayer's creditor.
Caution:
Fred Green is a delinquent taxpayer who files bankruptcy. Fred's assets are in the hands of the court to determine which of Fred's creditors will be paid and how much. While this is underway, generally, a levy will not be served on the court in an attempt to take any of these assets to collect Fred's tax. However, Joe Blue is one of Fred's creditors, and Joe also owes delinquent tax. A levy can be served on the trustee to attach Joe's fixed and determinable right to assets that may be distributed to him.
Caution:
Do not levy without getting advice from Insolvency when there is a current bankruptcy condition or the taxpayer states taxes were discharged in a prior bankruptcy. Bankruptcy laws allow debtors to sue the Service for damages and attorney fees when the automatic stay or discharge injunction is violated.
Caution:
Contact Technical Services-Advisory regarding levy on property that is or may be in the control of a probate court.
3. Property may have been seized before the taxpayer began court proceedings. In non-bankruptcy cases, this may affect whether the property can be sold. Contact Technical Services-Advisory for advice. In bankruptcy cases, property that has not been sold may have to be turned over to the bankruptcy estate. Contact Insolvency in your territory for advice.
4. Even if property is being used as evidence in a criminal court, it can be levied.
A. Serve the levy on the official responsible for holding and releasing the property, e.g., police property clerk.
B. Advise this person not to surrender the property until the court releases it.
5.11.1.3.3.1 (06-29-2001)
Cash Deposited as Security for Bail
1. Issue a notice of levy on cash deposited as security for bail only if collection is at risk. The territory manager or a second level Insolvency/Technical Services-Advisory manager must approve the levy.
2. If a levy is served, tell the Court Clerk to respond when the taxpayer no longer requires a bond.
3. If collection is not at risk, do not levy. Instead, ask the Court Clerk to notify IRS when the bond is no longer required. Then decide whether to levy the bond before it is returned to the taxpayer.
5.11.1.3.3.2 (06-29-2001)
Forfeited Property
1. Sometimes, property used in a crime or acquired through crime is forfeited.
Example:
Criminal Investigation may seize money used in violating the law. This may be subject to judicial forfeiture.
2. If property can be forfeited in a federal proceeding, it will not be levied. However, Criminal Investigation may alert Collection to levy property if the court declares it not forfeited. In a state or local forfeiture, contact Associate Area Counsel to determine whether the federal tax lien encumbers the property under IRC 6323(i)(3), which would allow the IRS to levy the property.
5.11.1.3.4 (03-21-2008)
Property Outside the United States
1. Notices of levy should only be served within the United States, including the District of Columbia and U.S. possessions and territories, collectively referred to as the "U.S."
2. If the taxpayer is outside the U.S., but there are assets within the U.S., the assets can be levied.
3. A notice of levy shall never be served outside the U.S. Also, never serve a levy at the embassy, consulate, or mission of another country, even if it is physically located the U.S. See IRM 5.11.6.9 ,United Nations (UN) Employees' Income, for levies served at the United Nations.
4. A notice of levy can be served at the U.S. branch of a foreign bank and can reach funds held there. In limited circumstances, the levy may also reach funds in branches outside the U.S. but only when the notice of levy specifies that such funds are intended to be reached. See 26 CFR 301.6332(a)(2). Contact Technical Services-Advisory and Associate Area Counsel for advice.
5. The U.S. treaties with Canada, Denmark, France, Netherlands, and Sweden permit the United States and the other country to collect taxes on behalf of each other. See IRM 5.1.8.7.9, Mutual Collection Assistance Requests (MCARs).
5.11.1.3.5 (03-21-2008)
Appearance Date of Summons
1. Do not levy on the day the taxpayer must appear for a summons that was issued to secure information to collect delinquent tax. For example, when a taxpayer is summoned to provide information to complete a Collection Information Statement. See IRC 6331(g).
2. Even if a summons is issued for another reason, do not levy on the appearance date. For example, there may be Bal Dues and Del Rets on the same taxpayer. The summons could be issued for the unfiled return.
3. You are not expected to contact other divisions to ask if they have summoned the taxpayer.
4. If collection is in jeopardy, a levy can be issued on the summons appearance date. Collection is only in jeopardy if one of the conditions allowing a jeopardy assessment exists. See Policy Statement P–4–88 at IRM 1.2.1.4.27.
A. The territory manager or a second level Insolvency/Technical Services-Advisory manager must approve the jeopardy levy. Also secure the concurrence of the responsible Area Counsel or Associate Area Counsel.
B. If the notices described in IRM 5.11.1.2.1 have been sent, and the time periods for them have passed, the appeal process in IRM 5.11.3.6,Appealing the Jeopardy Levy, does not apply. The taxpayer can discuss the levy with the group manager, the Taxpayer Advocate Service, or Appeals.
C. If the notice requirements have not been satisfied, see IRM 5.11.3,Jeopardy Levy Without a Jeopardy Assessment, for required procedures and approval level.
5.11.1.3.6 (01-19-1999)
Banks under FDIC (Formerly RTC) Control
1. The Service made an agreement with the Resolution Trust Corporation (RTC) about amounts owed by banks under RTC control. A notice of levy will not be used to collect these amounts.
2. The board of directors of the RTC was abolished in 1991 and the RTC ceased operation in 1993. The Federal Deposit Insurance Corporation (FDIC) took over RTC's functions. The RTC agreement continues to apply to banks under FDIC's control.
5.11.1.3.7 (01-01-2006)
Repeated Levies on the Same Source
1. Exercise caution when levying repeatedly on the same source
2. Per Policy Statement P–5–28, at IRM 1.2.1.5.4, while the Code allows for the service of as many successive levies on the same source as necessary to satisfy the tax liability, judgment should be exercised to avoid undue hardship on the taxpayer and/or the taxpayer's family.
3. Servicewide Delegation Order 5-3 (Rev. 1) delegates authority to issue notices of levy repeatedly on the same source to GS-12 Insolvency employees; Technical Services Advisors; GS-09 Revenue Officers. See Servicewide Delegation Order 5-3 (Rev. 1) at IRM 1.2.44.3,Delegation Order 5-3 (Rev. 1), Formerly DO-191 (Rev. 3), for the complete list of employees with the delegated authority to issue such levies.
5.11.1.3.8 (01-19-1999)
Government Training Allowances
1. Some individuals receive payment for government training programs to develop skills so they can get jobs. Except for payments under the Job Training Partnership Act, these payments are not exempt from levy; however, levying them would defeat the purpose of the programs so these payments will not be levied.
2. See Policy Statement P–5–33 at IRM 1.2.1.5.6.
5.11.1.3.9 (03-21-2008)
Pending & Active Installment Agreements
1. If the taxpayer makes an offer to pay a liability through installments, no levies can be served while the proposal is pending.
Note:
An unreversed Transaction Code (TC) 971, Action Code (AC) 043 means there is a pending installment agreement. This can be reversed by a TC 972, AC 043. If the pending agreement becomes an active agreement, there will also be a TC 971, AC 063, in which case both the pending and active installment agreement coding are reversed by a TC 971, AC 163.
Exception:
A levy can be served if the taxpayer waives the restriction in writing.
Exception:
A levy can be served if collection is in jeopardy. Collection is only in jeopardy if one of the conditions allowing a jeopardy assessment exists. See Policy Statement P–4–88 at IRM 1.2.1.4.27.
• The territory manager or a second level Insolvency/Technical Services-Advisory manager must approve the jeopardy levy.
• Secure Area Counsel or Associate Area Counsel (SBSE) concurrence before issuing the levy
• If this happens while a rejected installment agreement is being appealed, notify Appeals of the jeopardy determination.
• If the required notices have been sent, and the time periods for them have passed, the appeal process in IRM 5.11.3.6,Appealing the Jeopardy Levy, does not apply. The taxpayer can still discuss the levy with the group manager, the Taxpayer Advocate Service, or the Appeals Officer.
• If the notice requirements in IRM 5.11.1.2.1 have not been satisfied, see IRM 5.11.3,Jeopardy Levy Without a Jeopardy Assessment, for required procedures and approval level.
2. In addition to the period that an offer of an installment agreement is pending, no levy can be served,
• For 30 days after an offer of an installment agreement is rejected
• While a rejection of a proposed agreement is being appealed
• While an agreement is in effect
• For 30 days after notifying a taxpayer that an agreement has been defaulted and will be terminated, i.e., CP523 or Letter 2975
• For an additional 30 days after an agreement is terminated
• While termination (or proposed termination) of an agreement is being appealed.
Caution:
Before levying, wait an additional 15 days after each of these 30 day periods to allow for receipt of a timely mailed appeal.
Note:
Status 60 or an unreversed TC 971, AC 063 means there is an active installment agreement. This is reversed by TC 971, AC 163.
3. Exception:
4. The same as in (1), above.
5. By contrast, if a levy was issued BEFORE an installment agreement is entered into, it must be released, unless the installment agreement provides otherwise. See IRC 6343(a)(1)(C). If a levy was served and then the taxpayer offers to pay in installments, the levy does not have to be released while negotiations for the installment agreement are pending.
6. If an offer of an installment agreement is made merely to delay collection, levies can be served to collect the tax (Treas. Reg. 301.6331-4(a)(4)).
A. If the notices described in IRM 5.11.1.2.1 have been issued, and the time periods after them have passed, jeopardy is not required, and the appeal process in IRM 5.11.3.6,Appealing the Jeopardy Levy, does not apply. The taxpayer can discuss the levy with the group manager, the Taxpayer Advocate Service, or Appeals.
B. If the notice requirements in IRM 5.11.1.2.1, have not been satisfied, the jeopardy levy procedures in 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, must be followed.
Caution:
The determination that the offer of an installment agreement is merely to delay collection must be apparent to any impartial observer, i.e., there is clearly no reality to the offer.
Example:
The taxpayer offers to make a periodic, token payment such as $1 a month.
Example:
A taxpayer offers to make installment payments. The agreement is rejected. The taxpayer then offers to increase the proposed agreement by a token amount, such as $1.
5.11.1.3.10 (07-01-2004)
Refund Litigation
1. Responsibility for refund litigation depends on who is suing and the type of tax involved.
A. Technical Services-Advisory is responsible for refund litigation if a suit is filed by a third party regarding a Trust Fund Recovery Penalty assessment.
B. The campus refund litigation unit is responsible for all other refund litigation.
2. For tax periods that began before January 1, 1999, if the taxpayer files a suit for a refund of divisible taxes, Technical Services-Advisory or the campus refund litigation unit determines whether collection is suspended during the suit. For further information about refund suits, see IRM 25.3,Litigation and Judgments.
A. Divisible taxes include employment taxes, trust fund recovery penalties, excise taxes (except chapters 41-44 taxes), and abusive tax shelter penalties.
B. Unlike other taxes where full payment is required in order to sue for a refund, the taxpayer need pay only a portion of the amount owed before filing suit for refund, so this refund litigation happens while there still is an amount owed.
C. Collection does not have to be in jeopardy, as long as the pre-levy notice requirements of IRM 5.11.1.2.1 have been satisfied. Get Associate Area Counsel's approval because of their ongoing involvement in the case and keep Technical Services-Advisory apprised of case developments. The territory manager or a second level Insolvency/Technical Services-Advisory manager must also approve the levy.
3. Generally, for tax periods beginning after December 31, 1998, no levy can be served to collect certain divisible taxes that are included in a suit for refund.
A. This change only applies to employment taxes and trust fund recovery penalties for employment taxes.
B. For trust fund recovery penalties for other taxes, continue to follow (2), above.
4. If collection is in jeopardy, levies can be issued to collect the tax.
A. If the notice requirements of IRM 5.11.1.2.1 have not been satisfied, see IRM 5.11.3,Jeopardy Levy Without a Jeopardy Assessment, for required procedures and approval level of the jeopardy levy
B. If the notice requirements of IRM 5.11.1.2.1 have been satisfied, the jeopardy levy must be approved by the territory manager or a second level Insolvency/Technical Services-Advisory manager. It must also be approved by Associate Area Counsel. Keep Technical Services-Advisory apprised of case developments. The appeal process in IRM 5.11.3.6,Appealing the Jeopardy Levy, does not apply. The taxpayer can still discuss the levy with the group manager, the Taxpayer Advocate Service, or Appeals.
Exception:
If the taxpayer waives the restriction on levy in writing, levies can be issued to collect the tax.
Note:
If collection is in jeopardy or the taxpayer waives the restriction on levy in writing, notify Technical Services-Advisory that collection is not being withheld.
5. A levy that was issued before the suit was filed does not have to be released. Contact Associate Area Counsel (SBSE) for advice about whether to release the notice of levy. If necessary, tell the person who received the levy to delay sending any proceeds until Counsel's advice is received. Keep Technical Services-Advisory apprised of case developments.
5.11.1.3.11 (06-29-2001)
Due Process for Lien Filing
1. Generally, within five business days after a Notice of Federal Tax Lien (NFTL) is filed, Letter 3172(DO), Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320, is sent to taxpayers to tell them about the NFTL and allow them a chance for a CDP hearing about the lien. See IRM 5.12.1,Lien Appeals.
2. If the notice requirements in IRM 5.11.1.2.1 have been satisfied, Letter 3172(DO) does not create a new waiting period before a notice of levy can be issued. However, once the taxpayer appeals the lien filing, generally as a matter of policy, no notices of levy will be issued during the administrative or judicial appeal. See IRM 5.1.9.3.5,Levy Action during the Period of the CDP or Equivalent Hearing, for a description of when property can be levied during the appeal of an NFTL filing.
Example:
On April 5, 1999, a Notice of Federal Tax Lien is filed, and Letter 3172(DO) is sent to the taxpayer on April 7. The taxpayer appeals the NFTL on April 29. Until April 29, as long as the notice requirements in IRM 5.11.1.2.1 have been satisfied, a notice of levy can be issued to collect the amount that is owed, including the periods that are included in Letter 3172(DO).
5.11.1.3.12 (03-21-2008)
Offers in Compromise
1. Notices of levy can not be served while an offer in compromise is pending, within 30 days after an offer is rejected, or while a rejected offer is being appealed. Ensure that the offer in compromise has been closed before issuing the levy.
Caution:
After the 30 days run out following rejection of the offer, before levying allow an additional 15 days for receipt of a timely mailed appeal.
Exception:
Notices of levy can be served if collection is in jeopardy. If this happens while a rejected offer is being appealed, notify Appeals of the jeopardy determination.
• The territory manager or a second level Insolvency/Technical Services-Advisory manager must approve the jeopardy levy.
• Secure Area Counsel or Associate Area Counsel (SBSE) concurrence before issuing the levy
• If the notices described in IRM 5.11.1.2.1 have been sent, and the time periods have passed, the appeal process in IRM 5.11.3.6, Appealing the Jeopardy Levy, does not apply. The taxpayer can discuss the levy with the group manager, the Taxpayer Advocate Service, or Appeals.
• If the notice requirements in IRM 5.11.1.2.1 have not been satisfied, see IRM 5.11.3,Jeopardy Levy Without a Jeopardy Assessment, for required procedures and authority level.
Exception:
Notices of levy can be served if the taxpayer waives the restriction in writing.
2. See IRM 5.8.3.19,Offers Submitted Solely to Delay Collection.
3. If an offer in compromise is made solely to delay collection, levies can be served to collect the tax. The provisions in IRM 5.11.1.3.9(4) also apply to such levies.
5.11.1.3.13 (07-01-2004)
Special Treasury Fund
1. Members of the military and Public Health Service employees may deposit money in a Special Treasury Fund, while they are outside the U.S. and its possessions.
2. Get advice from Associate Area Counsel (SBSE) before attempting to levy money in the Special Treasury Fund. Keep Technical Services-Advisory informed in light of the potential for litigation and wrongful levy actions.
Note:
Refer Counsel to Subsection 1035 of Title 10 of the U.S. Code.


5.11.2.1 (05-05-1998)
Serving Notices of Levy
1. This section provides procedures for serving notices of levy.
5.11.2.1.1 (05-05-1998)
General
1. Serve a levy only when there is reason to believe the third party is holding the taxpayer's property.
A. If the taxpayer owns property with a person not liable for the tax, consider using another source.
B. Any property in which the taxpayer has an interest is subject to levy, even if the property is jointly owned with another person (e.g., community property, jointly owned bank accounts). However, because wrongful levy suits and claims can result from such levies, consider levying on another available source.
5.11.2.1.2 (06-01-2007)
Preparing the Notice of Levy
1. Prepare the appropriate notice of levy form.
A. Use Form 668–W(ICS) or 668-W(c)DO to levy an individual's wages, salary (including fees, bonuses, commissions, and similar items) or other income. Other income is that owed the taxpayer as the result of personal services in a work relationship. Form 668-W is also used to levy on a taxpayer's benefit or retirement income.
B. Use Form 668–A(ICS) or 668-A(c)DO to levy other property that a third party is holding. For example, this form is used to levy bank accounts and business receivables.
If And Then
the taxpayer is an individual the property to be levied is wages, salary, or other income, use Form 668-W
If Or Then
the taxpayer is not an individual the property to be levied isnot wages, salary, or other income, use Form 668-A
2. Include all appropriate TINs on the notice of levy. For example, include both the SSN and EIN of a sole proprietor, if they are known. Include both SSNs on a joint income tax liability. ICS users should enter this information in the "Remarks" field. See (4) below.
3. If additional information will help identify the taxpayer's property, include it on the levy. ICS users should enter this information in the "Remarks" field. This may include:
• Contract Number
• Franchise Number or Operator
• Co-signer's Name
• Royalty Owner
• Location of the branch where the taxpayer works
• Any other descriptive information
4. If there is a joint assessment, and there is a restriction that prevents levy against one of the taxpayers' property, include both taxpayers' names on the notice of levy or in the "Remarks" field, but only include the SSN of the taxpayer on whose property you are levying.
. State on the notice of levy or in the "Remarks" field, "This levy attaches the property and rights to property of (taxpayer's name). It does not attach the property and rights to property of (other taxpayer's name)."
Example:
Fred and Janice Blue filed a joint return and owe $3,000. They are divorced now. Janice has filed bankruptcy and the automatic stay prohibits levy on her property. Fred is not a party to the bankruptcy. His property can be levied. When a notice of levy is prepared to collect from Fred, the taxpayer name line will still include both taxpayers' names. However, the notice of levy will also state, "This levy attaches the property and rights to property of Fred Blue. It does not attach the property and rights to property of Janice Blue."
A. In some states, the taxpayer whose property rights are being levied may have a community property interest in the property of a spouse, and there may be a restriction which prevents levy on that spouse's property. See IRM 5.11.6.11,Levy on Non-Liable Spouse in a Community Property State. In the example above, other language may need to be added to the notice of levy explaining that Fred Blue's property rights that are being levied include Fred's community property interest in Janice Blue's property, although her property rights are not being levied. The result is similar to what would be levied if there were an assessment only against Fred, but his community property interest in Janice's property is being levied.
5. When levying on the property of a partnership, the levy form will reflect the name of the partnership.
6. When levying on the property of a partner for the partnership debt, you can add a statement to the "Remarks" field of the levy application such as, "This notice attaches to all property in the name of (name of partner, TIN, [general/limited] partner)."
7. If the taxpayer's identification number is not needed by the levied party to identify the taxpayer's assets, redact it from the appropriate parts of the levy form. Examples of assets for which the taxpayer's identification number may not be necessary for the levied party for identification are:
• Account or Note Receivable
• Rental income
• Chose in action, e.g., a right to recover money or right to pursue a lawsuit
5.11.2.1.3 (01-01-2006)
Serving Notices of Levy in Person
1. When a notice of levy is served in person, have the recipient sign for it. Write, "Receipt Acknowledged," on the form, and have the person sign after this. If the person will not sign it, leave the form anyway. Document the case file to show the levy was served. An acknowledgment is desirable, but it is not critical.
Note:
If the representative of a financial institution is reluctant to accept service of the levy in person, alert them to the fact the financial institution will be liable for any withdrawals from the account after that date and time. Re-occurring difficulties with a particular financial institution should be addressed by local management.
2. If the levy source is a partnership or a corporation, try to serve the levy on a partner or corporate officer.
3. Try to find out how much to expect from the levy. Ask for payment when the levy is served, unless there is a reason for a delay, such as,
• IRC 6332(c) requires banks to wait 21 days
• A levy on wages is not paid until the taxpayer's usual pay day
4. If payment must be sent later, supply a business reply, self-addressed envelope. Supply more envelopes if there will be several payments.
5. If nothing is owed to the taxpayer, have this written on the form. Ask the person to sign it and write their title, e.g., partner, vice-president, etc.
5.11.2.1.4 (05-05-1998)
Serving Notices of Levy by Mail or Fax
1. Treasury Regulation 301.6331–1(c) permits notices of levy to be served by mail.
• Print, "Notice of Levy," on the envelope used to mail levies. This helps large employers and banks route the levy to the right office.
• Include a business reply, self-addressed envelope.
2. When a levy must be served quickly, a fax can be used. First, confirm the person has a fax machine and will accept the levy this way.
5.11.2.1.5 (01-01-2006)
Addresses for Mailing Notices of Levy
1. Some financial institutions, businesses, and government agencies identify one address to be used when sending levies. The financial institution, business, or agency must notify the area director in writing. Consider keeping a central index in the area for these addresses. Then, they can be distributed to all collection employees in the area.
Note:
Notification of a centralized address for notices of levy by mail does not preclude service in person. See IRM 5.11.2.1.3.
2. Consider whether other areas and campuses need to know the address. Some large companies and government agencies may get levies from all over the country. Levy Source Information on the Servicewide Electronic Research Program (SERP) under Who/Where provides up-to-date levy source name and address information.
• If a bank gives an address for its levies, ask for its EIN and its American Bankers Association (ABA) transit number.
• Send the requests, including the EIN and ABA number, to the area office. If the area agrees the information belongs on SERP's Levy Source Information, it will be sent to Headquarters to the Director, Collection Policy, SE:S:C:CP:GPPA, Systemic Levy Analyst. Attn:
3. A computer program uses the EIN and ABA number to overlay these addresses for many levy sources; however, it is not always able to do this. For example, the updating of the address depends on IDRS having the levy source's EIN or ABA number. Some levy sources do not have these numbers, so sources must still be checked against Levy Source Information on SERP.
5.11.2.1.6 (05-05-1998)
Levy in Other Territories
1. When a taxpayer has property in another territory, either,
A. Mail the notice of levy
B. Go to the other territory if it is nearby, or
C. Initiate a Courtesy Investigation, see IRM 5.1.8 , Courtesy Investigations.
2. The receiving territory may find other levy sources. If so, other levies may be served after checking with the originating territory.
5.11.2.1.7 (01-01-2006)
Notifying the Taxpayer After Serving the Levy
1. After serving a levy in person or faxing it, mail a copy to the taxpayer. Form 668–A includes two taxpayer copies. Mail Part 4 to the taxpayer. Leave Part 2 with the person who receives the levy. ACS uses Form 668–A(c) and mails to the taxpayer Form 8519, Taxpayer's Copy of Notice of Levy.
2. If the levy is mailed, do not send the taxpayer copy immediately. Wait long enough so the taxpayer does not get the levy before the levy source does. Consider local experience with mailing times and the promptness of a particular entity's compliance.
Note:
This is not necessary for a levy on wages, salary, or other income. The wage statement given the taxpayer by his or her employer notifies the taxpayer of the levy.
3. Also, see IRM 5.11.6.11.2, Notice to the Non-Liable Spouse, when a taxpayer's community property interest in a non-liable spouse's property or right to property is levied.
5.11.2.1.8 (06-01-2007)
Examination of Books and Records
1. Records about taxpayer property must be provided when a levy is served or is about to be served. See IRC 6333. A summons could be used, but it may be unnecessary. Sometimes, a cooperative person will show the records if something in writing is given.
Note:
If there are concerns about the completeness of an entity's compliance with the levy, follow-up with a summons for bank records to verify compliance and pursue the appropriate next action as warranted, e.g., suit for failure to honor a levy.
2. Use Form 2270, Notice to Exhibit Books and Records. Do not describe this as a summons. Note the date and time the form is served. Also, note the person who receives it.
Caution:
Form 2270 must not be used to solicit information from a financial institution within the Tenth Circuit (Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming) or in any circumstance where a suit can be filed against the U.S. Government within the Tenth Circuit. See IRM 25.5.1.4.1(3),Documents from Financial Institutions in the Tenth Circuit, for information on those circumstances.
5.11.2.1.9 (06-01-2007)
Refusing to Comply with a Levy
1. If a person refuses to surrender the property, advise them of the provisions of IRC 6332. IRC 6332
• Requires the property to be surrendered
• Discharges the person from any liability to the taxpayer and anyone else, and
• Describes the person's liability if the levy is not honored
2. If the person still refuses, serve Form 668–C, Final Demand.
3. A Notice of Federal Tax Lien is not required before serving Form 668-C. However, if a suit to enforce the levy is likely, then file the lien.
4. If Form 668–C is served in person, try to serve it on the same person who received the levy. Complete the Certificate of Service on Part 1. Try to get a signature at the bottom of the form to acknowledge it was received.
5. If Form 668–C is mailed, send it by certified mail.
5.11.2.2 (05-05-1998)
Releasing Levies
1. This section provides procedures for releasing notices of levy.
5.11.2.2.1 (01-01-2006)
Legal Basis for Releasing Levies
1. IRC 6343(a)(1) requires levies to be released in the following circumstances.
• The liability is satisfied by full payment, i.e., is no longer owed
• The statutory collection period has run out
Note:
Generally, a levy served prior to the expiration of the collection period is good and should not be released. In addition, a levy served after reducing a tax liability to a judgment is valid.
Example:
One week before the statutory collection period runs out, a notice of levy is served at the taxpayer's bank. The bank does not have to send the levy proceeds until the 21 day holding period on bank levies expires, and this will be after the period for collection runs out. This levy does not have to be released when the collection period runs out, because it was served timely.
Exception:
A continuous wage levy served before the expiration of the collection statute must be released after the expiration of the collection statute.
Example:
When a notice of levy is served on a taxpayer's right to property, sometimes that includes the right to receive future payments, e.g., pension benefits. If there is a fixed and determinable right to receive those future payments, the levy will attach them when they would have been paid to the taxpayer, even though it is not actually a "continuous" levy. As long as the right to property has been levied before the period for collection runs out, the notice of levy does not have to be released.
• The release will facilitate collection of the amount that is owed.
Example:
A notice of levy is served on the taxpayer's broker. The broker is holding a certain amount of the taxpayer's cash but not enough to pay the tax liability. In addition, the broker is holding the taxpayer's stock options. The stock is worth more than when the option price was set. The cash held by the broker is enough to exercise the option on shares worth more than the tax liability. We arrange to meet the taxpayer and the broker. The release of levy is served, the taxpayer gives the broker an order to use the cash held by the broker to exercise the stock options and to immediately sell the shares. A new notice of levy is served on the broker, so the proceeds of selling the shares will be attached and pay the tax liability.
Example:
A notice of levy is served on the taxpayer's bank. The amount in the bank is less than the tax liability. The taxpayer needs the Notice of Federal Tax Lien released and wants to post a bond to do so. The bank has a bond department, and the amount on deposit at the bank is enough to pay for the bond to get the lien released. A collateral agreement is submitted and approved. We meet the taxpayer at the bank. The notice of levy is released, and the taxpayer has the funds in the bank immediately turned over to the bond department, so the bond that assures payment of the amount owed can be issued and the lien can be released.
• The levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their necessary living expenses
• The fair market value of the levied property is much more than the amount owed. A portion can be released without risking collection.
• The taxpayer makes an installment agreement, unless the agreement allows for the levy
Example:
In response to a bank levy, the taxpayer contacts the assigned revenue officer for an installment agreement. If the revenue officer extends the taxpayer an installment agreement, but, using the same judgment required in considering any levy release, determines the levy will not be released, then the installment agreement form must be noted accordingly.
2. Release the notice of levy as soon as one of the circumstances in (1) is identified to prevent payments from being received after the notice of levy should have been released. This will avoid the need to return levied property and the inconvenience this may cause for the taxpayer.
Example:
After a notice of levy has been sent to a taxpayer's employer, the taxpayer responds and shows that the notice of levy prevents her from paying for basic necessities for her family. Because the levy is causing an economic hardship, release it immediately, so the employer will not send a levy payment on the next pay day.
3. Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy. A levy on this property is generally illegal and must be released. Contact Insolvency for advice if you inadvertently levy on property of a taxpayer in bankruptcy.
4. Any notice of levy that violates the Internal Revenue Code or regulations must also be released, e.g., a levy issued while the taxpayer's CDP hearing is pending.
5.11.2.2.2 (06-01-2007)
Wrongful and Erroneous Levies
1. When discussing remedies for improper levies, the Internal Revenue Code distinguishes between "wrongful" levies and other types of improper levies.
2. A "wrongful levy" is one that improperly attaches property belonging to a third party in which the taxpayer has no rights. See IRC 6343(b). The Code specifically authorizes release of wrongful levies. When a claim is received from the wrongfully levied party, contact Technical Services-Advisory about the taxpayer's right to the levied property. If the proceeds have already been forwarded, and it has been determined that returning the proceeds is appropriate, complete and process Form 5792, Request for IDRS Generated Refund.
3. An "erroneous" levy is one that properly seeks to capture a taxpayer's property (rather than a third party's property), but nevertheless is served prematurely or otherwise in violation of an administrative procedure or law. See IRC 6343(d). If a notice of levy is served erroneously, release it immediately. Send Pattern Letter P–548 to the taxpayer. See Exhibit 5.11.2–1. The taxpayer can give this to people who received levies. See IRM 5.11.4.8, Reimbursing Bank Charges Because of Erroneous Levy, about reimbursing bank charges for erroneous levies.
Example:
A notice of levy is served. The taxpayer shows a canceled check used to full pay the tax liability. When IDRS is researched, the check is found among unidentified remittances. Release the levy. Any related bank charges may be reimbursed.
5.11.2.2.2.1 (06-01-2007)
Certain Wrongful Levy Situations
1. These procedures apply only to situations where the Service levies on a bank account other than the taxpayer's or sells property that does not belong to the taxpayer. Hardship is not a factor in these two situations.
2. When a wrongful levy is identified, the authorized Area representative will:
A. Call the ACS Support Compliance Liaison at 913–266–9832.
B. Inform the ACS Support Compliance Liaison that Form 5792, Request for IDRS Generated Refund, and supporting documents will be faxed because of a wrongful levy. The ACS Support Compliance Liaison fax number is 913–344–7449.
3. The ACS Support Compliance Liaison will notify the authorized Area representative by telephone within one business day whether the Form 5792 and supporting documentation have been received.
4. The Area office must send a follow-up, Part 1 only, of the Form 5792 with the original approving signature on it to the ACS Support Compliance Liaison who will forward it to the KCSC Accounting function. This will not delay the faxed refund request when it comes to the campus, but it is required so it can be associated with the faxed copy in accounting. The mailing address is:
Internal Revenue Service
Stop P-4 5050
P.O. Box 219236
Kansas City, MO 64121-9236
Attn: ACSS Compliance Liaison
5. The Area Director is authorized to approve manual refunds in wrongful levy situations and may re-delegate this authority.
6. The ACS Support Compliance Liaison will verify, immediately upon receipt, that Form 5792 has been completed correctly. Discrepancies on Form 5792 should be corrected by telephone, if possible. Otherwise, the document will be rejected and the Area will be notified by telephone of the action needed.
7. The KCSC Accounting Function will hand carry the refund request to the Regional Finance Center (RFC) no later than the next working day. The RFC will issue and mail the check the following workday.
5.11.2.2.3 (05-05-1998)
Serving Releases of Levy
1. Generally, levy releases are mailed to save resources. Sometimes, though, they may be served in person.
2. When a levy must be released quickly, it can be faxed. Confirm that the person has a fax machine and is willing to accept the release this way.
5.11.2.2.4 (01-01-2006)
Forms Used to Release Levies
1. Use Form 668–D, Release of Levy/Release of Property from Levy, to release a levy served on Form 668–A or 668–W. Use Form 668–E, Release of Levy, to release seized property when Form 2433, Notice of Seizure, cannot be used.
2. Form 668–D can be used to release the levy in part or in full.
Example:
A taxpayer who has defaulted on an installment agreement, ultimately has his wages levied. The amount being levied creates a hardship, but a smaller amount would not. A release of wages less than $X allows the taxpayer to receive an amount that will not cause a hardship. Anything earned more than that amount is sent as levy proceeds each pay day.
Example:
After failing to respond to the CDP notice, a taxpayer's wages are levied. The taxpayer contacts the revenue officer assigned the case and a monthly payment amount is agreed to. A payroll deduction agreement to avoid default is the preferred disposition of the case, but the employer is reluctant to agree. A partial release of wages greater than $X, sets a fixed amount that will be sent as levy proceeds each pay day. Anything more is paid to the taxpayer.
5.11.2.2.5 (06-01-2007)
Levy Release For Credit Card Payment
1. Taxpayers can make tax payments by credit card. See IRM 21.2.1.51.2,Payment by Credit Card (General). Credit card payments are a source of guaranteed funds; the line of credit is authorized before the confirmation number is issued.
2. If releasing a levy when the taxpayer states they paid by credit card, secure the confirmation number. The confirmation number is provided to the taxpayer by the service provider at the end of the transaction.
3. Additional payment verification can be obtained by the taxpayer on the service provider's website.
4. While rare in instances of tax payments, fraudulent use of credit cards does occur and will result a manual refund of the payment to the processor.
5.11.2.3 (06-01-2007)
Returning Levied Property to the Taxpayer
1. Before July 30, 1996, once levy proceeds were deposited, there was no statutory authority permitting the return to a taxpayer of monies obtained by erroneous levy, even though the levy might have been issued in violation of law or administrative procedures. Congress has since enacted such authority.
5.11.2.3.1 (06-01-2007)
Current Authority for Returning Levied Property to the Taxpayer
1. On July 30, 1996, Taxpayer Bill of Rights 2 (TBOR2) was enacted. This added subsection (d) to IRC 6343.
2. Now erroneous levy proceeds can be returned to the taxpayer at the discretion of the service if:
• The levy is in violation of the law, e.g., the levy occurs while the taxpayer's CDP hearing is pending.
• The levy is premature
• IRS procedures were not followed
Example:
Some companies notify the Service of an address for mailed notices of levy. See IRM 5.11.2.1.5. A levy is sent to another address by mistake. The company forwards it to the correct address, and a levy payment is sent. The taxpayer might claim the payment must be returned because procedures were not followed. This is not the case. It is within the discretion of the Service to determine that the error is trivial and returning the payment is unwarranted.
• An installment agreement is made for a liability included on the levy, unless the agreement provides otherwise
Example:
Subsequent to the levy, the taxpayer enters into an installment agreement that will full pay the entire outstanding liability. The revenue officer verifies the taxpayer is financially able to meet all the terms of the agreement. An amount of money equal to the amount of money levied and applied toward the taxpayer's liability may be returned to the taxpayer.
• Returning the payment facilitates collection
• With the consent of the taxpayer or the National Taxpayer Advocate (NTA), returning the payment is in the best interests of the taxpayer (as determined by the NTA) and the government
Example:
Taxpayer owes income tax for 2000 and 2001. Levy issued to attach social security benefits. Taxpayer responds to levy and a collection information statement is completed that reflects a hardship. The levy on the social security benefits is released. After the levy is released, but before the Social Security Administration receives the release, additional levy payments are received and applied to the liability. The taxpayer can file a request for return of an amount equal to the amount applied to the liability after the levy was released. That amount may be returned by the Commissioner unless it is determined the return of property is not in the best interest of the government. Generally, after the IRS releases a levy due to hardship and receives post-release payments because of a delay in receiving the release, it may be in the best interest of the government to return such payments.
If Then
IRS makes a determination that return of property is in the best interest of the United States AND in the best interest of the taxpayer with taxpayer consent (no NTA involvement) IRS will return the levied property.
IRS makes a determination that return of property is in the best interest of the United States and the NTA also determines that return of the property is in the best interest of the taxpayer IRS will return the levied property.
IRS makes a determination that return of the property in NOT in the best interests of the United States (regardless of NTA determination or taxpayer consent) IRS will NOT return the levied property.
3. The taxpayer can file a request for the return of levied property up to nine months after the levy. Requests made after nine months cannot be considered.
Note:
The Service can refund levy proceeds without a request from the taxpayer. If the taxpayer requests the return of money within nine months of the levy, the Service may return the money after the nine month period ends if time is needed to investigate and process the request. The money can, then, be refunded after nine months.
5.11.2.3.2 (07-26-2002)
Factors to Consider Before Returning a Levy Payment to the Taxpayer Due to Procedural Errors
1. Except for a levy in violation of the law ( See IRM 5.11.2.3.1), there are no rigid rules for deciding whether to return a levy payment. The decision is made on a case-by-case basis. At least one of the conditions in IRM 5.11.2.3.1(2) must exist. Some things to consider include:
• How significant is a procedural error? In the first example in IRM 5.11.2.3.1(2), the error is harmless and insignificant.
• Did the person who received the levy get bad instructions about how much to send?
• Is there an error that affects whether the levy should have been issued?
• Is there an inequity in keeping the payment?
• Would the levy have been released if all facts were known before the payment was received?
• Is the taxpayer a pyramiding, delinquent trust fund repeater?
5.11.2.3.3 (01-01-2006)
Rejecting Requests for Return of Levied Property
1. When a written request is rejected, give the taxpayer Letter 3975, Rejection of Request for Return of Levied Property, signed by the group manager.
2. A written rejection is not required unless a written request is made.
3. The taxpayer may appeal the rejection using Collection Appeal Program (CAP) procedures, or, if Collection Due Process (CDP) rights are timely exercised, by raising the issue at a CDP hearing or an equivalent hearing, whichever may be applicable.
5.11.2.3.4 (08-01-2004)
Delegation of Authority to Return Levy Payments
1. See Delegation Order 5–3 at IRM 1.2.44.3 to determine who can approve returning levy proceeds.
5.11.2.3.5 (08-01-2004)
Getting the Money Refunded
1. See IRM 5.1.12.16, Request for a Manual Refund, for general instructions for issuing a manual refund.
Note:
Although IRM 5.1.12.16, mentions only the Territory Manager, returning levy proceeds can be approved by the people listed in Delegation Order 5–3 under the delegated authority to return levy payments.
2. Unlike money that has been wrongfully levied, no interest is paid on the refund.
5.11.2.3.6 (07-26-2002)
Effect on Penalty & Interest
1. When levy proceeds are returned, the delinquent tax is not forgiven. The taxpayer is still obligated to pay the amount owed, and the Service is obligated to collect it.
2. However, the taxpayer will not be charged failure to pay penalty and interest during the period that the Service held the money. After the payment is returned to the taxpayer, penalty and interest start to accrue again.
3. The taxpayer owed $10,000.
On April 10, 1998, $2,500 was collected as levy proceeds.
On May 4, 2000, the $2,500 was returned.
A. Compute accrued interest on $10,000 through April 10, 1998. Then, compute interest on $7,500 for the period April 11, 1998, though May 4, 2000. Assess the total interest from these two steps using transaction code (TC) 340. Have the TC 340 input with the COMP-INT-AMT and INT-TO-DT fields complete. The COMP-INT-AMT is the amount still owed, so IDRS and master file should continue computing interest on this. In this example, it would be the amount still owed on May 4, 2000. The INT-TO-DATE is the date that the interest has been computed through which in this example would be May 4. This will allow IDRS and master file to compute interest after that so it will not have to be done manually.
B. Compute the failure to pay penalty that accrued from April 11, 1998, through May 4, 2000, on $2,500. Input this amount using TC 271 with Reason Code 62. This will allow IDRS and master file to compute the penalty after that so it will not have to be done manually.
5.11.2.4 (07-26-2002)
Returning Levied Property to Someone Other Than the Taxpayer
1. Generally, if levied property must be returned, it is given back to the taxpayer(s) who owed the tax that was credited with the payment. Typically, if a levy payment is applied to a liability owed by John and Mary Smith, and it must be returned later, the refund check would be in the names John and Mary Smith.
2. Sometimes the name(s) on the check can not be the same as the name(s) on the delinquent account because the money must be retuned to the third party who was wrongfully levied upon.
Example:
Fred Jones owes delinquent tax for tax year 1997, when his filing status was single. In addition, Fred and Mary Jones owe delinquent tax for returns they filed jointly for tax years 1998 and 1999. One notice of levy is mistakenly issued for all three tax years showing Fred and Mary Jones as the taxpayers. This results in money from Mary's bank account being used to pay all three liabilities. The payment that is applied to tax year 1997 is for a liability owed by Fred Jones, but the refund check for that payment must be issued in the name Mary Jones. This example assumes the bank account is not community property.
Example:
Sam Wilson's Social Security benefits are levied. After five levy payments have been sent, the Social Security Administration finds out that Sam had died and was only eligible for benefits during the first three months. The other two months' levy payments must be returned to the Social Security Administration.
3. See IRM 5.1.12.16, Request for a Manual Refund, for instructions about how to get the manual refund check issued.
4. A wrongful levy is one in which the levy proceeds are money that belonged to someone other than the delinquent taxpayer, such as in the first example in (2), above. Or when the levy destroyed the interest of a lien senior to the federal tax lien. In these cases, the person to whom the money is returned is entitled to interest. Using the overpayment rate in IRC 6621, interest runs from the date the levy payment was received to the refund schedule date. The date the interest runs through can be no earlier than thirty days before the money is actually returned.
5. When a wrongful levy on a third party's property is not involved, as illustrated in the second example in (2), above, no interest is paid.
5.11.2.5 (01-01-2006)
Disposing of Surplus Proceeds
1. Every reasonable effort will be made to release a notice of levy timely. However, sometimes surplus levy proceeds are received. Surplus proceeds are payments greater than the amount still owed for the liabilities listed on the notice of levy.
Example:
A refund posts after the levy source has already sent payment for the levy.
2. The payment should be returned to the levy source when there is no remaining balance due.
3. If surplus proceeds are received, and taxes are owed that were not listed on the notice of levy, the surplus can be offset to those taxes. However, use levy proceeds to pay the taxes listed on the levy, first. The surplus may be offset to taxes not listed on the notice of levy, even if all the notices in IRM 5.11.1.2.1 have not been given to the taxpayer for those taxes. The first notice of levy should be released, if necessary, and a new notice of levy issued to include the periods not on the first levy.
Exhibit 5.11.2-1 (05-05-1998)
Pattern Letter P–548
(Reference 5.11.2.2.2)

Person to Contact:
Employee Identification Number:
Contact Telephone Number:
Date:

Dear (Name of Taxpayer):

We apologize for the concern and inconvenience we caused you by the erroneous serving of a notice of levy, dated ______ , that attached assets, belonging to you, in the possession or control of
______ , at ______ .

We are enclosing a copy of this letter, since you may want to furnish it to your employer, bank, or other individual or organization.

If you have any questions, please contact the person whose name and telephone number are shown above.

Sincerely yours,


Area Director
By

(Signature and title)   

Enclosures:
Copy of this letter
Copy of Release of Levy

5.11.3.1 (09-19-2006)
Background
1. Normally, the notices and waiting periods described in IRM 5.11.1.2.1, Required Notices, must be issued before property can be levied. However, if collection is in jeopardy, property can be levied sooner.
2. Generally, if collection is in jeopardy, there is a jeopardy or termination assessment. Then, there is an immediate notice and demand which is followed by a jeopardy levy. Sometimes, however, there may already be an assessment before jeopardy is known.
Note:
In every situation where a jeopardy levy occurs without a jeopardy or termination assessment, the Service has already assessed the tax liability through normal procedures.
Example:
There may be a prompt assessment on a voluntarily filed return. Then, the taxpayer starts moving property to hide it. Property can be levied, even though the usual waiting periods after notices have not passed.
3. A jeopardy levy without a jeopardy or termination assessment can happen:
• After tax is assessed, but before the notice and demand is normally required by IRC 6331(a) is issued, provided immediate notice and demand is given to the taxpayer
• After the notice and demand is issued, but before ten days have passed
• After the ten day notice and demand period ends, but before the 30 day notice of intent to levy and notice of a right to a hearing have been issued, or
• After the notice of intent to levy and notice of a right to a hearing have been issued, but before the 30 days for the taxpayer to request a hearing have passed.
Note:
The taxpayer may request an administrative or judicial review of the jeopardy levy action under IRC 7429only when the jeopardy levy is issued within 30 days from the notice and demand (first notice). If a jeopardy levy occurs subsequent to that 30 day period, the Service will issue a CDP notice under IRC 6330(f) within a reasonable period of time to give the taxpayer an opportunity to seek CDP appeal rights under that section. See table in 5.11.3.5(4) below.
4. In general, no levy can be made in the following circumstances:
• The appearance date of a summons
• There is a pending or active installment agreement
• A rejected installment agreement can be appealed or is being appealed
• An offer in compromise is pending
• A rejected offer in compromise can be appealed or is being appealed

However, in the circumstances listed in (4) above, if collection is in jeopardy a jeopardy levy may be issued.
5. Hereafter, any reference to "jeopardy levy" in this section shall refer only to a jeopardy levy without a jeopardy or termination assessment unless otherwise noted.
5.11.3.2 (01-19-1999)
Conditions that Mean Jeopardy
1. A jeopardy levy requires a condition which would have allowed a jeopardy assessment.
2. See the IRS policy statement in IRM 1.2.1,Policies of the Internal Revenue Service, regarding jeopardy assessments, IRM 1.2.1.4.27, P-4-88.
5.11.3.3 (09-19-2006)
Getting Approval
1. If collection of assessed tax is in jeopardy, prepare either a written report or a narrative ICS history entry for the territory manager requesting approval to issue a jeopardy levy. Include the same information that is needed for a jeopardy assessment. See IRM 5.1.4, Jeopardy, Termination, Quick and Prompt Assessments . Send the request through the group manager.
2. The managerial approval process can be accomplished by having the group manager and territory manager access ICS and document their approval with a history entry. Alternatively, if written approval is secured, a copy of the written approval must be kept in the file.
3. In addition, IRC 7429(a)(1)(A) requires Counsel approval, in writing, for a jeopardy levy. This approval can be no lower than the Associate Area Counsel.
Note:
For SB/SE International Operations, the authority is delegated to the Deputy Associate Chief Counsel (Strategic International Programs) or this person's delegate.
Note:
All jeopardy levies will be approved by Counsel even though under IRC 7429(a)(1)(A) Counsel is only required to approve jeopardy levies issued during the 30 days from notice and demand. While Delegation Order 5-3 (13) does not require Counsel's approval to issue a jeopardy levy after all pre-levy notices have been issued and the waiting periods for them have passed, see 5.11.3.1(4) above, Collection policy requires Counsel approval of alljeopardy levies.
4. When all appropriate approvals for issuance of a jeopardy levy are secured, the revenue officer can generate the levy on ICS, sign, and issue it.
5. If securing written approval, include Letters 2439/2439A(CG), Notice of Jeopardy Levy and Right of Appeal, and 2438(CG), Jeopardy Levy Letter to Third Party Levy Recipient, for the territory manager's signature. If approval is secured via ICS, then sign the letters for the territory manager.
If Then
The notice and demand has not been issued, or it has been issued and ten days have not passed yet. The taxpayer must be given an immediate notice and demand for payment. See " Note " under subsection IRM 5.11.1.2.1(2)
6. For joint IMF returns, prepare two Letters 2439A(CG) which includes the dual notice language. If an immediate notice and demand is required, also prepare two Forms 3552, Prompt Assessment Billing Assembly, Parts 3 & 4. Put both taxpayers' names on the letters and on the notice and demand.
7. Use Parts 3 & 4 of Form 3552 to make immediate notice and demand. Cross out "Please return this copy with your payment to the address shown above" at the bottom of the form. If a blank Form 3552 is not available, copy the text of one on IRS letterhead stationery or print one off the Publishing website. Have the territory manager sign this, too, when the notice of levy is approved or sign for the territory manager if approval is secured via ICS.
8. See Servicewide Delegation Order 5-3 for all position titles with the authority to issue notices of levy when collection is in jeopardy and the pre-levy notices have not been issued and/or the waiting periods after the notices have not passed or the general levy prohibition exists.
9. If time constraints or other conditions prevent securing Territory Manager written or systemic approval, the Territory Manager can approve the levy by telephone. When this occurs, write a narrative ICS history entry or a memo to file including the information that would have been in the report described in (1). Send a copy of the memo to file to the territory manager.
5.11.3.4 (09-19-2006)
Forms and Letters for a Jeopardy Levy without a Jeopardy Assessment
1. The forms and letters that are needed depend on the timing of the jeopardy levy. In addition to notice of levy and Federal Tax Lien, the forms and letters needed for jeopardy levies are:
If And Then prepare
Tax has been assessed. The notice and demand normally required by IRC 6331(a) has not been issued. LETTER IMMEDIATE NOTICE AND DEMAND (Altered Form 3552). 2. 1. LETTER 2438(CG). 2439/2439A(CG) ] . 3.
Tax has been assessed. The notice and demand has been issued, but ten days have not passed. IMMEDIATE NOTICE AND DEMAND (Altered Form 3552). 1.
LETTER 2. 2439/2439A(CG).
LETTER 2438(CG). ). 3.
The notice and demand has been issued. It is between 10 and 30 days since issuance of the notice and demand LETTER 2439/2439A(CG). 1.
LETTER 2438(CG). 2.
The notice and demand has been issued. 30 have passed, but a notice of intent to levy and notice of your right to a hearing has not been issued or the notice was issued and it is within the 30 (+15) days to request an appeal. LETTER 2439/2439A(CG) 1.
LETTER 2438(CG). 2.
PUBLICATION 3. 594.
PUBLICATION 1660. 4.
FORM 12153. 5.
A jeopardy levy is to be issued during the general levy prohibition (5.11.3.1(4)) A notice of intent to levy and notice of your right to a hearing has not been issued or the notice was issued and it is within the 30 (+15) days to request an appeal
1. LETTER 2439/2439A(CG)
2. LETTER 2438(CG)
3. PUBLICATION 594
4. PUBLICATION 1660
5. FORM 12153
A jeopardy levy is to be issued during the general levy prohibition (5.11.3.1(4)) A notice of intent to levy and notice of your right to a hearing was issued and the 30 (+15) days to request an appeal have passed
1. LETTER 2439/2439A(CG)
2. LETTER 2438(CG)
3. PUBLICATION 594
4. PUBLICATION 1660
5. FORM 9423
5.11.3.5 (11-05-99)
After the Jeopardy Levy is Approved
1. If an immediate notice and demand is required, give the altered Form 3552 to the taxpayer and demand immediate payment. If personal delivery is not practical, send it by certified mail to the last known address. If a field visit to deliver the form reveals the address is not good, check IDRS for a new one.
2. When the immediate notice and demand is issued, or if it is not required:
• File a Notice of Federal Tax Lien, and
• Serve the Notice(s) of Levy.
3. Include Letter 2438(CG) with each notice of levy. This letter asks the party in receipt of the levy to delay sending payment for 45 days. This allows time to see if the taxpayer appeals. If the taxpayer successfully appeals, the levy can be released rather than issuing a manual refund.
4. The taxpayer must be told the reason collection is in jeopardy. Use Letter 2439/2439A(CG), to communicate this. Avoid saying anything in the letter that could identify a confidential informant.
If Then
Form 3552 is required. Give the taxpayer Letter 2439/2439A(CG) at the same time.
Form 3552 is not required. Give Letter 2439/2439A(CG) to the taxpayer within five days of serving the jeopardy levy.
5. Try to give the letter to the taxpayer in person. If personal delivery is not practical, send it to the taxpayer's last known address by certified mail with a return receipt. See IRM 5.11.1.2.2.2(8),Issuing Notice of Intent to Levy/Notice of a Right to a Hearing in CFf. If a field visit to deliver the letter reveals the address is not good, check IDRS for a new one.
Note:
For joint IMF returns, try to deliver letters to each taxpayer in person. Also, if an immediate notice and demand is required, deliver Form 3552 to each taxpayer. If this is not practical, mail the notices as described in IRM 5.11.1.2.2.3Issuing Notice of Intent to Levy /Notice of a Right to a Hearing for Joint IMF Bal Due Account.
Reminder:
If the taxpayer has an authorized representative, a copy of correspondence to the taxpayer must also be given to the representative. If mailed, use regular mail for the copy.
5.11.3.6 (09-19-2006)
Appealing the Jeopardy Levy
1. Only if the jeopardy levy is being issued within 30 days of the notice and demand can the taxpayer appeal under IRC 7429. The taxpayer can appeal under IRC 7429 within 30 days after the L2439/2439A(CG) is given, or should have been. The issue is whether the jeopardy levy is reasonable under the circumstances (collection is truly in jeopardy). If the appeal is rejected, the taxpayer can obtain judicial review of the jeopardy levy. If any of the liabilities on the jeopardy levy were being considered in Tax Court before the making of the jeopardy levy, the taxpayer can obtain judicial review of the jeopardy levy by the Tax Court.
2. If the jeopardy levy is being issued after 30 days from the notice and demand and the taxpayer has not already been issued their appeal rights under IRC 6330, the IRS must notify the taxpayer of their appeal rights under IRC 6330. See also 5.11.3.5.(4). The taxpayer has 30 days from the date of the L2439/2439A(CG) to request a Collection Due Process hearing. The taxpayer must request a CDP hearing under IRC 6330 in order to request judicial review under that section. See IRM 5.1.9,Collection Appeal Rights, for additional information about taxpayers' rights to appeal under IRC 6330.
3. If the taxpayer appeals or says a suit is being filed, contact AIQ-Advisory. Also, get advice from Counsel, as needed. The local Appeals Office will handle the administrative appeal. Tell the levy recipient(s) to delay paying over the funds while the appeal is considered using Letter 2438(CG), Jeopardy Levy Letter to Third Party Recipient.
4. If the taxpayer has received all the pre-levy notices and the waiting periods have passed, they can appeal under the Collection Appeals Program (CAP) or request an equivalent hearing. The taxpayer cannot go to court if they disagree with Appeals' decision. See IRM 5.1.9, Collection Appeal Rights, for additional information on CAP and equivalent hearings.


5.11.4.1 (07-26-2002)
Holding Period
1. A bank must wait 21 calendar days after a levy is served before sending payment. Then, on the next business day, it must turn over the taxpayer's money. The depositor(s) can waive this waiting period. The bank will not send money that is subject to attachment or execution under judicial process. "Bank" includes credit unions, savings and loan associations, trust companies, and others described in IRC 408(n) and Treas. Reg. §301.6332–3(b).
2. During the holding period, a levy might be released, or the amount owed could decrease.
Note:
If the bank receives no release, it must send the payment after the holding period. No additional notice is required.
3. Consider the holding period when deciding how long to project the accruals on a bank levy.
5.11.4.2 (07-26-2002)
Bank Liaison
1. The holding period was created to settle disputes about ownership of bank accounts before money is sent.
2. Assign a bank liaison in each territory to settle these issues quickly.
3. Sometimes ownership is not settled before the holding period ends. If this happens, ask the bank for more time.
5.11.4.3 (05-05-1998)
Amount that Must be Surrendered
1. The bank must send the amount in the taxpayer's accounts. However, it must send no more than the amount shown on the notice of levy.
2. The notice of levy only reaches the amount on deposit when the levy is received. Money deposited later is not surrendered, including deposits during the holding period. Another levy must be served to reach this money. Also, the levy only reaches deposits that have cleared and are available for the taxpayer to withdraw.
3. Levy proceeds must not be reduced by any fee charged by the bank for processing the levy. See 5.11.4.3.3 below.
5.11.4.3.1 (05-05-1998)
Interest on Levy Proceeds
1. The bank must turn over the interest earned on the account(s) during the holding period using the same method for figuring the interest it normally would. Even so, the amount paid is no more than the amount shown on the levy.
If And Then
A bank levy for $10,000 is served. The taxpayer has $5,000 in the bank. The bank sends $5,000 plus interest earned during the holding period.
A bank levy for $10,000 is served. The taxpayer has $25,000 in the bank. The bank sends $10,000. No interest is sent. Only $10,000 is frozen during the holding period.
A bank levy for $10,000 is served. The taxpayer has $9,999 in the bank. The bank sends $10,000 if at least $1 of interest is earned on the account during the holding period.
2. The date the bank normally credits interest to accounts does not matter. If interest is earned, it must be paid over as shown in (3).
3. To compute the interest, the bank treats the Service as though:
• The Service is the depositor.
• The money is left on deposit during the holding period.
• On the day the money is being sent, the depositor closes the account.
5.11.4.3.2 (03-30-2001)
Bank Methods Used to Avoid Paying Interest
1. Before interest was paid on levies, some banks:
• Moved the levied money from the depositor's account to another account while the depositor was notified, and
• Paid the depositor no interest while the money was in this "holding" account.
2. Some banks have rules that they will not pay interest to depositors during holding periods for levies.
3. Both of these methods result in changing the terms of the account and not treating the Service as the depositor because of the levy. These are not grounds to avoid paying interest on levy proceeds.
5.11.4.3.3 (05-05-1998)
Fees for Processing Levies
1. Many banks charge their customers a fee for processing levies. The bank is not entitled to reduce the levy proceeds to collect the fee.
If And Then
A levy is served for $1000. The taxpayer has $1500 in the bank. The bank must send $1000 and collect its fee from the other $500.
A levy is served for $1000. The taxpayer has $800 in the bank. The bank must send $800 (plus interest).
2. Letter 4030(CG), Letter to Bank to Remit Service Charge, is available for use when you learn that the levy proceeds have been reduced by a processing fee. The letter informs the financial institution that a charge against levy proceeds is contrary to the provisions of the Internal Revenue Code and failure to remit an amount equal to the service charge may result in the Service filing a suit for failure to honor a levy.
5.11.4.4 (07-26-2002)
Crediting Levy Payments
1. Credit the levy payment on the date it is received.
2. Credit the money in the most advantageous way to the government. Generally, apply the money to the oldest assessment first. The taxpayer can not designate how the money is applied because this is not a voluntary payment.
3. Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy if they are not levy proceeds.
Example:
A bank levy is served. When the taxpayer receives a copy, she pays the amount owed. Use DPC 15.
5.11.4.5 (03-01-2006)
Income Deposited in a Bank Account
1. Part of taxpayer's income is exempt from levy. See IRM 5.11.5.4Exempt Amount. Once income is deposited in a bank, there is no exempt amount. On the other hand, unlike a levy on wages and salary, a bank levy is not continuous.
2. When an entire paycheck is deposited, a hardship may exist because all of the money is levied. If this happens, release the levy in whole or in part, as appropriate, to avoid creating a hardship.
Note:
Within the Taxpayer Advocate Service (TAS), hardship can be defined as "economic" or "systemic." For more information regarding taxpayer hardships within TAS, please refer to IRM 13.1.7Taxpayer Advocate Case Processing. You may also refer to the Service Level Agreement Between the National Taxpayer Advocate and the Commissioner, Small Business/Self-Employed for instructions on working cases received from TAS.
5.11.4.6 (05-05-1998)
Mortgage Escrow Accounts
1. Banks generally require a portion of property taxes and insurance to be paid with each mortgage payment. This is held in escrow until the tax and insurance are paid. As long as the taxpayer can not withdraw money in these accounts, a levy can notreach it.
2. Sometimes the account is overpaid. The taxpayer may have the option to get this refunded. A levy can reach this.
3. Also, when property is sold, there may be escrow money that will be refunded to the taxpayer. A levy can reach this, too.
5.11.4.7 (03-30-2001)
Schools' Bank Accounts
1. Bank accounts may be levied to collect taxes that colleges, universities, and other schools owe. These schools' accounts may include money belonging to the Department of Education (ED). ED gives money to some schools for student aid. This is not the school's money.
2. The bank might honor the levy. If it does, process the payment.
A. Call the regional ED office, and tell them about the levy. See Exhibit 5.11.4–1. Mail a copy of the levy to the regional office.
B. Allow ED 60 days to look into this and certify its interest in the money. Another time period can be agreed on, as well.
C. ED will send a notice of the amount and nature of its money in the account. The letter will explain how it determined this.
D. Refund ED's money.
3. The bank might not honor the levy because of ED funds in the account.
A. Call the regional ED office, and tell them about the levy. Mail a copy of the levy to the regional office.
B. Allow ED at least 60 days to look into this.
C. Release or enforce the levy after ED certifies its interest in the account.
4. A bank might not honor a levy on a school official because of ED's interest in an account. Handle this as in (3).
5.11.4.8 (06-01-2007)
Reimbursing Bank Charges Because of Erroneous Levies
1. Policy Statement P–5–39 ( IRM 1.2.1.5.11) says taxpayers will be reimbursed for bank charges caused by erroneous levies.
• The Service must have caused the error.
• Taxpayers must not have contributed to continuing or compounding the error.
• Before the levy, taxpayers must have responded timely to contacts and given information requested to establish their position.
Example:
The taxpayer paid the amount owed, but the payment was not posted timely.
Example:
An installment agreement was secured, but it was not loaded on IDRS timely.
2. Reimburse the taxpayer for fees the bank charged for
• Processing the levy, and
• Bad check charges directly caused by the levy
Reminder:
See IRM 3.17.10.8,Reimbursement of Bank Charges Due to Service Loss or Misplacement of Taxpayer Checks
5.11.4.8.1 (03-30-2001)
Filing the Claim
1. The claim must be filed within one year after the fees are charged.
2. The claim is filed on Form 8546, Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check.
5.11.4.8.2 (03-01-2006)
Processing the Claim
1. Approving officials are shown in Servicewide Delegation Order Number 1–4 ( IRM 1.2.40,Delegation of Authorities for Organization, Finance, and Management Activities) and authority is re-delegated per SB/SE Delegation Order 5.14 to Compliance Territory Managers and Compliance Technical Support Managers (second level).
2. The approving official may ask for a memorandum to explain what happened. This may not be needed if:
• The case file is readily available.
• An employee familiar with the case can orally brief the approving official.
• The claim is too small to warrant a memorandum.
3. A claim may be missing some of the required information. Rather than just rejecting it, try to get the missing information from the taxpayer.
Example:
Proof of the bank charges must be included with the claim.
4. Area Counsel (General Legal Services) must review all claims and recommend:
• approval
• rejection
• compromise
5.11.4.8.3 (06-01-2007)
After the Claim is Approved
1. If the amount that the taxpayer claims is approved, send Pattern Letter 2180(P) (Exhibit 5.11.4–3) to the Beckley Finance Center (BFC), and enclose Form 8546 and FMS Form 197. Form 8546 needs to be sent so BFC has a signed agreement from the taxpayer accepting the payment as settlement for the claim.
2. If the claim is approved for an amount that is different from what the taxpayer claimed, send Pattern Letter 2179(P) (Exhibit 5.11.4–2), to the taxpayer. Enclose three copies of FMS Form 197 with the letter. The FMS form includes a place for the taxpayer to sign accepting the amount as settlement of the claim. After the signed copies are received from the taxpayer, send Pattern Letter 2180(P) to BFC, and enclose the Forms 197.
3. The FMS forms are available at the web site http://www.fms.treas.gov/judgefund/index.html.
4. If the claim will be paid by check, rather than electronic funds transfer (EFT), enter the taxpayer's address in the space on Form 197 for, "Agency/Office Mailing Address."
Note:
Remind the taxpayer payment by EFT is faster, safer, and more convenient.
5. Each Form 197 will be sent for payment on a Form 3210, Document Transmittal, and have a unique claim number. The number will be the first initial of the Business Operating Division that issues the number, then the Area Office Number, followed by the fiscal year (FY) the claim is approved and a sequential number.
Example:
The first claim approved in SBSE Area Office 23 during FY 2007 is S-23–2007–1.
6. At the Area Director's discretion, claim numbers can be issued by each territory. If that is done, the territory number will be added after the Area Office Number, so each claim will have a unique number.
Example:
The first claim approved in Territory 01 of SBSE Area Office 23 during FY 2007 is S-23–01–2007–1.
5.11.4.9 (03-01-2006)
Deposit Secured Loans
1. The Internal Revenue Restructuring and Reform Act of 1998 amended IRC § 6323(b)(10) to conform to current banking practices and procedures. The IRC provides a super-priority status for a financial institution as described in IRC sections 581 or 591 that takes a deposit, share, or other account, to the amount of the loan made by the institution, provided the following conditions exist,
• The loan is made to a depositor;
• The depositor pledged an account as collateral;
• The institution making the loan and the institution holding the account are one and the same;
• The financial institution had no actual knowledge of the lien; and
• The loan is a commercial loan.
2. If the lending institution did not have actual notice of the tax lien, then the super-priority status is valid against both the statutory lien and a filed notice of federal tax lien.
3. Under previous banking procedures, the depositor surrendered the passbook to the bank, preventing the depositor from having access to the account until the loan was paid. The revised IRC section acknowledges that passbooks generally no longer are used for account control and provides lenders with additional security.
4. Under new banking procedures, the bank is not required to have exclusive control over the deposit account as existed under previous procedures; therefore, the debtor may have access to funds in the account, but the bank retains a super-priority interest to the extent of the funds on deposit.
5. Despite their similarity to checking accounts, cash management accounts held by a broker are specifically excluded from provisions relating to deposit secured loans.
6. The bank's super-priority is not a defense to a levy. However, the levy can be released in whole or in part if the bank satisfactorily proves the bank meets the state requirement for having a security interest and alleges that it had no actual knowledge of the Federal Tax Lien when the loan was made. If the bank fails to honor the levy and does not prove the above points, then consider initiating a suit for failure to honor a levy.
5.11.4.10 (03-01-2006)
Bank Compliance and the Levy Process
1. While banks may request all notices of levy by mail be sent to a centralized address, this does not mean a notice of levy cannot be served in person at a local branch or office. A notice of levy may be served in person upon a person authorized to accept receipt. The expectation is the authorized person will acknowledge receipt, immediately process the levy and freeze the affected accounts. If a bank employee refuses to accept service, leave the levy at the bank and inform the employee that the bank will be liable for all funds on deposit as of that date and time.
Note:
"Bank" includes credit unions, savings and loan associations, trust companies, and other entities described in IRC 408(n).
2. If a levy has been served or is about to be served and the bank employee refuses to provide account balance information or other records as provided by IRC 6333, consider following up the levy with a summons for information to determine if the correct amount of levy proceeds were remitted. See IRM 25.5.2.4,Description of Information Requested. If a lesser amount was remitted, the bank will be liable for the difference. See IRM 5.17.4.12,Action to Enforce a Levy.
3. A summons may also be used to obtain relevant information to determine if the bank did a thorough search for all accounts belonging to the taxpayer.
4. When serving a notice of levy by certified mail, return receipt requested, the date of delivery on the receipt is considered the date the levy is made.
5. When serving a notice of levy by regular mail, the date and time the authorized person signs the levy form is considered the date and time the levy is made.
6. Collection Field function local management should attempt to resolve recurrent compliance problems with a local bank.
Exhibit 5.11.4-1 (03-01-2006)
Department of Education Regional Offices
(Reference 5.11.4.7)

CT, MA, ME, NH, RI, VT Region I:
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
Boston Regional Office
33 Arch Street, Suite 1008
Boston, MA 02110
(617) 289–0133

NJ, NY, PR, VI, Panama Canal Region II: Zone
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
32 Old Slip, 25th Floor
New York, New York 10005–3534
(646) 428–3750

DE, DC, MD, PA, VA, Region III: WV
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
The Wanamaker Building, Suite 511
100 Penn Square East
Philadelphia, PA 19107
(215) 656–6442

AL, FL, GA, MS, NC, SC Region IV:
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
61 Forsyth Street, SW
Room 18T, 20B
Atlanta, GA 30303
(404) 3562–6315

IL, MN, OH, WI Region V:
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
111 N. Canal Street
Room 830
Chicago, IL 60606
(312) 353–7111

AR, LA, NM, OK, TX Region VI:
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
1999 Bryan Street, Suite 14100
Dallas, TX 75201–6817
(214) 767–3811

IA, KS, MO, NE, KY, Region VII: TN
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
8930 Ward Parkway, Suite 2028
Kansas City, MO 64114–3392
(816) 268–0410

CO, MI, MT, ND, SD, UT, Region VIII: WY
Regional Director/Institutional Review Branch Chief
U.S. Department of Education
Federal Student Aid
1391 Speer Boulevard, Suite 800
Denver, CO 80204–3582
(303) 844–3677

CA, AZ, NV, HI, the Pacific Region IX: Islands of Guam, Micronesia, Marshall Islands, Northern Marianas, Palau, American Samoa
Regional Director/Institutional Review Branch Chief
U.S. Department of Education
Federal Student Aid
50 United Nations Plaza
Room 266
San Francisco, CA 04102
(415) 556–8382

AL, ID, IN, OR, WA Region X:
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
701 Fifth Avenue, Suite 1600
Seattle, WA 98174–1099
(206) 615–2594
Exhibit 5.11.4-2 (06-01-2007)
Pattern Letter 2179(P)
(Reference IRM 5.11.4.8.3)
Date::
Person to Contact:
Contact Telephone No.:
Employee Identification Number:

Dear [Name of Taxpayer]:

We have received your claim   under the Small Claims Act for $[amount] and are allowing $[amount] for reimbursement of bank charges.

  [Insert the following if the approved amount is different from what the taxpayer claimed."Please sign and date Section B on two copies of the enclosed voucher and return them in the enclosed envelope within ten days. The third copy is yours to keep." ] You should receive [Insert"a check" or"a deposit to your bank account by electronic funds transfer" ] in four to six weeks.

We regret our error and   apologize for the inconvenience.

If you have questions about   this letter, please contact the person whose name and telephone number are shown above.


Sincerely yours,

  



________________________________________
5.11.5.2 (01-01-2006)
Employer Threatens to Fire Taxpayer Because of a Levy
1. Sometimes an employer threatens to fire an employee to avoid handling a levy. This might be a violation of 15 USC 1674.
2. If the employer fires the taxpayer because of this, the employer might be fined not more than $1000 or imprisoned for not more than one year, or both.
3. Refer the taxpayer to the Wage and Hour Division of the Department of Labor (DOL). DOL, not IRS, must decide if the employer violated the law.
________________________________________
5.11.5.3 (06-17-2008)
Continuous Effect of Levy on Salary and Wages
1. Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.
Example:
If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.
2. When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.
Example:
A Form 668-A is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.
Example:
A Form 668-W is issued to levy a taxpayer's retirement income. The taxpayer has a fixed right to the future payments; therefore, the levy remains in effect until it is released.
3. Also, see IRM 5.11.6.11, Levy on Non-Liable Spouse in a Community Property State.
________________________________________
5.11.5.4 (06-17-2008)
Exempt Amount
1. Part of the individual taxpayer's wages, salary, (including fees, bonuses, commissions and similar items) and other income, as well as retirement and benefit income, is exempt from levy.
2. The weekly exempt amount is:
A. The total of the taxpayer's standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served.
B. Then, this total is divided by 52.
3. Income that is not paid weekly is prorated, so the same amount is exempt.
4. In addition, the amount the taxpayer needs to pay court ordered child support is exempt.
Note:
The support order can originate from a court or administrative process under the laws and procedures of a state, territory or possession.
Reminder:
If support is allowed, the same child can not be claimed as an exemption for figuring the exempt amount. See IRM 5.11.5.4 (2)a above.
If Then
The taxpayer has already shown proof of the required child support payment Write on the levy form, "Under section 6334 (a)(8) of the Internal Revenue Code, $ ____________________is exempt from this levy."
The taxpayer shows proof of the child support after the levy is served Release enough of the levy so the support can be paid.
5. The taxpayer is not entitled to the support exemption unless the support is being paid.
• Consider getting the taxpayer to have the child support payment withheld and sent directly to the person with custody.
• Or, the taxpayer may make the child support payment through the Service, and the Service will forward the payment. When there is no open assignment, have the payments sent through Submission Processing. This may happen if the payments are being monitored in the campus.
5.11.5.4.1 (01-01-2006)
Claiming the Exempt Amount
1. The Notice of Levy on Wages, Salary, and Other Income (Form 668-W) was developed for use when an individual may be entitled to the minimum exemption from levy in IRC 6334(a)(9) and includes a Statement of Exemptions and Filing Status. The employer gives the statement to the taxpayer to complete and return within three days. If it is not received by then, the exempt amount is figured as if the taxpayer is married filing separate with one exemption. The taxpayer can give the statement to the employer later to change the exempt amount.
Note:
The employer needs to use this statement rather than the employee's W–4, Employee's Withholding Certificate. Taxpayers may claim different exemptions for withholding from those claimed on their return.
2. Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income - Forms 668-W(c), 668-W(c)(DO) and 668-W(ICS), is sent with the levy to help figure the exempt amount.
3. The taxpayer can give a new statement to the employer later to have the exempt amount recomputed.
Example:
The taxpayer's filing status or personal exemptions may change.
Example:
There may be a change in exempt rates in a new year.
4. The statement is completed under penalty of perjury. Generally, accept the information on the statement, unless there is reason to question it. If it is disallowed, notify the employer and the taxpayer in writing. The taxpayer can provide evidence that the statement is right and request managerial review.
5.11.5.4.2 (01-01-2006)
Employers with Centralized Payrolls
1. Some employers have a centralized payroll, so the payroll is not handled where most employees work.
2. Consider mailing the Statement of Exemptions and Filing Status directly to the taxpayer. This avoids the delay of the employer re-mailing it.
A. Send to the employer Part 1 of the levy form and Notice 484, Instructions to Employer with Centralized Payroll for Processing Statement of Exemptions and Filing Status.
B. Send to the taxpayer the other parts of the levy form and Notice 483, Instructions to Employee Paid through Central Payroll System for Submitting Statement of Exemptions and Filing Status.
5.11.5.4.3 (06-17-2008)
Joint Liabilities
1. For joint liabilities, generally levy the income of the spouse with the larger income.
2. Levy both incomes only in flagrant cases of neglect or refusal to pay. Secure group manager approval to issue notices of levy on the income of both spouses' living in the same household. If taxpayers are separated, consider collecting from both spouses' income rather than collecting from one spouse's income.
If And Then
The taxpayers are filing as married filing jointly Both taxpayers' incomes are levied Only one of them can claim the standard deduction for figuring the exempt amount.
The taxpayers are filing with any other filing status Both taxpayers' incomes are levied Both can claim the standard deduction for their filing status.
The taxpayers are remarried and filing as married filing jointly with the new spouses. Both taxpayers' incomes are levied Both can claim the standard deduction for their filing status.
3. When both spouses' incomes are levied, neither spouse can claim the other one as a personal exemption.
5.11.5.4.4 (01-01-2006)
Taxpayers with More Than One Source of Income
1. Consider income from all sources when a taxpayer has more than one income source.
If And Then
The taxpayer is getting the exempt amount from one source of income that is levied Another source of income is levied, too Include Letter 1697(P) with the second levy to tell the employer not to allow any exempt amount.
If the taxpayer has a source of income that is not levied That source of income is at least as much as the exempt amount Letter 1697(P) can be included with a levy on another source of income to tell the employer not to allow the exempt amount.
2. See Exhibit 5.11.5–1, for a copy of Letter 1697(P).
5.11.5.4.5 (01-01-2006)
Taxpayer's Payroll Deductions
1. A levy legally attaches the taxpayer's gross income minus the exempt amount; however, see Policy P–5–29 at IRM 1.2.14.1.6. By policy, a levy only attaches the taxpayer's usual take home pay.
Exception:
Voluntary deductions can be disallowed, if they are so large they defeat the levy.
2. Generally, allow the taxpayer to maintain deductions they already have when the levy is served. Notify the employer and the taxpayer of deductions that must stop while the levy is in effect. The taxpayer can request managerial review.
Example:
The taxpayer has a deduction used to buy shares in a mutual fund.
3. Generally, employers should not allow new voluntary deductions after receiving the levy. Exceptions can be allowed on a case by case basis, with the Service's approval.
Example:
The taxpayer cannot join the company insurance plan until on the job for six months. The levy is served before then. The amount of the premium is not unreasonable and is allowable.
5.11.5.4.6 (01-01-2006)
Severance Pay
1. The taxpayer may leave a job and get severance pay.
If Then
Severance pay is attributable to pay for a period of time The exempt amount is based on that time period.
Severance pay is not attributable to pay for a period of time The amount exempt for one pay period is used.
2. Example:
3. Severance pay is one week's pay for each year on the job. A taxpayer on the job for ten years gets ten weeks' severance pay. The taxpayer gets a paycheck every two weeks for ten weeks. Two weeks' exempt amount is subtracted from each check, just like the person was still working for ten weeks.
4. Example:
5. The same facts as above, but the taxpayer gets the amount in one payment. The payment is attributable to ten weeks' pay. The employer is just making an "advance" payment, instead of writing a series of checks. The taxpayer gets ten weeks' exempt amount.
6. Example:
7. A taxpayer gets a lump sum that is not attributable to a period of time. This could be, for example, an incentive payment to retire early. The exempt amount is based on the taxpayer's regular pay period. If there is no regular pay period, use one week's exempt amount. Similarly, if the taxpayer gets $1000 for each year on the job, this is not attributable to pay periods. A person getting $10,000 for being on the job ten years does NOT get ten years' exempt amount.
8. This assumes the person is not already getting the exempt amount for a pay period at the same time. If both are being received, the taxpayer does not get the exempt amount twice.
Example:
The taxpayer is paid for both the last pay period worked and severance on the last pay day. The taxpayer only gets the exempt amount once.
________________________________________
5.11.5.5 (06-17-2008)
Levy Payments
1. Credit levy payments on the date they are received. Apply the money in the most advantageous way to the government. Generally, apply it to the oldest assessment first. The taxpayer can not designate how to apply the money because this is not a voluntary payment.
Note:
Levy payments should only be applied to those periods listed on the original levy. If these periods have been satisfied, a levy release should be immediately prepared and issued to the levy source.
2. Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy, if they are not levy proceeds.
Example:
A wage levy prompts the taxpayer to pay the amount owed to get the levy released. Code this payment with DPC 15.
3. Because payments for levies on wages and salary may be small, determine if the amount owed should be paid from the levy proceeds. When the payments are small compared to the amount owed, though, consider other enforced collection.
If And Then
Payments are being monitored in CFf One more payment is expected to pay off the amount owed Use Form 668–D, Release of Levy/Release of Property from Levy, to give the employer a payoff figure and release the levy after that is paid.
At least two payments are received No additional collection is warranted Consider transferring the case for monitoring. Get managerial approval, first.
5.11.5.6 (06-17-2008)
Continuous Levy
1. Even though some continuous levies are monitored in status 60 on IDRS, they are not installment agreements. In order to ensure a distinction is maintained between a continuous levy and an installment agreement, it is important to follow the procedures in this subsection.
5.11.5.6.1 (06-17-2008)
Monitoring Levy Payments
1. If a productive levy source is the only source of collection, group managers should approve the monitoring of levy payments as continuous by signing Form 4844, Request for Terminal Action, after ensuring the procedures outlined below have been followed.
2. The following types of levies can be monitored in a campus or Centralized Case Processing (CCP).
A. Continuous levies on wages and salaries
B. Levies that reach a taxpayer's fixed right to a series of future payments, e.g., benefit and retirement income. See IRM 5.17.3.4.2, Effect of Levy.
3. If levy payments are received monthly, then transfer for monitoring after two consecutive levy payments have been received.
Note:
At local management option, accounts may be transferred after one remittance if payments will be of an equal amount and will be remitted monthly.
4. If levy payments are received weekly or bi-weekly, then transfer for monitoring after 60 days.
5. See IRM 5.1.11.6.3.1(4), Referral to Automated Substitute for Returns (ASFR), to close the ICS Del Ret module and systemically refer the case for ASFR when the Bal Dues are to be resolved by a continuous levy,
Reminder:
Del Rets and Bal Dues in status 60 can coexist on IDRS. An entity can have an open Del Ret on one module and status 60 on other modules. Del Rets do not default status 60 Bal Dues.
6. Prior to transferring for systemic or manual monitoring,
• Ensure the payor (levy source) understands the levy remains in effect after the transfer
• Ensure the payor understands where to send the levy payment:
For a continuous levy that will be systemically or manually monitored, payments should be sent to the campus for the Area. See the Servicewide Electronic Research Program (SERP), Who/Where, Where to File – Forms and Payments, Campus Balance Due Accounts – Where to Send Payments. Use the State address listed under "Without the CP521/523 Notice"
• Instruct the payor that payments should be payable to " U.S. Treasury"
• Request the check or draft reflect the taxpayer name and identification number, the tax periods included on the levy form, and "Levy Proceeds."
5.11.5.6.2 (06-17-2008)
Systemic Monitoring of Continuous Levy Payments
1. Wage levies that result in regular remittances of about the same amount, may be monitored systemically if the earliest CSED is later than 18 months. Request a review date:
• No more than five years in the future
• 18 months prior to the earliest CSED if the earliest CSED is at least 24 months in the future, or
• 9 months prior to the earliest CSED if the earliest CSED is less than 24 months in the future
Note:
If fewer than 18 months remain prior to the CSED, a continuous wage levy must be monitored manually.
2. For all continuous levies, if the levy source sends payments on a weekly or bi-weekly (every two weeks) basis, the levy may be monitored systemically using the monthly total of these payments. In this situation, monitor payments for 60 days to ascertain the correct monthly total to be entered on the Form 4844. Do not close the case on ICS until the Form 4844 is submitted for input.
Note:
If payment amounts vary, use the lowest amount it is possible will be received monthly. That amount should not be less than $10.
3. Do not input TC 971, AC 063 (Installment Agreement) on Bal Dues included in a continuous levy.
4. Document the ICS case history with "Monitor Continuous Levy as IA."
5. No TSIGN change is required for levy monitoring. Systemically monitored levies will be transferred to Compliance Service Collection Operation (CSCO) (formerly SCCB).
6. Choose "Contin. Levy" in Installment Agreement Option B on ICS. Do not select (CCP) option.
7. Complete Form 4844 (using Word Macros) and transmit electronically to CCP. Include the following on Form 4844 and in the ICS history:
A. Request for input of status 60
B. "Suppress Default and Payment Reminder Notices"
C. The amount of the payment and the date it will be received
D. The frequency of the payment
E. The name, address, and telephone number of the employer/third party levied
F. The name, address, and telephone number of the payor office (location that sends payment) if different from e) above
G. "Input Installment Agreement Locator Number 0208"
Note:
Installment Agreement Locator Number 0208 identifies these accounts as continuous wage levies on the Installment Agreement Account Listing (IAAL) in the campus. Proper identification of these accounts may result in fewer field case issuances on defaults.
H. For wage levies that will be released when the CSED expires, request input of TC 971, AC 687, misc. 002 for each module included in the continuous levy.
I. For other continuous levies that reach a taxpayer's right to future payment and will not be released when the CSED expires, request input of TC 971, AC 687, misc. 001 for each module included in the continuous levy.
8. If a paper 4844 is prepared, fax it to CCP at 215-516-3691, or mail it to CCP attn: DP-N803.
9. Forward the closed case file to CCP attn: DP-N804.
10. CSCO will send Form 668-D, Release of Levy/Release of Property from Levy, one month prior to the account being full paid advising the employer of the amount to remit to full pay the levy.
11. At the time of the review discussed in (1) above, campus Installment Agreement Account Listing (IAAL) personnel will:
• Attempt to secure an installment agreement to fully pay the taxes
• Consider other avenues of collection such as offer in compromise or part pay installment agreement
• Consider recommending the account(s) be reduced to a judgment
5.11.5.6.3 (06-17-2008)
Manual Monitoring of Continuous Levy Payments
1. Some continuous levies cannot be transferred to CSCO for systemic monitoring in status 60. Transfer those continuous levies to Centralized Case Processing (CCP)for monitoring in the same way manually monitored installment agreements are monitored. The following types of accounts and levies must be monitored in CCP:
A. NMF accounts
B. Accounts with a wage levy and fewer than 18 months remaining prior to the earliest CSED
C. Accounts with an unreversed TC 971, AC 065 (claim pending for joint and several liability relief under IRC section 6015)
D. In-Business Trust Fund accounts
E. Levies with irregular payments dates
F. Levies with irregular payment amounts
G. Levies on a spouse whose SSN is not the Bal Due account TIN
H. Levies on seasonal employees unless payments will satisfy the Bal Dues
2. Do not input TC 971, AC 063 (Installment Agreement) on Bal Dues included in a continuous levy.
3. Note the Bal Due account and document the case history, " Monitor Continuous Levy as IA."
4. Choose "Cont. Levy CCP" in Option B under Installment Agreements on ICS. Selecting this option will set the sub code to" 902," the location field in the Name and Address will set to " LEVY."
5. Include the following on Form 4844 and in the ICS history:
A. Assignment request: AOTOXXOO. See IRM 5.14.7.4.2(14)
B. Date monthly payment will be received
C. Amount of monthly payment
D. Frequency of payments (monthly, bi-weekly, weekly)
E. Name, address, and phone number of levy source
F. Name, address, and telephone number of payor if different from e) above
G. For wage levies that will be released when the CSED expires, request input of TC 971, AC 687, misc. 002 for each module included in the continuous levy.
H. For other continuous levies that reach a taxpayer's right to future payment and will not be released when the CSED expires, request input of TC 971, AC 687, misc. 001 for each module included in the continuous levy.
6. Attach a copy of Form 668-W or Form 668-A to the Form 4844. If a copy of the levy form is not available, document the case history accordingly.
7. Forward, with management approval, to CCP.
8. If fewer than 18 months remain in the statutory period for collection when the account(s) is being transferred to CCP and the levy will be released when the CSED expires,
A. Attach a transmittal document or buckslip stating "CSED = (insert date). No suit recommended."
B. Record information about the CSED in the case history.
C. Secure group manager approval.
Reminder:
Group manager approval is required. If there is no additional collection potential on the case, group managers should approve these transfers.
9. CCP will monitor continuous levies to ensure payments are received timely. If payments are not received, CCP will follow-up with the payor.
10. CCP will send a notice of levy release one month prior to the account being full paid advising the payor of the amount due to full pay the levy. A notice of levy release will not be issued until:
A. All Bal Dues are full paid
B. The last CSED is about to expire so the wage levy is released far enough in advance that no payments are received after the expiration of the CSED
C. One of the criteria in IRM 5.11.2.2,Releasing Levies, exists.
11. For CSED cases assigned for monitoring, CCP will
A. Not release the wage levy if one or more CSED expires, but other periods included on the levy are within the statutory period for collection
B. Monitor levy payments until all Bal Dues included on the levy are paid or the last CSED on a wage levy is about to expire, whichever comes first
C. Follow the procedures in IRM 5.11.5.6.2 above if some Bal Dues are full paid or the CSED expires and the case now qualifies for systemic monitoring. Note the copy of the levy form, "The following period(s) have expired CSEDs:" and list the applicable Bal Due periods.
Note:
If the levy form is unavailable, record this information in the case history and ensure a list of the tax periods on the original levy is included as well as the tax periods with expired CSEDs.
5.11.5.7 (06-17-2008)
Defaulted/Terminated Systemically Monitored Levy Received in the Field
1. Levy sources sometimes stop sending payments. This can be the result of intentional or unintentional actions by the taxpayer or the levy source. If the campus or CCP cannot resolve these cases, they may be transferred to the field for follow-up action.
2. Once these cases are assigned to the field:
A. Determine why the payments stopped
B. Follow manually monitored procedures if irregular payments are being received
C. Follow manually or systemically monitored procedures as appropriate if payments begin again
3. If the levy source is the same, a new levy form is not needed. Complete Form 4844 and state why no copy of the levy is being provided and the reason why the levy defaulted.
Example:
The taxpayer was ill for a month. Wages fell to below the exempt amount.
4. If the third party refuses to comply with the levy, determine if issuance of Form 668-C, Final Demand, is appropriate. See IRM 5.11.2.1.9,Refusing to Comply with a Levy.
Exhibit 5.11.5-1 (05-05-1998)
Pattern Letter 1697(P)
5.11.6.1 (06-29-2001)
Retirement Income
1. Use discretion before levying retirement income.
2. A notice of levy is continuous for wages and salary. Other levies only reach property a third party is holding when the levy is received.
Reminder:
References to property include rights to property.
3. As long as the taxpayer has a fixed and determinable right to property, a levy attaches that right. Therefore, a levy on retirement income can reach payments in the future whether the taxpayer has begun receiving payments when the levy is served or not. This often means that a levy on retirement income reaches future payments. Because this type of levy may begin attaching payments long after the levy is served, follow-up when the taxpayer is expected to become eligible to receive payments. This may require a mandatory follow-up for Bal Due accounts reported currently not collectible.
4. If the taxpayer has the right to receive future payment but has not opted to do so, the levy attaches that right.
5. A levy served while the taxpayer is receiving periodic payments reaches payments due then, as well as payments as they become due later, as long as there is already a fixed and determinable right to the future payments.
5.11.6.1.1 (03-15-2005)
Social Security
1. The Social Security Administration (SSA) makes payments for:
• Retirement, Survivors, and Disability Insurance (RSDI) and
• Supplemental Security Income (SSI).
2. RSDI is based on social security taxes during a person's working years. RSDI payments are not based on need, and they can be levied. SSI payments are for needy people who are elderly, blind, or disabled. Although IRC Section 6331(h) permits the service to levy on up to 15 percent of SSI payments, the Service will not pursue these levy sources at this time. See IRM 5.11.7.2.1(5), Background and Authority.
3. Send Part 1 of Form 668–W(ICS) or 668-W(c)(DO) to the SSA office that issued the taxpayer's social security number. Include Notice 484, Instructions to Employer with Centralized Payroll System for Processing Statement of Exemptions and Filing Status. See the Servicewide Electronic Research Program (SERP), Who/Where, Levy Source Information for SSA office addresses. Send the other parts of the levy to the taxpayer with Notice 483, Instructions to Employee Paid Through a Centralized Payroll System for Submitting Statement of Exemptions and Filing Status. Make appropriate changes to Notice 483 and 484.
4. Once a levy is served, SSA will continue honoring it, until the levy is released. However, the taxpayer's eligibility for benefits could change. This might stop the levy proceeds. If this happens, SSA will notify the office that issued the levy not to expect more payments. However, SSA is not allowed to explain why. This would violate the privacy laws that restrict who SSA can disclose benefit information to.
Example:
The taxpayer may get full benefits when the levy is served. Later, the person starts working. This may reduce the benefits to less than the exempt amount, so there will be no levy proceeds. If the person stops working and gets full benefits again, SSA will not automatically start sending levy payments. A new levy must be served.
5. There is limited space on the check for information to identify the payment. Each line is limited to 22 characters. The check is sent in a window envelope with information in Exhibit 5.11.6–2 showing through the window. There is no need to send a supply of reply envelopes with the levy.
5.11.6.1.2 (11-05-1999)
Military Retirement
1. See SERP, Who/Where, Levy Source Information, for addresses for mailing levies on military retirement.
2. Expect the first payment two to three months after the notice of levy is sent.
If Then
The levy is received by the 15th of the month. The first payment is sent on the first business day of the second month after that.
The levy is received after the 15th of the month. The first payment is sent on the first business day of the third month after that.
3. Example:
4. A levy is received on September 12. The first payment is sent on the first business day of November.
5. Example:
6. A levy is received on September 19. The first payment is sent on the first business day of December.
5.11.6.1.3 (06-20-2001)
Civil Service Retirement
1. See SERP, Who/Where, Levy Source Information, for the address for these levies.
2. If the civil service account number is known, include it on the levy.
3. Expect the first payment in two to three months. See IRM 5.11.6.1.2(2) above.
________________________________________
5.11.6.1.4 (03-15-2005)
Railroad Benefits, Medal of Honor Winners, and Annuities for Military Families and Survivors
1. Certain annuity and pension payments are exempt from levy. See IRC 6334.
2. The exempt payments include:
• Railroad Retirement and Unemployment
• Special Pensions for Medal of Honor Winners
• Annuities under the Retired Serviceman's Family Protection Plan and Survivor Benefit Plan
3. Although IRC Section 6331(h) permits the Service to levy on up to 15 percent of railroad retirement and unemployment payments, the Service will not pursue these levy sources at this time. See IRM 5.11.7.2.1(5) Background and Authority.
5.11.6.2 (03-15-2005)
Funds in Pension or Retirement Plans
1. These instructions cover money accumulated in a pension or retirement plan, as well as Individual Retirement Arrangements (IRAs). They do not deal with levying retirement income. See section IRM 5.11.6.1 above.
2. There are many employer and self-sponsored retirement vehicles that are not exempt from levy. These plans include, for example:
• Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA
• IRAs
• Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans)
3. Because these retirement vehicles provide for the taxpayer's future welfare, levy on the assets in a retirement account (as contrasted with income from the account) after following the procedures set forth below.
Note:
On January 1, 2000, a new exception to the 10 percent additional tax on early distributions from retirement plans was added to the Internal Revenue Code. If an account is levied upon, the taxpayer does not owe the 10 percent additional tax. Because of the levy exception to the 10 percent additional tax, occasionally taxpayers may ask the Service to levy the funds in the retirement accounts. Even though the taxpayer may be able to voluntarily withdraw money in a lump sum from a retirement account and apply it to the outstanding tax liability, do not levy on retirement assets at the request of the taxpayer. Instead, follow the procedures set forth below.
Note:
An imminent CSED, alone, does not justify levying on retirement assets. Levying on assets in retirement accounts requires application of the procedures set forth below.
4. The first step in deciding whether to levy on a retirement account is to determine what property, retirement assets and non-retirement assets, is available to collect the liability. If there is property other than retirement assets that can be used to collect the liability, or if a payment agreement can be reached, consider these alternatives before issuing a levy on retirement accounts. Also consider the expense of pursuing other assets as well as the amount to be collected.
5. The second step in deciding whether to levy on a retirement account is to determine whether the taxpayer's conduct has been flagrant. If the taxpayer has not engaged in flagrant conduct, do not levy on retirement accounts. Deciding whether the taxpayer has engaged in flagrant conduct must be done on a case-by-case basis. Keep in mind extenuating circumstances may exist that mitigate the taxpayer's flagrant conduct. The following are some examples of flagrant conduct.
Example:
Taxpayers whose failure to pay is based on frivolous arguments such as taxes are illegal, unconstitutional, only apply to a narrow range of people, and similar arguments that have been consistently rejected by the courts.
Example:
Taxpayers who continue to make voluntary contributions to retirement accounts while asserting an inability to pay an amount that is owed.
Example:
Taxpayers who contributed to retirement accounts during the time period the taxpayer knew unpaid taxes were accruing.
Example:
Taxpayers convicted of tax evasion for the tax debt.
Example:
Taxpayers assessed with a fraud penalty for the tax debt.
Example:
Taxpayers assisting others in evading tax.
Example:
Taxpayers with liabilities based on illegal income.
Example:
Taxpayers who are in business and pyramiding unpaid trust fund taxes, or individual taxpayers who are pyramiding unpaid income taxes.
Example:
Taxpayers against whom the Trust Fund Recovery Penalty has been asserted on more than one occasion.
Example:
Taxpayers who have demonstrated a pattern of uncooperative or unresponsive behavior, e.g., failing to meet established deadlines, failing to attend scheduled appointments, failing to respond to revenue officer attempts to contact. In such cases, determining alternatives and the taxpayer's dependence on the money in the retirement accounts (final step) may not be possible, so a levy may need to be served without making those determinations.
Example:
Taxpayers who have placed other assets beyond the reach of the government, e.g., sending them outside the country, concealing them, dissipating them, or transferring them to other people.
Example:
Taxpayers with jeopardy or termination assessments.
6. The final step in deciding whether to levy on retirement assets is to determine whether the taxpayer depends on the money in the retirement account (or will in the near future) for necessary living expenses. If the taxpayer is dependent on the funds in the retirement account (or will be in the near future), do not levy the retirement account. In determining whether the taxpayer depends on the money (or will in the near future), use the standards in IRM 5.15, Financial Analysis, to establish necessary living expenses. Use the life expectancy tables in Publication 590, Individual Retirement Arrangements (IRAs), to estimate how much can be withdrawn annually to deplete the retirement account in the taxpayer's remaining life. Also, consider any special circumstances in the taxpayer's specific situation, such as extraordinary expenses or additional sources of income that will be available to pay expenses during retirement.
7. The taxpayer may be able to withdraw money in a lump sum from a plan. If the taxpayer has the right to do so, a levy can reach that right. However, remember that a levy only reaches the taxpayer's present rights.
Example:
The taxpayer has $10,000 in a plan but can only withdraw it later. The taxpayer may have a present right to the money, although it can not be withdrawn immediately. A levy may reach that right, but the money can be not paid over until the taxpayer can withdraw it. At that time, there may be $30,000 in the plan. Without a new levy, though, only $10,000 could be paid over.
Example:
The taxpayer has money in a plan. The terms of the plan do not allow for any lump sum withdrawal. The plan provides a right in the future to receive monthly payments, but the taxpayer has not paid into it long enough yet to qualify for any future payments. A notice of levy attaches nothing, because the taxpayer has no present property rights.
8. The notice of levy form says it does not attach money in pension or retirement plans. When levying on these funds, sign the notice of levy in the block to the left of, "Total Amount Due. "
9. Have the SB/SE Director, Collection Area approve the notice of levy by signing the form as the Service Representative.
10. Consider discussing the case with the Employee Plans Group before issuing the levy. Their advice, as well as advice from Technical Services and Associate Area Counsel, may be needed to determine the present right to property. Often, a levy is served before the taxpayer's precise rights are determined. Try to get a copy of the plan instruments as soon as possible to determine the taxpayer's interests in the plan.
11. When money is withdrawn from a retirement account, the taxpayer may be liable for income tax on the withdrawal. If the taxpayer is less than 591/2 years old, there may also be 10 percent additional tax on early distributions. However, there is an exception where the taxpayer is not liable for the 10 percent additional tax on early distributions.
A. Although the taxpayer will not owe the 10 percent additional tax on early distributions if money was withdrawn because a notice of levy was served on the retirement account, there may still be income tax owed for the amount withdrawn, however.
B. Send Letter 3257 (DO) with the notice of levy and Letter 3258 (DO) with the taxpayer's copy of the notice of levy. These letters state the withdrawal is not subject to the tax on early distributions, even if the taxpayer is under 59 1/2 years old. These letters are available as macros on the Integrated Collection System.
12. Retirement accounts that are excluded from the bankruptcy estate are still subject to being levies to collect taxes that are discharged in bankruptcy, where a Notice of Federal Tax Lien was filed before bankruptcy. Consider levy on the retirement accounts if there is no other property that survived the bankruptcy.
Note:
Where no Notice of Federal Tax Lien was filed before bankruptcy, it is not settled whether the IRS can levy to collect discharged taxes from excluded retirement accounts. Counsel should be consulted in such situations.
5.11.6.2.1 (06-29-2001)
Thrift Savings Plan
1. Federal employees may contribute to the Thrift Savings Plan (TSP). Generally, distributions cannot be paid from taxpayers' accounts before they have left federal service, so there may be no immediate right to withdrawn money from the TSP account.
If Then
The taxpayer is a current federal employee. The levy attaches to the taxpayer's TSP account. However, the TSP will not have to send money until the taxpayer could withdraw it.
The taxpayer is receiving regular payments of money from the TSP. The levy attaches these payments.
The taxpayer has left federal employment and still has funds in the TSP to continue growing. A levy attaches the taxpayer's account.
2. The TSP is administered by the Thrift Investment Board (TIB) which has contracted with the Department of Agriculture's National Finance Center in New Orleans to be the TSP record keeper. See SERP, Who/Where, Levy Source Information for the address.
3. TIB's position is that money in the TSP can not be levied. This includes funds that have accumulated in the Plan, as well as periodic payments that are being made to taxpayers. Get advice from Associate Area Counsel before issuing a levy to TIB.
5.11.6.3 (05-05-1998)
Insurance
1. This subsection contains instructions on levying on insurance.
5.11.6.3.1 (05-05-1998)
Cash Loan Value of Life Insurance
1. The cash loan value of life insurance and endowment contracts can be levied. The policy does not have to be surrendered. See IRC 6332(b).
5.11.6.3.1.1 (06-29-2001)
Serving the Levy
1. Generally, do not levy the cash loan value of life insurance if the taxpayer has:
• few assets,
• small income, and
• policies with a face value below $1000.
2. If known, include the following on the notice of levy:
• policy number(s) and, "and any other policies this person owns on his/her life,"
• date of birth, or
• taxpayer's approximate age and spouse's name.
3. The group manager or an Insolvency/Technical Services manager (second level or above) must approve the notice of levy. See IRM 5.11.1.2.4, Managerial Approval.
4. The insurance company does not have to turn over money until 90 days pass.
A. Compute penalty and interest through 90 days from the date of the levy.
B. Write, "I certify that a copy of this notice was mailed on (insert date) to the taxpayer's last known address" above the taxpayer's name and address.
C. Sign this statement.
D. Mail Part 3 to the taxpayer before sending the levy to the insurance company.
5.11.6.3.1.2 (06-29-2001)
Payment for a Levy on the Cash Loan Value of Life Insurance
1. If the amount owed is paid before 90 days, send the insurance company Letter 980(DO), Notice of Levy Against Insurance Cash Value, with a release of levy.
2. The taxpayer can ask the insurance company to pay before 90 days to save penalty and interest. A new payoff figure may be needed.
3. If the amount is not paid within 90 days, send Letter 980(DO) to the insurance company. This tells them the amount still owed. Send the letter even if the amount has not changed.
4. The insurance company must pay over the amount the taxpayer could have obtained as a loan. This amount is computed to the 90th day after the levy. Automatic premium loans and contractual interest is not paid over, if they keep the contract in force. However, an agreement to do this must be before the insurance company knew of the tax lien.
5.11.6.3.1.3 (06-29-2001)
Actual Knowledge of the Tax Lien
1. The insurance company may have to pay more than the amount in IRM 5.11.6.3.1. Actual knowledge of the tax lien gives it priority over the insurance company if there are loans later. This means policy loan payments (and contractual interest) must be paid over, too, if a levy is served.
2. Give the insurance company a copy of the lien or a letter to give actual notice of the lien. This stops the taxpayer from taking loans as equity builds up in the policy.
Note:
Do not try to give notice by serving a new levy. This starts the 90 day period again.
5.11.6.3.2 (06-29-2001)
Foreclosure on the Policy
1. There is also a right to foreclose on the policy, if necessary. Consult with Technical Services and Associate Area Counsel for advice. See IRM 5.17.3.5.11, Legal Reference Guide for Revenue Officers, for discussion of the differences between foreclosing on the policy to obtain the cash surrender value and levying to obtain the cash loan value.
5.11.6.3.3 (05-05-1998)
Department of Veterans Affairs Insurance Policies
1. Dividends payable in cash and the cash loan value of Department of Veterans Affairs (VA) insurance policies can be levied.
Exception:
If the dividends are applied to pay future premiums, they can not be levied.
5.11.6.3.3.1 (05-05-1998)
Levy on Dividends of VA Policies
1. Before serving a notice of levy on VA insurance policy dividends, use Form 2876, Request for VA Insurance Policy Dividend Information, to get:
• Insurance File Number
• Policy Number
• Anniversary Date of the Policy
• Office that Pays Dividends
Note:
The P.O. Box for Philadelphia on Form 2876 is wrong. Use Box 42954, instead.
2. Dividends are payable on:
• United States Government Life Insurance Policies
• National Service Life Insurance Policies
Exception:
Policies with a number preceded by RH do not pay dividends.
3. To levy dividends, mail Form 668-A(ICS) or 668A-(c)(DO) thirty days before the policy's anniversary date.
A. Write, "Levy is only on dividends, " on the levy form.
B. Write, "Policy Number ______," above the taxpayer's name and address.
Exception:
If the policy number and file number are different, write, "Policy No. ______(File No. ______), " on the form.
5.11.6.3.3.2 (06-29-2001)
Levy on Cash Loan Value of VA Insurance Policies
1. Many VA insurance policies have cash loan value. This can be levied like other life insurance policies. Some policies are term life insurance. These have no cash loan value.
2. Write, "Cash Loan Value: $ ______," in the Remarks block of Form 2876 to find out this amount. If the policy is term, VA will write, " Term Policy," in this space, instead of an amount.
3. Write, "Levy is only against cash loan value," on the levy. Also, include the policy number. Use other procedures in IRM 5.11.6.3.1, above. For example, send Letter 980(DO), Notice of Levy Against Insurance Cash Value, after 90 days.
5.11.6.3.4 (06-29-2001)
Insurance Company Employees
1. To levy an insurance company employee's income, send Form 668-W(ICS) or 668-W(c)(DO). Write on the form that it is levying the person's income. This may prevent confusion between these and levies on policies.
2. Contact the insurance company to determine where to send the levy.
5.11.6.3.5 (06-29-2001)
Death Benefits
1. Death benefits from an insurance company or a government agency (Veterans Administration, Social Security Administration, etc.) can be levied. However, only use this source in flagrant cases. Consider whether the levy will cause a hardship and whether it may prevent the taxpayer from paying the funeral expenses of the person who died.
2. Because of the sensitive nature, have the SB/SE Director, Collection Area approve the notice of levy. See IRM 5.11.1.2.4, Managerial Approval.
5.11.6.4 (05-05-1998)
Government Employees
1. The income of federal, state and local government officers and employees can be levied. This includes:
• Civilian Employees
• Military Personnel
• Elected Officials
• Appointed Officials
2. If the taxpayer increases voluntary deductions after a levy is served, tell the employer that this is not allowed.
Note:
Comptroller General's Decision B–45105 explains this to federal payroll offices. This decision is dated January 21, 1955, and amended April 18, 1955.
3. Certain government employee salaries are included in the Federal Payment Levy Program. See IRM 5.11.7.2,Federal Payment Levy Program .
5.11.6.4.1 (03-15-2005)
Military Personnel on Active Duty
1. If a taxpayer is in a Qualified Combat Zone (QCZ) or has been granted military deferment under the Servicemembers Civil Relief Act of 2003, no levy action is to be taken. This includes issuance of L1058, Notice of Intent to Levy and Notice of Your Right to a Hearing. See IRM 5.1.7.9, QCZ, and IRM 5.1.7.12, Military Deferment, for additional clarification.
2. A levy on the income of active military personnel does not attach just wages and salary. It also attaches:
• Payments for Quarters
• Subsistence
• Travel
• Clothing and Uniform Allowances
• Personal Money and Overseas Allowances
• Reimbursement for Shipment of Household Goods
• Lump Sum Leave Payments
• Retirement Income (Including Disability Payments)
• Re-enlistment Bonuses
• Severance Pay
• Mustering Out Pay
• Savings Deposits
Exception:
See IRM 5.11.1.3.1(4), Property Exempt from Levy.
3. See SERP, Who/Where, Levy Source Information for addresses to mail these notices of levy.
If And Then
The taxpayer is in the Air Force or Marines. The taxpayer is on active duty or is in the reserves. Include the taxpayer's military service address on the levy, if it is known, e.g. Andrews Air Force Base.
4. Use Letter 1096(DO), Follow-up to Form 668-W, to follow up on military levies.
If Then
The taxpayer is overseas. Follow up 10 weeks after the levy is acknowledged.
The taxpayer is in the United States, except for Air Force. Follow up four weeks after the levy is acknowledged.
The taxpayer is in the United States and is in the Air Force. Follow up eight weeks after the levy is acknowledged.
5. A response should be received to Letter 1096(DO) within 30 days. If not, call the finance center or send a new notice of levy.
6. The taxpayer may pay the amount owed before the levy proceeds are received. If the release does not stop the proceeds in time, a payment for the levy will be received. Do not return the check to the finance center. Credit the money, so the overpayment will generate a refund. If a hardship exists, request a manual refund. See IRM 5.1.15, Account Transfers, Adjustments, Payment Tracers, Credit Transfers and Refunds .
5.11.6.4.2 (05-05-1998)
Military Class Q Allotments
1. Class Q allotments are for dependents of military personnel. They can be levied to collect tax from the dependent.
5.11.6.4.3 (06-29-2001)
Health and Human Services Employees
1. The Department of Health and Human Services maintains a central payroll office. See SERP, Who/Where, Levy Source Information. These payroll records include:
• HHS in metropolitan Washington, DC
• HHS Regional Offices
• Public Health Service
• Food and Drug Administration
2. Send the Statement of Exemptions and Filing Status directly to the taxpayer. See IRM 5.11.5.4.2, Employers with Centralized Payrolls.
5.11.6.4.4 (03-15-2005)
Postal Service Employees
1. For levies on postal employees, include the following on the levy form, if known:
• Postal Service Employee Number,
• Type of employment, and
• The town where the employee works, if it is different from where the employee lives.
2. Send notices of levy on postal employees to:
U.S. Postal Service
Accounting Service Center
Minneapolis Information Service Center
Involuntary Deduction Unit
2825 Lone Oak Pkwy.
Eagen, MN 55121–9650
5.11.6.5 (06-29-2001)
Federal Contractors
1. Use Form 668-A(ICS) or 668-A(c)(DO) to levy payments owed to federal contractors. Except as described in (4) below, the levy has no continuing effect. It only reaches payments owed to the contractor when the levy is received.
2. The contract number must be included on levies sent to the Department of Defense. If the number is known, include it on levies sent to other federal agencies, too. This can help them find the contract and honor the levy.
• Current federal contracts can be found on the Currency and Banking Retrieval System. Contract numbers are on the Federal Contract Information screen.
• Sources may also be found on IDRS using cc LEVYS. The contract number may appear on the levy source's name line after, "CONTRACT #." "FC" to the right of the number means this is a federal contract.
3. See Exhibit 5.11.6–1 for contract levy addresses at several agencies.
4. Federal contractor and vendor payments are systemically levied through the Federal Levy Payment Program. IRC Section 6331(h) permits the Service to serve a continuous levy on up to 15 percent of payments owed to federal contractors. If the payments are for goods and services but not real estate sold or leased to the Federal Government, the Service may levy up to 100 percent of the payments under section 6331(h), as amended by the American Jobs Creation Act of 2004. See generally IRM 5.11.7.2, Federal Payment Levy Program.
5.11.6.5.1 (03-15-2005)
Department of Defense Contractors
1. Paper levies issued to attach monies due Department of Defense (DoD) contractors should be sent to:
Defense Finance and Accounting Service - Columbus Center
Attn: DFAS-BKSD/CC
Debt Management Office
P.O. Box 182317
Columbus, OH 43218-2317
2. Paper levies may be faxed to DFAS at (614) 693-2492.
3. For information about the timing of paper levy issuance, contact the DFAS Lead Accounting Technician, Tax Levy Office at (614) 693-9449.
4. For information regarding contracts and payments, send an E-mail message to CCO-IRS@DFAS.MIL
5.11.6.6 (05-05-1998)
Levy on Other Government Payments
1. This subsection contains instructions for levy on other government payments.
5.11.6.6.1 (06-29-2001)
Medicare Payments
1. Levy Medicare payments only in flagrant cases. Use Form 668-A(ICS) or 668A(c)(DO).
2. An insurance company is an intermediary or carrier contracting with Health Care Financing Administration (HCFA). The insurance company makes the Medicare payments. Serve the levy on this company, and send a copy to the HCFA Regional Office. See SERP, Who/Where, Levy Source Information for the Regional Office addresses.
3. Payments are made directly to hospitals, home health agencies, and extended care facilities. Doctors and other medical services and supplies can be paid directly, too. However, the beneficiary may pay these and get reimbursed by Medicare, later.
4. The territory manager or a second level Insolvency/ Technical Services manager must approve the notice of levy. See IRM 5.11.1.2.4, Managerial Approval.
5.11.6.6.2 (05-05-1998)
U.S. Savings Bonds—Series HH/H Interest Payments
1. Series HH/H savings bonds pay interest semi-annually.
2. To levy the interest, use Form 668-W(ICS) or 668-W(c)(DO). See SERP, Who/Where, Levy Source Information for the address to mail these levies. With the levy, send a copy of the lien. Also, send a letter with the levy. Include in the letter:
• bond series,
• serial number(s),
• bond denomination(s), and
• bond issue date(s).
5.11.6.6.3 (05-05-1998)
Agricultural Stabilization and Conservation Service (ASCS) Payments
1. Serve levies on ASCS county offices to attach these payments.
If And Then
The taxpayer is eligible for payment ASCS is authorized to pay the taxpayer A levy payment will be sent.
The taxpayer is eligible for payment ASCS is not authorized to pay the taxpayer yet ASCS will complete the back of the levy and state when the payment will be made and how much it will be for. When a payment is authorized, ASCS will send the amount the taxpayer was eligible for on the date of the levy. No new levy is needed.
The taxpayer is not eligible for payment ASCS will send the levy back saying no money is owed. If they know when the taxpayer will be eligible, they will say so. Another levy can be served later, if appropriate.
5.11.6.6.4 (06-29-2001)
Relocation Act Payments
1. Relocation Act payments pay for displaced people's:
• moving costs,
• related expenses, and
• cost of replacement housing.
2. Levy these payments only in flagrant cases. See IRM 5.11.6.2(5). The SB/SE Collection territory manager or a second level Insolvency/Technical Services manager must approve the notice of levy. See IRM 5.11.1.2.4, Managerial Approval.
5.11.6.6.5 (05-05-1998)
Fees for Attorneys of Social Security Claimants
1. Records of attorneys for Social Security claimants are with the claimant's files. To levy an attorney's fees, attach a list of claimants' names and SSNs. If the SSNs are not known, give anything else to identify the claimant.
Example:
Include the claimants' address and date of birth, if these are known.
2. Avoid sending these levies without claimants' SSNs. SSA's files, like those of IRS, are very large. There are many people with the same name.
3. A separate levy is not needed for each claimant's fees.
5.11.6.6.6 (06-29-2001)
Restitution Payments for Japanese Internment in World War II
1. The Civil Liberties Act of 1988 authorizes payment to people of Japanese ancestry interned in World War II. Each eligible person may receive $20,000.
2. These payments are not exempt from levy. However, the payments are restitution for injustices that were done. Levy the payments only in flagrant cases. See IRM 5.11.6.2(5).
3. Have the SB/SE Director, Collection Area Operations approve the notice of levy. See IRM 5.11.1.2.4, Managerial Approval.
5.11.6.6.7 (06-29-2001)
State Income Tax Refunds
1. In many states, computer tapes of IRS liabilities are matched with state refund tapes. The state tax agency sends payment with a list (or tape) of taxpayers whose refunds were taken.
2. Payments posted before 2000 used designated payment code (DPC) 04. Starting in 2000, these payments use DPC 20 for systemically applied payments and DPC 21 for manually applied payments. If the taxpayer says a state refund paid the amount owed, check IDRS for the payment. If it has not posted, ask for a copy of the state's letter showing the refund was taken. If the refund only pays part of the amount owed, collect the rest.
3. Correspondence letter 2167C, State Refund Applied to IRS Balance Due/Excess Will be Refunded, on IDRS is used to respond to inquiries about these levies.
5.11.6.6.8 (03-15-2005)
National Labor Relations Board and Backpay Awards
1. Backpay awards administered by the National Labor Relations Board (NLRB) can be attached by issuing Form 668-A(ICS) or 668-A(c)(DO), Notice of Levy, to the appropriate Regional Office of the Board. See Exhibit 5.11.6-3 for addresses, contacts, and phone numbers for the NLRB Regional Offices. Send the levy to the office closest to the location of the taxpayer. If it is unclear which office to send the notice of levy to, then call the closest office or access www.nlrb.gov and click on "Offices" .
2. Include the case name and number on the form.
If And Then
There has been a final nonappealable determination that the taxpayer is eligible for payment The amount of the award has been determined The NLRB Regional Office will forward the levy payment.
There has been a final nonappealable determination that the taxpayer is eligible for payment The amount of the award has not yet been determined The NLRB Regional Office will notify the contact person on the notice of levy that the amount of the backpay award and the date of distribution are unknown. NLRB will provide an estimated date, if available, when they will comply with the levy.
A levy has been served The IRS no longer wants the NLRB to honor the levy The IRS will issue a levy release to the NLRB Regional Office
There has been no final determination that the taxpayer is eligible for payment (case is under investigation or on appeal) The NLRB Regional Office will complete the back of the levy form indicating no money is owed the taxpayer. If the taxpayer later becomes eligible for payment, the Regional Office will so advise the revenue officer who issued the notice of levy so that a new levy can be issued, if appropriate.
3. If the amount of the check for the backpay award exceeds the amount of the taxpayer's outstanding tax liability, apply the full amount of the check to the taxpayer's account and any overpayment will be refunded to the taxpayer subject to IRS offset procedures.
4. If the taxpayer's employer has not withheld the taxes from the backpay award, the NLRB will withhold the taxes before issuing the levy payment.
5.11.6.7 (03-15-2005)
Receivables
1. Accounts receivable, notes receivable, and other debts owed to a taxpayer may be levied upon.
2. Accounts receivable are assets representing money due to a taxpayer for products and services provided on credit.
Example:
monies owed to the taxpayer by clients, customers, patients, insurance companies, rental income, funds processed by credit card companies
3. Consider issuing a summons to the taxpayer's bank for deposited items to obtain information on possible accounts receivable on which to levy.
4. A note receivable is a certain amount loaned to another that is owed and payable at a certain time to the holder of the promissory note.
Example:
money loaned to a customer, employee, or officer of the company.
5. A notice of levy reaches future payments, only if the taxpayer already has a right to them.
6. If receivables can be sold, consider seizing and selling them.
5.11.6.7.1 (03-15-2005)
Billing Services
1. Some taxpayers use billing services for receivables. The service may only prepare bills, or it may also receive payments.
If Then
The billing service only prepares and sends the bills Use a summons or Form 2270, Notice to Exhibit Books and Records, to review records of the taxpayer's receivables to obtain levy sources.
The billing service receives payments and forwards them to the taxpayer Serve a levy on the billing service.
2. Caution:
3. Form 2270 must not be used to solicit information from a financial institution within the Tenth Circuit or in any circumstance where a suit can be filed against the U.S. Government within the 10th Circuit. See IRM 25.5, Summons Handbook, for information on those circumstances.
4. Tapes may include records of many of the billing service's customers. Use a summons or Form 2270 to get only the taxpayer's records. The ten calendar day response period for summonses may need to be extended to get the records extracted.
5. The billing service may deduct a fee and send the difference to the taxpayer. In this case, this is all the service needs to pay for the levy. If it normally sends the entire receivable to the taxpayer, then this should be paid in response to the levy.
5.11.6.8 (03-15-2005)
Securities—Stocks, Bonds, Mutual Funds, etc.
1. The taxpayer's ownership interest in securities is subject to collection. Stocks, bonds, money market accounts, mutual funds, and debentures are examples of securities.
2. Where the taxpayer's ownership interest in a security fund is not represented by a certificate (uncertificated), the person receiving the notice of levy should liquidate the interest in response to the levy and turn the funds over to the Service.
3. Taxpayers may also have interests in securities that are represented by certificates (certificated). Certificated securities are disposed of in accordance with the procedures contained in IRM 5.10, Seizure and Sale.
4. Compliance Services Campus Operations (CSCO) sometimes receives securities for ACS levies. CSCO sends these to the territory office to decide what to do with them.
5.11.6.9 (06-29-2001)
United Nations (UN) Employees' Income
1. Legal processes can be served at the UN:
• with the Secretary General's approval
• in conditions the Secretary General approves.
Note:
This authority comes from a joint resolution of the 80th Congress.
2. Consider a levy on UN employees' salary only after all other sources have failed. Send the Form 668-W(ICS) or 668–W(c)(DO) from the SB/SE Director, Collection Area to the Director of Collection Policy SE:S:C:CP at Headquarters. Include a memo that explains attempts to collect the tax and any other relevant information. See IRM 5.11.1.2.4, Managerial Approval.
3. Headquarters will forward the levy to the State Department.
4. Because of the restriction on legal process, the levy is used to counsel the employee.
________________________________________
5.11.6.10 (11-05-1999)
Mutilated Currency
1. Mutilated currency may be redeemed at the Department of Treasury. It can also be turned in to a bank which will send it to Treasury for redemption. This can be levied.
2. The fact that mutilated currency was turned in may be found out through routine investigation. Also, if the amount is $5000 or more, the Office of Currency Standards reports the request to IRS. Then, this may be reported to the area where the redemption was requested.
5.11.6.11 (06-29-2001)
Levy on Non-Liable Spouse in a Community Property State
1. In some states, community property laws may mean that people who are liable for delinquent tax have a community property interest in their spouse's property and rights to property. In this case, the delinquent taxpayers' property rights in their spouses' property and rights to property might be subject to levy.
Example:
Taxpayers who are liable for delinquent tax may have a community property interest in their spouses' wages, so the wages of the spouse who is not liable for the tax might be subject to levy to pay it.
2. Community property laws vary from state to state. This may affect how much of a non-liable spouse's property can be attached by a levy. State law may have other effects, too. Contact Technical Services for advice on any special language or inserts/cover letters needed with the levy, unless local instructions have already been issued for how to handle these levies. Technical Services will consult with Associate Area Counsel, as needed.
5.11.6.11.1 (03-15-2005)
Wages & Salary
1. Although a non-liable spouse's wages or salary might be subject to levy, the levy does not have a continuous effect. This is because the Internal Revenue Code says that a levy on a taxpayer's wages and salary is continuous. However, in this case, the non-liable spouse's (not the taxpayer's) wages or salary is being levied.
2. Although a levy on a non-liable spouse's wages or salary is not continuous, the exempt amount can still be claimed.
A. However, because the levy might attach only part of the non-liable spouse's income, the portion that is not attached can be treated like an income source that is not being levied when the exempt amount is figured. See IRM 5.11.5.4.4, Taxpayers with More Than One Source of Income.
Example:
A non-liable spouse's weekly take home pay is $700. Assume this person is in a state where a levy attaches half of a non-liable spouse's wages, and this is the only source of income that is levied. This means $350 is not attached by the levy. If this levy is served in 2005, and the person is filing jointly with two exemptions, $325.38 is exempt from levy. Since the exempt amount is less than the amount that is not levied, no exempt amount is subtracted from the $350 that the levy attaches. The employer should send a weekly check of $350. The $315.38 exempt amount has been accounted for by the other $350 that is not attached.
Example:
Take the same facts as the prior example, but the person claims four exemptions, so the weekly exempt amount is $438.46. Because this is more than the $350 that is not attached, the person needs to be allowed an additional exempt amount from the $350 that is attached. This is figured.
$438.46     Exempt from Levy
    −$350.00 Not Attached by the Levy
88.46 Additional Exempt Amount to be Allowed $    
The employer, then, figures:
$350.00 Attached by the Levy    
    88.46 −$ Additional Exempt Amount
$261.54 Weekly Levy Proceeds    
B. As a practical matter, in this example, a simpler explanation may be to tell the employer to send half of the person's take home pay if the exempt amount is less than half of that, but follow the instructions on the levy form if the exempt amount is more than half of the take home pay. This will lead to the same amount of levy proceeds:
$700.00 Take Home Pay    
   −$438.46 Exempt Amount
$261.54 Weekly Levy     Proceeds
5.11.6.11.2 (06-29-2001)
Notice to the Non-Liable Spouse
1. When a taxpayer's community property interest in a non-liable spouse's property or right to property is levied, the notices in IRM 5.11.1.2.1, Required Notices,must have been sent to the taxpayer. However, do not send these notices to the non-liable spouse.
2. After serving the notice of levy, the non-liable spouse is notified of the levy same way the taxpayer is notified of a levy. See IRM 5.11.2.1.7, Notifying the Taxpayer After Serving the Levy.
A. If a notice of levy is served, e.g., on a bank account, a copy of the levy is sent to the taxpayer. Part 4 of Form 668-A(ICS) or 668A(c)(DO) is generally used for this. In this case, though, also send a photocopy of the taxpayer's copy of the levy to the non-liable spouse.
B. If a levy is served on wages, salary, or other income, the statement of exemptions and filing status notifies the taxpayer of the levy. Similarly, the non-liable spouse will get these copies of the levy to claim the exempt amount, and this is the notification that a levy has been served.


5.11.6.12 (06-29-2001)
Levy on Inheritances
1. If a taxpayer is due an inheritance, serve the notice of levy on the administrator/executor.
5.11.6.13 (04-21-2005)
Single Member/Owner Limited Liability Companies
1. A single member Limited Liability Company (LLC) may elect to be classified as an association taxable as a corporation by filing with the appropriate campus a Form 8832, Entity Classification Election. In this case, the single member LLC is liable for all employment taxes.
2. If the single member LLC does not elect to be classified as an association taxable as a corporation, then, it is, by default,"disregarded " as an entity separate from its owner for Federal tax purposes. The single member/owner is treated as the taxpayer responsible for payment of the employment taxes incurred by the LLC.
3. A notice of levy issued to collect the liability of the owner must reflect the name and identification number of the single member owner and not the name or identification number of the LLC.
4. When notice of levy is issued to collect liabilities assessed in the name and TIN of a disregarded entity, special care is needed. To avoid accounts being incorrectly attached and to facilitate the posting of levy proceeds received, a disclaimer may be added to the notice of levy: " This notice attaches to all accounts in the name of (single member owner name and EIN) as owner of (name of disregarded LLC and EIN) but does not attach accounts established in the name of (name of disregarded LLC and EIN)" .
5.11.7.1 (08-24-2007)
State Income Tax Levy Program
1. The State Income Tax Levy Program (SITLP) is one of three automated levy programs. SITLP matches a Master File database of delinquent taxpayers eligible to be levied, against a database of state tax refunds for each state participating in SITLP.
2. Information pertaining to the SITLP criteria, process and procedures can be found under IRM 5.19.9, Collection, Liability Collection, Automated Levy Programs.
5.11.7.2 (08-24-2007)
Federal Payment Levy Program
1. The Federal Payment Levy Program (FPLP) is an automated levy program the IRS has implemented with the Department of the Treasury, Financial Management Service (FMS).
2. FMS administers the Treasury Offset Program (TOP) to collect delinquent non-tax debts for Federal agencies. The FPLP was developed in order to interface with TOP as a systemic and efficient means for the IRS to collect delinquent taxes by levying Federal payments disbursed or administered through FMS.
5.11.7.2.1 (08-24-2007)
Levy Authority and Background
1. IRC § 6331(h),Continuing levy on certain payments, as prescribed by the Taxpayer Relief Act of 1997 (Public Law 105–34) Section 1024, authorizes the IRS to issue continuous levies on certain Federal payments.
2. The FPLP was developed as the means to administer this law, therefore, no paper levy documents (Form 668-A or Form 668-W) should be served to effectuate a levy under this statute.
3. The law allows up to fifteen percent (15%) of specified payments to be levied. Specified payments include any Federal payment other than a payment for which eligibility is based on the income and/or assets of a payee.
4. The American Jobs Creation Act of 2004 (Public Law 108-357), Section 887,Modification of Continuing Levy on Payments to Federal Vendors, amended IRC 6331(h), and allows a continuous levy of up to one hundred percent (100%) of any specified payment due to a vendor of goods or services sold or leased to the Federal government. Chief Counsel has interpreted that "goods" or "services" does not include the sale or lease of real estate or computer software, for purposes of levying 100% of the payment; those payments may still be levied continuously for 15%. The 100% levy increase was incorporated into the FPLP on April 15, 2005, for certain contractor/vendor payments. See IRM 5.11.7.2.1.1, Interagency Agreement.
5. The FPLP administers a levy, and not a statutory or administrative offset. There are legal distinctions between the two civil collection actions. Contact your local Area Counsel for more information.
6. Although payments described in paragraph (4) (unemployment benefits); (7) (workmen's compensation); and (11) (certain public assistance payments) of IRC § 6334(a), Property exempt from levy, Enumeration ,may be levied under IRC § 6331(h)(2)(B), Continuing levy on certain payments, Specific payments, the IRS will not pursue those payments at this time.
7. In serving a notice of levy, or release of such levy, with respect to any applicable government payment, IRC§ 6103(k)(8), Confidentiality and Disclosure of certain returns and return information for tax administration purposes, authorizes the IRS to disclose return information, including taxpayer identity information, the amount of any unpaid tax liability (including penalties and interest), and the type of tax and tax period to which the unpaid liability relates, to officers and employees of the Financial Management Service. IRC§ 6103(k)(6) authorizes FMS to send levy information to non-Treasury disbursed offices such as the Defense Finance and Accounting Service (DFAS), and the US Postal Service (USPS), to the extent that such disclosures are necessary to obtain information, which is not otherwise reasonable available, for investigatory and tax administration purposes. Furthermore, IRC§ 6103(n), permits the disclosure of returns and return information to any person to the extent necessary in connection with the processing, storage, transmission and reproduction of such returns and return information, the programming, maintenance, repair, testing, and procurement of equipment, and the provisions of other services, for tax administration purposes.
5.11.7.2.1.1 (08-24-2007)
IRS/FMS Interagency Agreement - Federal Payments Subject to the FPLP
1. The interagency agreement between the IRS and FMS provides for certain Federal payments disbursed or administered by FMS to be systemically levied. FMS is the levy source for all levies issued through the FPLP — not the Federal payment agencies.
2. The following Federal payments are subject to the FPLP:
A. Civil Service or Federal employee retirement annuities administered through the Office of Personnel Management (OPM - Civil Service Retirement System and Federal Employee Retirement System). The FPLP will attach 15% of the payment.
B. Federal civilian agency (non-Defense) contractor or vendor payments. The FPLP will attach 15% of the payment. The 100% levy authority has not yet been implemented on these payments.
C. Federal employee travel payments - advances and reimbursements. The FPLP will attach 15% of the payment.
D. Federal employee salaries administered by the salary paying agencies (SPA): USDA National Finance Center (NFC), Interior's National Business Center (NBC), the United States Postal Service (USPS) and General Services Administration (GSA). See Exhibit 5.11.7-1., FPLP - Federal Employee Salary Paying Agencies - NFC, NBC and GSA , for the listing of the individual Federal agency employers whose payrolls are administered by these salary paying agencies. Federal employee salaries will be levied for 15% of the gross wages or salary remaining after current taxes, health insurance premiums, retirement contributions, and, if applicable, court ordered child support payments are deducted. There should be no other deductions taken into consideration for the 15% calculation.
E. Social Security Administration (SSA) benefit payments under Title II of the Social Security Act, aka Federal Old Age, Survivors and Disability Insurance (OASDI) benefits, except dependent child benefits or claims for lump sum payments. The FPLP will attach 15% of the payment.
Note:
Supplemental Security Income (SSI) will not be subject to the FPLP.
F. Military/Defense Department (DoD) contractor or vendor payments paid through the Defense Finance and Accounting Service's (DFAS) 20 various payment systems and sites. Each payment system and site were implemented at various times. For contractor payments paid through DFAS' Mechanization of Contract Administration Services (MOCAS), the levy will attach 100% of the payment (or balance due, whichever is less) starting April 15, 2005; and the remaining DFAS vendor payment systems, starting July 18, 2005. Prior to those dates, any Defense contractor/vendor payment levied through the FPLP was for 15%.
G. Miscellaneous Payments - non-means tested, such as discretionary one-time payments and expenditures paid out by different Federal agencies' specialty programs. These are payments made for various Federal program-related expenditures, including interagency transfers, non-means tested loans, grants, medical, emergency and other administrative obligations. The FPLP will attach 15% of the payment.
3. Prior to 2006, on delinquent IMF joint income tax and BMF sole proprietor tax liabilities, the FPLP only levied Federal payments that matched to the primary TIN. Starting January 2006, FPLP began matching and levying Federal payments identified for the secondary or cross-reference (XREF) SSNs on those IMF and BMF accounts.
4. See Exhibit 5.11.7-2. , Table of Federal Payments Subject to the FPLP, displays a table of the type of Master File accounts that match up with a certain Federal payment type, including the start date and the levy percentage, i.e. 15% or 100%.
5. If a taxpayer is receiving two or more types of Federal payments that are available for levy through the FPLP, then each of those payments will be levied. The FPLP cannot selectively levy a certain payment separately for a particular taxpayer.
5.11.7.2.1.2 (08-24-2007)
Delegation Authority
1. The delegation authority to issue an IRC § 6331(h) levy, levy release, and return of levied property remains the same as outlined in Delegation Order 5-3. See IRM 1.2.44.3,Levy on Property in the Hands of a Third Party.
2. Certain Taxpayer Advocate Service (TAS) employees are delegated to release systemically generated levies such as the FPLP, but only on collection modules not assigned to ACS Status 22 or collection field Status 26. See IRM13.1.10.12.1.5, Releasing Federal Payment Levies, and IRM 13.1.4.2.3.19,Levy Release Authority.
5.11.7.2.1.3 (08-24-2007)
Third Party Notification
1. The FPLP systemic process is not subject to Third Party notification provisions under IRC § 7602 (c),Examination of books and records, Notice of contact of third parties , because contact is made between electronic database(s).
2. Third Party contact provisions must be satisfied prior to any personal contact with FMS (or other Federal agencies and Third Parties) about taxpayers subject to FPLP.
5.11.7.2.2 (08-24-2007)
FPLP - Selection Criteria
1. FPLP computer requirements are based on an algorithmic process where all modules are first selected under certain collection statuses, then if appropriate, may be excluded based on a module exclusion criterion, or possibly an entity exclusion criterion. This subsection and its Exhibits describe the process.
2. The following types of tax accounts and collection status can be selected into the FPLP:
Taxpayer Identification Number Valid SSN or EIN
Master File Tax Code (MFT) 01–06, 08–17, 29 -31, 33, 34, 36, 37, 44, 50, 51, 52, 55, 60, 63, 64, 67, 74, 77, 78
Module status • Master File Status 22, 23, 24, 26
• IDRS Transaction Code (TC) 530, with Closing Codes (CC) 03, 06, 09, 10, 12, 13, 39
5.11.7.2.2.1 (08-24-2007)
Exclusions
1. The selected balance due tax modules indicated in See IRM 5.11.7.2.2., or its entities, that have certain condition and freeze codes in the primary TIN, will be excluded from FPLP selection. See Exhibit 5.11.7-3. FPLP Exclusion Criteria, displaying the list and description of entity and module transaction and freeze codes that are excluded from FPLP.
2. Excluded from the FPLP are the primary TIN's modules/entities that, generally, should not, statutorily or operationally, be in levy status and are coded that way, such as unable-to-pay, pending installment agreements (IA) posted prior to a FPLP levy, approved installment agreements, pending or approved Offers-in-Compromise (OIC), open Disaster Zone indicators, Combat Zone, open bankruptcies or litigation, certain pending claims and adjustments, and certain imminent Collection Statute Expiration Date (CSED) accounts.
Note:
If a module is in the FPLP, and subsequently moves into one of these exclusions, then the module will systemically reverse out of the FPLP.
Example:
If a Status 26 module, which is in the FPLP, changes to status 72 with TC 520, the module will systemically reverse out of the FPLP.
Example:
If a Status 26 module, which is in the FPLP, is closed as a hardship with a TC 530 CC 32, the module will systemically reverse out of the FPLP.
3. Social Security benefit payments will not be subject to the FPLP levy, if either of the following exists:
• the taxpayer enters into a repayment agreement with the Social Security Administration (SSA) on overpayment benefits.
Note:
This exclusion does not apply on BMF individual taxpayers, i.e. Form 706 return taxpayer accounts.
• if SSA has an active IRS paper levy (Form 668-W) it is honoring. By interagency agreement, SSA should honor the paper levy instead of the FPLP levy when faced with an IRS levy processing error of a double levy situation.
5.11.7.2.2.2 (08-24-2007)
Modules Systemically Blocked from FPLP
1. Certain modules that may be selected into the FPLP, as discussed above, are systemically blocked from the program with TC 971 AC 061 (with the DLN displaying a series of 9s). Under certain conditions, these accounts may be manually or systemically unblocked. See See IRM 5.11.7.2.6.4. Removal (Reversal) of the FPLP Block with TC 972 AC 061.
2. Unless the following modules are already selected into the FPLP through another collection status, then,
• all new Status 22 modules are systemically blocked. When they are placed in to certain ACS inventories, those modules are systemically unblocked. See IRM 5.19.9.3.2.1.(2), FPLP Selection Criteria.
• prior to June 2004, all new Status 26 modules were systemically blocked and would only get unblocked manually by field collection. After June 2004, all new Status 26 modules were no longer systemically blocked and those that were, were unblocked.
• state and local government entities with employment code G , T or ( I for Indian Tribal governments in 2008) are systemically blocked and may get manually unblocked by collection personnel based on case direction.
5.11.7.2.3 (08-24-2007)
FPLP Systemic Processes and Indicators
1. The FPLP has four (4) sequential systemic processes - the case and module selection process; the match and notice process; the levy process; and the levy payment process - each with its own specific account transaction codes (TC) and/or indicators. Details for each process are outlined in the following subsections.
2. The following TC 97X action codes are associated with those systemic processes and are computer/systemically generated only (unless otherwise noted as being able to manually input).
TC 971 AC 060 Module selected for FPLP.
TC 972 AC 060 Module reversed out of FPLP. Reverses TC 971 AC 060.
TC 971 AC 061(may be manually input) Module blocked from FPLP. (DLN displays series of 8s or 9s for systemic generation. DLN displays random numerics for manual inputs.)
TC 972 AC 061 (may be manually input) Reversal of FPLP Block on module. Manual input of TC 972 AC 061 reverses systemic and/or manual TC 971 AC 061.
TC 971 AC 062 Federal payment match or levythrough FPLP. DLN indicates type of Federal payment and whether a match or levy, or both, exist. The SSN (or EIN) that matched will be displayed. See IRM 5.11.7.2.3.4.
TC 972 AC 062 Federal payment match or levy reversed or not made. Reverses TC 971 AC 062.
TC 971 AC 069 (may be manually input) Final Notice (Notice of Intent to Levy & Notice of Your Right to a Hearing)generated and mailed certified with return receipt requested. The SSN will be displayed for each of the SSNs per tax module, i.e. joint income tax liabilities.
-CP 90/297: FPLP issued (A series of 9s indicated in DLN)
-LT 11 : ACS issued
-L1058: Field Collection issued
-CP 77: Alaska Permanent Fund Dividend Levy Program (AKPFD) issued
-CP 92: State Income Tax Levy Program (SITLP) issued
TC 972 AC 069 (may be manually input) Final Notice (Notice of Intent to Levy & Notice of Your Right to a Hearing) not mailed.
TC 971 AC 169 Final Notice Before Levy on Social Security Benefits (CP 91/298) generated and mailed regular mail. The matched SSN of either the primary or secondary/XREF SSN will be displayed.
TC 972 AC 169 Final Notice Before Levy on Social Security Benefits (CP 91/298) not mailed. Reverses TC 971 AC 169.
TC 670 DPC 18 or 19 FPLP designated payment code. DPC 18 is for the primary TIN; DPC 19 is the secondary or XREF SSN.
TC 672 DPC 18 or 19 FPLP payment reversed by FMS due to non-entitlement claim initiated by Federal payment agency source. Reverses TC 670 DPC 18 or DPC 19.
5.11.7.2.3.1 (08-24-2007)
Case and Module Selection Process (TC 971 AC 060)
1. All delinquent modules that meet the selection criteria, as discussed in See IRM 5.11.7.2.2. FPLP Module Selection Criteria, will be transmitted to FMS to be matched with Federal payments.
Note:
Although a taxpayer may never receive a Federal payment, their tax module may still meet the selection criteria and will be transmitted to FMS to search for a possible future match.
Note:
If the module is selected, it remains in its original MF status code and its collection status progression may continue, i.e. account going from Status 22 to Status 26.
2. When the module is selected, a TC 971 AC 060 will post. An unreversed TC 971 AC 060 generates the following account indicators:
A. MF entity screens (IDRS cc IMFOL/BMFOL) will display the indicator FMS CD:1, and IDRS entity screens (cc ENMOD) will display FMS-CD>1, if at least one module is selected with an unreversed TC 971 AC 060. If there are no modules selected, then the indicator will display 0 or no digit.
B. ICS will display a red literal " FPLP" indicator on the case summary screens. The red " FPLP " is generated from the IDRS entity screen indicator FMS CD>1.
C. Each MF and IDRS tax module (cc TXMOD, IMFOLT/BMFOLT) and ICS module summary screen will display the following indicators:
FMS CD (VALUE) DEFINITION
1 Not selected into the FPLP, but at one time was included. (Do not confuse this module value with the entity value of FMS CD:1 described in the previous paragraph.)
3 Currently selected into the FPLP and unreversed TC 971 AC 060 present on module.
D. Other values indicate the module is blocked from FPLP:

FMS CD (VALUE) DEFINITION
4, 5, 7 MANUAL FPLP block (TC 971 AC 061) present on module
8, 9, B SYSTEMIC FPLP block (TC 971 AC 061) (DLN has a series of 8s or 9s) present on module
C, D, F Both MANUAL and SYSTEMIC FPLP block (2 or more unreversed TC 971 AC 061) present on module
5.11.7.2.3.2 (08-24-2007)
Matching (TC 971 AC 062) and FPLP Notice (TC 971 AC 069 or AC 169) Process
1. Once a module is selected for the FPLP and is transmitted to FMS, if FMS identifies a Federal payment or source match, then a TC 971 AC 062 will post.
2. The matched TIN will be displayed under the TC 971 AC 062 XREF field for IMF accounts and BMF accounts.
3. The DLN associated with TC 971 AC 062 will include information about:
• Federal payment agency source
• Type of Federal payment matched
• If the module was matchedor levied
Note:
If the TC 971 AC 062 DLN indicates match - the TC will post on all FPLP modules.
If the TC 971 AC 062 DLN indicates levy- the TC will only post on the module intended for the levy payment.
See IRM 5.11.7.2.3.4, Levy Payment Process.
4.
See Exhibit 5.11.7-4. TC 971 AC 062 Document Locator Number (DLN) Format of Federal Payment Type, for the descriptive format of the TC 971 AC 062 DLN. See Exhibit 5.11.7-5. Federal Payment Agency Identifier Code List, for the type of Federal payment and Federal payment agency source.
5. Note:
6. The Federal payment agency source for Federal salaries will display the salary paying agency (i.e. USDA's National Finance Center (NFC); Department of the Interior's National Business Center (NBC) ), rather than the actual Federal employer of the taxpayer. See Exhibit 5.11.7-1., FPLP - Federal Employee Salary Paying Agencies - NFC, NBC, and GSA, for the list of the Federal agencies whose payroll is serviced by these salary paying agencies.
7. Once a TC 971 AC 062 DLN match is posted, then Master File will systemically verify if aFinal Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing(CDP final notice), has been issued by identifying an unreversed TC 971 AC 069 on the module. If there is none, Master File will systemically generate a FPLP CDP final notice, either the Computer Paragraph notice (CP) 90 (IMF) or 297 (BMF), prior to the levy and post a TC 971 AC 069 on the module. The appropriate SSN(s) will be displayed on the TC 971 AC 069 XREF field. See Exhibit 5.11.7-6. for a copy of CP 90/297. See IRM 5.11.7.2.4for the description of the notice.
Note:
For joint income tax liabilities on the IMF, even if the match is only on one of the spouses, both spouses will be issued the CP 90 notice. The TC 971 AC 069 will post for each spouse.
8. If the match identifies a Social Security benefit payment, and the TC 971 AC 069 has been posted for at least ten cycles (weeks), then, prior to the levy, the Master File will systemically generate an additional notice to Social Security beneficiaries - Final Notice Before Levy on Social Security Benefits (CP 91 for IMF or 298 for BMF) - and post a TC 971 AC 169 on the module. See Exhibit 5.11.7-7. for a copy of CP 91/298. See IRM 5.11.7.2.4.for the description of the notice.
Note:
On joint income tax liability accounts, the matched spouse's SSN will receive their own CP 91 with a copy going to the joint spouse. This is because of the specific information listed on the notice. The 971 AC 169 XREF SSN will display the matched spouse.
Note:
For SSA levies issued after July 2005, the IMF will systemically generate another TC 971 AC 169 and reissue a CP 91 if 26 cycles or more have passed since a prior TC 971 AC 169.
5.11.7.2.3.3 (08-24-2007)
Levy Process
1. Once the notice process(es) are complete, and if the taxpayer does not appeal or resolve the case within the appropriate time frame, then IRS will transmit a levy to FMS.
2. For joint income tax and sole proprietor tax liabilities, since the FPLP systemic process affects the joint tax module, the FPLP levy cannot be issued only on one TIN of a multi-TIN tax module. All matched TINs in the tax modules or entity will be levied for their appropriate matched payments. (The same process will occur when releasing a FPLP levy on these particular modules.)
3. For matched primary or secondary/XREF TINs that have multiple tax periods in either the IMF and/or BMF, the levy should only subject the individual's Federal payment against one module at a time. An individual's payment will not be levied more than the appropriate FPLP levy percentage to pay more than one tax module at a time, regardless if the individual's TIN is the primary, secondary and/or XREF TIN on any tax module.
Example:
Taxpayer Thomas Trout has tax liabilities in the IMF under his SSN, and a BMF sole proprietorship liability also, under an EIN and his XREF SSN. Both IMF and BMF accounts are in the FPLP, with the BMF account in the FPLP first. Both accounts match with a OPM retirement payment under his SSN. Since the BMF account was in FPLP first, the levy will apply first to the BMF account and post the levy payment. The IMF account will have a levy also, but will not be double-paid from the levy payment. The payments will begin to post on the IMF after the BMF account is fully paid.
4. For Federal payments other than Social Security, a levy will be transmitted to FMS at least ten (10) weeks from when the Final Notice, Notice of Intent to Levy and Your Right to a Hearing was issued (indicated by the unreversed TC 971 AC 069 posting cycle).
Note:
The 10 week time-frame allows for internal processing time prior to issuing a levy, should a taxpayer exercise their CDP appeal rights.
5. For the social security payments that were matched, the levy will be transmitted to FMS at least eight (8) weeks after the appropriate CP 91 or 298 was issued (indicated by the unreversed TC 971 AC 169 posting cycle) and as long as the CP 91/298 is no older than 26 cycles.
Note:
The 8 week time-frame also allows for internal processing time prior to issuing a levy, should a taxpayer exercise their appeal rights.
6. MF does not display an account indicator when a levy transmission has occurred. The date of the levy is based on a posting cycle. The FPLP levy for all non-SSA payments has been transmitted, if there is a combination of an unreversed TC 971 AC 060 with an unreversed 10 cycle old TC 971 AC 069. The FPLP levy on SSA payments has been transmitted, if there is a combination of an unreversed TC 971 AC 060 with an unreversed 8 cycle old TC 971 AC 169. There may be two separate levy files on one account transmitted to FMS.
A. The date of a non-SSA FPLP levy is the later of the cycles of an unreversed TC 971 AC 060 with a 10 cycle old unreversed TC 971 AC069.
B. The date of a SSA FPLP levy is the later of the cycles of an unreversed TC 971 AC 060 with the latest 8 cycle old unreversed TC 971 AC 169.
5.11.7.2.3.4 (08-24-2007)
Levy Payment Process (TC 670 DPC 18, DPC 19)
1. When a levy payment is processed, then a TC 971 AC 062, with its DLN indicating a levy, will post on the module(s) intended for the levy payment. (The TC 971 AC 062, with its DLN indicating a match, will post on all FPLP modules.) The TC 971 AC 062 may post before or after the actual payment is transmitted into the account.
Note:
Although the TC 971 AC 062 DLN that indicates a levymay post to a module, the Federal payment may still not be received due to programming interface constraints between the time the levy was transmitted by the FMS to the payment agency to hold the payment and when the payment had been processed for disbursement. This may be the case on Defense contractor/vendor payments.
2. FMS has certain processing dates for each type of Federal payment. The levy payment is processed during these timeframes and is transmitted to the IRS at the time of the taxpayer's payment date.
FEDERAL PAYMENT PAYMENT DATE PROCESSING CUTOFF DATE
OPM (Federal retirement income) 1st of each month 2 weeks before payment date
SSA (OASDI) benefits 3rd of each month;
2nd, 3rd & 4th Wednesday of each month 6 business days before the payment date
Federal employee salaries Biweekly 14 days before payment date
Defense and civilian agency contractor/vendor payments;
Federal employee travel payments;
"Miscellaneous" payments; Daily Cutoff dates vary;
payments may be processed up to 30 days prior to payment date
3. FMS will transmit the payment to the IRS through the Electronic Federal Tax Payment System (EFTPS), and a TC 670 DPC 18, for the primary TIN, and/or DPC 19 for the secondary or XREF TIN, will post on the taxpayer's module. Most of the TC 670 DPC 18 and DPC 19 payments will be 15% of the Federal payment levied (or balance due, whichever is less). The exception will be on Defense contractor payments, which, as of certain dates, will be levied for 100%. See IRM 5.11.7.2.1.1, Interagency Agreement.
Note:
The TC 670 DPC 18 and DPC 19 are systemic transaction codes and cannot be manually input.
4. FMS will send the remaining disbursement to the taxpayer along with a notice indicating the Federal payment has been levied. See Exhibit 5.11.7-8, FPLP Levy Notice - Department of the Treasury, Financial Management Service Notice to Taxpayers . The FMS notice outlines:
A. At the bottom of the notice: the type of Federal debt and the agency due the Federal debt; the type, date and amount of the Federal payment disbursement and the paying Federal agency; and then the amount levied.
B. In the middle of the notice: an 18 digit Account Number , which consists of the TIN type (0 for SSN; 2 for EIN), TIN (the primary TIN of the tax period), MFT, and the tax period where levied payment posted. The FMS notice also displays a TIN Number. Due to FMS programming, the TIN Number is displayed only in SSN format (NNN-NN-NNNN), but the TIN Number can either be an SSN or EIN. (Verify the TIN by researching the TIN found under Account Number.) The TIN Number is the matched TIN that is being levied for the payment. On joint income tax or sole proprietor liabilities, this may be either the primary or secondary (XREF) SSN.
C. The FMS notice informs taxpayers to contact the following ACS addresses and phone numbers to resolve their account. (If a taxpayer calls the ACS phone number and the taxpayer is assigned to a local field collection office, the taxpayer will be referred to that appropriate office.)

(SBSE, Tax Exempt and Government Entities (TEGE), Large and Midsize Businesses (LMSB), or International taxpayers)
Post Office Box 57 Stop 686
Bensalem PA 19020
1-800-829-3903 or 215-516-2004 (International)



(W&I taxpayers)
Post Office Box 219236 Stop 5050
Kansas City MO 64121–9236
1-800-829-7650
Correspondence received at these addresses should be handled according to IRM 5.19.9.3,Liability Collection, Automated Levy Programs, FPLP, or forwarded to the appropriate office for resolution.
D. FMS mails the notice to the taxpayer either to the address provided by the IRS (if the Federal payment disbursed electronically) or to the address provided by the Federal payment agency source (if the Federal payment is disbursed through a paper check).
5. FMS may systemically reverse a TC 670 DPC 18 or DPC 19 payment with TC 672 DPC 18 or DPC 19 when the Federal payment agency determines the taxpayer was not entitled to the payment.
5.11.7.2.4 (08-24-2007)
FPLP Generated Notice(s) and Appeal Rights
1. Prior to electronically levying a Federal disbursement, the FPLP will systemically issue a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing (CP 90 or CP 297) , if one has not already been sent for the FPLP periods.
A. The CP 90/297 will be generated by the MF and mailed certified with a return receipt (Postal Service (PS) Form 3811) through the Collection Due Process Certified Mail System (CDP-CMS) or its successor system. TC 971 AC 069 will systemically post on each module where the CP 90/297 was generated. A cross reference (XREF) TC 971 AC 069 will also post on joint income tax liabilities if both notices are systemically generated during the same cycle.
B. The USPS return receipt card is addressed for return to the campus that generated the notice. Upon receipt, the appropriate notice response TC 971 AC 066, 067, or 068 will be electronically scanned and input on the account.
C. The CP 90/297 will display the balance due amounts and the appropriate ACS contact phone number for taxpayers to resolve the case or exercise their appeal rights.
D. The notice will inform taxpayers of their right to appeal. Taxpayers may exercise their appeal rights, appropriately, through the:
Collection Appeals Program (CAP)
Collection Due Process (CDP)
Equivalent Hearing (Appeals request madeafter the 30 day CDP period)
Note:
If a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing (CP 90/297, Letter 1058, ACS LT 11) was issued prior to the last 180 days, a new warning of enforcement action does not have to be issued because this process is a computer matching levy program. See IRM 5.11.1.2.2.6.
2. If the match is a Social Security benefit payment, a CP 91 IMF or CP 298 BMF, Final Notice Before Levy on Social Security Benefits will also be issued at least 10 weeks after a CDP notice (unreversed TC 971 AC 069).
A. CP 91/298 displays the balance due amounts and provides an additional 30 days after the CDP notice timeframe to resolve the tax liability.
B. CP 91/298 specifically identifies the Social Security benefit payment that may be levied for 15% by indicating the taxpayer's Claimant's Account Number (CAN) and the Beneficiary's Own Account Number (BOAN). The BOAN is always the taxpayer's SSN. These numbers are systemically provided by FMS from SSA during the FPLP matching process to identify the taxpayer's Social Security benefit information.
C. CP 91/298 is generated by the Master File; mailed regular mail to the taxpayer's last known address; and a TC 971 AC 169 will systemically post on each affected module. These notices will also have the appropriate 1-800 ACS contact phone number listed.
D. Starting July 2005, the CP 91 will be considered aged and will be reissued if it is more than 26 cycles old prior to a levy transmitted after July 2005. There is no CP 298 aging criterion for the BMF modules.
E. The notice will inform taxpayers of their right to appeal. Taxpayers may exercise their appeal rights through the following:
Collection Appeals Program (CAP)
Equivalent Hearing Request — if no prior CDP or Equivalent hearing on the FPLP periods.
F. CP 91/298 is systemically generated for the FPLP only. It should not be issued manually and is not required prior to issuing duly authorized paper levies pursuant to IRC 6331(a), Levy and distraint, Authority of Secretary, on Social Security benefit payments.
3. Service personnel are to process any appeals requests according to procedures in IRM 5.1.9,General Collection Procedure, Collection Appeal Rights or IRM 5.19.8, Collection Appeal Rights.
4. During any time of the FPLP notice and levy process, taxpayers should be referred to the Taxpayer Advocate Service (TAS) for assistance if the respective Operating Division or Functional Unit is unable to resolve or take steps toward resolving the taxpayer's problems within 24 hours, particularly taxpayers that have matched with a Social Security benefit payment. Service personnel should refer to IRM 13.1.7, Taxpayer Advocate Case Processing, for guidance before referring taxpayers or potential problems to the TAS for assistance. Although taxpayer problems may meet TAS criteria, it is not necessary to refer the cases to the TAS if the problems can be resolved or steps are taken to resolve the problems within 24 hours.
5. It may be necessary to block or release the case from the FPLP ( See IRM 5.11.7.2.6, Blocking or Releasing FPLP Levy) if a resolution is pending through the Appeals or TAS process and no other FPLP exclusionary criteria exist. See Exhibit 5.11.7-3. FPLP Exclusion Criteria.
6. There is a third FPLP notice generated for the program. It is generated by FMS when a levy payment is taken. See IRM 5.11.7.2.3.4, Levy Payment Process (TC 670 DPC 18 or 19).
5.11.7.2.5 (08-24-2007)
Recognizing and Handling a FPLP Case
1. Revenue officers must recognize modules that have been placed in the FPLP and determine if this process will be part of their strategy to resolve the case.
2. If revenue officers decide that modules should not be part of FPLP, then they will need to block or release the modules from the FPLP. See IRM 5.11.7.2.6.
5.11.7.2.5.1 (08-24-2007)
FPLP or Paper Levy (Form 668-A/668-W)
1. Whenever the FPLP indicator is present on a module, revenue officers may decide to levy the Federal payment source through the FPLP — attaching the applicable 15% or 100% of the disbursement continuously; or the levy may be converted to effectuate the general levy statute, IRC 6331(a),Levy and distraint, or IRC 6331(e),Continuing levy on salary and wages, using the Notice of Levy, Form 668-A or Form 668-W, respectively, in order to levy the Federal payment source directly and attach the maximum amount allowed under those statutes. Form 668-A or Form 668-W may not be used as a means to levy under the FPLP statute, IRC 6331(h).
2. Form 668-A or Form 668-W will have to be served or issued on the Federal agency directly, not FMS. Prior to levying the Federal agency with Form 668-A or Form 668-W on either the primary or secondary taxpayer, the revenue officer must release or block the module from FPLP . See IRM 5.11.7.2.6,Blocking or Releasing FPLP Levy .
Caution:
Electronic levies through the FPLP and paper levies issued under IRC 6331(a) or 6331(e) should not be issued or attach to the same Federal payment source. If a paper levy is issued to a Federal agency while the taxpayer is being levied through the FPLP for the same payment, the Federal agency will return the paper levy to the originator. Allow at least thirty (30) days after the module is removed from the FPLP (or thirty days after the TC 972 AC 060 posting date) to (re)issue a paper levy on the same Federal payment source in order to ensure that FMS' or the Federal agency source's records no longer have the FPLP in effect. If this does occur, where the same Federal payment source had been levied under the FPLP and paper levy statutes, then see IRM5.11.7.2.7.(3).
3. Form 668-A or Form 668-W may be used as a levy tool on a case, in addition to the FPLP, as long as the Form 668A/W is not served on a Federal payment source, i.e. bank account, private sector wages. If the levy source is a Federal payment source, and is served with a Form 668-A or Form 668-W, then there may be a chance the FPLP may also levy the same payment source - which is prohibited based on the previous paragraph.
4. Revenue officers cannot close a case module as a continuous FPLP levy using a Status 60 input, normally used for continuous levies. FPLP systemically excludes Status 60 modules because they are also classified as approved installment agreement modules. FPLP excludes approved installment agreement modules.
5. Continuous levies under IRC 6331(e) on the Federal payment agency may still be issued using Form 668-W, and placed in Status 60. See IRM 5.11.5, Notice of Levy, Levy on Wages, Salary and Other Income.
5.11.7.2.6 (08-24-2007)
Blocking or Releasing FPLP Levy
1. The criteria and delegation authority for release of levy will not change for the FPLP. See IRM 5.11.2, Serving Levies, Releasing Levies and Returning Property.
Note:
There will be instances where the FPLP may be released on certain cases based on reasons not defined in IRM 5.11.2. See IRM 5.11.7.2.6.1 , Emergency Release of FPLP Levy and FPLP Coordinator.
2. The FPLP levy can only be released electronically. Do not use the Form 668–D, Release of Levy/Release of Property from Levy, as the means to release the levy from FMS or the Federal payment agency source.
Caution:
FMS and other Federal agencies will not process the Form 668–D on a FPLP levy, and will return it to its originator.
3. FPLP levies can only be released by posting a transaction code (TC) that would exclude the taxpayer from the FPLP as discussed in IRM 5.11.7.2.2.1. See Exhibit 5.11.7-3. FPLP Exclusion Criteria. Posting a FPLP exclusion TC will generate a TC 972 AC 060, which reverses the existing TC 971 AC 060.
Example:
Taxpayer E. Rockfish is being levied through the FPLP. Revenue Officer K. Seabass determined that Taxpayer Rockfish's case will be resolved as Currently Not Collectible (CNC) based on a financial hardship and inputs a CNC TC 530 CC 24. Once the TC 530 cc 24 is posted, it will generate a TC 972 AC 060 indicating the module is released from the FPLP.
4. If a FPLP exclusion TC is not yet warranted on a taxpayer's case, then input the automated levy block, TC 971 AC 061, on each appropriate module that should not be levied. Posting the TC 971 AC 061, will either generate a TC 972 AC 060 which reverses the existing TC 971 AC 060, or blocks the module from the FPLP and does not allow a TC 971 AC 060. Do not input both a FPLP exclusion TC and TC 971 AC 061 during the same cycle. TC 971 AC 061 can be input via ICS (Function Key 3) or Form 4844. See IRM 5.11.7.2.3.1, Case and Module Selection Process, for block indicators that should display on the module.
Example:
Revenue Officer I. Wahoo has a FPLP case module on Taxpayer E. Rockfish. Revenue Officer Wahoo is planning on releasing the levy based on a CNC financial hardship but needs Taxpayer Rockfish to file delinquent returns. While waiting for the returns, Revenue Officer Wahoo inputs a TC 971 AC 061 on each affected module releasing the FPLP levy. The TC 971 AC 061 generates a TC 972 AC 060 to indicate the module is released from the FPLP.
Example:
Taxpayer K. Dory who has modules in the FPLP with TC 971 AC 060, requests an OIC. Revenue Officer C. Mackerel inputs a pending OIC (TC 480) on all the modules. Since TC 480 is a FPLP exclusion TC, it will generate a TC 972 AC 060; therefore TC 971 AC 061 is not necessary and must not be posted.
5. Any manually input TC 971 AC 061 will expire after 52 cycles. In order to keep the module blocked , then another TC 971 AC 061 will need to be re-input and posted prior to the expiration of the previous TC 971 AC 061.
Example:
Revenue Officer T. Snapper does not want his taxpayer's new Status 21 balance due module going into the FPLP when it changes to Status 26. Revenue Officer Snapper will input TC 971 AC 061 on the Status 21 module.
6. The exclusion TC or TC 971 AC 061 will generate the TC 972 AC 060 one cycle later. The TC 972 AC 060 must post before the next payment is processed by FMS in order to not levy the next payment. FMS has different cutoff dates before they process the federal payments to the taxpayer.
FEDERAL PAYMENT PAYMENT DATE PROCESSING CUTOFF DATE
OPM (Federal retirement income) 1st of each month 2 weeks before payment date
SSA (OASDI) benefits 3rd of each month;
2nd, 3rd & 4th Wednesday of each month 6 business days before the payment date
Federal employee salaries Biweekly 14 days before payment date
Defense and civilian agency contractor/vendor payments;
Federal employee travel payments;
"Miscellaneous" payments; Daily Cutoff dates vary;
payments may be processed up to 30 days prior to payment date
7. If the TC is not posted by the processing cutoff date, then the FPLP levy may need to be released by the FPLP coordinator as discussed in the next section.
Note:
If the processing cutoff date is missed, then the levy release will be effective for the payments thereafter. See IRM 5.11.7.2.7, Returning FPLP Levy Proceeds, to determine if the levied payment may be returned via the manual refund process due to these timing issues.
5.11.7.2.6.1 (08-24-2007)
Requesting Assistance from the FPLP Coordinator on Certain Emergency Levy Release Situations
1. Each SBSE Collection Advisory Insolvency and Quality (AIQ) office has a locally designated FPLP coordinator who will have on-line and real-time access to the FMS database system in order to temporarily release or "rescind" a levy during certain situations discussed below. On the IRS intranet Servicewide Electronic Research Program (SERP) page, under "Who/Where" , there is a current listing of the FPLP coordinators based on geographical location.
2. As discussed in the previous subsection, a FPLP levy is released by posting the MF TC excluding or blocking the FPLP from the account. If the levy on the taxpayer's next Federal payment is imminent based on the timing and payment processing cutoff chart discussed above, and the MF TC has not yet posted releasing the levy, then under certain case situations, a request to the local FPLP coordinator may be necessary in order to rescind the levy through the FMS database system and save the payment from being levied. These certain case situations include, but are not limited to:
A. open bankruptcy situations: Insolvency personnel should refer to IRM 5.9.4.4.4Common Bankruptcy Issues, Federal Payment Levy Program. Under certain conditions, the FPLP coordinator may facilitate the release from the FMS database system. Insolvency units will also input the TC 520, which will systemically generate a TC 972 AC 060 and reverse the module out of the FPLP,
B. wrongful or erroneous levies,
C. economic hardship determinations as defined under Rev. Proc. 301–6343–1(4),Requirement to release levy and notice of release, Economic hardship.
D. Another situation is based on a Treasury and Defense Department agencies' interagency agreement regarding the 100% FPLP levy on Defense contractor payments. Those levies will be considered for emergency release based on national security concerns due to the contractor’s inability to perform their contract, OR that the levy will jeopardize contract performance and impose significant additional costs to the Federal government. If a taxpayer claims either of these situations, and if their request for FPLP levy release is not warranted under IRM 5.11.2.2,Serving Levies, Releasing Levies and Returning Property, then collection field function employees should take the following actions: Inform the taxpayer to contact their DoD contracting officer (CO). The DoD CO should have pre-established communication channels within the DoD and DFAS about these issues. If necessary, DoD may inform the IRS/FPLP headquarters, in writing, of the necessity of a particular contract to be performed and not levied due to national security interest or the significant additional financial cost to the Federal government, and formally request the levy release and/or return of levy proceeds of that particular contractor/taxpayer. When DoD informs FPLP headquarters, FPLP headquarters will, then, contact the FPLP coordinator, based on the taxpayer location, to initiate expedited handling of the case and direct contact from IRS to that particular contractor/taxpayer. Disagreements over these decisions or the need for additional financial information from the taxpayer as part of negotiating for these decisions will be handled on a case by case situation. See IRM 5.11.7.2.6.3, FPLP Coordinator Duties for Expedited Case Handling. While the taxpayer pursues this action to get the levy released, Collection should continue with standard operating procedures for collection, which may include allowing the levy to continue. Collection or the FPLP coordinator should not release or block the levy solely dueto the taxpayer’s claim for these reasons. The levy release determination will be based on DoD communication through IRS/FPLP headquarters, and the case will be handled accordingly.
3. To release a FPLP levy through the FPLP coordinator's rescind input in the above situations, prepare Form 4844 and fax it to the FPLP coordinator. Call the FPLP coordinator to ensure receipt of Form 4844, and keep a copy of the form. Indicate on Form 4844:
A. Under "Remarks" — FPLP Levy Release
B. Taxpayer's TIN, name and address
C. Signature of delegated official authorized to release levies
Note:
If a TC 971 AC 061 FPLP block is required on the modules and cannot be input via ICS, then use a separate Form 4844 and forward it to the appropriate area, i.e. Case Processing. Do not send this FPLP block request to the FPLP coordinator. See the subsection for the FPLP coordinator duties.
Reminder:
Do not prepare a Form 668–D, Release of Levy/Release of Property from Levy, for FMS or any federal payment agency to release a FPLP levy.
4. The levy "rescind" on the FMS database is temporary only, and effective at the time of the input until the next time the FMS database is updated with taxpayer information from the Master File, which is usually every week. The FPLP coordinator's "rescind" input in the FMS database will not upload to IDRS or MF. The " rescind" input must also be completed before the payment cutoff date as discussed above in IRM 5.11.7.2.6 (6).
Caution:
Since the FMS database is updated weekly with the current taxpayer information from the Master File, the " rescind" action by the FPLP coordinator will only last until the database is updated again, which is usually the following week. It may take up to 3 cycles before the FMS database receives the FPLP reversal TC 972 AC 060, and it may be necessary to request the rescind as often as necessary until the TC 972 AC 060 posts. It will be the responsibility of the employee requesting the "rescind" to monitor the exclusion TC and FPLP reversal TC 972 AC 060.
5.11.7.2.6.2 (08-24-2007)
FPLP Coordinator Duties
1. As indicated above, each SBSE Collection Advisory Insolvency and Quality (AIQ) office has a locally designated FPLP coordinator who will have on-line and real-time access to the FMS database system in order to temporarily release or "rescind" a levy during certain situations.
2. FPLP coordinators will have and should maintain their computer access to the FMS intranet system, known as the FMS In Touch - Client Server and the Treasury Offset Program (TOP) taxpayer database, in order to input (aka "rescind" ) an emergency or stop-gap FPLP levy release requests. These types of levy release input requests will come from their respective Compliance Campus FPLP liaisons, field Collection employees, TAC and TAS frontline operations employees. On the IRS intranet Servicewide Electronic Research Program (SERP) page, under "Who/Where" , there is a current listing of the FPLP coordinators and (campus) liaisons.
3. The FPLP coordinators are not required to input the TC 971 AC 061 block/release or any other TC excluding the account from the FPLP. It is the responsibility of the operational/functional (i.e. ACS, Collection Field, TAS, TAC) employee resolving the case to input or forward it to the appropriate unit, i.e. Case Processing.
4. Form 4844 (or Form 668–D from campus, TAC or TAS employees following guidance under IRM 5.19.9, Collection, Liability Collection, Automated Levy Programs) will serve as the input document for the FPLP coordinator. The coordinator will sign onto the FMS system and rescind all the modules from the levy. Coordinators should follow IRM 1.15.28.1, Records Control Schedule for Collection, for document retention guidelines.
5. Requests for FPLP levy rescinds must be input within one (1) workday from receipt.
6. The FPLP coordinator is not responsible for authorizing the levy release.
7. Coordinators should also provide subject matter support for the operating and functional divisions, and should also contact the FPLP headquarters staff for clarity and guidance.
8. In rare instances and under the guidance of FPLP headquarters staff, the coordinators may be delegated to coordinate FPLP case-related recovery efforts of systemic erroneous levy situations or expedited case handling. See IRM 5.11.7.2.6.3, FPLP Coordinator Duties for Expedited Case Handling.
5.11.7.2.6.3 (08-24-2007)
Additional FPLP Coordinator Duties for Certain Expedited Case Handling
1. FPLP headquarters will initiate these necessary steps with the local FPLP coordinator, in order to facilitate expedited case handling of certain FPLP cases.
2. The local FPLP coordinator will open a 193 Lien/Levy module and note the case history and initiate a mandatory outgoing Special Procedures Branch Courtesy (or Other) Investigation (SPBOI) to the collection field function, or if the case is already assigned, to the revenue officer, in order to make contact with the taxpayer. The group manager assigning the OI should advise the revenue officer that because of the sensitive nature of the investigation, contact with the taxpayer will generally be made within three (3) work days from receipt.
3. The following subsections outline the current situations and procedures that require expedited case handling.
5.11.7.2.6.3.1 (08-24-2007)
National Security Reasons
1. Currently, expedited FPLP case handling has been established for national security reasons requested by the DoD. See IRM 5.11.7.2.6.1, Emergency Release of FPLP Levy and FPLP Coordinator. The issuance of the mandatory OI should only be the case when standard operating procedures do not apply for levy relief outlined in IRM 5.11.2.2. The mandatory OI must include the following three objectives for this expedited case handling:
• the levy release determination and/or processing based on DoD's mitigating reasons;
• the return of levied proceeds determination and/or processing, if applicable;
• and resolving the collection case.
2. FPLP headquarters will contact the local FPLP coordinator to release the FPLP levy and/or block the FPLP with TC 971 AC 061 or the appropriate exclusion TC through the appropriate Case Processing campus site, or assigned revenue officer. There may be situations where the levy will not be fully released, but where it is agreed that only a partial amount (less than 100%) may still be levied. There will be no OI levy release determination necessary from the collection field function; the local FPLP coordinator will open a 193 Lien/Levy module and note the case history. The levy release, as determined by IRS FPLP headquarters, should be completed within 48 hours of DoD's request.
3. For the return of levied proceeds, if applicable, IRS FPLP headquarters will request FMS to electronically return the proceeds (full or partial) to the taxpayer directly. (Standard IRS manual refund procedures of these levied proceeds will not be initiated in these situations.) There will be no OI determination necessary from the collection field function; the local FPLP coordinator will open a 193 Lien/Levy module and note the case history. The return of levied proceeds will be indicated with a TC 672 DPC 18 and will be electronically refunded by FMS back to the taxpayer’s financial account to which it would have originally been deposited - usually within 48 hours from the time FMS receives the request from the IRS.
4. The case will still need to be resolved through the ICS mandatory OI by the collection field function or assigned revenue officer. This mandatory OI will require expedited handling to ensure resolution of the case in order to satisfy any outstanding national security and interagency concerns.
5.11.7.2.6.3.2 (08-24-2007)
Significant Additional Costs to the Federal Government (Defense Contracts)
1. Besides national security, the IRS has also agreed to review case situations requested by the DoD where the FPLP levy would jeopardize the performance of a Defense contract and produce a significant additional cost to the Federal government.
2. FPLP headquarters will contact the local FPLP coordinator to facilitate the issuance of an outgoing SPBOI mandatory OI to the collection field function. The collection field function should make contact with the taxpayer generally within 48 hours of receipt of the OI, make a levy release determination and notify FPLP headquarters. The levy release determination should take into consideration the mitigating circumstances presented by the DoD due to the potential loss to the Federal government. If the levy release is warranted, then process the release - See IRM 5.11.7.2.6, Blocking or Releasing FPLP Levy. There may be situations where the levy will not need to be fully released when it is agreed that only a partial amount (less than 100%) may still be levied. In order to receive only a partial amount of the FPLP levy payment under these reasons, the 100% FPLP payment will need to be posted, and then a partial return of levy proceeds should be processed
3. The return of levy proceeds, if warranted, will also be considered on a case by case basis by the collection field function and if returning the (partial or full) proceeds is warranted, then process through the standard manual refund procedures within IRS. See IRM 5.11.7.2.7, Returning FPLP Levy Proceeds.
4. The case will still need to be resolved through the mandatory OI by the collection field function. This mandatory OI will require expedited handling to ensure resolution of the case in order satisfy any outstanding interagency concerns.
Note:
In these situations, it is the IRS contacting the taxpayer regarding the levy relief, and not the taxpayer contacting the IRS. Therefore, during the course of resolving the case in either situation, if the taxpayer does not make the concerted effort to contact and/or resolve the case with the revenue officer, it may be necessary to contact FPLP headquarters through the FPLP coordinator to determine if the FPLP should continue and to consider its impact with the DoD. Contact may be made with DoD as long as Third Party contact provisions are satisfied.
5.11.7.2.6.4 (08-24-2007)
Removal (Reversal) of the FPLP Block with TC 972 AC 061
1. There are systemic and manual criteria that determine when the FPLP block transaction code (TC 971 AC 061) is reversed with TC 972 AC 061.
2. The following conditions systemicallygenerate a TC 972 AC 061 to remove or reverse an existing FPLP block. (The DLN of the TC 972 AC 061 will display a series of 8s or 9s, with the exception of the Status 22 condition described below.):
• Status 22: Status 22 modules assigned into in certain ACS inventories. See IRM 5.19.9.3.2.1 (2), FPLP Selection Criteria. (The DLN of these TC 972 AC 061s will display a random series of numbers.)
• Status 26: After July 2004, all status 26 modules with a systemic block.
• Expiration: Any manual input of TC 971 AC 061 after January 2005 on an IMF module expires 52 cycles later (on BMF modules, the TC expires after 15 cycles; after January 2006, for BMF modules, the TC will expire after 52 cycles), and is systemically reversed with TC 972 AC 061.
• Non-FPLP status: When an FPLP module, i.e. Status 24, that has either a systemic or manual TC 971 AC 061, moves into a non-FPLP status, i.e. Status 58, it is systemically reversed with TC 972 AC 061.
3. Revenue officers may manually reverse any (systemic and/or manual) TC 971 AC 061 with a TC 972 AC 061, at anytime during their collection case strategy in order to place the module into the FPLP. (The DLN on TC 972 AC 061 manually input will display a random series of numbers.) The module should then be systemically selected into the FPLP, as along as the FPLP selection criteria is met. See IRM 5.11.7.2.2, FPLP Module Selection Criteria.
5.11.7.2.7 (08-24-2007)
Returning FPLP Levy Proceeds
1. FPLP payments are systemically identified with a TC 670 DPC 18 or DPC 19.
2. There may be situations where a levied payment may be returned. Returning the levied proceeds must only be approved by the delegating official authorized to return levy proceeds as directed under Delegation Order 5-3 and in accordance with IRM 5.11.2.3, Authority for Returning Levied Property to the Taxpayer . Process the return of FPLP levy proceeds using the manual refund procedures found in IRM 5.1.15.7,General Handbook, Account Transfers, Adjustments, Payment Tracers, Credit Transfer, and Refunds, Requests for Manual Refunds.
3. In situations due to timing issues,where a levy has been released and the levied payment has already been processed by FMS, but not yet transmitted to the Service by the pay date, the levied payment may be returned to the taxpayer in accordance with IRM 5.11.2.3. There may be other situations, as discussed in IRM 5.11.2.3, where the levied proceeds that had already been received prior to the levy releasemay be returned to the taxpayer and a manual refund processed.
Note:
The TC 670 DPC 18/19 payment will need to post on the account prior to taking these actions.
4. In situations where a paper levy and FPLP levy attached the same Federal payment simultaneously, the paper levy proceeds will need to be returned in accordance with IRM 5.11.2.3. Chief Counsel has opined that the FPLP statute did not intend for both levies to be in effect on the same payment, where 15% of the payment was attached by the FPLP, and the paper levy attaches the remaining amount, or vice-versa. Since the paper levy should not have been issued nor honored, because the FPLP is indicated on the account, then the paper levy proceeds need to be refunded, as the administrative procedures were not followed to prevent simultaneous levies.
Example:
Taxpayer J. Flounder's Federal employee salary payment for October 2004 was levied for 15% through the FPLP, but a paper levy was also issued by Revenue Officer L. Lemonsole, which attached the remaining amount. Revenue Officer Lemonsole did not block (TC 971 AC 061) the FPLP prior to issuing the paper levy and did not put the paper levy in continuous levy (Status 60) status to prevent the FPLP. Taxpayer Flounder's employer did not stop the paper levy disbursement, and remitted Taxpayer Flounder's salary proceeds for the paper levy while the FPLP systemically levied also. The paper levy proceeds should be returned and refunded to Taxpayer Flounder, along with releasing the paper levy..
5. In the above situations, if the tax module is or will be full paid or satisfied from the delayed posting of the payment and/or from other credits regardless if the Federal payment is subsequently returned, then it is necessary to ensure the applicable Notice of Federal Tax Lien is manually released even while the account adjustments are pending. See IRM 5.12.3.2.1(5) regarding the necessity of a manual lien release. Employees of functions with access to the Automated Lien System (ALS) will input lien release requests in these situations. For those functions that do not have access to ALS, determine if the Centralized Lien Unit (CLU) lien release contact on the IRS intranet by going to:
• IRS Homepage
• SERP;
• Who/Where;
• ALS Unit - Contacts
An Internal Use Only telephone number is also provided along with the contact information provided on the CLU website. Ensure all e-mail communications regarding liens are via secure E-mail.
5.11.7.3 (08-24-2007)
Alaska Permanent Fund Dividend Levy Program
1. The Alaska Permanent Fund Dividend (AKPFD) Levy Program is an automated levy program, which operates in conjunction with the State of Alaska, Department of Revenue, Permanent Fund Dividend Division (PFDD).
2. Information pertaining to the AKPFD criteria, process and procedures can be found under IRM 5.19.9, Collection, Liability Collection, Automated Levy Programs.
Exhibit 5.11.7-1 (05-23-2008)
FPLP - Federal Employee Salary Paying Agencies: NFC, NBC and GSA
NFC Paid Agencies
Armed Forces Retirement Home
Agricultural Marketing Service
Architect of the Capitol
Animal and Plant Health Inspection Service
Appalachian Regional Commission
Agricultural Research Service
U.S. Architectural and Transportation Barriers Compliance Board
Alcohol, Tobacco, Firearms and Explosives
Alcohol and Tobacco, Tax and Trade Bureau
Office of the Under Secretary (B&TS)
Immigration and Customs Enforcement
Bureau of the Census
Bureau of Citizenship and Immigration Services
Federal Law Enforcement Training Center
Bureau of Economic Analysis
Bureau of Engraving and Printing
U.S. Botanic Garden
Bureau of Industry and Security
Bureau of the Public Debt
U.S. Court of Appeals for Veterans Claims
Congressional Budget Office
Congressional Executive Committee on the People's Republic of China
Child Care Development Center
Commodity Futures Trading Commission
U.S. Coast Guard (Civilian Pay)
Corporation for National and Community Service
Community Relations Service Commission on Security and Cooperation in Europe
U.S. Chemical Safety and Hazard Investigation Board
Office of the Director
Cooperative State Research, Education, and Extension Service
Bureau of Customs and Border Protection
Departmental Administration
Office for Infrastructure Analysis
Drug Enforcement Administration
Defense Nuclear Facilities Safety Board
Department of Education
Department of Labor
Department of State
Departmental Offices
Office of the Under Secretary (MGMT)
Economic Development Administration
Executive Office for Immigration Review
Office of Civil Rights
Directorate for Emergency Preparedness & Response, Office of the Under Secretary
Economic Research Service
Economics and Statistics Administration
Foreign Agricultural Service
Farm Credit Administration
Federal Air Marshals Service
Federal Communications Commission
Farm Credit System Insurance Corporation
Federal Deposit Insurance Corporation
Federal Election Commission
Federal Emergency Management Agency
Federal Energy Regulatory Commission
Office of Federal Housing Enterprise Oversight
Federal Bureau of Investigation
Federal Maritime Commission
Federal Mediation and Conciliation Service
Financial Management Service
Federal Mine Safety and Health Review Commission
Food and Nutrition Service
Federal Prison System
Forest Service
Farm Service Agency
Farm Service Agency - County Offices
Food Safety and Inspection Service
Government Accountability Office
Grain Inspection, Packers, and Stockyards Administration
Government Printing Office
(Leased Lines for DEPNET)
Headquarters Components
Housing and Urban Development (HUD) Office of Inspector General
HUD
Office for Information Analysis
Inter-American Foundation
International Boundary & Water Commission
Interagency Council on the Homeless
Office of the Under Secretary (Information Analysis & Infrastructure Protection)
Institute of Museum and Library Services
Internal Revenue Service
International Trade Administration
Office of the Inspector General
Library of Congress
Minority Business Development Agency
Merit Systems Protection Board
National Appeals Division
National Agricultural Statistics Service
National Capital Planning Commission
National Endowment for the Arts
National Endowment for the Humanities
National Gallery of Art
National Gallery of Art (Publication Fund)
National Gallery of Art (Trust Fund)
National Institute of Standards and Technology
National Labor Relations Board
National Oceanic and Atmospheric Administration
Natural Resources Conservation Service
National Sheep Industry Improvement Center
National Telecommunications and Information Administration
National Technical Information Service
Office of Budget and Program Analysis
Office of Communications
Office of Compliance
Office of the Comptroller of the Currency
Office of the Chief Information Officer
Office of Chief Economist
Office of the Chief Financial Officer
Office of the Executive Secretariat
Office of the Inspector General
Office of the General Counsel
Office of Government Ethics
Office of Inspector General
Office of Justice Programs
Immediate Office of the Secretary
Office of the Secretary
US Office of Special Counsel
Occupational Safety and Health Review Commission
Office of Thrift Supervision
Peace Corps
U.S./Saudi Arabian Joint Commission On Economic Cooperation
Treasury's Personal Services Contractors - Foreign
Patent and Trademark Office
Pretrial Services Agency
Rural Business-Cooperative Service Rural Housing Service
Reading is Fundamental
Risk Management Agency
Rural Utilities Service
Small Business Administration
Office of the Secretary
Smithsonian Institution (Federal)
Smithsonian Institution (Trust)
U.S. Senate Restaurants
United States Secret Service
Office of the Under Secretary (S&T)
Transportation Security Administration
Technology Administration
Bureau of Alcohol, Tobacco, Firearms and Explosives
Office of Inspector General for Tax Administration
Treasury Office of the Inspector General
Treasury Technical Assistance
US Attorneys Office
US Agency for International Development
US Commission on Civil Rights
US Capitol Police
US Mint
US Marshals Service
US Trustee Program
Woodrow Wilson International Center for Scholars (Federal)
Woodrow Wilson International Center for Scholars (Trust)
NBC Paid Agencies
Arctic Research Commission
African Development Foundation
Bureau of Indian Affairs
Bureau of Land Management
Bureau of Reclamation
Chemical Safety & Hazard Investigation Board
Consumer Product Safety Commission
Department of Education
Department of Transportation
Equal Employment Opportunity Commission
Federal Labor Relations Authority
Federal Trade Commission
Fish and Wildlife Service
Harry S. Truman Scholarship Foundation
Inter-American Foundation
International Trade Commission
James Madison Memorial Foundation
Millennium Challenge Corporation
Minerals Management Service
National Aeronautics Space Administration
National Labor Relations Board
National Park Service
National Science Foundation
National Transportation Safety Board
Nuclear Regulatory Commission
Office of Aircraft Services
Office of Inspector General -Dept of Interior
Office of Navajo/Hopi Indian Relocation
Office of Special Trustee for American Indians
Office of Surface Mining
Office of Secretary - Dept of Interior
Overseas Private Investment Corp
Pension Benefits Guarantee Corp
Presidio Trust
Saint Lawrence Seaway Development Corporation
Securities and Exchange Commission
Selective Service System
Social Security Administration
Surface Transportation Board
US Geological Survey
US Trade & Development Agency
Utah Reclamation Mitigation and Conservation Commission
Valles Caldera Trust


GSA Paid Agencies
American Battle Monuments Commission
Commission for the Preservation of America's Heritage Abroad
Nuclear Waste Technical Review Board
Christopher Columbus Fellowship Foundation
National Credit Union Admin
Delta Regional Authority
Export/Import Bank of the US
Morris K. Udall Scholarship and Excellence in Natl Environ Pol
Appraisal Subcomm/Fed Financial Institutions Exam Council
Barry M. Goldwater Scholarship and Excellence in Education Found
Vietnam Education Foundation
Election Assistance Commission
Committee for Purchase From People Who Are Blind...
US Interagency Council on Homelessness
Stennis Center for Public Service
Marine Mammal Commission
National Council on Disability
National Mediation Board
National Archives and Records Admin
Office of Personnel Management
Panama Canal Commission
Federal Retirement Thrift Investment Board (Remember: Employees only)
Railroad Retirement Board (Remember: Employees only)
John F. Kennedy Center for Performing Arts
Japan/US Friendship Commission
Commission on Review of Overseas Military Facility Structure
Antitrust Modernization Commission
Medicare Payment Advisory Commission
US Commission on International Religious Freedom
US China Economic and Security Review Commission
Exhibit 5.11.7-2 (08-24-2007)
Table of Federal Payments Subject to FPLP
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Exhibit 5.11.7-3 (08-24-2007)
FPLP Exclusion Criteria
All balance due modules of an entity that has one or more of the following codes in any balance due module , will either be systemically reversed out of or not selected for the FPLP:
TRANSACTION OR FREEZE CODE DESCRIPTION
A Unreversed TC 500 or – (minus) C Freeze Military deferment or Combat Zone
B Unreversed TC 914 or - (minus) Z Freeze Active CID investigation
C Unreversed TC 480 or TC 780 or – (minus) Y Freeze OIC pending or approved
D Unreversed TC 976 or 977 or –(minus) A Freeze Duplicate return freeze
E Unreversed TC 530 CC 24–32 CNC Unable to Pay
F Unreversed TC 530 CC 08 CNC Deceased
G Unreversed TC 540 or Date of Death indicated on INOLES Deceased taxpayer
H Unreversed TC 971 AC 043 Pending IA prior to a FPLP levy only
I Unreversed TC 971 AC 063 Current or approved IA
J Unreversed TC 524 Collateral Agreement pending or approved
K Unreversed TC 971 AC 086 or 087 or O freeze Open Disaster Zone Case
L Unreversed TC 520 all CCs Bankruptcy/Litigation
M Unreversed TC 520 CC 76, 77 (CDP) CDP on filed lien or intent to levy with Appeals Office
N Unreversed TC 470 with a defined CC only Taxpayer claim or adjustment to return is pending
O Unreversed Master File Employment Code> F Taxpayer is Federal Government Agency
P KITA, HSTG - Master File entity indicators Taxpayer is Killed in Terrorist Action, or Taxpayer is in Hostage Situation
A balance due module that has one of the following, will be systemically reversed out of or not selected for the FPLP:
TRANSACTION OR FREEZE CODE REMARKS
A Earliest CSED is within 3 months of expiration For modules where there is no FPLP levy or if the FPLP levy exists on OPM or SSA payments
B Earliest CSED is within 1 month of expiration For modules where a FPLP levy exists on any Federal payment source except an OPM or SSA payment
C Unreversed TC 971 AC 061 Block from FPLP
D Unreversed TC 971 AC 065 Innocent Spouse module
E Unreversed TC 971 AC 071 Injured Spouse module
F Unreversed TC 971 AC 275 Taxpayer files CDP request and is not yet assigned to Appeals
G Additional TC 240 (MFT 55 only), TC 29x, or TC 30x assessment If these TCs are posted between the last posted TC 971 AC 069 and the current cycle, except where this is an intervening Status 12 between TC 971 AC 069 and current cycle.
H Unreversed TC 470 no CC if posted prior to FPLP levy Amended return claim pending
The following entity or module will be systemically blocked from the FPLP and may be manually unblocked to be included into the FPLP:
Indicator Remarks
Unreversed Master File entity employment code: G, T, (I -January 2008) Taxpayer is State or Local Government entity; Taxpayer is a Indian Tribal Government entity
ACS modules at inception of St 22 Certain modules in certain Status 22 ACS inventories are subsequently systemically unblocked; refer to IRM 5.19.9.3.3
Exhibit 5.11.7-4 (08-24-2007)
TC 971 AC 062 Document Locator Number (DLN) Format of Federal Payment Type
FPLP Document Locator Number Positions
1 2 3 4 5 – 6 7 8 — 9 10 11 12 13 — 14
N N N N N — N 0 1 — 0 8 0 2 0 — N
The values for positions 7, 8, 9, & 10 identify the Federal Payment Agency.
Note:
See Exhibit 5.11.7-5. for a complete list of the Federal Payment Agency Identifier Code List.
Example:
Office of Personnel Management: 0108
The values for positions 11 & 12 identify the Type of Federal Payment:
• 01 – Social Security benefit payment
• 02 – Federal retirement income
• 03 – Federal contractor or vendor payment (IMF or BMF entities)
• 03 - Miscellaneous Payments ( See IRM 5.11.7.2.1.1. (IMF or BMF entities)
• 03—Federal employee travel advance/reimbursement payment (limited to IMF only)
• 04 – Federal salary payment
The value for position 13 identifies whether FMS matches a record for the taxpayer or if funds were levied:
• 0 — Federal disbursement matched
• 1 — Federal disbursement levied
The DLN listed above would indicate that FMS matched (position 13 = 0) records with OPM (positions 7, 8, 9 & 10) on an OPM payment (positions 11, 12 & 13).
Other examples:
Example:
TC 971 AC 062 DLN 28277–901–08020–0
Match — OPM (Federal source) on federal retirement payment.
Example:
TC 971 AC 062 DLN 28277–902–07011–0
Levy — SSA (Federal source) on Social Security benefit payment.
Example:
TC 971 AC 062 DLN 28277–904–07041–0
Levy — National Finance Center (Federal source) on federal salary payment.
Exhibit 5.11.7-5 (08-24-2007)
Federal Payment Agency Identifier Code List
Payment Agency Identifier Agency Name
0000 No Federal payment agency identified - FPLP Match under this Payment Agency ID identifies recently awarded contract; another specific Payment Agency ID should subsequently post when match on an identified payment also occurs.
0001 Office of Child Support Enforcement (OCSE) - Health and Human Services (HHS) - Aid to Families with Dependent Children (AFDC)
0002 OCSE - HHS - non-AFDC
0003 HHS
0004 Veterans Administration (VA)
0005 Department of Education (ED)
0006 Small Business Administration (SB)
0007 Department of Housing and Urban Development
0008 US Department of Agriculture (USDA) - Rural Development
0009 US Department of Justice (DOJ)
0100 Bureau of Public Debt - Treasury
0101 Department of the Treasury (DOT) - Office of the Secretary
0102 Defense Finance and Accounting Service (DFAS) - Denver/Cleveland
0103 DFAS - Columbus
0104 Federal Energy Regulatory Commission
0105 Army and Air Force Exchange Services
0106 US Consumer Product Safety Commission
0107 US Navy Exchange Service Command
0108 Office of Personnel Management
0109 US Peace Corps
0110 Navy Personnel Command
0111 Debt
0112 Department of Homeland Security
0113 Transportation Security Administration
0114 US Army Corps of Engineers
0115 US House of Representatives
0116 International Broadcasting Bureau
0200 US Department of Energy
0201 Railroad Retirement Board
0202 Department of Interior - National Park Service
0203 US Department of State
0204 Department of Transportation - Office of the Secretary
0205 Federal Emergency Management Agency
0206 United States Customs
0207 Social Security Administration
0208 Food and Nutrition Service - USDA
0209 Patent & Trademark Office - Department of Commerce
0300 US Secret Service
0301 National Science Foundation
0302 US Department of Commerce
0303 Financial Management Service (FMS) - DMSC
0304 Environment Protection Agency
0305 General Services Administration
0306 HHS - Centers for Medicare and Medicaid Services
0307 Agency for International Development
0308 Smithsonian Institution
0309 Bureau of Alcohol, Tobacco, Tax, and Trade
0400 US Department of Labor
0401 United States Postal Service
0402 National Credit Union Administration
0403 Employment Standards Administration
0404 USDA - Animal Plant Health Inspection Service
0405 Central Intelligence Agency
0406 USDA - Farm Services Agency
0407 USDA - National Finance Center
0408 USDA - Risk Management Agency
0409 Federal Communications Commission
0500 DOT - Comptroller of the Currency
0501 IRS
0502 DOT - Office of Thrift Supervision
0503 DOT - US Mint
0504 Federal Law Enforcement Training Center
0505 National Labor Relations Board
0506 Federal Maritime Commission
0507 Inter-American Foundation
0508 Equal Employment Opportunity Commission
0509 Security and Exchange Commission
0600 Pension Benefit Guaranty Corp.
0601 US Information Agency
0602 Marine Corps Exchange
0603 Armed Forces Retirement Home (AFRH) - US Naval Home
0604 Architect of the Capitol
0605 Federal Housing Finance Board
0606 Commodity Futures Trading Commission
0607 General Accounting Office
0608 US Nuclear Regulatory Commission
0609 HHS - Centers for Disease Control and Prevention
0700 HHS - Food and Drug Administration
0701 HHS - National Institute of Health
0702 DOJ - Justice Management Division
0703 DOJ - Bureau of Prisons
0704 DOJ - Drug Enforcement Agency
0705 NASA Headquarters
0706 Corporation for National Service
0707 DOJ - Federal Bureau of Investigation
0708 Air Force Service Agency
0709 Army/Air Force Exchange Service
0800 Department of Interior (DOI) -US Geological Survey
0801 DOI - Bureau of Reclamation
0802 DOI - Bureau of Land Management
0803 DOI - US Fish & Wildlife Service
0804 Bureau of Indian Affair
0805 DOI- Office of Trust Fund Management
0806 Immigration and Naturalization Services
0807 AFRH - US Soldier's and Airmen's Home
0808 International Boundary and Water Commission
0809 Department of Transportation - Bureau of Transportation Statistics
0900 Federal Aviation Administration
0901 Federal Highway Administration
0902 Federal Railroad Administration
0903 Federal Transit Administration
0904 Maritime Administration
0905 National Highway Traffic Safety Administration
0906 Volpe National Transportation
0907 Surface Transportation Board
0908 US Coast Guard
0909 FMS - Reclamations
Exhibit 5.11.7-6 (05-23-2008)
CP 90 (or 297) Final Notice, Notice of Intent to Levy and Notice of Your Right To A Hearing
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Exhibit 5.11.7-7 (05-23-2008)
CP 91 (or 298) Final Notice Before Levy on Social Security Benefits
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Exhibit 5.11.7-8 (08-24-2007)
FPLP Levy Notice - Department of the Treasury Financial Management Service (FMS) Notice
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The IRS has updated the Offer in Compromise Manual on September 23, 2008. 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. The IRM provides procedures for collection employees to follow when considering a taxpayers proposal to compromise. An offer in compromise is an agreement between a taxpayer and the government that settles a tax liability for payment of less than the full amount owed. The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section § 7122. 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).

Policy Statement P-5-100 states:

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 OIC is a legitimate alternative to declaring a case currently not collectible or to 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 OIC appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise.
The success of the OIC 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 that is in the best interest of both the taxpayer and the government. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of a fresh start toward compliance with all future filing and payment requirements.
2. Offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, installment payments extending through the remaining statutory period for collection (CSED), or other means of collection, unless special circumstances exist.
3. A DATC offer amount must usually equal or exceed a taxpayer's reasonable collection potential (RCP) in order to be acceptable. The exceptions are that when special circumstances exist as defined in IRM 5.8.4.3, Effective Tax Administration and Doubt as to Collectibility with Special Circumstances, or when per IRM 5.8.11, Effective Tax Administration, the offer may be accepted on the basis of hardship or ETA.
5.8.1.1.4 (09-23-2008)
Objectives
1. The objectives of the OIC 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 interests 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.
5.8.1.1.5 (09-23-2008)
Process
1. Revenue Procedure 2003-71, effective August 21, 2003-2 C.B. 517, defines the procedures applicable to the submission and processing of OIC tax liabilities. Notice 2006-68, 2006-31 I.R.B. 105, provides additional guidance regarding offers submitted on or after July 16, 2006. This handbook further describes, in detail, those processes.
5.8.1.1.6 (09-23-2008)
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 as a key component of taxpayer satisfaction in this program area. Managers and employees need to ensure that communications from taxpayers are addressed in a timely manner, and the timeliness of case actions ensure the length of the offer investigation process is as brief as reasonably possible. The guidelines for timely case actions outlined 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.
2. These guidelines are not intended as absolute measures of performance for individual employees. Performance evaluations of individual employees must be based on reviews of the actual work produced by the employees, and 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.
5.8.1.2 (09-23-2008)
Functional Responsibilities
1. The following list, while not all inclusive, provides a brief summary of various functions' activities related to OIC processing.
5.8.1.2.1 (09-23-2008)
Tax Cases Controlled by Department of Justice
1. The IRS may not have the authority to accept an OIC when:
A. Questions concerning the amount of the taxpayers liability or the collection of a liability for all or part of the periods the taxpayer owes is in litigation.
B. The federal tax liability for all or part of the periods the taxpayer owes has been reduced to a judgment.
C. If an offer is received that covers tax periods for which restitution was ordered refer to IRM 5.1.5.24.5. We cannot accept an OIC that in any way modifies the terms of a restitution order. We may consider an OIC for periods for which restitution was ordered only if the defendant has paid or will pay the full amount of the restitution as part of the offer.
D. The IRS has a civil or criminal prosecution pending against the taxpayer in the Department of Justice (DOJ) or United States Attorneys Office.
E. Acceptance by the IRS is dependent upon the DOJ accepting a related offer or settlement.
F. If there is a closed Criminal Investigation (CI) indicator on the account, contact should be made with Technical Services 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 local Counsel before proceeding.
G. If the offer is returned based on (a) through (d) above, the application fee and TIPRA payments should be returned to the taxpayer.
2. If there is any indication that one or more of the above conditions exist, contact Area Counsel for guidance.
3. In some instances, the DOJ may request the case be forwarded to them for inclusion in pending litigation. However, in DATC offers, DOJ generally requests the OI conduct the investigation and make a recommendation whether the offer should be accepted or rejected. 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.
Note:
In all instances, DOJ cases will be worked by field Offer Specialists.
5.8.1.2.2 (09-23-2008)
Collection Function
1. The Collection function is responsible for processing and investigating the following offers:
• All offers based on DATC, including proposed liabilities still subject to settlement in Examination or Appeals.
• All offers based on ETA.
• All offers submitted under DATL for either a TFRP or PLET assessment.
5.8.1.3 (09-23-2008)
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. DATL only offers are not controlled on the Automated Offer in Compromise (AOIC) system and Examination is responsible for all case processing.
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 Compliance. See IRM 5.8.11.2.2, Public Policy or Equity Grounds, IRM 4.18.2, Exam Offer-In-Compromise - Doubt as to Liability Offers.
5.8.1.4 (09-23-2008)
Appeals
1. Offers secured in Appeals offices in conjunction with related casework ,such as Collection Due Process (CDP), will be forwarded to the COIC sites for processability determination, processing of the application fee(s), deposit(s), required TIPRA payment(s), and mailing of processability letters provided by Appeals. These offers are not controlled on AOIC. COIC will be responsible for the input of necessary transaction codes to the IDRS. See IRM 5.8.3.4.3, Determining Processability for Appeals Collection Due Process Offers. Appeals will normally investigate their own offers, but if complex issues are identified, they may require the assistance of Collection or Examination through the issuance of an Appeal Referral Investigation (ARI).
Note:
See IRM 5.8.4.12.4, for exceptions to investigation of OIC's under the jurisdiction of Appeals.
5.8.1.5 (09-23-2008)
Counsel
1. Counsel attorneys provide opinions on OIC's recommended for acceptance when the total liability, including additions and accrued penalty and interest, is $50,000 or greater. Counsel attorneys, when requested, may also provide legal opinions for matters related to investigation and processing of offers.
5.8.1.6 (09-23-2008)
Taxpayer Advocate Service
1. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers in solving tax problems that have not been resolved through normal channels, or who are experiencing significant hardships. TAS employees may request expedite processing of an offer if they deem such action necessary. The Service Level Agreement (SLA) negotiated between TAS and Small Business/Self Employed (SBSE) describes when the request for expedited processing would be appropriate and provides instructions for processing the case between the TAS and SBSE functions.
2. When appropriate, TAS employees may issue Form 12412 to initiate the Operations Assistance Request (OAR) to initiate the OAR process. Upon receipt of an OAR, Collection management should:
• Follow the instructions for expedite processing and/or assignment of the offer, based on the reason for the request.
• Control the request and ensure a response is provided to the TAS office within requested time frames.
• Contact the TAS office and negotiate additional time if it is determined that the time frame cannot be met.
• Contact the TAS office and discuss the OAR issue with the TAS employee.
• Respond to the OAR indicating how the issue is being addressed or how the offer was closed, if appropriate.
3. TAS cannot issue a TAO requiring the Service to accept an offer or apply a value to an asset or expense item. However, TAS may issue a TAO requesting that an action be reconsidered or reviewed at a higher level.
5.8.1.7 (09-23-2008)
Liabilities to be Compromised
1. Offers accepted based DATC or ETA must include all unpaid tax liabilities and periods for which the taxpayer is liable.
Example:
If a taxpayer who submits an OIC for income tax liabilities is also responsible for employment taxes for a sole-proprietorship, both the income tax liabilities and the business liabilities must be included in the accepted offer.
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.
5.8.1.7.1 (09-23-2008)
Taxes, Penalties, and Interest Constitute One Liability
1. An OIC 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 which would be sufficient to set aside or reform a contract.
5.8.1.7.2 (09-23-2008)
Unassessed Liability
1. The Service will not consider an offer that is solely for a tax period or tax year that has not been assessed unless IDRS indicates a return has been received or an assessment is pending.
2. Taxpayers may submit, and the Service will consider, an offer to compromise taxes due on tax returns which have been filed but have not yet been assessed. However, before the offer can be accepted, the taxes must be assessed.
3. If IDRS does not indicate a return has been received, an assessment is pending, or unpaid liabilities already exist, the offer will be returned to the taxpayer.
5.8.1.7.3 (09-23-2008)
Expired Liability
1. A compromise will not be accepted on any tax liability which has become unenforceable due to the expiration of the statutory period for collecting the debt.
2. If a taxpayer desires to make a voluntary payment on a liability for which the statutory period for collection has expired, the payment should be accepted, but the taxpayer should be asked to sign a statement indicating that they are aware that collection of the tax is barred and that the payment will not be credited toward a specific liability. Attach the statement to the payment posting document and process the payment through normal remittance processing procedures. Do not treat these payments as offer payments, but should apply the payments to Excess Collections.
5.8.1.7.4 (09-23-2008)
Non-Tax Liability
1. IRC Section § 6305 requires the Secretary of the Treasury to assess and collect certain child support obligations certified by the Secretary of Health and Human Services. These liabilities are identified on the non-master file with a master file tax code of 59.
2. The Secretary of the Treasury is not authorized to compromise these liabilities. However, the individual may seek a 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.
5.8.1.8 (09-23-2008)
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 Section 7122. It does not apply to offers in settlement under the jurisdiction of the Department of Justice (DOJ).
5.8.1.9 (09-23-2008)
The Tax Increase Prevention and Reconciliation Act of 2005
1. On May 17, 2005 Congress passed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted on May 17, 2006, which made major changes to the offer in compromise (OIC) program. These changes become effective for all offers received by the IRS starting July 16, 2006.
2. Under the new law, taxpayers submitting requests for lump sum cash offers must include with the offer a payment equal to 20% of the offer amount. The payment is treated as a payment of tax and is nonrefundable. That is, it will not be returned even if the offer is deemed to be not processable, later returned or rejected. A lump sum cash offer means any offer of payments made in five or fewer installments.
3. Taxpayers submitting requests for periodic payment offers must include the first proposed installment payment with their application. A periodic payment offer is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by the IRS. All installment payments are nonrefundable, even if the Offer is deemed not processable, later returned or rejected.
4. Under the new law, taxpayers that qualify as low-income, based on current criteria, and submit a Form 656-A , will not have to submit the application fee or any TIPRA payment.
5. If the IRS cannot make a determination on an OIC within two years, then 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 calculating the two-year period. Once a determination letter is issued by the Offer Investigator, the 24 month time frame will be considered stopped. The 24 months does not include the time in Appeals.
6. OIC requests are submitted using Form 656, Offer in Compromise. The form 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 of $150 and the required TIPRA payment, depending on the type of offer, unless they qualify for the low-income exemption or are filing a doubt-as-to-liability offer.
5.8.1.10 (09-23-2008)
Form 656, Offer in Compromise
1. Taxpayers who wish to propose an OIC should submit Form 656, Offer in Compromise, using the most current version. Computer generated or photocopied versions of Form 656 are also acceptable provided they contain the following statement: "I/we affirm that this form is a verbatim duplicate of the official Form 656, and I/we agree to be bound by all terms and conditions set forth in the official Form 656."
2. Offers submitted on the basis of DATC or ETA should include a current version of the collection information statement. For offers based solely on DATL, no collection information statement is required. 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).
5.8.1.10.1 (09-23-2008)
Name and Address of Taxpayer
1. The full name, address, Social Security Number, Employer Identification Number, 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 address must be included as well.
5.8.1.10.2 (09-23-2008)
Basis for Compromise
1. Taxpayers must indicate the basis(es) upon which they propose to compromise; DATC, DATL, and/or to promote ETA.
5.8.1.10.3 (09-23-2008)
Amount Offered
1. The total amount of money offered must be indicated. The amount offered may not include money already paid, expected future refunds, funds attached by levy, or anticipated benefits from capital/net operating losses.
5.8.1.10.4 (09-23-2008)
Payment Terms
1. Taxpayers are expected to pay the entire amount offered in as short a time as possible. Acceptable offer terms should be determined by the Offer Investigator 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 three (3) types of payment terms that the Service and the taxpayer may agree to:
A. Lump Sum Cash — payable in five or fewer installments from notice of acceptance; must be accompanied by a payment of 20% of the offered amount.
B. Short Term Periodic Payment — payable in six or more installments within 2 years (24 months) from the IRS received date; must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer's proposed offer terms while the Service evaluates the offer.
Note:
If an amended offer is secured, the 24-month period begins the date the offer is accepted.
C. Deferred Periodic Payment — payable in six or more installments 25 or more months from the IRS received date, but within the time remaining on the statutory period for collection; must be accompanied with the first proposed installment, and additional installments must be paid in accordance with the taxpayer's proposed offer terms while the Service evaluates the offer.
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 trust fund should be posted using DPC 02.
5.8.1.10.5 (09-23-2008)
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 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 offer.
5.8.1.11 (09-23-2008)
Interest on the 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.
5.8.1.12 (09-23-2008)
Effect of Previous Offers on Collection Statute
1. Over the years various changes in the tax law has had an effect on the statutory collection period. See IRM 5.8.10, Special Case Processing, for additional guidance.
Exhibit 5.8.1-1 (09-23-2008)
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, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, 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).
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 I.R.C. § 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– Offer Investigator – a term referencing procedures that apply to either a tax examiner or revenue officer working offer in compromise 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.
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..

5.8.2 Offer Receipts
• 5.8.2.1 Overview
• 5.8.2.2 Initial Receipt of Offers
• 5.8.2.3 Form 656, Offer in Compromise
• 5.8.2.4 Signatures
• 5.8.2.5 Initial Processing of Offers in Centralized Offers in Compromise Sites
• 5.8.2.6 Emergency Processing
• 5.8.2.7 Processing Deposits Received With Offers
• 5.8.2.8 Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites
• 5.8.2.9 Interoffice Transfers
• 5.8.2.10 Powers of Attorney
• 5.8.2.11 Processing of Forms 4844 From Automated Collection Services, Toll Free, or Other Service Divisions
5.8.2.1 (09-23-2008)
Overview
1. Jurisdictional responsibility must be determined upon receipt of a taxpayer's proposal to compromise. This section provides instructions for initial case processing on new offers. It also provides directions for processing payments, powers of attorney, and emergency case processing.
5.8.2.2 (09-23-2008)
Initial Receipt of Offers
1. All initial offer receipts that are submitted based on Doubt as to Collectibility (DATC), Effective Tax Administration (ETA), or Doubt as to Liability (DATL) for either Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET) must be processed by the appropriate Centralized Offer In Compromise (COIC) site. Form 656 instructions advise taxpayers to send offers to the appropriate COIC site based on the taxpayer's state of residence.
A. If the taxpayer resides in Alaska, Alabama, Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin, or Wyoming, the offer will be processed by the Memphis COIC Unit
B. If the taxpayer resides in Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, West Virginia, or if they have a foreign address the offer will be processed by the Brookhaven COIC Unit.
2. DATL offers , other than those mentioned above, will be submitted on a Form 656-L and will be forwarded to the centralized DATL processing unit located at the Brookhaven campus for screening and processing. Forward the offer using Form 3210, Document Transmittal, to:
Internal Revenue Service
Centralized DATL Unit
PO Box 480 Stop 661
Holtsville, NY 11742-0480
The centralized DATL unit will utilize the full range of campus resources, including the Examination function, to resolve legitimate liability issues raised. If the campus classification function concludes that the issues involved require area office Examination function scrutiny, the centralized DATL unit will forward the offer to the area office Examination OIC coordinator
3. Offers that are received elsewhere by Service employees must be immediately date stamped and forwarded to their respective COIC site for processing within 24 hours of receipt. 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 and approved by the manager. 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
• ICS history sheets
• 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
• Form 656-A, Income Certification for Offer in Compromise Application Fee, if applicable
• Application fee and Lump Sum Cash (20%) or Initial Periodic Payment(s), if applicable
4. The above information should be transmitted to the appropriate COIC site using Form 3210, Document Transmittal, and must be sent by traceable methods if an application fee and/or payment is attached.
5.8.2.3 (09-23-2008)
Form 656, Offer in Compromise
1. Individuals or self-employed taxpayers filing a DATC or ETA offer should complete and attach the Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a Form 433-B, Collection Information Statement for Businesses, if the taxpayer is self-employed.
Note:
A 433-B may not be required if information provided by the taxpayer includes a current Profit and Loss statement and/or sufficient information to make a determination.
A. Two or more taxpayers who jointly owe the same liability (including spouses living separately or divorced) may submit a joint OIC on one Form 656 showing each name, address, and taxpayer identification number. However, separate offer forms (one for each person) may be submitted if the individuals deem it to be appropriate for their particular situation.
B. Taxpayers who owe both joint and individual liabilities must submit two offers.
Note:
These taxpayers should never be asked to submit three offers, even if they each owe separate and joint liabilities. There should only be as many offers as there are entities.

If… Then…
The taxpayers owe joint years and in addition one of the parties individually owes tax A. One Form 656 listing the joint tax periods (both parties must sign) and a 2nd Form 656 listing the tax periods owed by the individual (only the individual signs this offer), or
B. One Form 656 from the individual listing all periods owed, including the joint years and 2nd Form 656 from the other party listing all periods owed including the joint years (the individuals will sign their own Form 656).
The taxpayers each owe separate liabilities and together owe joint liabilities One offer from each taxpayer with each individual listing all taxes from all periods owed, including the joint and separate years owed, for a total of two offers. Each individual taxpayer must sign their own Form 656.
A taxpayer is solely responsible for a liability (e.g., employment taxes) and jointly responsible for another liability (e.g., income taxes) and only one person is submitting the offer Only one Form 656 is required, listing all of the liabilities.
Note:
See IRM 5.8.6, Collateral Agreements, for information concerning co-obligor agreements.
A taxpayer submits a joint offer for joint liabilities and also owes other liabilities (e.g., employment taxes, TFRP), either solely or jointly with other persons Separate offers must be submitted for each entity.
2. All other forms of business entities (partnerships, corporations, limited liability companies, etc.) should submit the Form 433-B, Collection Information Statement for Businesses.
Note:
A 433-B may not be required if information provided by the taxpayer includes a current Profit and Loss statement and/or sufficient information to make a determination.
3. Taxpayers who submit an offer to compromise individually owed tax and also have a substantial interest in an ongoing business may be required to submit a Form 433-B for that business.
4. When corporate offers are being considered, corporate officers, shareholders, or others determined to be responsible for a TFRP may be required to submit a Form 433-A. When partnership or LLC offers are being considered, the general partners and the LLC's owners may be required to submit a Form 433-A as well.
5. In conjunction with an acceptance letter, Form 656 constitutes a binding agreement between the government and the taxpayer.
5.8.2.3.1 (09-23-2008)
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. If an offer is accepted that has TFRP assessments, the case file must include information identifying the BMF periods that comprised the TFRP assessment.
2. A taxpayer may submit an offer that does not include all outstanding liabilities. Prior to accepting the offer, the Form 656 should be amended to include all outstanding tax liabilities.
3. An offer submitted on Form 656-L, under DATL criteria, will be accepted for only the tax periods that are in question.
5.8.2.3.2 (09-23-2008)
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 special circumstances exist, the taxpayer should explain the situation under Item 9 of the Form 656 (or attach a separate statement) and include all supporting documents to assist in verification of the special circumstance that is being claimed.
5.8.2.4 (09-23-2008)
Signatures
1. Each taxpayer that is party to an OIC should personally sign the Form 656. When unusual circumstances prevent this (e.g. the taxpayer is incapacitated), an authorized representative may sign for the taxpayer.
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 CFINQ print as verification of the representative's authority.
Note:
Geographical distances between the representative and the taxpayer is not an acceptable reason for a representative to sign on the taxpayer's behalf.
2. Since the CIS requires certification under penalty of perjury, the taxpayer(s) must personally sign the Form 433-A and/or 433-B.
3. In the case of joint OIC's, all parties, or their designated representative as explained in paragraph (1) above, must sign the Form 656 to ensure the provisions of the agreement bind all parties.
4. Offers submitted for corporations should reflect the corporate name on the first signature line. The signature name and title of the authorized officer should be reflected on the second line.
5. 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.
6. 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.
5.8.2.5 (09-23-2008)
Initial Processing of Offers in Centralized Offers in Compromise Sites
1. When an offer is received in the COIC site, an employee will:
A. Date stamp the form upon receipt in the "IRS Received Date Stamp" block of Form 656, and create separate offer sorts, as follows:
• Form 656 with check(s) for more than $150
• Form 656 with check for $150 only and no waiver
• Form 656 with waiver and a check for more than the $150 application fee
• Form 656 with check for $150 and a waiver
• Form 656 with waiver only
• Appeals Collection Due Process (CDP) offers, with checks
• Out of Area Transfers, with checks
• DATL (Form 656-L ), with checks
B. Verify the case is the type of offer that is processed by the COIC site and if not, immediately route it to the proper jurisdiction.
C. If the offer is the responsibility of the Collection function, query IDRS to ensure the receipt is a new offer.
D. If the offer is the responsibility of the Collection function, add the offer to the AOIC data base as a "U" case (except for Appeals CDP and DATL offers).
E. The following fields should be completed on the AOIC record:
• Screen 1 — complete the IDRS TIN, OFFER TIN, and DATE RECEIVED fields.
• Y-Entity screen — complete the name control field, the complete name and address of the taxpayer(s) as reflected on the Form 656, Offer in Compromise.
• Write the AOIC offer number on the top right corner of Form 656, Offer in Compromise, in "red ink."
• Write the AOIC offer number in blue or black ink in the upper left hand corner of the remittance.
F. Upon receipt, COIC will prepare the Form 13479, COIC Remittance Tracking Report. See IRM 5.8.3.5, Processing Application Fees and Offer Payments/and Deposits, for instructions on preparation and processing.
G. Use one line on the report for each remittance. One offer may have more than one line completed on Form 13479, COIC Remittance Application Fee Tracking Report, if accompanied by multiple remittances.
Note:
Do not put more than 5 offers on one Form 13479.
H. Enter the IRS received date of the offer and remittance amount. Each Form 13479, COIC Remittance Tracking Report, must list the offers received on the same date.
I. For those offers loaded on AOIC, write the offer number on the upper left hand corner of the remittance(s) and in the "Offer #" column on the Form 13479, COIC Remittance Tracking Report.
J. For all offers received with remittances:
• Complete the "SSN/EIN" , "Name Control" , "Check Amount" , "Check No." , and "Check Type" (e.g., money order, bank check, government check, personal check, etc.) columns.
• Attach all remittances to the front of Form 13479. Secure acknowledgement of receipt of the Form 13479 and the checks by Receipt and Control/Payment Perfection Unit (PPU) by obtaining their initials in the column marked "Campus Support Initials."
• Secure the remittances to Form 13479 and release to PPU after they have acknowledged receipt.
• Retain Parts 2 and 3 of the Form 13479 with the batch of offers and forward for assignment to the PE.
K. Review submitted documents for an emergency processing request (i.e. "Please Rush" , "Urgent Matter" , etc.). See IRM 5.8.2.6, Emergency Processing, for these requests.
5.8.2.6 (09-23-2008)
Emergency Processing
1. Taxpayers may occasionally request that their offer be expedited due to an emergency or perceived emergency situation. Situations that may warrant expedited case processing include:
• A contract or business agreement requiring the taxpayer, as a condition of the contract or agreement, to resolve the tax liability by a specific date.
• Availability of the money to fund the offer is limited to a certain time.
• A terminal illness may affect the ability to complete the payment terms.
2. Offers received with a request for expedited processing should be referred to management for a decision on whether or not expedited treatment is warranted.
3. If a decision is made to expedite offer processing, the manager should document the AOIC history, indicating the basis for the decision. The Form 656 should be clearly labeled at the top "Emergency Processing Requested," and an immediate processability determination and assignment for investigation should be made. Every effort should be made to close the offer within 90 calendar days of receipt. In an attempt to bring the case to a prompt and timely resolution and to meet the special needs of the taxpayer, immediate contact should be made with the taxpayer to request any additional information needed.
4. If a decision is made not to expedite the case, the manager should document the basis for the decision on the AOIC history. Contact the taxpayer by telephone or correspondence explaining the basis for the decision. The case should be worked under routine processing.
5.8.2.7 (09-23-2008)
Processing Deposits Received With Offers
1. Deposits submitted with an offer to compromise a liability or during the pendency of an OIC will not be applied to the liability until the offer is accepted unless the taxpayer provides written authorization for application of the payments. The partial payments required under TIPRA are not deposits, but rather nonrefundable payments of tax. Voluntary payments submitted in connection with an offer to the extent they exceed the required initial payment, will be applied as payments of tax unless designated as a deposit by the taxpayer on the Form 656.
2. Deposits are defined as payments of part or all of the offered amount submitted prior to acceptance. Offers do not require deposits, but deposits can be made with new offers or any time while an OIC is being considered. .
3. Although deposits are voluntary payments and generally not required, a deposit may be required when considering a compromise of an accepted offer as discussed in IRM 5.8.9.3, Potential Default Cases
4. Deposits are not treated as payments of tax upon receipt. Rather, they are held in a special deposit fund commonly referred to as the "4710 Account." The deposit is not reflected on IDRS nor applied to any specific tax period until the offer is accepted. For those offers previously loaded on AOIC, the amount will be annotated on the Deposit Screen of the taxpayers AOIC record by the MOIC employee processing the remittance.
5. COIC sites will treat any remittance (including those for $150) received with DATL offers (non-TFRP/PLET) as a deposit. Since such offers are not loaded onto AOIC, and will be manually monitored by MOIC. Employees should list any such remittances on the Form 13479 and prepare the Form 2515 for processing. Utilize the RACS deposit numbering system provided by MOIC to generate and enter a 10-digit control number on both the Forms 13479 and 2515.
Note:
A PDF fillable version of the Form 2515 is accessible on the IRS Intranet.
6. During the course of an investigation an OI must process any payment received on a pending offer within 24 hours of receipt. The employee who receives the payment will:
A. Prepare Form 13479
B. Generate Form 2515 from AOIC (make one copy or print 2 copies).
C. Complete form(s) and attach the payment(s)
D. Forward the Form 13479, Form 2515, and remittance to Payment Check Conversion (PCC) for deposit
E. Forward a copy of the Form 2515 to MOIC. Attach the Form 3210
F. Attach Form 3210, Document Transmittal, and include the following information:
• Offer number
• Taxpayer's ID number and name
• Amount of the payment
• Transmit the payment by traceable methods to the appropriate MOIC unit for processing.
5.8.2.8 (09-23-2008)
Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites
1. Once the COIC sites have loaded the offer to AOIC and completed initial processing, pending offers in the following categories will be transferred to the appropriate Area office to be worked in a field group, except for those self-employed taxpayers meeting the criteria listed in paragraph 3 below.
• Corporations
• Partnerships
• Estates and trusts
• Currently incarcerated taxpayers
• Trust Fund Recovery Penalty (TFRP) - Doubt as to Liability (DATL)
• Any business with employees
• Closely held corporations
• Limited Liability Partnership (LLP) and Limited Liability Company (LLC)
• Partners in a partnership which serves as a primary source of income
• Sole proprietors with gross receipts over $500,000
• Out of business companies
2. Prior to the transfer of self-employed cases to an Area office, COIC will:
• Send the taxpayer the AOIC Combination letter using "Option A"
• Include the following in-house research in the case file:
C. Accurint
D. Basis 100, if real estate ownership is indicated on the CIS.
E. Copy of the NFTL, if notice of filing is on the Automated Lien System (ALS).
3. Only those self-employed taxpayers meeting the following criteria, will be retained and processed in the COIC sites:
• Offers that meet the criteria for "Screen for Obvious Full Pay" processing.
• Offers requiring issuance of "Option-Y" on the AOIC Combination letter to secure an additional Form 656, required initial payment and application fee or Form 656-A. See IRM 5.8.3.7, Forms 656 Application Fee Requirements TIPRA Payments and Perfection, for additional information on when it is appropriate to secure an additional Form 656, application fee, and required initial payment. COIC sites will also include all applicable case-building and perfection paragraphs in the Combination letter.
Note:
Cases meeting field criteria, but needing multiple offers, will be perfected in the COIC sites and will be shipped to the field immediately upon receipt of the taxpayers response is received. The site will not determine if the taxpayer substantively replied to the request for information. If no reply is received, the site will close the offer as a processable return.
• Previously self-employed but currently unemployed.
• Self-employed taxpayers with gross receipts of $500,000 and no employees.
4. All offers forwarded to Area offices for investigation will be sent to a central point designated by the Area office. Prior to transferring a case to an Area office, COIC will send the taxpayer an AOIC transfer letter. Within five (5) business days of receipt of the offer case file from the COIC site, the Area office will:
• Acknowledge receipt of the offer file(s) by signing and returning the acknowledgement copy of Form 3210, Document Transmittal.
• Accept transfer of the offer record on AOIC
• Determine the destination of the offer assignment and reassign the offer to the appropriate offer group on AOIC.
• Send the offer file to the appropriate group manager for assignment.
5. If assignment to an offer specialist does not or will not take place within 45 days of the transfer from COIC to the Area office, the Area office will:
• Contact the taxpayer (verbally or in writing) and advise of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the ICS history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.
• The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group.
•
The date COIC transferred the case on AOIC will be used as the start date for the 45 day calculation.
6. Within five business days of receipt of the offer case file from the COIC site, the Area office will:
• Acknowledge receipt of the offer file(s) by signing and returning the acknowledgement copy of Form 3210, Document Transmittal.
• Accept transfer of the offer record on AOIC.
• Determine the destination of the offer assignment and reassign the offer to the appropriate offer group on AOIC.
• Send the offer file to the appropriate group manager for assignment.
• Send a letter to the taxpayer providing the address of the office that will handle the investigation including a name and phone number of a contact person and an anticipated date of assignment to an offer investigator, if available. The AOIC Transfer Letter may be used for this purpose.
5.8.2.9 (09-23-2008)
Interoffice Transfers
1. Offer cases may be transferred from one office or site to another if:
• the taxpayer relocated,
• the case was originally received in the wrong jurisdiction, or
• the work has been realigned.
2. Misdirected offers without remittances should be transferred from one COIC site to another while in "U" (undetermined) status, before a processability determination is made.
3. Misdirected offers with remittances will be reviewed by the COIC sites for processability determinations.
• If the offer is not processable, the receiving site will return the offer and follow procedures outlined in IRM 5.8.3.4, Processability.
• If processable, the receiving COIC site will make the appropriate AOIC entries and process the remittances in accordance to IRM 5.8.3.5, Processing Application Fees.
• Transfer the offer to the appropriate COIC site based on the location of the taxpayer's place of residence. The receiving COIC site will be responsible for completing the "Screen for Obvious Full Pay," case building, and/or issuance of the Combo letter.
4. Misdirected offers received and determined to be under the jurisdiction of Appeals, as a result of a CDP hearing, will not be transferred between COIC sites. Follow the procedures outlined in IRM 5.8.3.4.2, Determining Processability for Appeals Collection Due Process Offers.
5. Transfers from one office or COIC site to another should be made if the taxpayer relocates and either the investigation has not been started or there is a substantial change in circumstances. Transfer letters should be generated and sent to the taxpayer by the transferring office or COIC site.
6. To transfer cases, the transferring office should take the following steps:
• Document the history with the taxpayer's new address and the location of the receiving office.
• Correct the address on the Y-Entity screen on AOIC.
• Prepare and mail the AOIC transfer letter.
• Transfer the case on AOIC (press (C)ontrol and (T)ransfer and input the correct area office code).
• Prepare the Form 3210, Document Transmittal, and mail the case by traceable mail to the receiving office.
5.8.2.10 (09-23-2008)
Powers of Attorney
1. Taxpayers who wish to be represented must submit a properly executed Form 2848, Power of Attorney and Declaration of Representative. Input the representative's information on AOIC and retain a copy of the form in the paper case file. Forward the original for recording on the Centralized Authorization File (CAF).
2. Send all original correspondence to the taxpayer and provide a copy to the representative unless the taxpayer has indicated otherwise by checking item b on line 7 of Form 2848.
3. Individuals who are not entitled to practice before the IRS with respect to a collection matter (such as unenrolled return preparers) may accompany taxpayers to meetings with a completed Form 8821, Taxpayer Information Authorization, or other proper authorization, and receive and provide information that relates to the offer investigation. They are not authorized to represent the taxpayers or sign documents relating to offers in compromise.
4. If the Form 2848 does not include liabilities that are included on the offer, a letter cannot be sent to the representative covering these periods. Instead, send a redacted letter to the representative. The letter sent to the taxpayer can request completion of a Form 8821 or a Form 2848 to cover the missing periods.
5.8.2.10.1 (09-23-2008)
Third Party Authorization Requests
1. Attorneys, Certified Public Accountants (CPA), enrolled agents, or enrolled actuaries are generally the only practitioners authorized to represent taxpayers before the IRS on collection matters.
Note:
An "unenrolled" return preparer is an individual, other than an attorney, CPA, enrolled agent, or enrolled actuary, who prepares and signs a taxpayers return as a preparer, or who prepared a return but is not required to sign the return. An unenrolled return preparer cannot represent a taxpayer before the IRS on any collection matter. An unenrolled return preparer, however, may represent a taxpayer before the IRS in certain other limited situations. See IRM 5.1.10.5.2, Right to Representation.
2. During the course of the investigation, a taxpayer may submit a Form 2848 designating a third-party as their representative or power of attorney, or the taxpayer may submit a Form 8821 designating an appointee or may complete item 14 on the Form 656, Offer in Compromise, for a "Third Party Designee" . When properly completed and filed by the taxpayer, each of these documents should be recognized during an investigation, and interaction with the third party should be governed by the parameters allowed within each of these authorization forms.
• Form 2848 — authorizes an eligible individual (e.g. attorney, CPA, enrolled agent, or enrolled actuary) to represent as well as receive confidential information.
• Form 8821 and item 14 on the Form 656.
3. The table below provides guidance to assist in distinguishing the differences between the Form 2848, Form 8821, and item 14 on the Form 656.
Type of Form Designee may be individual or entity Designee can inspect limited tax info. Designee may receive limited written info. Designee can represent TP on collection matters Designee can execute waivers, consents, etc. TP can designate more than one individual/ entity on the form Designee may redelegate to another individual or entity Unenrolled return preparer can be designated
Form 8821 Either Yes Yes No No Yes No Yes
Form 656, item 14 Individual Only Yes No No No No No Yes
Form 2848 Individual Only Yes Yes Yes Yes Yes Yes (Individuals Only) Yes (but only for non-collection matters)
5.8.2.10.1.1 (09-23-2008)
Form 8821, Tax Information Authorization (Rev. 4/2004)
1. If Form 8821 is missing critical information that can only be provided by the taxpayer (e.g., tax years, type of tax, missing taxpayer signature, date) it will be returned to the taxpayer.
2. Information that may be disclosed to the designee is limited to the type of tax, tax form number, tax years or periods, or specific tax matter that is listed on Form 8821, item 3.
3. If Form 8821, item 5a is checked, the designee is also entitled to receive copies of tax information, notices, and other written communication on an ongoing basis for the type of tax, tax form number, tax years, or specific tax matter listed under item 3.
4. The designee is not authorized to respond to any type of correspondence on behalf of the taxpayer if the response advocates a position that would indicate that the designee is taking on a representational role.
5. Mail the original Form 8821 to the appropriate Centralized Authorization File (CAF) campus in Memphis, Ogden, or Philadelphia (International), depending on the taxpayer's state of residence.
6. Form 8821 may also be faxed. Refer to page 2 of Form 8821 for detailed fax information and location. If the form is faxed, retain the original in the case file. Document the history to indicate the date and campus to which the form was sent.
5.8.2.10.1.2 (09-23-2008)
Form 656, Offer in Compromise, item 14: Third Party Designee (Rev. 7/2004)
1. The information and/or documentation that may be disclosed to the designee is limited only to information and/or documentation necessary to process an offer.
2. Information may include tax liabilities omitted on the Form 656, item 5, or unfiled tax returns affecting the acceptance of the offer.
5.8.2.10.1.3 (09-23-2008)
Form 2848, Power of Attorney and Declaration of Representative (Rev. 3/2004)
1. As of March 2004, the IRS will not honor a Form 2848 if it designates a representative who is not authorized to practice. Further, the form will not be treated as a Taxpayer Information Authorization. Form 8821 is required to allow those individuals, who cannot practice before Collection personnel, access to tax information beyond what would be allowed if they checked Form 656.
2. Taxpayers may authorize a student who works in a Low Income Taxpayer Clinic (LITC) or Student Tax Clinic Program (STCP) to represent them under a special order issued by the Office of Professional Responsibility (OPR). A copy of the letter from OPR authorizing practice before the IRS must be attached to the Form 2848. Students who have been authorized to practice by a special order may, subject to any limitations set forth in the letter from OPR, represent taxpayers before any IRS office and should be treated the same as any other taxpayer representative designated on the Form 2848.
3. The power to sign the taxpayer's tax returns can be granted only in limited situations. Refer to the Form 2848 and Treasury Regulations §§ 1.6012–1(a)(5) and 1.6061-1(a) for additional information.
4. If a joint return has been filed, one or both spouses may choose to be represented by a POA. If both spouses choose to be represented by the same individual(s), both the husband and wife are required to sign the Form 2848. If, however, the spouses choose different individuals to represent them, each spouse must submit a separate Form 2848 listing their independent representative. If only one spouse is to be represented, only the one that will be represented is required to sign the Form 2848. Regardless, any authorized representative of either souse is allowed access to tax information related to the joint tax return.
5. Mail or fax the Form 2848 to the appropriate Centralized Authorization File (CAF) campus in Memphis, Ogden, or Philadelphia (International) depending on the taxpayer's state of residence. Refer to the Instructions on the Form 2848 for address locations and fax numbers. If the Form 2848 is faxed, retain the original in the case file. Document the case to indicate the date and campus to which the form was sent.
5.8.2.11 (09-23-2008)
Processing of Forms 4844 From Automated Collection Services, Toll Free, or Other Service Divisions
1. Form 4844, Request for Terminal Action, will be prepared by Automated Collection System (ACS), Toll Free, and Walk-in operations to provide information submitted by the taxpayer on a previously filed offer in compromise. Normally, these forms will be prepared if the offer was submitted for processing more than 45 calendar days and the taxpayer has yet to be contacted or notified of the status of the offer.
2. Form 4844 will be faxed to the appropriate COIC sites. The forms should be reviewed within 48 hours of receipt and any necessary action taken on the account based on the information provided.
5.8.3 Processability
• 5.8.3.1 Overview
• 5.8.3.2 Routing Cases Based on Jurisdictional Responsibility
• 5.8.3.3 Combined Application Fee Payment Processing
• 5.8.3.4 Processability
• 5.8.3.5 Processing Application Fees and Offer Payments/Deposits
• 5.8.3.6 Dishonored Payments
• 5.8.3.7 Form 656 Application Fee, TIPRA Payments, and Perfection
• 5.8.3.8 Centralized Offers in Compromise Processability Determinations
• 5.8.3.9 Not Processable
• 5.8.3.10 Processable
• 5.8.3.11 Types of Perfection
• 5.8.3.12 Screen For Obvious Full Pay Processing (Centralized Offer in Compromise Only)
• 5.8.3.13 Centralized Offer in Compromise Case Building and Perfection Procedures
• 5.8.3.14 Centralized Offer in Compromise Internal Verification Research
• 5.8.3.15 Processing Taxpayer Responses to Combo Letters
• 5.8.3.16 Analyzing Taxpayer Responses to Combo or Additional Information Letters
• 5.8.3.17 "No Reply" Procedures
• 5.8.3.18 Withholding Collection
• 5.8.3.19 Offers Submitted Solely to Delay Collection
• Exhibit 5.8.3-1 COIC Remittance Tracking Report
5.8.3.1 (09-23-2008)
Overview
1. All offer receipts other than those based solely upon DATL are reviewed to determine if they are processable. No application fee or TIPRA payment is due with the submission of DATL offers, including DATL offers to compromise a TFRP or PLET. Processable offers are then "built" (i.e., internal and external information is secured to verify financial information), and perfected, if necessary, before being assigned for investigation. "not processable" offers are returned to taxpayers. This chapter explains the procedures to be followed for determining jurisdictional responsibility, processability, and case building.
5.8.3.2 (09-23-2008)
Routing Cases Based on Jurisdictional Responsibility
1. The following table provides guidance when it has been determined that Collection does not have jurisdictional responsibility:
If responsibility lies with… Then…
Department of Justice (DOJ) Contact Area Counsel to determine the status of the pending bankruptcy or litigation and whether Collection has jurisdiction to process the offer. If the DOJ requests the offer be sent directly to them, delete the offer from the AOIC system and forward the case to the DOJ.
Examination Send the offer directly to the centralized DATL processing unit located at the Brookhaven campus. No fee is required for these offers. Do not open a record on the AOIC system. If the record was inadvertently loaded to AOIC, delete the record.
Appeals Determine processability, complete the AOIC "Appeals Fee Screen" and follow the established Appeals application fee and payment procedures.
5.8.3.3 (09-23-2008)
Combined Application Fee Payment Processing
1. Multiple offers submitted with one remittance intended as the application fee(s) and/or payment(s) for all will be processed. Load the cases to the Automated Offers in Compromise (AOIC) system. Prepare the AOIC Combo Letter with the "Y" paragraph. If the taxpayer fails to respond to the request, return the offer.
5.8.3.4 (09-23-2008)
Processability
1. COIC PE's are responsible for determining processability of all offers received and worked by the Service, including DATL offers to compromise a TFRP or PLET. All other DATL offers are processed by the Centralized DATL Unit. See IRM 5.8.2.2. This determination must be made within 14 calendar days of receipt of an OIC at the appropriate COIC site.
2. Each new receipt will fall into one of the following categories:
• Not processable – The taxpayer does not meet one or more of the minimum established criteria for offer consideration.
• Processable – The taxpayer meets the minimum criteria for offer consideration.
5.8.3.4.1 (09-23-2008)
Determining Processability
1. An OIC will be deemed not processable if one or more of the following criteria are present:
A. Taxpayer in Bankruptcy – An offer will not be considered while a taxpayer is in bankruptcy. See IRM 5.8.10.2, Bankruptcy.
B. Taxpayer did not submit the application fee with the offer – The application fee of $150 or the signed Form 656-A, Income Certification for Offer in Compromise Application Fee, must be submitted with each Form 656.
Note:
No application fee or TIPRA payment is required for offers filed solely based on DATL.
C. Taxpayer did not submit the required initial payment with the offer – If the taxpayer fails to submit either of the following, the offer will be returned as not processable.
2. Lump Sum Cash offers must include 20% of the offered amount or a signed Form 656-A.
Note:
If the taxpayer submits the $150 application fee and a portion (but not all) of the required initial lump sum payment, the offer will be deemed processable, but not perfected.
3. Short Term and Deferred Periodic Payment offers must include initial proposed installment payment must be submitted with the offer or a signed Form 656-A.
4. The Form 656-A applies only to individual taxpayers.
5.8.3.4.2 (09-23-2008)
Offers Submitted Solely for Unassessed Liability(s)
1. An unassessed liability is a liability where no assessment has been made. These procedures do not apply to unassessed Examination or Automated Underreporter cases. Follow procedures in IRM 5.8.4.12.
2. If an offer is received that is solely for unassessed periods, COIC will determine processability following procedures in IRM 5.8.3.4.1.
If… Then…
The offer is not processable Return the offer following procedures in IRM 5.8.3.9
The offer is processable, research IDRS for the return(s), and if IDRS indicates the return has been received, but has not posted 1. Continue working the offer
2. Post the payments to the taxpayers account using Form 2515 with a TC 670 using one of the following DPCs: DPC 33 (Offer in Compromise $150 application fee); DPC 34 (Offer in Compromise 20% lump sum/initial periodic payment); DPC 35 (Offer in Compromise subsequent payments made during the offer investigation)
3. Request input of a TC 570 with $".00" , to allow the payment to post to the taxpayers account, before the assessment.
The offer is processable, and IDRS does not indicate the return has been received 4. Return the offer as a processable return following procedures in IRM 5.8.7.2.2
5. Do not return the application fee
6. Return the TIPRA payment(s), and any deposit. Because we do not have an assessment, we must return any TIPRA payment(s), or deposits.
7. Post the application fee to the 2395 Account only.
8. Generate the Return Letter on AOIC using paragraph "T."
9. Notate the Form 2424 with the following comment:"offer submitted for an unassessed liability"
5.8.3.4.3 (09-23-2008)
Determining Processability for Appeals Collection Due Process Offers
1. If Collection files a lien while an offer is being investigated; complete the investigation. If the taxpayer files a CDP request because of that lien and the CDP remains open, the offer falls under the jurisdiction of Appeals. Collection cannot work any offer that has an open CDP case. If the case falls under the jurisdiction of Appeals, forward the entire case to Appeals and delete the offer from AOIC.
Note:
Appeals may require Collection's assistance to complete the investigation on complex cases. In those cases, an Appeal Referral Investigation (ARI) may be issued to the field.
2. COIC will apply the same processability criteria as outlined in IRM 5.8.3.4.1, Determining Processablity, but do not load these offers on the AOIC.
3. CDP offers must be received with the required remittances to meet the basic processability criteria and processing guidelines as outlined in IRM 5.8.3.5, Processing Application Fees and Offer Payments/Deposits. These offers will not be controlled on AOIC and will require special handling as follows:
• Payments made on offers not controlled by the AOIC program must be processed manually using a specially designed RACS numbering scheme.
• A manual Form 2515 must be prepared on CDP offers. Include all taxpayer entity information, including the TIN.
4. The following numbering scheme should be used in place of the offer number on the Form 13479 and Form 2515:
• The first two digits should be 17 (Memphis COIC) or 18 (Brookhaven COIC), as appropriate.
• The third digit should designate the type of offer (i.e., 1 – for Appeals; 2 – for Exam/DATL; 3 – for DOJ; and 4 – for CI).
• The fourth and fifth digits should be the area office (i.e., Appeals AO) where you are sending the case.
• The six and seventh digits should be the year.
• The remaining three digits should be the sequence #.
• Assign one RACS number per offer. Up to 5 offers may be listed on each Form 13479.
• Maintain a log of manually assigned RACS numbers.
• Send a copy of the Form 2515 to MOIC for back-end monitoring.
5. The RACs number should be 10 digits.
Example:
1714806123
6. The payment date on the Form 2515 must be the IRS received date.
7. Appeals will provide COIC with both processable and not processable determination letters containing all necessary information, including the Appeals contact information on Form 3210. Appeals will provide two copies of Form 3210. One copy is for COIC clerical filing and the other copy will remain with Form 656 and related documents. It is the responsibility of COIC to sign, date, and mail the applicable letter based on the processability determination.
If... Then...
The offer is not processable and a remittance was attached 1. Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with the procedures in IRM 5.8.3.5.
2. Fax a copy of the not processable letter to the Appeals employee. The Appeals employee name and fax number should be noted on the Form 3210. Also, include a copy of the 2515 showing the designation of the monies received with the offer; noncompliance issues; if additional forms and fees are required.
Note:
The Form 3210 should remain with the case until a processability determination has been made. A copy should be retained by the Clerical staff in Appeals.
The offer is not processable and no remittance was attached Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with procedures in IRM 5.8.3.5, Processing Application Fees, Offer Payments and Deposits.
If the offer is processable and a remittance is attached 3. Access the Appeals Fee Screen application of AOIC and input the fee and payment data.
4. Input the Appeals employee information noted on the Form 3210 and the Appeals Fee Screen history.
5. Document the payment type, application of the funds, and taxpayer designation, if any, on the Form 3210.
6. Write the RACS number on the upper left corner of the Remittance.
7. Prepare the Form 13479 in accordance with IRM 5.8.3.5.1
8. Mail the processability letter to the taxpayer.
9. Send a copy of the letter and the original offer package to the Appeals employee designated on the Form 3210. The Appeals employee name and fax number should be noted on the Form 3210.
Note:
The Form 3210 should remain with the case until the processability determination has been made. A copy should be retained by the Clerical staff in Appeals.
If the offer is processable and the taxpayer submitted and qualified for the Form 656-A 10. Mail the processability letter to the taxpayer.
11. Send a copy of the letter and the offer package to the designated Appeals employee on Form 3210. The Appeals employee name and fax number should be noted on the Form 3210.
8. When an offer is received in conjunction with a CDP and is deemed to be processable, the COIC site will input the TC 480 on all related tax periods. This includes the input of a TC 480 on all balance due periods not specifically listed on the Form 656. If the module is an MFT 31, request input of TC 470 with Closing Code (CC) 90 to suspend collection activity. It will be the responsibility of Appeals to perfect the offer document.
9. COIC will advise the Appeals/Settlement Officer when it is necessary for the Appeals employee to secure additional Form(s) 656, application fee(s), and/or required initial payments prior to the investigation by generating the letter identifying "Option Y" criteria. See IRM 5.8.3.7, Form 656 Application Fee, TIPRA Payments and Perfection, for examples of these situations. The COIC site will prepare Form 3210 for transmittal of the processable offer back to Appeals. The Form 3210 will include the following information:
• List the specific periods with the TC 480
• Identify an "Option Y" condition
• Copy of 2515 (showing the designation of money; i.e., fee, periodic payment received, 20% or partial payment of 20%)
• Non-compliance issues
• Additional forms, fees, and/or payments
10. It will be the responsibility of Appeals to resolve each TC 480 (e.g. input of TC 481, 482, 483) after Appeals concludes the offer investigation. The Form 2515 should show the IRS received date for the date of the payment.
If… Then…
It is determined that the case is under Appeals jurisdiction and the CDP condition is identified while the offer is being processed through COIC • The COIC site CDP coordinator will advise the AO/SO of the processability determination.
• The AO/SO will generate and transmit via encrypted E-mail to the COIC site CDP coordinator the appropriate appeals processable and not processable letters.
• The COIC site will delete the offer record from AOIC and load the fee information to the Appeals application fee screen of AOIC.
• The COIC site will follow the procedures in IRM 5.8.3.4.2(2) (above) to process the letter and application fee.
• COIC will change the offer number on the Form 13479, COIC Application Fee Tracking Report, to the Appeals RACS number.
It is determined the case is under Appeals jurisdiction but the CDP condition is identified after the offer has been deemed processable and moved to a workable inventory COIC will:
• Delete the offer record from AOIC.
• Load the information to the Appeals application fee screen.
Note:
The application fee and initial offer payment should have already been applied at this juncture.
11. Offers submitted directly to the Compliance employee, are occasionally identified as having an open CDP control. When this occurs, the COIC site CDP coordinator will research the Appeals Centralized database System (ACDS) to determine if the CDP is still open, and if a determination letter has been issued.
12. If the CDP determination letter has not been issued or a withdrawal has not been signed and dated, the offer is considered to still be open and under the jurisdiction of Appeals.
5.8.3.4.4 (09-23-2008)
Exception Processing for Offers in Compromise Investigations Involving Taxpayers in Combat Zones
1. The following procedures are instructions on handling those taxpayers identified as being located in a Combat Zone (CZ) area. This determination should be based on correspondence, case history entries, or telephone contact.
2. Section 7508 postpones the time for performance of certain time-sensitive acts for the period of time that an individual serves in one of the three situations described below, plus the period of continuous qualified hospitalization attributable to an injury received while serving in one of these situations, plus the next 180 days:
• Individuals serving in the Armed Forces in an area designated by the President of the United States as a CZ for purposes of section 112, or serving in support of such forces, including individuals serving in an area certified by the Department of Defense as being in direct support of military operations in a CZ, for which the person receives special pay for duty subject to hostile fire or imminent danger;
• Individuals deployed outside the U.S. away from the individual’s permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation (as defined in 10 U.S.C. § 101 (a) (13); or
• Individuals serving in the Armed Forces in a qualified hazardous duty area.
3. Offers that are received and deemed not processable due to the application of section 7508 relief should be worked following standard procedures. If any of the following situations exist, exception processing should be followed:
• Offers that are received and deemed processable
• Offers in which a Combo Letter was issued and CZ notification for section 7508 relief due to one of the above-described situations is received after the letter was issued
• Offers in which a determination was made to accept, return, or reject the offer
• Offers in which a return or rejection letter was issued prior to notification for section 7508 relief due to one of the above-described situations
4. For all of the offer situations identified in paragraph (3) above, the following actions should be taken:
• Prepare the Form 3244 or 4844 requesting input of TC 500 CC 56 on the taxpayer's account. Use the current date for the incoming call or the IRS received date for the correspondence. The case should be suspended for 120 calendar days without taking any further action and should be reassigned on AOIC to a designated or locally designated assignment number. Management should utilize the AOIC Follow-up Screen to monitor the progress on the case until the TC 500 is reversed.
• The offer investigation may continue if there is a POA, or in the case of a joint offer, the spouse is able and willing to provide all substantiation.
5.8.3.5 (09-23-2008)
Processing Application Fees and Offer Payments/Deposits
1. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law on May 17, 2006. The new law changed the rules for the submission of OIC.
2. The law stipulates that OIC's received on or after July 16, 2006 must include the application fee, and based on the offer terms, one of the following:
1. Lump Sum Cash Offers – The submission of any lump-sum OIC should be accompanied by 20 % of the amount of the offer or a 656-A. The term "lump sum" means any offer of payments made in 5 or fewer installments.
If… Then…
A taxpayer submits a Lump Sum Cash offer and the terms are a single amount payable in 5 months or less Load the offer on the Terms Screen as a "Cash" offer
The taxpayer submits a Lump Sum Cash offer and the terms are a single amount payable in more than 5 months Load the offer on AOIC Terms Screen as a "Deferred" offer
2. Short Term and Deferred Periodic Payment Offers – The submission of any periodic payment OIC should be accompanied by the amount of the first proposed installment or a 656-A.
Short Term Periodic Payment Offers Deferred Periodic Payment Offers
If…
The taxpayer submitted an offer payable in 6 to 24 months If…
The taxpayer submitted an offer payable in the remaining time on the statutory period for collection
Then…
Load the offer on AOIC "Terms Screen" as a deferred offer Then…
Load the offer on AOIC "Terms Screen" as a deferred offer
3. Document the terms of the offer on the AOIC Terms Screen.
4. If the taxpayer submits both the application fee and the required initial TIPRA payment (20 % or first installment) in one check, the $150 Application Fee will be entered first and the remainder will be applied as the payment amount. A decision concerning whether the submitted payment complies with the offer terms will not be made until a processability determination has been completed.
5. Insufficient remittance of the required initial lump sum cash payment (20% of the offer amount) will be considered a perfection issue.
6. Insufficient periodic payments will render the offer not processable and the offer will be returned to the taxpayer. Processing procedures are addressed in IRM 5.8.3.11, Types of Perfection.
7. The required initial TIPRA payment (20% or periodic payment) will be applied to the taxpayer’s liability in all instances. These monies are not refundable to the taxpayer.
8. Taxpayers may designate how these payments are to be applied to the tax liabilities. If the taxpayer does not designate how these payments are to be applied, the IRS will apply them to the tax liability with the earliest unexpired CSED.
9. Application fees will continue to be refunded to the taxpayer on not processable offers.
10. Qualified taxpayers may continue to submit Form 656-A for a waiver of the application fee. Taxpayers who qualify for a waiver of the application fee will also be exempted from all TIPRA payments. If, during the investigation, the OI determines the taxpayer does not qualify for the waiver, make one attempt to request the taxpayer submit the required initial TIPRA payment and application fee. If the taxpayer fails to respond, the offer will be returned as a processable return.
11. Incoming offers will be sorted in the following categories:
• Form 656 with check(s) for more than $150
• Form 656 with check for $150 only and no waiver
• Form 656 with waiver and a check for more than the $150 application fee
• Form 656 with check for $150 and a waiver
• Form 656 with waiver only
• CDP (with checks)
• Out of Area Transfers (with checks)
• DATL or Form 656 L (with checks)
12. If the taxpayer submits only the $150 application fee and does not submit the required initial TIPRA payment (any portion of 20% of a lump sum cash offer or the required initial payment of a periodic payment offer), the offer will be deemed not processable upon receipt, and will be returned. These offers must receive expedited processing to generate the return letter and update the AOIC history to meet the 24-hour deposit requirement.
13. The following are procedures for immediate processing of the not processable returns due to receipt of the $150 application fee submitted with a personal check.
. Complete a separate Form 13479 for those offers to be returned based on the receipt of only the $150 application fee.
A. Enter no more than 5 offers per 13479.
B. Load onto AOIC in "U" status.
C. Enter $150 in Column H of the Form 13479.
D. Hand-carry the Form 13479 to the Campus Support Mail Team to get personal checks stamped as "non-negotiable."
Note:
COIC will use a "non-negotiable" stamp on personal checks when the taxpayer fails to submit the appropriate TIPRA payment or the application fee. The Form 13479 will be used for control purposes only and should be maintained as a record of the payment(s) received. The Form 13479 must also indicate the check(s) were stamped as "non-negotiable" and the date they were stamped. The checks must be stamped "non-negotiable" within 24 hours of receipt.
E. Personal checks stamped "non-negotiable" will be returned to the designated COIC function employee housed in the Campus Support mail area.
F. Personal checks stamped "non-negotiable" will be suspended by the COIC function and maintained in a locked file until the completion of the return package.
G. Personal checks stamped "non-negotiable" and the offer package should be returned to the taxpayer through normal mail out procedures.
H. The AOIC history must be documented indicating the check was stamped "non-negotiable" and include the date it was stamped.
Note:
Once the checks have been stamped non-negotiable and handled according to the procedures above, the offer package should be assigned to a PE for completion of the return letter and offer package.
14. The following are procedures for immediate processing of the not processable returns due to receipt of the $150 application fee submitted with certified funds (money order, bank check, cashiers check, government check).
. Certified funds will be deposited upon receipt and processed through the normal work stream for both the clerical and process examiner procedures.
Note:
These payments must be deposited immediately to meet the 24-hour deposit requirement. Certified funds cannot be stamped "non-negotiable" and, therefore, cannot be held until the return letters can be generated.
A. The AOIC history must be documented indicating the check was stamped "non-negotiable" and include the date it was stamped.
Note:
Once the checks have been stamped non-negotiable and handled according to the procedures above, the offer package should be assigned to a PE for completion of the return letter and offer package.
B. Request a manual refund by preparing the Form 3753, Manual Refund Posting Voucher.
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
C. Prepare the offer package to be returned to the taxpayer.
15. The following procedures will only apply if the processability determination and return package can be completed on an expedited basis and the offer package with the certified funds payment instrument can be returned to the taxpayer within 24 hours of receipt.
. Hand carry the certified funds payment instrument and return offer package to the Campus Support Mail Team within 24 hours of receipt. The Campus Support Mail Team is responsible for preparation and mailing of the certified package.
A. The Form 13479 must be completed by entering $150 in Column H in red ink to indicate the payment was returned via certified funds to the taxpayer.
B. The certified funds payment instrument must be maintained in a secured area while the processability determination is being made.
16. If the processability determination and return package cannot be completed within 24 hours of receipt, the certified funds payment instrument must be deposited upon receipt and processed in accordance with the instructions below.
17. Management must establish controls to ensure returned offer packages are associated with the "non-negotiable" payment instruments and processed in accordance to established procedures.
18. It is possible the taxpayer may submit the $150 Application Fee, the required initial TIPRA payment, and a deposit with the Form 656. See IRM 5.8.2.7 for further discussion on what constitutes a deposit.
• If submitted on one check, the required application fee, required initial TIPRA payment, and a deposit must be entered as one amount on the Form 13479.
• If submitted on separate checks, the application fee, required initial TIPRA payment, and deposit will be entered on separate lines on the Form 13479.
19. All checks must be deposited within 24 hours, with the exception of those personal checks submitted with offers deemed not processable.
• The $150 application fee will be deposited to the 4710 Account using Form 13479.
• The application fee will be applied to the tax liability with the earliest CSED.
20. Once the offer is deemed processable, the process examiner will update AOIC changing the "N" to a "Y" and process the offer in accordance with established procedures.
21. If the offer is deemed not processable after the check(s) is deposited, prepare the Form 3753, Manual Refund Posting Voucher, to manually refund the $150 application fee to the taxpayer. Once the offer is deemed not processable take the following steps:
• Change the AOIC record to "N" status
• Complete the Form 2515 (Show the IRS Received Date at the payment date)
• Generate the return letter
• Complete the Form 3753
• Document the AOIC history that a 3753 was completed and processed.
• Enter the comment "Refund from 4710 Account" on Form 3753 and attach a copy of the Form 13479 and Form 2515 as backup.
• Prepare the offer package to return to the taxpayer;
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
22. The required initial TIPRA payment and the deposit (if applicable) will be deposited to the 4710 Account. Once a processability determination has been made, annotate the Form 2515 with the following abbreviations to move the payment from the 4710 Account to the taxpayer’s liability(s) as applicable.
23. Form 2515 Annotations (Abbreviations) – COIC will use the following to annotate the Form 2515 beside the appropriate entry in the "Amount" column. The blank space at the bottom of the form may be used for any additional remarks.
• Application Fee -------------------App Fee
• Payment -----------------------------Pymt
• Deposit-------------------------------Dep
• Estimated Payment---------------ES
• Refunded to Taxpayer------------RefTP (to be used when COIC prepares the 3753 to refund the Application Fee and sends it to Cincinnati for processing)
• Designated Payment-------------DsgP (COIC will also indicate MFT and period)
24. In all cases, the required initial payment and subsequent payments will be applied to the taxpayer’s account, whether the offer is deemed processable or not processable. These funds are non-refundable and should be moved immediately posted to the taxpayer’s account (either as designated by the taxpayer or to the Government’s best interest if not designated). This does not include deposits or application fees. Deposits and application fees may be refundable.
25. If the taxpayer also submitted a deposit and the offer is not processable, the deposit should be refunded to the taxpayer. Prepare the Form 3753, Manual Refund Posting Voucher, to refund the deposit from the 4710 Account, and forward it to MOIC for processing. Annotate the AOIC history screen.
26. If the amount submitted with the Form 656 exceeds the amount required, the entire amount will be treated as a non-refundable payment of tax, unless the taxpayer indicates on the Form 656 to treat the excess amount (less the $150 application fee if one check was submitted) as a deposit.
27. If the taxpayer sends one check, the amount submitted exceeds the required amounts, and the taxpayer indicated how the payment should be applied (for example, as a deposit or an estimated tax payment), process the amount according to the taxpayer’s designation. Any payments other than the application fee, required TIPRA payment, or deposit must be processed on Forms 2424 with the appropriate transaction code and designated payment code (DPC). For example, an estimated payment will be a TC 430 (for IMF) or TC 660 (for BMF), instead of TC 670. This determination will be made by the PE when making a processability determination and applying payments on the Form 2515 using the IRS received date as the payment date.
28. If the taxpayer submits multiple checks:
• Process the $150 application fee check, the required initial TIPRA payment, and any deposit, on the Form 13479,
• Additional payments submitted through individual checks will be processed on Forms 13479 and 3244 and processed under the manual deposit procedures.
• Prepare a separate Form 13479 for these payments.
• Hand carry the Form 13479 and attached Form(s) 3244 and check(s) to the Campus Support Mail Team for processing.
29. The "If and Then" table below provides the criteria for processing on the above sorts:
If you receive a… Then…
Form 656, the $150 application fee and required initial TIPRA payment and the terms of the offer is lump-sum or periodic payment 0. Load the offer in "U" status and complete the Entity screens.
1. Document the case history with check application information, including the Batch Number.
2. Complete the Form 13479 by entering the following: (1) Offer Number; (2) SSN/EIN; (3) Name Control; (4) Check Amount; (5) Check Number; (6) Check Type.
3. Generate Form 2515, Record of Offer-in-Compromise for the total amount of the check(s).
Form 656 with the $150 application fee and no required initial TIPRA payment (20% or first installment payment) Offers received with a check for the $150 application fee only are deemed not processable upon receipt and will be sorted by the clerical function during the "fine" sort.
4. Load the offer in"U" status.
5. Update the AOIC history documenting that the offer is not processable.
6. Complete the Form 13479 for a not processable return.
7. If the taxpayer submitted a personal check, send the Form 13479 and check to the Campus Support Mail Team to stamp the personal check as "non-negotiable" as appropriate.
8. If the taxpayer submitted certified funds (money order, certified check, etc.) the funds will be deposited and the offer worked through normal procedures.
Form 656 from an individual taxpayer with both a $150 application fee and a signed Form 656-A certification, and the required initial TIPRA payment 9. Complete the AOIC Entity Screen and the Form 13479 to treat the $150 and the TIPRA payment a deposit.
10. Prepare the Form 2515 designating the payment(s) as a deposit.
11. Complete the AOIC Application Fee screen and input "Li" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the payments be applied to the liabilities, and continue working the offer.
Form 656 from an individual taxpayer with both a $150 application fee and a signed Form 656-A certification, and no required initial TIPRA payment 12. Complete the AOIC Entity Screen and the Form 13479 to treat the $150 as a deposit.
13. Prepare the Form 2515 designating the $150 as a deposit.
14. Complete the AOIC Application Fee screen and input "LI" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the taxpayer submit the required initial TIPRA payment. Allow a reasonable amount of time to respond. If the taxpayer does not respond with the required payment, the offer will be a processable return. If the taxpayer submits the payment(s), continue working the offer.
Form 656 with a signed Form 656-A certification (instead of the $150 application fee and required initial payment) Complete the AOIC Application Fee screen and input "LI" in the "Waiver Criteria" field.
Note:
If during investigation, the offer examiner determines the taxpayer does not qualify for the waiver, request the taxpayer submit the required initial TIPRA payment and application fee. Allow a reasonable amount of time for a response. If the taxpayer does not respond with the required payment and fee, the offer will be a processable return. See IRM 5.8.4.7.1(4).
CDP Form 656 15. Complete the Form 13479 by entering the following: (1) RACS number; (2) Offer Number; (3) SSN/EIN; (4) Name Control; (5) Check Amount; (6) Check Number; (7) Check Type; (8) The $150 Application Fee; (9) Amount of the required initial TIPRA payment and deposit, if any.
16. Prepare the Form 2515
17. Complete the CDP AOIC Remittance Screen
18. Process in accordance to current guidelines
19. Document the AOIC history with payment application information
Out of Area Transfers 20. Process according to the procedures outlined above, as appropriate.
21. Make the processability determination and apply the initial TIPRA payment to the taxpayer's liability, as appropriate
22. Transfer to the correct area office
DATL offer (Form 656 L) for a TFRP only liability with a separate application fee DATL offers (Form 656-L) are exempted from application fees and all TIPRA payments. Any fee or payment will be treated as a deposit and processed on the Forms 13479 and Form 2515.
DATL offer (Form 656 L) for a TFRP only liability with a single remittance that represents both an application fee and a deposit. 23. Apply the entire amount as a deposit to the offer.
24. Complete the Form 13479
25. Prepare Form 2515
Note:
DATL offers are still exempted from fees and payments. Any fee or initial payment will be treated as a deposit.
30. Note:
31. DATL offers (and any other manually monitored offer such as CDP or DOJ) require the same RACS numbering scheme in place of the offer number on the Form 13479, COIC Remittance Tracking Report and Form 2515 as outlined in IRM 5.8.3.4.3, above.
32. Subsequent payments (periodic payment offers) made during the offer investigation must be deposited within 24 hours of receipt using Form 3244 and in accordance with the Discovered Remittance procedures outlined in IRM 3.8.46.1, Discovered Remittances.
Note:
Subsequent installment payments of a periodic payment offer are non-refundable and should be applied to the earliest tax liability with the earliest CSED or as designated by the taxpayer.
33. Process the check through the Manual Deposit function at the Cincinnati Submission Processing Center.
34. Forward to the Campus Support Mail Team with instructions to process the check through manual deposit.
35. If the payment is submitted on Form 656-PPV, Partial Payment Voucher:
• Process the payment as described above
• Indicate on Form 656-PPV the application of the payment
• Photocopy Form 3244 and Form 656-PPV to be included in the case file
• Forward the copies of Forms 656-PPV and 3244 to the correct inventory/employee assignment code
• Forward the original Forms 3244 and 656-PPV with the check to the mail team
• Document the case history
5.8.3.5.1 (09-23-2008)
Completing the Form 13479, COIC Remittance Tracking Report
1. The COIC sites must prepare Forms 2515 and 13479.
2. The checks and Form 2515 will be associated with the applicable Form 13479 and forwarded to the Campus Support Mail Team within 24 hours of receipt.
Note:
Deposit guidelines require that all deposits be made with 48 hours of the IRS received date. If there is a delay between the IRS received date and the COIC received date (i.e. a late receipt from a field office), document the AOIC history with the reason for the delay.
3. A Form 2515 must be generated for each offer listed on the Form 13479, which is used to apply the related checks to the 4710 Account. Each check submitted by the taxpayer will be listed on separate lines of the Form 2515. A copy of all Forms 2515 must accompany the Form 13479 and a file copy must remain with the offer until a processability determination has been made.
4. Load the offer on AOIC in "U" status and complete the AOIC entity screen with the required information.
5. The PE making the processability determination will be responsible for:
• Correcting the entity on both AOIC and the Form 2515
• Matching the entity information on IDRS
• Forwarding the corrected Form 2515 to accounting
• Load the offer on AOIC and complete the AOIC Entity Screen with the required information
6. The taxpayer entity must be verified on IDRS. If the entity information on the Form 656 does not match with the entity information on IDRS, an INOLE print must be attached to the Form 2515. The PE making the processability determination is responsible for correcting the entity information on both AOIC and the Form 2515, and forwarding a corrected Form 2515 to Accounting.
7. In order for processing transactions, such as TC 480 and 670 to post to the Master File, the entity on the input document must match the name control and TIN on IDRS. If it does not, the transaction will go unpostable. COIC is responsible for correcting all unpostable conditions.
Note:
It is critical that the AOIC record be corrected to match the entity information on IDRS.
8. Document the AOIC history defining the discrepancies found, and how the AOIC record was corrected.
9. Do not edit the entity information on the Form 656. This is a perfection issue that must be resolved before acceptance of the offer.
10. Some examples of the most common reasons for entity discrepancies are:
• A woman changes her name due to either a marriage or a divorce, and fails to change her name with the Social Security Administration (SSA).
• A taxpayer used a nickname or alias.
• Incorrect spelling of foreign names or a reversal of the foreign name.
• An out of business or incorrect business name entered on the Form 656.
Example:
Mrs. taxpayer is now divorced from Mr. taxpayer, and has changed her name back to her maiden name. The AOIC record, and the Form 2515 must reflect her maiden name with her married name in parenthesis. All input documents (Forms 2424, 3573, etc.) generated from AOIC must reflect the prior name control for transactions to post to Master File. Underline the IDRS name control on the Form 2515. Example: Maiden Name Here (Mrs. TP Married Name here).
11. Individual name changes cannot be made by the IRS. This can only be corrected by the SSA. In order to correct the entity record, the taxpayer must notify SSA. Once SSA makes the correction, IRS records will be corrected during the periodic downloads.
12. Business name changes may be corrected through the Entity function in Accounts Management. Entity establishes the business entity when the taxpayer applies for an Employer Identification Number (EIN) on the Form SS-4. Refer to IRM 1.7.13, business Tax Returns and Non-Master File Accounts - Assigning Employer Identification (EIN), for additional guidelines in determining the appropriate business name.
13. Offers with remittances will be batched with the Form 13479 for processability determinations. Each check should be put on separate lines of the Form 13479. Offers submitted with separate remittances for the application fee, required initial TIPRA payment, and a deposit will have entries on three lines on the Form 13479, while an offer submitted with a single remittance that combines the application fee, required initial TIPRA payment, and deposit will have only one entry.
Note:
Batch integrity must be maintained throughout the processability determination.
14. COIC will batch the checks, attach the associated Forms 13479 and Forms 2515, and forward to the Campus Support Mail Team within 24 hours of receipt of the offer. Checks will be processed through the Paper Check Conversion (PCC) system and deposited upon receipt by the Campus Support Mail Team.
A. All payments (application fee, 20% of a lump sum cash offer or first installment of a periodic payment offer, and deposit) will be deposited to the 4710 Account.
B. With the exception of deposits, all remittances will be moved from the 4710 Account and applied as payments to taxpayers’ liability accounts once a processability determination has been made.
15. No more than 5 offers should be entered on a tracking sheet.
Note:
CDP offers will be handled and processed as priority offers. There must be no more than 5 CDP offers per Form 13479.
16. Complete Forms 13479 as follows:
. Column A: Enter the AOIC offer number
A. Column B: Enter the taxpayer SSN/EIN
B. Column C: Enter the taxpayer name control
C. Column D: Enter the Money Order/Check amount
D. Column E: Enter the Money Order/Check Serial Number
E. Column F: Enter the acronym for the type of payment instrument:
Payment instrument Acronym
Money Order MO
Personal Check PC
Cashier Check CC
Bank Check BC
Government Check GC
F. Column G: Enter the amount of any miscellaneous payment (e.g. ES payment)
G. Columns H: Check whether the offer was determined to be not processable and the check was either a negotiable or not negotiable return.
H. Column I: Secure the initials and date of the Campus Support person receiving the 13479.
17. Completed Forms 2515 and 13479 and the attached checks must be hand carried to the Campus Support Mail Team for deposit.
18. Secure the Campus Support Mail Team employee’s initials and date on the Form 13479 before releasing the form and related checks to them.
19. The combined entries in Columns G and H on the Form 13479 must equal to the amount entered in Column D. The Forms 2515 and 13479 must be accurate before being released to the Campus Support Mail Team. The Campus Support Mail Team will complete processing and deposit of the checks in accordance to their IRM procedures. No further interaction between COIC and the Campus Support Mail Team is necessary once the Form 13479 and the related checks are released into their possession unless the Mail Team detects an out of balance situation with the Form 13479 and related checks. Resolution of all out of balance situations are the responsibility of COIC.
20. Management is responsible for establishing controls for checks and balances to ensure Forms 13479 are prepared correctly and balanced in all columns before releasing them to the Campus Support Mail Team. All out of balance conditions must be resolved by COIC prior to releasing the forms to the Campus Support Mail Team.
Note:
COIC is responsible for resolving all outstanding issues on the application fees and the required initial TIPRA payments. MOIC performs a monthly trial balance on the 4710 Account. If the account fails to balance, MOIC will consult with COIC to resolve any outstanding issues.
21. Occasionally, a check may be encoded for an amount other than what was written by the taxpayer. If notified by Accounting that a check was encoded for the wrong amount and negotiated for that amount, COIC will coordinate with MOIC to ensure the Form 2515 and the AOIC Deposit Screen are corrected for the amount of the negotiated check. If the amount results in an underpayment of either the application fee or initial TIPRA payment, follow procedures for securing the underpayment defined in this IRM.
Note:
All requests for changes on AOIC due to encoding errors must be reported to the Compliance Services headquarters program analyst for correction.
22. All offers must have a processability determination made within 14 calendar days of the IRS receipt date.
23. Upon assignment to the PE, the manager will ensure that the "PE Received Date" and "PE Assignment Number" fields on the Form 13479 are accurately completed within the required timeframe.
24. Once a processability determination has been made, the PE will annotate the file copy of the Form 2515 for the application of payments, if different from the original annotations made when the Form 2515 was generated.
25. The TIPRA regulation allows the taxpayer to designate application of the required initial payment, periodic payment, and all subsequent payments. The $150 application fee and deposits cannot be designated. Remittances will be applied as designated, if the request is in writing. Once the taxpayer requests designation of the payment, the payment cannot be moved at a later date. Document the AOIC history.
If… Then…
The payment is designated The PE will annotate the payment designation according to the taxpayer’s instruction
The payment is not designated MOIC will apply the payment to the taxpayer’s liability account that is in the best interest of the Government
26. Once a processability determination has been made, the PE will be responsible for accurately completing the Form 2515. The PE will indicate on the Form 2515 (using the appropriate abbreviations) movement of the application fee and required initial payments from the 4710 account to the taxpayer's liability, if changes have been made from the original application.
27. Once a processability determination has been made on all the offers listed on the Form 13479, the PE will complete the "PE Completion Date" field.
28. If the offer is deemed not processable, the PE will:
• Update AOIC to"N"
• Annotate the Form 2515 to apply the required initial payment as indicated, and to refund the application fee.
• Prepare the Form 3753 to manually refund the application fee.
Note:
Form 3753 manual refunds on not processable offers will be processed according to normal manual refund procedures outlined in IRM 21.4.4, Manual Refunds.
• The required initial TIPRA payment will be applied to the taxpayer’s liability account. If the required initial payment was designated by the taxpayer, the PE will record how the payment is to be applied.
• Document the AOIC history.
29. Management must establish controls for checks and balances to ensure all Forms 13479 are prepared correctly and balance to all Forms 3753 and 2515 before forwarding for processing.
30. All Forms 3753 must be signed by the COIC manager, and forwarded to Accounting for processing, while all Forms 2515 will be forwarded to MOIC for processing. All out of balance situations must be resolved by COIC prior to forwarding the attachments to the appropriate area for processing.
31. Occasionally, a payment may have been erroneously applied to the wrong account or offer. If a correction is discovered while the TIPRA payment(s) is still in the 4710 Account, prepare a Form 3809, Miscellaneous Adjustment Voucher, to transfer the money.
• Record on the debit side "4710 Account," the offer number, and the TIN that the money is to be transferred from.
• Record on the credit side "4710 Account," the offer number, and TIN that the money is to be transferred to.
• Forward the Form 3809 to Cincinnati Accounting along with corrected Forms 2515.
• Document the AOIC history(s).
32. Due to the nature and complexity of payment processing and the coordination required between MOIC and Accounting to resolve problems it will be the responsibility of COIC to provide support to other functions; such as, field offices, Appeals, and DOJ, with payment posting problems. Referrals will be received on the Form 4442. These referrals must be controlled and handled by a designated unit within COIC.
33. COIC will be responsible for correcting problems and responding to the appropriate office on the actions taken to resolve the issue.
34. COIC in coordination with MOIC is accountable and responsible for posting all TIPRA payments and resolving all posting problems.
5.8.3.5.2 (09-23-2008)
Processing Forms 13479, COIC Remittance Tracking Report, After Processability Determinations
1. Forms 13479 will be returned for processing of the attached Forms 2515 and 3753 after processability determinations have been made.
2. All completed Forms 13479 will be retained in COIC and filed in "batch number" order.
3. If the offer was determined to be processable, forward the related Forms 2515 to MOIC for processing with a copy of the Form 13479. The Form 13479 serves as the transfer transmittal.
4. If the offer was determined to be not processable, forward the related Form 2515 and Form 3753 to MOIC for processing with a copy of the Form 13479. The Form 13479 serves as the transfer transmittal.
Note:
All forms should be forwarded to MOIC on an expedited basis.
5. The COIC sites will retain processable offers for further OIC processing and assignment.
6. Not processable offers (with the exception of offers returned because only the $150 application fee was submitted with a personal check) will be returned to the clerical function with the associated Forms 13479, 2515, and 3753. The PE will prepare the return letter and envelope for mail out. The following actions must be taken:
• Date and sign the return letter
• Include with the letter and any other associated documents
• Seal the envelope for mail out
• Close with final disposition 10 on AOIC
• Include the Form 656
• Return to the clerical function to be mailed
Note:
If the offer is being because the taxpayer submitted only one $150 personal check, do not seal the envelope. The clerical function must associate the check with the offer package before it is returned.
5.8.3.6 (09-23-2008)
Dishonored Payments
1. For payments processed through PCC, Cincinnati Accounting receives the initial notification of a dishonored OIC payment from the Federal Reserve Bank though the Electronic Verification and Image Services (ELVIS) automated system. The Cincinnati Dishonored Check Unit will notify the taxpayer by mailing them a copy of the dishonored check and the Form 12993-A, Check for Offer in Compromise Payment Not Accepted by Bank.
2. Cincinnati Accounting will fax copies of the dishonored payments to the COIC site that originated the Form 13479.
3. Upon notification of a dishonored application fee and/or TIPRA payment, the site will determine the current AOIC offer assignment by querying the offer number annotated on the upper left hand corner of the check. For Appeals CDP offers, see IRM 5.8.3.6.1(3).
Note:
Due to AOIC programming, only the assigned office can gain access to the "Action CD" field of the "Application Fee" screen to input the dishonored check status.
4. If the payment has been moved from the 4710 Account to the Master File, the Dishonored Check Unit will reverse the payment with a TC 671. If COIC or MOIC fail to receive notification of the dishonored payment, the dishonored check can also be identified by the posting of a TC 671 on IDRS.
5. Upon notification of a dishonored application fee and/or TIPRA payment, the offer will be immediately returned to the taxpayer with the appropriate AOIC letter for a dishonored check. Document the AOIC history with the following information:
• Which check(s) (application fee, TIPRA payment, or both) was returned
• The check number, and date the check was dishonored
6. If the payment was dishonored while still in the 4710 account, Accounting will annotate their copy of the Form 2515 as appropriate.
If… Then…
the dishonored check was a deposit notify MOIC, and continue investigation of the case.
the dishonored check was for either the application fee or TIPRA payments notify MOIC, and stop investigation of the case.
7. If the taxpayer or their representative offers to replace the dishonored check and requests reconsideration of their offer, contact by the taxpayer or their representative must be made within 10 days of the date of the initial AOIC return letter. The replacement payment must be in the form of certified funds (money order, cashier check, etc.) and received within a reasonable amount of time. See IRM 5.8.7.3 for reconsideration procedures.
8. The taxpayer must be informed that the offer will not be reconsidered if the payment is not made with certified funds. A due date for receipt of the payment must be provided to the taxpayer or their representative. Document the case history. It may be necessary to advise the taxpayer or their representative to submit the payment by overnight mail. In those cases, it should be mailed to either of the following addresses:
Brookhaven:
Mail Stop 681, PO Box 9011, Holtsville, NY 11742
Memphis:
AMC-Stop 880, PO Box 30834, Memphis, TN. 38130-0834
9. To ensure proper handling, advise the taxpayer to include a letter requesting reconsideration of the offer.
10. If the payment was dishonored while still residing in the 4710 Account, the payment should be processed through established deposit procedures. A copy of the Form 2515 must be forwarded to the appropriate MOIC function. Clearly indicate on the copy of the Form 2515 that the payment is a replacement for a dishonored check. MOIC will load the payment on the AOIC deposit screen once the AOIC record is reloaded. MOIC is responsible for ensuring the payment is applied to the Master File as originally intended.
Note:
The offer will be reloaded, and a new offer number will generate. The new Form 2515 will reflect the new offer number. Cross reference the original offer number in the AOIC history, and in the remarks section of the Form 2515 to ensure Accounting is aware there may be two Forms 2515 with different offer numbers for the same taxpayer.
11. If the payment was dishonored with a TC 671 on the Master File, prepare a Form 3244 to post the payment as a replacement for the dishonored payment.
12. Upon receipt of the replacement payment, the employee that processed the payment must reload the offer on AOIC, if appropriate. The employee will also be verify if the payment was received within the established deadline as annotated in the AOIC history. If the payment was received within the established timeframe, continue working the offer. If the payment is not received by the specified due date, the payment will be processed in accordance with TIPRA payment requirements, and the case will not be opened as a reconsideration. See IRM 5.8.7.3 for reconsideration procedures.
5.8.3.6.1 (09-23-2008)
Centralized Offer in Compromise Procedures for Dishonored Payments
1. If the offer is still assigned to a COIC site, COIC will immediately cease processing the associated offer, update the Automated Offer in Compromise (AOIC) "Application Fee" screen by entering "I" in the "Action Cd" field and return it to the taxpayer, utilizing letter option "RET-AA" .
2. If the offer is assigned to an Area office, COIC will telephone the employee assigned the offer (or the manager of the assigned function, if no individual is specified on AOIC) to advise of the dishonored payment. Once contact is made with the assigned area employee or manager, COIC will fax a copy of the dishonored check to include in the case file and document AOIC to indicate the information was communicated and to whom.
3. If the case was processed as an Appeals CDP offer, COIC should query ACDS to determine which Appeals employee is assigned the case. COIC will telephone the Appeals employee to advise of the dishonored check and fax a copy to include in the Appeals case file. COIC will update the "Appeals Fee Screen" application of AOIC by entering "I" in the "Action Cd" field.
Note:
Appeals CDP cases can be identified by the application fee number noted on the upper left corner of the check.
4. If notification of the dishonored check occurs after the offer was closed on AOIC, the designated AOIC liaison within the COIC site will contact the Headquarters AOIC analyst to correct the application fee record of the closed offer.
5.8.3.6.2 (09-23-2008)
Area Office Procedures for Dishonored Checks
1. Upon notification by the COIC site of a dishonored check, the OS (or manager of the assignment function, if the offer is not assigned to an individual) will immediately:
• Cease investigation of the offer
• Update the AOIC Application Fee screen by entering "I" in the "Action Cd" field
• Return the offer to the taxpayer utilizing letter option "RET-AA"
5.8.3.6.3 (09-23-2008)
Notification of Dishonored Application Fee Check After Issuance of the Rejection Letter
1. If notification of the dishonored OIC application fee check occurred after issuance of a rejection letter, in addition to procedures in IRM 5.8.3.6.1 and 5.8.3.6.2 above, the employee should:
• Date the return letter 31 days from the date of the rejection letter.
• Include the open paragraph "RET-M" with the following language: "As a result, your request for appeal has been dismissed."
Note:
This should only be used in those cases where a request for an Appeal was received within the 30-day appeal period.
• Close the case on AOIC as a return using the mail date of the return letter and AOIC final disposition code "10."
5.8.3.7 (09-23-2008)
Form 656 Application Fee, TIPRA Payments, and Perfection
1. Taxpayers are required to include one application fee and TIPRA payment or a Form 656-A for each Form 656 submitted. The table below is intended to assist in identifying a processable offer for application fee purposes and provide guidance on advising the taxpayer when more than one Form 656 application fee, initial TIPRA payment, or Form 656-A should be submitted. In the following scenarios, the status of the taxpayer is not relevant (e.g., married, separated, or divorced). The general rule is that there should only be as many Forms 656 as there are entities seeking to compromise. The following scenarios assume all processability criteria (other than for the application fee) are met.
Scenario Procedures
1) Two TPs have joint liabilities only. The TPs jointly submit one Form 656 and one $150 application fee and TIPRA payment. One offer was submitted therefore one application fee and TIPRA payment is required.
2) Two TPs have joint liabilities only. The TPs submit two Forms 656 but only one check for the $150 application fee and TIPRA payment without a signed Form 656-A. Two offers were submitted therefore two application fees and TIPRA payments are required.
• Follow procedures in Scenario 3 below.
3) Two TPs have separate liabilities only. The TPs submit two Forms 656 but only one $150 application fee and TIPRA payment (without a signed Form 656-A). Two offers were submitted therefore two application fees and TIPRA payments are required. The PE must secure a copy of the remittance to make the appropriate determination.
• If it can be determined which TP paid the application fee (i.e., a personal check drawn on the account of one of the taxpayers), the offer from the TP that paid the fee is processable. The second offer should be returned as not processable because the TP did not submit the required application fee and TIPRA payment.
• If each TP contributed a portion of the application fee and/or TIPRA payment (e.g., each submitted a personal check for $75, and a portion of the TIPRA payment), then neither TP has paid the appropriate fee or TIPRA payment, and both offers should be returned as not processable.
• If it cannot be determined which TP paid the application fee and/or TIPRA payment, treat it as though half were submitted by each individual. Return both offers as not processable, addressing it to the party with the primary SSN on the liability.
4) Two TPs have joint liabilities and one or both of the TPs also have separate liabilities. The TPs submit one Form 656 listing both the joint and separate liabilities and only one $150 application fee and TIPRA payment (without a signed Form 656-A). Although it is the policy of the Service to require two offers when TPs have both joint and separate liabilities, the offer submitted in this scenario is processable. However, the Service will require the taxpayer to perfect the original offer by submitting one new offer that list only the joint the liabilities. In this instance, the new offer will require a second fee and initial payment. When requesting the perfection of an offer that requires the submission of a second offer, send the TPs two Forms 656:
• Prepare an "amended/revised" Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the primary SSN on the joint liability. Include both joint and separate liabilities in item 5. Annotate the original offer number on the top of the "Amended/Revised" Form 656.
• Prepare a second Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the secondary SSN on the joint liability. Include both joint and separate liabilities in item 5. Annotate the top of the Form 656 in red "Related to Offer Number ________" , inserting the number of the original offer. This will help identify that the offer submitted in response to a perfection request.
Note:
Clerical units should be aware that new offers received in the PO Box designated for response correspondence must keep all correspondence and attachments associated with the offer to assist in the identification of the related offer.
• Include Option "Y" in the combo letter
• Include Form 656-A and the copy of the original Form 656 with the combo letter
If the TPs refuse to perfect the offer, the Service will return the offer without any further consideration.
5) One Form 656 is submitted that includes both corporation or partnership and individual liabilities, but only one $150 application fee and TIPRA payment (without a signed Form 656-A) for the individual. Follow the procedures outlined in Scenario 4 above.
6) Two taxpayers have joint liabilities and either or both of the taxpayers also have separate liabilities. The taxpayers submit two Forms 656 listing the joint liability on one and the separate liability on the other, but only one $150 application fee and TIPRA payment. Since the taxpayers submitted two offers, they require two fees and TIPRA payments. Only load the joint Form 656, treating it as processable and including the separate liabilities on the MFT screen. Follow procedures in Scenario 4 above.
5.8.3.8 (09-23-2008)
Centralized Offers in Compromise Processability Determinations
1. COIC sites are solely responsible for determining offer processability. See IRM 5.8.3.4.1, Determining Processability, for processability criteria. To accomplish this, PE's must take the following actions:
A. Determine if the taxpayer is in bankruptcy.
Note:
If the taxpayer fails to indicate the date of dismissal or discharge on the Form 433–A or Form 433–B, bankruptcy should be verified using IDRS, Automated Insolvency System (AIS) and Public Access to Court Electronic Records (PACER) before returning as not processable.
Circumstance... If... Then...
Upon receipt of an initial offer with an application fee and TIPRA payment IDRS research shows an open TC 520 with an appropriate bankruptcy closing code is present on any liability Follow current procedures to refund or return the application fee and TIPRA payment, as appropriate
Upon receipt of a subsequent periodic payment, and there was previously no open TC 520 with a bankruptcy closing code present on any liability at the time the offer was deemed processable IDRS research now shows an open TC 520 with a bankruptcy closing code present on any liability Follow current procedures to refund or return the application fee and TIPRA payment, as appropriate
During the investigation an open TC 520 with a bankruptcy closing code is discovered on any liability The posted petition date was after the receipt of the original offer or subsequent periodic payments Contact the local Insolvency function for instructions on handling the application fee and payments.
B. The following closing codes can be used to identify when a taxpayer has filed bankruptcy: 60 – 67, 81, 83, and 85 – 89. See Document 6209, IRS Processing Codes and Information, for additional information.
C. Check for any freeze codes such as: -Y (offer in compromise), -W (litigation), -Z (Criminal Investigation), -A (duplicate return), -V (bankruptcy), -L (AIMS) that may require special action. Freeze codes indicating CID, bankruptcy, Exam issues (i.e. AIMS), duplicate return filed, other litigations should be worked in accordance to guidelines in this IRM.
D. Check all SSN, EIN, and ITINs known or found for the taxpayer. At a minimum check the following IDRS command codes: ENMOD, INOLES, CFINQ, BMFOLI, SUMRY, and IMFOLI. If any data is found, print and include it in the file. Also, research IDRS command codes TXMOD AND FFINQ for additional data, but it is not necessary to include printed copies in the file.
E. Verify that the taxpayer has submitted the appropriate Form 656, Form 433-A and/or Form 433-B.
F. Verify the taxpayer has submitted the application fee, required TIPRA payment, or signed Form 656-A for each offer submitted.
G. Document AOIC of any findings.
2. Review AOIC and prior case histories for any previous offers. Document the current case history with the findings. This will allow the OI to determine upon initial analysis if the offer was submitted "Solely to Delay Collection." See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection.
5.8.3.9 (09-23-2008)
Not Processable
1. When returning the offer as not processable, the return letter should specify all reasons for the determination.
2. If the offer is not processable:
A. Change the AOIC "Proc Cd" field from "U" to "N" status.
B. Prepare the return letter.
C. Stamp the Form 656 with "RETURN" in red (or circle the date in red if a red ink stamp is not available) and write the date that the offer was determined to be not processable.
D. Cross out all IRS received dates with a red"X."
E. In addition to identifying the reason(s) for the determination, also address any issues concerning combined joint and separate liabilities, if appropriate; for example, individual and corporate or partnership liabilities on one Form 656. In those cases include Option "AF" in the return letter.
F. Annotate the AOIC history with the payment information, specifying the reason(s) for the not processable determination.
G. Annotate or update the Form 2515 indicating the offer was not processable and the application fee of $150 should be refunded to the taxpayer.
H. Prepare the Form 3753, if applicable.
I. Associate the Forms 3753 and 2515 with the related Form 13479.
Note:
The entries on the Forms 2515 and 3753 must be equal to the check(s) amount(s) recorded in Column D on the form 13479. The Form 13479 and associated documents should be returned to COIC clerical for processing.
J. Forward the Form 13479 to the Clerical Staff for processing.
K. Do not sign the Form 656.
L. Managers and journey level PE's may sign and date the letter and close the case on AOIC with a final disposition code of 10
M. Send the Form 656, the return letter, Pub 1 and 594 to the taxpayer along with all other documents originally sent. If a POA is present, send the representative a copy of the letter. If disclosure issues exist, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.
N. If a Form 656 was forwarded by an RO and is not processable, the COIC site should also forward the Form 657 and a copy of the not processable letter to the approving official of the Form 657.
3. Caution should be exercised to ensure that no IDRS prints or other internally generated documents are sent to either the taxpayer or the POA. All internal documents should be destroyed. Nothing is required to be maintained in local closed files on these cases because this information is available from IRS systems.
4. If the offer was originally determined processable and the application fee was deposited, but it was later concluded that this determination was made in error, processing should stop. The case should be closed using not processable procedures defined above. In these cases, it is important to ensure the "N" is input on AOIC to reverse the TC 480(s). This will result in the generation of a TC 483 posting to the appropriate modules, and a refund of the $150 application fee.
5.8.3.10 (09-23-2008)
Processable
1. An OIC is considered pending when a delegated IRS official signs and dates the Form 656 in the appropriate section. This date is the official offer pending date.
Note:
The pending date entered on AOIC must match the date the delegated official signed the Form 656. This date must also match the TC 480 date when it posts to IDRS.
2. If the offer is processable:
A. Sign and date the waiver on Form 656.
B. Change the "Proc Cd" to a "Y" (processable).
C. Complete the AOIC Application Fee Screen.
D. Complete the MFT and "Terms" screen on AOIC.
Note:
The MFT screen must reflect the liability(s) at the time the offer was submitted. Do not update the liability(s) to reflect TIPRA payments, during the investigation. The exception would be if the change was due to abatement, another assessment, or a refund offset. In this case, additional tax period(s) may be added at any time.
E. Include K-Data or a current IDRS print showing the liabilities at the time the offer was submitted, with each case file.
F. Annotate in the remarks section of the Form 2515 the payment application (e.g., 20% lump sum, first periodic installment, $150 application fee, and any deposit, if applicable).
Note:
If the taxpayer designated application of the payment, enter the appropriate information in the remarks section of the Form 2515. If the taxpayer also submitted a deposit separate from the required TIPRA payment, split the payment as requested. Enter the information according to the offer terms and annotate the difference as the deposit. Only the application fee and required TIPRA payment will be applied to the taxpayer’s liability account. The deposit will remain in the 4710 Account until a determination is made; that is, the offer is accepted, rejected, or returned.
G. Associate the Forms 2515 with the related Form 13479 and retain a copy in the case file.
Note:
The entries on the Form 2515 must equal to the check(s) amount(s) recorded in column D on the Form 13479. The Form 13479 and associated documents should be returned to COIC clerical for processing.
H. Document the AOIC history with the payment type and application of the funds.
Example:
One check received in the amount of $650. Applied monies in the remittance as follows: $150 application fee; $300 payment; $200 deposit.
I. On all IMF cases enter "P" if the offer is for the primary taxpayer of the controlling TIN on the entity, enter "S" if the offer is for the secondary taxpayer, or "B" if both husband and wife are making a joint offer. If only one party of a joint liability is submitting the offer, remove the"Y" from the MFT screen. This will take the case out of Status 71.
Note:
If tax periods are in status 60 (see "Exception" below), 61, 53 , or if the Form 657 indicates that no TDAs are to remain in the field, remove the "Y" on each tax period on the MFT screen. DO NOT change the status of those accounts, unless the taxpayer has defaulted the installment agreement.
Exception:
The status code may be changed on the following cases: Status 60 – if the offer was submitted under the criteria for Periodic Payment. Status 53 – with Closing Code "03" (unable to locate), Closing Code "12" (unable to contact)]
3. Generate the Full Pay Worksheet from AOIC and retain a copy in the case file.
4. Communication with the taxpayer and/or authorized representative may be necessary to perfect the offer while it is pending. This communication may be completed by letter, fax, phone, or personal contact.
If processable and… Then…
The offer requires perfection due to an insufficient number of Forms 656, application fees, required initial TIPRA payments (i.e., the remainder of the required 20% of a lump sum cash offer), or unfiled returns Except in the examples in IRM 5.8.3.7, below, send the combo letter to request the following information:
• Correct number of Forms 656 and fees (Option "Y" perfection)
• Correct amount of the required initial TIPRA payment(s)
• Any required financial substantiation
• Any unfiled returns
• Any additional Form 656 perfection, including incorrect or old Form(s)
• Assign to "5100"
The offer does not need perfection in the following categories and meets the criteria for field transfer:
• Option "Y"
• Unfiled return
Note:
See IRM 5.8.2.2 and IRM 5.8.3.13, for additional information. Immediately reassign the case on AOIC and ship to the appropriate area office.
The offer does not need Option "Y" perfection and qualifies under the "Screen For Obvious Full Pay" procedures.
Note:
See IRM 5.8.3.12, for additional information. Process under "Screen For Obvious Full Pay" Procedures.
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures, but all required financial substantiation is not attached or needs Form 656 perfection before beginning the investigation. • Assign to "5100"
• Send the combo letter to address all perfection issues
• Request the required substantiation, including incorrect or old form(s).
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and has attached all required substantiation except for proof of payment of certain expenses; such as, current real estate, or motor vehicle loan balances. • Send the combo letter to request substantiation and Form 656 perfection, if appropriate, including incorrect or old Form(s).
• Check internal verification sources,
• Assign the case to"5300" .
Note:
If the taxpayer has provided a substantial amount of the information and a determination can be made, assign the case to 6000.
The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and is a total submission. • Send the combo letter, Option "A."
• Check internal verification sources.
• Assign to "6000."
5. If an offer was submitted by an RO and it is processable, but the RO has determined that the offer was submitted "solely to delay collection" , the COIC site will contact the originating RO to advise when the return letter has been issued. Unless a jeopardy situation exists, the RO must wait for COIC notification that the return letter has been issued before taking any collection enforcement action. See IRM 5.8.3.19 for delegated approval authority.
6. COIC will generate the TC 480 and Status 71 through the AOIC system. However, there may be situations when the Status 71 will not generate (e.g., MFT 31 modules created prior to January 2005, imminent statute, etc.). In those cases, the field OS may request input of the TC 470 with CC 90 to suspend collection activity.
7. Taxpayers that submit a periodic payment offer are required to continue making regular payments during the investigation process. It may be necessary for the OI working the case to monitor the payments. Until AOIC programming can be completed, the OI may use a calendar, tickler file, notating the follow-up date on the front of the file folder, or something similar to ensure the taxpayer remains compliant with the payment requirements.
8. Send the taxpayer the Forms 656-PPV with instructions for completion. The fill-in paragraph may be used to inform the taxpayer that payments must be made during the investigation process and Form 656-PPV must be used when submitting the payment. It is recommended that this form be included with the Combo letter.
9. It is the responsibility of the OI to monitor the payments, and to ensure they are correctly applied to the taxpayer’s account(s). If an error is discovered, the OI must take the corrective actions. The OI may need to research IDRS to determine that the payments have been appropriately applied. A Form 4442 should be prepared to correct the payment posting.
10. During the offer investigation, if the taxpayer fails to make the periodic payments the OI must attempt one phone call to notify the taxpayer of the need to make the payment(s).
11. If no contact by telephone can be made, a letter must be issued to notify the taxpayer of the deficiency.
. Allow 15 calendar days from the date of the letter for the taxpayer to comply with the request.
A. Allow 15 calendar days for mail time.
B. If the taxpayer fails to respond after 30 calendar days, by the 31st calendar day after the date of the telephone contact or letter, the offer will be considered withdrawn.
C. Initiate the appropriate AOIC withdrawal letter, secure managerial approval, and mail the letter to the taxpayer.
D. Document the ICS or AOIC history.
12. Ensure that the TC 480 has posted to each tax period shown on the Form 656:
If… Then…
TC 480 is not present Input the TC 480 using CC REQ77. Use the date the Form 656 was signed by the IRS official for the transaction date, not the date the taxpayer signed.
Note:
If the TC 480 is manually input, it must be manually released.
All TC 480s present do not have the same date the Form 656 was signed 0. Input TC 483 using CC REQ77
1. Input TC 470 using CC REQ77 to prevent balance due notices from issuing.
2. Input TC 480 using CC REQ77 with the correct date; include a posting delay code of 1.
Note:
The TC 480 dates for the amended 656 must have the same date the original offer was signed by the IRS official.
Note:
If the TC 480 is manually input, it must be manually released.
5.8.3.10.1 (09-23-2008)
Erroneous Processability Determinations
1. The Service only collects the application fee for processable offers; therefore, fees associated with offers that are initially deemed processable but subsequently determined to be not processable must be returned to the taxpayer.
2. Because of the requirement for all application fees and initial payments to be deposited within 24 hours, if a case was deemed processable in error, the application fee must be returned to the taxpayer by requesting a manual refund. When an erroneous processability determination is corrected, prepare the return letter and correct the AOIC fee screen record. Follow procedures in IRM 5.8.3.5 for refunding the application fee.
5.8.3.10.2 (09-23-2008)
"Application Fee Refund/Apply Listing" Validation
1. When an erroneous processability determination is corrected after forwarding the related application fee remittance for deposit, the COIC sites will need to determine whether the remittance has been deposited and credited to the taxpayer’s liability. An "Application Fee Refund/Apply Listing" should be generated from AOIC to identify application fees that were initially determined to be processable, but later determined to be not processable. Generation of this listing is required in order for the COIC site to verify and authorize a manual refund.
Note:
The COIC sites should request MOIC to generate the "Application Fee Refund/Apply Listing" on a monthly basis.
2. Generally, when an offer is deemed "not processable" , the Service includes the taxpayer's remittance with the return disposition letter. However, depending on the elapsed time between inputting a processability change on AOIC from a "Y" to a "N" , the Service may have already deposited the related application fee and applied the payment to the taxpayer's liability on Master File.
If… Then…
the payment has been deposited and still resides in the 4710 Account at the time the offer is deemed not processable prepare a Form 3753 to manually refund the application fee
the payment has been applied prepare the Form 5792, Request for IDRS Generated Refund, to manually refund the application fee from the Master File
3. Note:
4. The comments recorded on the Form 5792 must specifically state that the offer was deemed not processable and the taxpayer is entitled to the refund of the application fee. Include a contact name and number on the Form 5792. Accounting may question why a payment is being refunded from a liability tax module.
5. To determine whether or not a manual refund of the application fee should be issued, research the completed Form 13479, COIC Remittance Tracking Report, for those offers to determine whether the application fee was deposited by the Service or returned to the taxpayer via a manual refund.
Caution:
Thorough research and care is required when determining which offers on the "Application Fee Refund/Apply Listing" should receive manual refunds.
If… Then…
Research indicated that the application fee was returned to the taxpayer(s) The designated COIC site AOIC liaison should contact the Headquarters AOIC analyst to make the necessary adjustment to the application fee information to remove it from the "Refund/Apply Listing" . This action will eliminate the potential for the taxpayer to receive an erroneous refund.
Research indicated that the application fee was deposited and still resides in the 4710 Account Contact the MOIC function co-located with the COIC site and request a manual refund be generated to the taxpayer(s) using Form 3753.
Research indicated that the application fee was deposited and has been applied to the Master File • Prepare the Form 5792 to manually refund the application fee payment.
• The designated COIC site AOIC liaison should contact the Headquarter AOIC analyst to make the necessary adjustment to the application fee information to remove the payment from the "Refund/Apply Listing."
6. To request the MOIC function to issue manual refunds, the COIC sites must prepare a memorandum that includes:
• The offer number
• The taxpayer(s) name
• The taxpayer(s) identification number (TIN)
7. Records that support the COIC sites decision to either remove the offer record from the "Refund/Apply Listing" or to issue a manual refund must be retained for one year. At a minimum, the file should consist of:
• Copies of the "Refund/Apply Listing" or memorandum with the requested information
• Copies of the Form 13479
• Any other supporting documentation necessary to support the decision, including, but not limited to, the Remittance Processing System daily remittance register
8. TIPRA does not allow refunds of periodic payments or required initial TIPRA payments. However, it does allow refunds of the application fee and any deposits the taxpayer may have made.
5.8.3.11 (09-23-2008)
Types of Perfection
1. Certain errors in an offer must be corrected in order to perfect the offer and enable the Service to begin the offer investigation. The combo letter on the AOIC system is designed to communicate with the taxpayer and their representative to request the necessary corrective action. If there is no response to the request letter, return the offer to the taxpayer as not perfected. A return for failure to perfect an offer does not require a Form 1271, Rejection or Withdrawal Memorandum. The taxpayer has no appeal rights when the offer is closed as a return. The following errors must be corrected before beginning the investigation:
• The taxpayers name, physical address or taxpayer identification number (TIN) is missing or incorrect and cannot be determined from IDRS or other documents submitted with the offer.
Note:
If the information can be located on IDRS or other documents submitted with the offer, input the correct information on AOIC, and begin the investigation.
• The offered amount is blank or zero.
• Insufficient number of Forms 656, application fees, and TIPRA payments submitted.
2. When sending a combo letter to perfect the errors listed in (1) above or to request financial substantiation, also include a request to correct the following errors. If acceptance of the offer is considered and a combo letter was not sent but the errors listed below exist, they must be corrected prior to the recommendation to accept the offer.
• The offer was submitted on an obsolete Form 656.
• The Form 656 is not a verbatim duplicate. Such as, preprinted terms on the Form 656 are altered, deleted or missing.
• An amount of money is offered, but the payment terms are not specified.
• The taxpayer(s) signature is missing on Form 656.
• Form 433–A and/or 433–B is incomplete.
• The taxpayer has included a period(s) for which no amount is due.
• No tax liability is due.
• Unfiled returns are secured and there is a balance due.
3. If a period with an amount due is missing from the Form 656, but all periods due can be determined from IDRS or other documents submitted with the offer, add the missing periods to the AOIC MFT screen and to the Form 656.
4. When a taxpayer has included a period(s) for which there is no apparent amount due, do not add the period(s) to AOIC. Contact the taxpayer to determine if any issues are pending that may result in additional tax. If there is no tax due after contact with the taxpayer, document the history and do not add the period(s).
Note:
Contact may be made by telephone or by sending the AOIC combo letter requesting the deletion of the no tax due period(s) on the amended Form 656. If the taxpayer agrees to the deletion of the no tax due period(s), the history must be documented to reflect the method of agreement by the taxpayer.
5. If the basis for compromise is not indicated, but it can be determined by reviewing the package, begin the investigation.
Note:
The offer can be investigated, but cannot be accepted unless an amended Form 656 is signed correcting all errors listed in (1) and (2) above.
5.8.3.12 (09-23-2008)
Screen For Obvious Full Pay Processing (Centralized Offer in Compromise Only)
1. Taxpayers may submit an OIC based on DATC, yet indicate on their application an ability to pay the account in full. These cases, once determined to be processable, will be screened out. Absent any special circumstances they will be rejected with no further investigation or verification. The taxpayer will be directed toward the appropriate resolution for the delinquency.
2. The rejection letter will be the first communication with the taxpayer. A decision to reject with appeals rights is adequately justified by the taxpayer's self-disclosed ability to pay in full.
Exception:
Those cases meeting ETA, DATL for TFRP/PLET, and CDP criteria.
3. For processable offers one of the first considerations is to determine if the taxpayer can pay in full. The following initial review should be conducted by the COIC site on all processable offers to make that determination.
• Complete the Full Pay worksheet using the taxpayer's figures only, as reflected on the CIS.
• Do not adjust any asset values or apply necessary expense standards.
• If the amount shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due through either liquidation of assets or on an installment agreement, assign the offer to AOIC designation "6900."
Note:
If special circumstances or Effective Tax Administration (ETA) conditions are presented by the taxpayer, assign the case to an OE for further evaluation and consideration.
5.8.3.13 (09-23-2008)
Centralized Offer in Compromise Case Building and Perfection Procedures
1. For all processable offers to be transferred to an Area Office the COIC site will:
A. Request the following (if applicable) – Additional Forms 656; Additional application fees; Additional required initial TIPRA payments; Unfiled returns (IMF and BMF); Balance of the required initial 20% payment for a lump sum cash payment.
Note:
All tax returns for which the taxpayer has a filing requirement must be filed; however, the look-back period will generally be 6 years. This rule applies even if a Service employee previously decided not to pursue the filing of the return under the provisions of Policy Statement P-5-133, because it was believed to have little or no tax due. See IRM 5.1.11.1.3(2), Delinquent Return Program, which requires employees to conduct a compliance check to confirm and document all IMF tax returns were filed for the preceding 6-year period.
B. Prepare the combo letter using the paragraphs that address all deficiencies, such as insufficient amount of the required 20% of a lump sum cash offer, application fees, unfiled return.
C. Document the AOIC history to summarize the required substantiation submitted with the offer as well as all perfection issues.
D. If the taxpayer fails to provide any of the requested documentation, the offer will be returned as a processable return.
E. If the taxpayer provided or addressed the requested information, the offer will be immediately mailed to the field after transfer on AOIC.
2. For all processable offers not transferred to an Area office or for those not qualifying under the "Screen for Obvious Full Pay" procedures, the CIS should be reviewed to verify the taxpayer has submitted all supporting documents.
A. An analysis of the information provided on the CIS or any other documentation received should be made prior to issuing a document request or combo letter.
Note:
The letter(s) should only request information necessary to make a reasonable collection decision.
B. Prepare the combo letter using the paragraphs that address all deficiencies, such as insufficient amount of the required 20% of a lump sum cash offer, application fees, missing substantiation, unfiled returns, or incomplete documents, as well as any Form 656 perfection issues. Include Publications 1 and 594.
C. Document the AOIC history to summarize the required substantiation submitted with the offer as well as all perfection issues.
D. A copy of the signed and dated letter must be retained in the file.
Note:
All combo letters will be post-dated five (5) calendar days. Schedule follow up for the 45th day after the date of the letter. Thus, at least 50 calendar days (5 postdate plus 45 calendar days from the date of the letter) would have elapsed before following up.
E. Mail the letter to the taxpayer and representative, if applicable. If a disclosure issue exists, use the appropriate paragraph to indicate this in the combo letter, and do not send a copy to the representative.
F. Envelopes containing combo letters, including Options "B" , "C" , or "D," must be stamped or otherwise marked "URGENT - TIME SENSITIVE" .
G. Document the mailing date of the letter on the "I" screen, which will generate the follow up date on AOIC.
H. Assign the offer to AOIC designation "5100" or "5300" , as identified in IRM 5.8.3.10(4) above.
3. TIPRA requires inclusion of a partial payment upon submission of an offer. For lump sum cash offers, the taxpayer must include a $150 application fee and 20% of the offered amount. If the taxpayer sends less than 20%, it will be considered a processable offer and investigated accordingly. It will be necessary to request the remainder of the required 20% when the combo letter is issued.
4. An OIC submitted by a taxpayer who has unfiled tax returns will be a processable offer and investigated accordingly. It will be necessary to either secure the unfiled returns or a statement addressing the filing requirements.
5. If the taxpayer submits delinquent tax returns with a balance due, the OI will treat the liabilities as missing periods and process the return(s), add the missing periods on the AOIC MFT screen, include the periods on the original Form 656, and continue working the offer.
Note:
Paragraph (q) on the Form 656 clearly states that "I/We authorize the IRS to amend Item 5, above, to include any assessed liabilities we failed to list on Form 656." With this authority agreed by the taxpayer, we will not require the OI to secure an amended Form 656 for the missing periods only.
6. If the taxpayer indicates that they are no longer required to file a tax return, it will be the responsibility of the OI to close the filing requirements or indicate no liability to file; that is, input of Transaction Code 590 or 591, as appropriate. Refer to Document 6209, Sections 8 and 11 for the appropriate transaction and closing codes and request input of the TC 590/591.
Example:
The taxpayer is out of business and is no longer required to file. In the case of a business, if the taxpayer provides information that they are no longer required to file a return (e.g., Forms 941 or 940), close the filing requirements and work the offer.
7. The following information is considered necessary to allow for the OI to make a determination. If the following expenses were claimed on the CIS but substantiation was not included, supporting documentation should be requested.
• Income statements for the last three months (a current year-to-date statement is acceptable as long as it represents at least three months).
Note:
For those taxpayers on Social Security or a fixed pension or retirement where the monthly income does not fluctuate, it may only be necessary to secure one monthly statement to verify the amount of income. In some cases, a request for monthly statements would not be necessary when income could be verification through secured bank statements.
• If applicable, 3 months of income statements for any not liable person should also be requested in order to determine taxpayer's share of living expenses. See IRM 5.8.5.5.4 for additional information on the treatment of shared expenses.
• The last three months of bank statements.
• The current available cash value or loan value of life insurance, 401(k), profit sharing or other retirement plans, and the current balance due on any existing loans against that plan. See IRM 5.8.5.3.8, Retirement or Profit Sharing Plans, for more information on valuing a Retirement or Profit Sharing plan.
8. Substantiation should also be requested for the following information; however, if the taxpayer fails to provide the supporting documentation the expense should be disallowed unless the value can be determined using other sources as indicated below. If no value can be found, make a determination based on all other information. The following list is not all-inclusive.
• Health insurance and out of pocket cost for the last three months (refer to LEM 5.3).
• Current balance due on motor vehicle loans.
• Court orders and proof of payment for the last three months.
Note:
Court orders will only be required if the payment is to be allowed in the computation of the RCP.
• Current balance due on real estate mortgages
• Child and dependent care for the last three months.
• Other secured debt statements for the last three months.
• Life insurance premiums for the last three months.
5.8.3.14 (09-23-2008)
Centralized Offer in Compromise Internal Verification Research
1. Prior to assigning the offer for investigation, internal sources must be searched.
2. Conduct research using IDRS, the electronic locator source, state motor vehicle records, and in-house real property valuation sources, to verify claimed amounts and to identify undisclosed assets or sources of income.
5.8.3.15 (09-23-2008)
Processing Taxpayer Responses to Combo Letters
1. Update the AOIC history to annotate the information and documents received and sign any amended or revised Forms 656 with the current date. Retain the original Form 656 and any amended Forms 656 in the file.
2. If the determination is made to return the offer for failure to provide the requested information, use the appropriate paragraph(s) in the AOIC return letter.
A. Retain the original Form 656, any amended Forms 656, and a copy of the return letter in the file.
B. Cross out all IRS received dates with a red"X" . Stamp the Form 656 with "RETURN" , in red, and add the current date.
C. Update the case history on AOIC, including the reason for the return. Include a copy of the history in the file and give the file to the manager for approval.
If… Then…
The offer is assigned to "5100" , no taxpayer response is received and the follow-up date passes Invoke the "No Reply" procedures.
The offer is assigned to "5100" and the taxpayer responds Associate the mail and assign to "5500"
Note:
If the taxpayer has substantially replied to the request, but has not provided all the information the case should be assigned to an OE for review. The OE should review the reply to determine if the information provided is sufficient to make a decision. If not, the OE should attempt one phone call to secure the missing information before returning the offer as a"No Reply" .
The offer is assigned to "5300" and the taxpayer has provided sufficient information to make a determination Assign to "6000" .
3. PE's are required to initiate the next appropriate action on cases where taxpayers have responded to the combo letter within 10 calendar days from the date the offer is assigned to the PE.
4. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the AOIC history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the procedures as defined in IRM 5.8.3.17, "No Reply" Procedures.
5.8.3.16 (09-23-2008)
Analyzing Taxpayer Responses to Combo or Additional Information Letters
1. The failure to provide proof of payment of any monthly expenses claimed on the CIS, for health care, court orders/court-ordered payments, child/dependent care, life insurance, secured debt, or other expenses, or the failure to submit current loan balance statements for real estate mortgages, or current loan balance statements for motor vehicles will by itself not be a sufficient reason to return an offer.
2. If a court-ordered payment is to be acknowledged as an expense, a copy of the court-order must be secured to determine the number of months to allow for the remainder of the payments. If the court-ordered payment is not to be allowed, a copy of the court order will not be required.
3. Determine if the taxpayer's response or original submission statements and documents addressed all requested items. The failure to provide the desired information/documents will by itself not be sufficient reason to return an offer, as long as the taxpayer addressed the particular information or documentation requested.
Note:
If the taxpayer has substantially replied to the request, but has not provided all the information requested, the case should be assigned to an Offer Examiner (OE) for further review and evaluation on whether a reasonable collection potential (RCP) can be calculated. The OE should attempt one phone call to secure the missing information before returning the offer as a "No Reply"
4. Below are some examples of when a taxpayer may address, while not actually providing, the requested documentation. In these cases, the taxpayer would be considered to have substantially responded and the case should be forwarded to an OI for further investigation and consideration. This list may include but is not limited to the following:
• Bank statements are provided , but not all pages were included or only two months were sent instead of three.
• Wage statements are provided, but not all pages were included or only two months were sent instead of three.
• The taxpayer indicates an inability to provide a particular requested document (e.g., court order or judgment, annual statement of Social Security annuity amount).
Note:
For those taxpayers on Social Security, fixed pension, or retirement, where the monthly income does not fluctuate, you may accept only one monthly income statement to verify the amount of income. In those cases, verification of income may be available through secured bank statements.
• The taxpayer indicates that they did not understand the request or that all requested documentation is attached.
• The taxpayer indicates that a non-liable person(s) has no income or refuses to provide the substantiation.
• The taxpayer provides a letter of explanation for a missed payment or inability to make the entire payment.
5. For offers where it is determined the taxpayer has substantially replied or adequately addressed the requested information or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, the case will be assigned to an OI for further consideration.
6. If the OI determines that the RCP calculation cannot be completed because of the missing information or documents, the OI will attempt to telephone the taxpayer (or representative, if applicable) to secure any needed substantiation, explaining the information is needed in order to continue the offer investigation. If unable to contact the taxpayer by telephone after one attempt or if the taxpayer or representative is unable to provide the information to the OI within a reasonable amount of time (fax transmission is preferable), document the AOIC history and return the offer for failure to provide necessary information.
7. If any of the errors identified in IRM 5.8.3.11 above were not corrected to perfect the offer, the offer will be returned. The following conditions assume that the taxpayer's response corrected any perfection errors.
If the offer is assigned to "5500" and… Then…
The response included all required financial substantiation • Check internal verification sources.
• Assign to "6000"
• If a field case, assign to an OS to determine the RCP
The response included all requested financial information/substantiation except proof of payment of mortgage/motor vehicle loan balance, court order, or court-ordered payments • Check internal verification sources.
• Assign to"6000"
• If a field case, assign to an OS to determine the RCP
The taxpayer substantially replied or addressed the requested items Assign to an OI to determine if the information is sufficient to make an RCP calculation.
The response neither included nor addressed requested income or bank statements, non-liable person, or 401(k) information Return the offer.
8. If the taxpayer fails to submit the balance of the required initial TIPRA payment(s) (20% for a cash lump sum offer) within a reasonable amount of time, the offer will be considered to be a processable return. The OI should issue the appropriate AOIC withdrawal letter and mail it to the taxpayer.
Note:
If the taxpayer gives an explanation supporting special circumstances as a reason the funds were not available, the OI will continue to work the offer as if the taxpayer had submitted the entire payment. See IRM 5.8.11, Effective Tax Administration, for examples of special circumstances and ETA.
5.8.3.17 (09-23-2008)
"No Reply" Procedures
1. After the offer is determined processable and the combo letter has been sent, the offer should be held for the required number of days to allow the taxpayer to provide the requested information. If after the designated time period has passed and the COIC site has not received a response, an automated return process will be completed. The AOIC system will generate all the necessary letters and documents to close the case. Before closing the offer the employee must check AOIC to verify that no response was received.
Note:
Processable returns for "No Reply" will not be made by the PE unless the taxpayer did not submit any requested documentation and the taxpayer did not provide substantive information with the original submission. Those cases where the PE determined the taxpayer provided or addressed the information requested, will assign the case to an OE for a review and determination on whether the response was sufficient to make a decision or to return the offer.
2. Offers for which the PE determined the taxpayer has substantially replied or adequately addressed the requested information or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, will be assigned to an OE for further consideration. The PE will not implement the "No Reply" procedures.
3. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the AOIC history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the "No Reply" procedures as defined above.
4. See IRM 5.8.7.2.2.3 for additional procedures.
5.8.3.18 (09-23-2008)
Withholding Collection
1. A taxpayer's installment agreements remains in effect, if the taxpayer submits a lump sum cash offer only while the offer is pending. If the OIC was submitted as a periodic payment offer, the taxpayer will only be required to make the TIPRA payments. The cases submitted under periodic payment criteria will be changed to Status 71.
2. For offers submitted 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.
3. The term "jeopardy" has the same definition described Policy Statement P-4-88. Collection is not considered to be in jeopardy because an undisclosed asset was discovered during the investigation.
4. Upon receiving information that a jeopardy levy has been approved, contact the employee issuing the levy. If it is agreed that the offer was filed to hinder or delay collection, follow procedures in IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, below to return the offer.
5. 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 waiving the restrictions on levy, the offer should be immediately deemed a processable return based on altered Form 656.
6. While an offer is pending there is no prohibition on filing notices of federal tax lien. See IRM 5.8.4.9, Notice of Federal Tax Lien Filing, for a discussion of filing a notice of federal tax lien while an offer is pending.
5.8.3.19 (09-23-2008)
Offers Submitted Solely to Delay Collection
1. When it is determined that an offer is submitted solely to delay collection,, the offer can be returned to the taxpayer without further consideration.
Note:
The term solely to delay collection means an offer that was submitted for the sole purpose of avoiding or delaying collection activity. See IRM 5.8.3.19.1 below for examples of solely to delay.
2. The Field OIC group manager and the COIC Unit Manager, have delegated authority to approve returns based on solely to delay collection.
3. An offer is not considered submitted solely to delay collection just because there is an imminent CSED issue or if an offer has been investigated and rejected and the taxpayer exercises appeal rights.
5.8.3.19.1 (09-23-2008)
Solely to Delay Collection Determinations
1. When a taxpayer submits an offer that is not materially different from a previous offer that was considered and rejected with appeal rights, the offer may be returned as solely to delay collection.
2. When a taxpayer submits an offer that is not materially different from previous offer that was considered and returned and cause of the prior return has not been addressed, the offer may be returned as solely to delay collection.
Example:
The taxpayer fails to address the issues or defects of the previously submitted offer.
3. The offer may be considered as materially different when the amount reflected on the re-submission is substantially similar to, less than, or the same as the prior offer and the following exists:
1. The taxpayers financial situation has changed.
A change in the taxpayer's financial situation may include:
• A change in employment and/or income
• A change in marital status affecting future ability to pay
• A change in ownership of assets or significant decline the value of any assets
• The loss of an asset that was included in the original offer investigation
• A change in circumstances that would affect allowable expenses and future ability to pay
2. The taxpayer has raised special circumstances that were not considered during the prior investigation.
4. Although no provisions are provided for any formal appeal of a decision to return an offer submitted solely to delay collection, all employees must honor any taxpayer's request for a review of this decision with their immediate manager.
5. In some situations, it may be determined that an offer is submitted as solely to delay collection when no prior offer has been submitted. When a collection employee has determined that the next action necessary is to enforce collection through levy or seizure, but the taxpayer files an offer to delay this enforcement action, the offer may be returned as solely to delay collection.
Note:
This may include situations involving OICs from entities (subject to the assertion of the trust fund recovery penalty under IRC 6672) attempting to compromise trust fund taxes where any trust fund portion has not been paid or the applicable trust fund recovery penalty has not been previously assessed against all responsible persons, and the Service has previously explained to the principals that an offer will not be investigated unless the TFRP has been assessed or the trust fund paid. See IRM 5.8.4.13.2.
5.8.3.19.2 (09-23-2008)
Examples and Discussion
1. The following are examples of offers considered submitted solely to delay collection based on re-submission after a prior rejection or return:
Example:
(1) During initial analysis by an OI, it is discovered on AOIC that the taxpayer had a previous offer returned six months ago as part of the No Reply process. A review of the AOIC case history indicated the taxpayer did not provide any bank statements with the first offer and did not respond to the combo letter requesting the necessary documentation to determine an accurate RCP. The initial analysis indicated bank statements are required to determine an accurate RCP; however, none was provided with the new offer and there was no indication from the taxpayer the accounts were closed. No special circumstances were indicated.
Example:
(2) The taxpayer submitted an offer for $10,000. The OI computed the RCP to be $20,000. The taxpayer refused to increase the offer to the computed RCP. A rejection letter was issued, and the taxpayer did not appeal. One month later, the taxpayer resubmitted an offer for $10,100. A thorough analysis indicated there is no change in taxpayer’s financial condition and no special circumstances were indicated.
Example:
(3) A taxpayer submits an offer for $3,000 to be paid within 90 days of acceptance. A prior offer was submitted for $10,000 to be paid within 90 days. The investigation of the initial offer submission resulted in the offer being rejected with appeal rights. During that offer investigation it was determined that a piece of property was transferred to a non-liable spouse for no consideration and that a clear transferee issue exists. The value placed on the transferred property was $30,000, and was included in the reasonable collection potential (RCP). The taxpayer failed to request a timely appeal on the rejected offer. There were no special circumstances indicated.
Example:
(4) During initial processing of an OIC, AOIC indicates there have been three offers submitted by the taxpayer over the past 18 months. All three were returned for failure to provide requested CIS information. The closed return file indicates the taxpayer was asked to provide a financial statement for a closely held corporation, which the taxpayer holds 75% interest in and is the corporate president. A Form 433-B for this corporation was requested during the offer investigation. The offer specialist clearly documented in the file the taxpayer's interest and position in this corporation. The request was clear and specific and the taxpayer refused to provide this information claiming the IRS has no right to place a value on the corporation when determining his ability to pay on personal tax liabilities. The newly submitted offer package does not include a Form 433-B for the corporation and the Form 433-A indicates the same corporation is the taxpayers current employer.
Example:
(5) An offer is submitted for $30,000 payable within 90 days of acceptance. Research on AOIC indicates this the second offer submitted by the taxpayer. A prior offer was submitted for $20,000 payable within 90 days of acceptance. The original offer was rejected with appeal rights, the taxpayer filed a timely appeal, and Appeals sustained the rejection. A review of the prior offer file indicates the taxpayer has the ability to full pay the outstanding liability through an installment agreement. The total liability is for $40,000. A review of the financial information indicates the taxpayer still has the ability to full pay the liability. The original offer was received 18 months ago and no payments have been made during this period. There is no change indicated on the financial statement, except the taxpayer has a new employer. The taxpayer's income remained the same. There are no special circumstances indicated.
2. The following are examples of offers considered solely to delay collection based on a prior collection analysis and determination of ability to pay:
Example:
(6) Taxpayer owes $500,000. An offer is submitted for $15,000. The CIS, as submitted by the taxpayer, indicates the taxpayer has recently been fired from his job where he had been earning $200,000 a year. The CIS also reflects a personal residence with a fair market value of $1.5 million and outstanding mortgage of $750,000 leaving equity of $750,000; a piece of property owned free and clear valued at $60,000, a large boat with a value of $140,000 which is unencumbered. Final demand has been made and a collection employee has indicated to the taxpayer that a Notice of Federal Tax Lien will be filed and possible enforcement action if the taxpayer does not full pay the liability. The investigation has shown that there are no special circumstances to be considered.
Example:
(7) Taxpayers owe a joint 1040 liability for 1997 of $139,854 and submitted an offer for $250. Both taxpayers are self-employed: The husband is a painter and the wife is a real estate sales person. They have no future income potential. They own an unimproved lot valued at $14,700, a personal residence valued at $177,500, six automobiles and two horse trailers valued at $20,775. Their total reasonable collection potential (RCP) is $127,191 based on the equity in the assets. The balance due period was in active collection inventory prior to the offer submission. The collection employee advised the taxpayer to secure a loan on their equity or levy action would be initiated. The taxpayer refused to pay more than the proposed $250 and submitted the offer instead of making any payment to their tax liability. The collection employee completed the Form 657 indicating the case should be returned as solely to delay based on the prior collection history and recent taxpayer cooperation to resolve the balance due. It was agreed and approved by the collection manager. The investigation has shown that there are no special circumstances to be considered.
Example:
(8) A corporation owes Form 941 employment taxes which include the unpaid trust fund portion. The revenue officer previously advised the corporate principals that the Service would not consider an offer in compromise for this tax liability unless they personally full paid the trust fund portion or the trust fund recovery penalty (TFRP) was assessed against all responsible persons. The principals did not pay the trust fund portion and the corporation submitted an offer in compromise before the revenue officer assessed the TFRP against all responsible parties.
5.8.3.19.3 (09-23-2008)
Procedures for Return of Offers Submitted Solely to Delay Collection
1. The determination that an offer was submitted solely to delay collection may be made immediately after the offer is deemed processable or at any time during the offer investigation when the facts support the decision.
2. The determination that an offer was submitted after a prior reject or default can be supported by reviewing records on AOIC and IDRS transactions:
If… Then…
AOIC indicates that prior offer records exist Determine the type of disposition used to close the prior offer submissions.
AOIC indicates the prior offer submission was rejected with appeal rights The re-submission requires review to determine if it was submitted solely to delay collection.
The prior offer was defaulted within the past year The re-submission requires review to determine if it was submitted solely to delay collection.
3. To determine if the re-submission is materially different from the prior rejected or defaulted offer:
A. Review any AOIC and/or ICS history to establish that an offer is a re-submission solely to delay collection.
B. Compare the information contained in the prior history with the resubmitted offer package to determine if the offer was submitted solely to delay collection.
4. Cases assigned to a field Offer Specialist (OS) – When a field OS identifies that an offer was submitted solely to delay collection, Form 657, Revenue Officer Report, must be completed and submitted to the field OS group manager for approval. If the field OS group manager concurs, the case will be closed immediately as a return. A copy of Form 657 will be forwarded to the appropriate revenue officer (RO) group manager to explain why the offer was not investigated and to refer the balance due accounts for appropriate collection activity. It is important that coordination between the field OS and the RO occur to ensure that no levy is issued until after the return letter is sent by the OS.
5. Cases assigned to a Centralized Offers in Compromise (COIC) Offer Examiner (OE) – COIC OE's will not be required to complete a Form 657, but will be required to document the AOIC history that the offer was determined to be a re-submission solely to delay collection. If the COIC Unit manager concurs, the offer will be closed immediately as a return.
6. Cases assigned to a field RO – When the field RO receives an offer, or is notified that the taxpayer submitted an offer to COIC, and the RO determines an offer is submitted "solely to delay collection" , the RO will complete a Form 657, Revenue Officer Report, and submit it to their group manager for approval. The Form 657 must provide detailed reasons supporting the solely to delay collection decision. If the RO group manager concurs, the Form 657 will be faxed to the either the field OS group manager or COIC Unit Manager, depending on where the offer is assigned at that time. Copies of current (prior 12 months of activity) ICS history sheets will be also be provided to the COIC site. However if the RO feels that the ICS history sheets older than 12 months would benefit the COIC sites, then they should submit what they think is pertinent.
If an offer, application fee, and 20% payment or first initial installment were submitted to the RO by the taxpayer, then the RO group manager will over night express the offer, application fee, the 20% payment or first initial installment payment, current ICS history sheets, and Form 657 to the COIC Unit Manager.
7. The COIC sites will screen for Form 657’s. The COIC sites will make Form 657 a top priority and promptly process and return an offer submitted for solely to delay collection. If the COIC unit manager agrees with the determination, the manager, or COIC employee, will contact the originating RO to advise that the return letter has been issued. If the COIC unit manager disagrees with the determination, discussions should be initiated with the field manager to reach an agreeable solution.
8. The COIC sites will:
• Screen out Forms 657
• Make all Forms 657 a priority
• Promptly process
• Immediately return the offer as solely to delay collection.
9. Once the processability determination has been made, the COIC employee will contact the originating RO to advise that the return letter has been issued.
10. The Form 657, Revenue Officer Report, serves to establish coordination between the field group, the offer group, and the COIC site to provide case documentation regarding these determinations, and to ensure collection action is not pursued until the return is approved.
11. Once the return letter is sent and the case reassigned to the field RO, then the RO assigned the case must initiate appropriate collection action in accordance to IRM 5.1.10.7, Timely Follow Up’s
Exhibit 5.8.3-1 (09-23-2008)
COIC Remittance Tracking Report
Form 13479, Remittance Tracking Report is used to process payments received in COIC.

.8.4 Investigation
• 5.8.4.1 Overview
• 5.8.4.2 Doubt as to Liability
• 5.8.4.3 Effective Tax Administration and Doubt as to Collectibility with Special Circumstances
• 5.8.4.4 Doubt as to Collectibility
• 5.8.4.5 Screen for Obvious Full Pay (Centralized Offer in Compromise Procedures Only)
• 5.8.4.6 Actions Based on Reasonable Collection Potential
• 5.8.4.7 Initial Action, Follow-Up, and Closing Action Time Frames
• 5.8.4.8 Documentation
• 5.8.4.9 Notice of Federal Tax Lien Filing
• 5.8.4.10 Combination Offers
• 5.8.4.11 Responsibility of Offer Specialist and Field Revenue Officers
• 5.8.4.12 Coordination with Other Functions
• 5.8.4.13 Procedures for Certain Types of Taxpayers and Liabilities
• 5.8.4.14 Concluding the Offer Investigation
• Exhibit 5.8.4-1 Asset/Equity Table (AET)
• Exhibit 5.8.4-2 Income/Expense Table (IET)
• Exhibit 5.8.4-3 Offer in Compromise Recommendation Report
• Exhibit 5.8.4-4 Expedite Processing - Processability Determination
• Exhibit 5.8.4-5 Expedite Processing - Notification of Preliminary Case Decision
5.8.4.1 (09-23-2008)
Overview
1. This chapter provides:
• Instructions for conducting the different types of offer investigations.
• Definitions for considering each possible basis under which an offer may be filed.
• Directions for coordinating activities with other Service functions.
5.8.4.2 (09-23-2008)
Doubt as to Liability
1. After initial processing, offers based on DATL of a TFRP or PLET are transferred to Area offices for assignment to Offer Specialists. All other DATL offers should be forwarded with no initial processing, to the centralized DATL processing unit located at the Brookhaven campus.
2. For offers based on DATL of a TFRP or PLET, the decision to accept or reject rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay over the subject tax. Offers on assessments of this nature that were determined by Appeals or that received an Appeal hearing should be transferred to Appeals for consideration.
3. The taxpayer must offer a dollar amount. An offer for zero dollars on this basis is not acceptable and is subject to perfection requirements. The amount may be a cash or deferred offer, but must be payable within 90 days of acceptance.
4. The administrative file should be secured and reviewed to examine the evidence that supported the assessment. New information, testimony or documents presented by the taxpayer should be considered. Refer to IRM 5.7, Trust Fund Compliance Handbook, for a discussion of the factors and evidence that support an assessment of a TFRP or PLET.
5. A DATL offer should be resolved in one of the following ways:
If… Then…
No new information is available and the TFRP or PLET file supports the original assessment Reject the offer.
Another amount of liability is determined and the taxpayer agrees to the finding Prepare and submit the Form 3870, Request for Adjustment, to correct the assessment and secure a withdrawal of the offer or recommend acceptance of the offer for the correct amount.
Another amount of liability is determined and the taxpayer still does not agree Submit a Form 3870 to correct the assessment and recommend rejection of the offer.
The Administrative file does not support the assessment Abate the assessment in full and secure a withdrawal of the offer.
6. Note:
7. If new information is presented that raises doubt or the existing information supporting the assessment is weak, consider accepting an offer to avoid the hazards of litigation.
5.8.4.3 (09-23-2008)
Effective Tax Administration and Doubt as to Collectibility with Special Circumstances
1. Refer to IRM 5.8.11, Effective Tax Administration, for a full discussion on how to investigate and determine acceptability of offers submitted under ETA or Doubt to Collectibility with Special Circumstance (DCSC).
Note:
OI's should review comments in Section VI to determine if specific special circumstances or effective tax administration issues are discussed, which should be considered. Statements such as "I cannot pay" will be addressed via the determination of the taxpayer's RCP.
2. ETA offers can be accepted only when:
• There is no doubt the tax is owed and no doubt that the full amount owed can be collected from the taxpayer.
• The taxpayer has a proven economic hardship or has presented facts that would support acceptance under the public policy/equity basis, and
• Compromise would not undermine compliance with tax laws.
3. DCSC offers can only be accepted when the taxpayer cannot fully pay the tax due, but has proven special circumstances that warrant acceptance for less than the amount of the calculated RCP.
4. Factors establishing special circumstances under DATC are the same as those considered under ETA. See IRM 5.8.11, Effective Tax Administration, for a list of those factors.
5.8.4.4 (09-23-2008)
Doubt as to Collectibility
1. DATC offers may be worked either in the COIC site by an OE or in Area offices by an OS. Cases assigned to an OE in COIC may be forwarded to Area offices for assignment to an OS if complex issues requiring a field investigation are identified.
2. For DATC offers, the decision to accept or reject usually rests on whether the amount offered reflects the RCP. The exception to this rule would be for offers not accepted based on public policy reasons. RCP is defined as the amount that can be collected from all available means, including administrative and judicial collection remedies. Generally, the components of collectibility outlined in IRM 5.8.4.4.1 below, will be included in calculating the total RCP. See IRM 5.8.5, Financial Analysis, for more detail on how to analyze the taxpayers financial condition to arrive at the value of each component. In determining the taxpayers future ability to pay, full consideration must be given to the taxpayers overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training and work experience.
3. Offers should not be accepted where the tax can be paid in full as a lump sum or can be paid under current installment agreement guidelines, unless special circumstances are identified that warrant consideration of a lesser amount. Once the ability to make payments is established, the investigating employee must determine if a greater amount can be collected through current installment agreement guidelines than is being offered. If so, the offer should be recommended for rejection, unless special circumstances warrant acceptance.
4. To determine if the taxpayer can full pay, the calculation must be based on the balance due at the time the offer was submitted.
5.8.4.4.1 (09-23-2008)
Components of Collectibility
1. The following four components of collectibility will ordinarily be included in calculating RCP for offer purposes:
Components Definition
Assets The amount collectible from the taxpayers net realizable equity in assets.
Future Income The amount collectible from the taxpayers expected future income after allowing for payment of necessary living expenses.
• For Lump Sum Cashoffers, if the offer is payable in 5 or fewer installments within 5 months – project for the next 48 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 5 months and less than 24 months – project for the next 60 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 24 months – project through the statutory period.
• For Short Term Periodic Paymentoffers, it is the amount collectible over the next 60 months or the remaining statutory period, whichever is less.
• For Deferred Periodic Payment offers, it is the amount that is collectible over the life of the collection statute.
Amount Collectible from third parties The amount we could expect to collect from third parties through administrative or judicial action. For example, amounts collectible through assertion of a TFRP, a transferee assessment, nominee lien, or suit to set aside a fraudulent conveyance.
Assets and/or income that are available to the taxpayer but are beyond the reach of the government Assets that the lien will not attach, such as equity in assets located outside the country.
5.8.4.5 (09-23-2008)
Screen for Obvious Full Pay (Centralized Offer in Compromise Procedures Only)
1. In all cases, the OE will verify the full pay worksheet as prepared by the PE.
2. If the amounts shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due by either liquidation of assets or through an installment agreement, the offer should be rejected without substantiation or further analysis. The National Standard Expenses and Local Housing and Transportation expense standards should not be applied for this analysis.
3. Review the case to ensure no special circumstances exist that would warrant consideration under ETA. If the taxpayer submitted the offer under ETA, by marking the box on the Form 656, the offer will not be rejected under Screen for Obvious Full Pay criteria, but must be assigned to an OE or to the field as appropriate for further evaluation and consideration.
4. Taxpayers who have submitted an offer with a CIS that reflects an ability to fully pay the tax, absent special circumstances, will immediately be issued a rejection letter. In these cases, prepare the Form 1271, Rejection or Withdrawal Memorandum, and attach the Full Pay Worksheet in lieu of the Offer Recommendation Report and Asset/Equity and Income/Expense tables as instructed in IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing.
5.8.4.6 (09-23-2008)
Actions Based on Reasonable Collection Potential
1. Once the RCP has been calculated, process the case as follows:
If… Then…
The Screen for Obvious Full Pay shows the taxpayer can full pay based on CIS (COIC procedures only) The rejection letter should be issued. (See IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing)
The offer must be increased in order to be recommended for acceptance Issue Letter 3498 (SC/CG) or contact the taxpayer by telephone to amend the offer to the acceptable amount. If the taxpayer response does not change the case determination, issue the rejection letter using the option to increase paragraph.
The analysis shows the taxpayer can fully pay the tax through liquidating assets and/or installment payments Issue Letter 3499 (SC/CG) or contact the taxpayer by telephone. If the taxpayer response does not change the case determination, issue the rejection letter using the full pay paragraph.
The offer amount equals or exceeds the RCP and the offer is otherwise acceptable The acceptance letter should be issued. (See IRM 5.8.8, Acceptance Processing)
Special circumstances are identified that warrant acceptance for less than the RCP Consider an ETA offer or DCSC. (See IRM 5.8.11, Effective Tax Administration)
5.8.4.7 (09-23-2008)
Initial Action, Follow-Up, and Closing Action Time Frames
1. Time frames have been set for completing certain tasks associated with an offer investigation. These time frames vary depending on who is assigned the case.
2. The timely completion of an offer investigation is an organizational priority. As such, unwarranted inactivity gaps are to be avoided. (See IRM 5.8.1.1.6, Timeliness of Offer Investigations, for definitions of timely case processing.)
5.8.4.7.1 (09-23-2008)
Initial Offer Actions
1. Within 15 calendar days of the date an offer is assigned to an OE in COIC or within 30 calendar days of the date an offer is assigned to an OS, the assigned employee must complete the following actions:
A. Analyze the new receipt to determine if sufficient information is available to make a decision regarding the merits of the offer.
B. If additional information is needed from the taxpayer to reach a decision, issue an additional information request, as appropriate.
C. Where necessary and appropriate, this request should also include verification of the taxpayer's compliance with the current year's ES tax payments and/or current quarter FTD payments. See IRM 5.8.7.2.2.1 for additional information on the calculation and determination of appropriate ES payments.
D. If the taxpayer failed to make the appropriate amount of the required lump sum cash payment (20% of the offered amount), when requesting additional information you must also request the remainder of the payment.
E. If enough information is available, prepare a preliminary AET/IET to make a projected resolution to the case or to determine exactly what additional information is needed. This requirement does not apply to those offers determined to meet solely to delay collection criteria. See IRM 5.8.3.19 for additional information.
F. If no additional information is needed, initiate appropriate follow-up actions to recommend the disposition of the offer.
G. The initial lien determination should be made and documented.
2. Prior to the issuance of offer cases to the field, COIC will have made all processability determinations and completed initial internal case building actions. In some cases, no additional information will be needed from the taxpayer to complete the investigations. In these situations, the next appropriate action(s) should be scheduled in a manner that ensures the timely resolution of the case.
3. In situations where the Field OS are not co-located with the group manager, an additional 5 days will be allowed from the assignment date to complete the initial case actions. This time accounts for the need to transship the case files to remote locations. Situations where this transit time routinely takes more than 5 days to accomplish should be reported to the Area OIC Coordinator to determine the cause for the delays.
4. Generally, the AOIC assignment date will be the assignment date of record.
5. Prior to the income and expense analysis of an individual offer where the taxpayer submitted a Form 656-A certification, the OI will determine whether the household income and family unit size at the time the offer was submitted supported the decision not to pay the application fee or the required TIPRA payment. If the OI concludes that the income for the family size exceeds the levels for which a Form 656-A certification was allowed (i.e. the taxpayer should have paid the application fee and/or the required TIPRA payment), contact the taxpayer and request the required initial payment and application fee be submitted. If the taxpayer does not respond in a reasonable amount of time, the offer will be returned. Return the offer using letter code "RET-AB" for failure to pay the application fee and required initial TIPRA payment.
Note:
A definition of household is: "The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household."
6. If the taxpayer submitted the Form 656-A, the required TIPRA payment, and the application fee, treat the payments as a deposit. If during the investigation, the OI determines the taxpayer does not qualify for the waiver, the taxpayer will be notified. Request MOIC move the money to the taxpayer's liability(s), and continue working the offer. If the offer was a periodic payment offer, discuss the requirements with the taxpayer, and request the taxpayer to make all payments from the date of submission to the date of discovery. The taxpayer must also make payments through the remainder of the investigation. Allow a reasonable amount of time for the taxpayer to submit the funds. If the taxpayer fails to make up the payments, or cannot make the required TIPRA payments, return the offer, unless special circumstances prohibit the taxpayer to submit the funds. See IRM 5.8.3.5 for more information.
Note:
A definition of household is: The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household.
7. If additional information is required to make a decision, contact the taxpayer or POA to request the additional supporting documents. If it is determined no information is necessary, issue a decision letter.
8. If the taxpayer or their representative requests an extension of time to comply with the request for additional information, a reasonable amount of time should be granted. Generally, a minimum of 15 and a maximum of 30 calendar days should be allowed. If the taxpayer of representative requests additional time beyond the 30 calendar days, the additional time should be allowed. However, if it appears that the representative or taxpayer are delaying the progress of the offer investigation or if the taxpayer or representative fail to meet the deadline, initiate the "No Reply" procedures as defined in IRM 5.8.3.17. Document the ICS or AOIC history indicating the new deadline for the response.
9. Cases transferred from one Area office to another should have an AOIC transfer letter sent advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. The transferring office will be responsible for sending the transfer letter.
10. If assignment to an offer specialist does not or will not take place within 45 days of the transfer:
• The taxpayer must be contacted (verbally or in writing) and advised of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the ICS history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.
• The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group
11. If the request for information is in writing, the correspondence must include:
. A list of the specific items/information needed,
A. A specific deadline for providing the information,
B. A statement indicating that the offer will be returned without further consideration if all the information is not provided,
C. The name, phone number, and employee number of the investigating employee,
D. A statement regarding enclosure of Publication 1 and 594,
E. A statement indicating that a NFTL will be filed if a decision has been made to file a lien.
F. A statement addressing any potential special circumstances (e.g. ETA or DCSC),
G. Rubber-stamp or otherwise enter on all outgoing envelopes containing requests for additional information "URGENT — TIME SENSITIVE" .
12. If the request for information is in person (e.g. by telephone, office, or field visit) the contact must include the following information:
. Verify receipt of Pub. 1 and Pub. 594. If the first conversation is with the POA, verify that the taxpayer has received these publications. If the response from either the taxpayer or the POA is yes, ask if there are any questions and answer any questions they may have to ensure there is a clear understanding of their rights. If they have not been received, offer to either explain their rights before proceeding or re-mail the publications to the taxpayer and postpone conversation until they have been received and read.
A. Address and document any potential special circumstances (e.g. ETA or DCSC) identified during the initial review of documents submitted with the offer.
13. Cases transferred from one office to another should have an AOIC transfer letter sent within 15 calendar days of the transfer advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. Since cases are often reassigned to a POD once received in the Area office drop point, the receiving office will be responsible for sending the transfer letter. If the case cannot be assigned immediately, the taxpayer should be advised of the anticipated date of assignment to an OS. A follow up letter should be sent to the taxpayer advising of any delay in assignment if the case is not assigned by the date specified in the original letter.
14. To eliminate the potential for misrouted cases, the procedures outlined in IRM 3.13.62, Media Transport and Control, will be followed.
. The originating office responsible for shipment of the offer files will follow-up within 30 days from the shipment date if the acknowledgment copy of the Form 3210, Document Transmittal, is not received.
A. If all the cases listed on the Form 3210 are not included in the shipment, the receiving office is responsible for notifying the originating office within 10 days of receipt of the Form 3210.
B. Any and all discrepancies will be resolved within 30 days.
5.8.4.7.2 (09-23-2008)
Periodic Payments Required With Offer in Compromise Submission
1. IRC Section 7122(c), as amended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), requires OIC's submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount. These payments are applied to the tax liabilities included on the offer and are in addition to any application fee imposed. See IRM 5.8.3 for additional information.
2. The form of these partial payment depends on the taxpayer’s proposed offer and its terms.
A. A lump sum cash offer (defined as payable in five or fewer payments) must be accompanied by a payment of 20% of the offered amount.
B. A periodic payment (defined as payable in six or more installments) must be accompanied by payment of the first proposed installment, and additional payments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer.
C. For short term periodic payment offers, if the taxpayer qualifies for the Form 656-A waiver, the taxpayer is not required to pay the application fee, or TIPRA payment(s), including any future payments unless the offer is accepted. If the offer is accepted, the 24 month timeframe for paying the accepted offer amount will start on the date of written notice of acceptance. At that time, the taxpayer will begin making the payments in accordance to the terms of the accepted offer.
3. While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed payments as they become due. There is no requirement that the payments be made monthly or in equal amounts.
4. The Service is not bound by either the offer amount or the terms. The offer investigator may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the offer investigator may advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance.
5. Taxpayers who qualify for waiver of the $150 application fee based on their income level at the time they submit an offer are also exempt from making the required TIPRA payment(s). If during the investigation it is discovered that the taxpayer does not qualify for the waiver, contact the taxpayer and request the required payment(s) and the application fee. Allow a reasonable amount of time for the taxpayer to submit the payment(s) and fee. If the taxpayer fails to submit the payment and the fee, return the offer. However, if the taxpayer submitted the application fee, and TIPRA payment in addition to the Form 656-A Waiver, and it is discovered that the taxpayer doe not qualify for the waiver, the offer investigator will:
• Request the money be moved to the appropriate account and/or liability(s), and
• Continue working the offer
6. If the taxpayer submitted a periodic payment offer, the offer investigator will request that the taxpayer make up the past due payments from the date of submission to the date of discovery. A reasonable amount of time must be allowed for the taxpayer to send the requested funds. The taxpayer will then be required to make payments in accordance to the terms of the offer when submitted during the remainder of the investigation. If the taxpayer cannot or fails to make the payments by the deadline, the offer will be returned without further consideration.
7. Taxpayers may designate how the required TIPRA payments are to be applied to the taxpayer's liabilities. The request for designation must be made in writing when the offer is submitted (in the case of the initial partial payments) or when the payment is made (in the case of subsequent installment payments made for a periodic payment offer). Once a designation of payment is made, it cannot be changed at a later time. The written payment designation must clearly explain how these payments are to be applied to specific tax periods or liabilities (e.g., income taxes, employment taxes, trust fund portions of employment or excise taxes, etc.). This written payment designation must become part of, and remain with, the offer case file.
8. In the absence of any written payment designation by the taxpayer when the offer was submitted or when the payment is made, the Service will apply the payments in the best interest of the Government.
9. COIC will process the required initial TIPRA payment accompanying periodic payment offers prior to transferring an offer to an OI. For offers submitted by corporations to compromise trust fund taxes, COIC will apply the initial payment(s) to the tax liability with the earliest unexpired CSED. OI's assigned to investigate these offers are responsible for transferring the partial payment(s), if necessary, in the best interest of the government as defined in 5.8.4.7.2.1 below.
5.8.4.7.2.1 (09-23-2008)
Periodic Payments Made During Offer Investigation
1. It is the responsibility of the OI assigned the case to ensure that taxpayers make the proposed installments during the offer investigation. In addition, the OI must also ensure that required additional amounts are paid if the taxpayer submits a revised offer reflecting a larger proposed offer amount and/or changes the offer from a periodic payment to a lump sum cash offer.
2. If a subsequent payment is received by an OI with a Form 656-PPV, forward the payment with the Form 656-PPV to the appropriate COIC address shown on the form.
3. Upon receipt of a subsequent payment received by the COIC site while the offer is assigned to an OI, COIC must annotate the AOIC history with the following information:
• Date(s) of receipt
• Amount of the payment(s)
• Location (MFT and period) applied
4. It is the responsibility of the OI to check the AOIC history and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.
5. If a subsequent payment is received in the COIC site while the offer is assigned to an OI, COIC will annotate the AOIC history with:
• The date(s) of receipt,
• amount of the payment(s), and
• location (MFT and period) applied
6. It will be the responsibility of the OI to check AOIC and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.
7. If a subsequent payment is received by the OI, the OI will use Form 3244 to:
A. Apply the payment(s) directly to the tax liability in accordance with the taxpayer’s written payment designation, if any, submitted with the offer.
B. If no written payment designation was submitted with the offer, apply the payment(s) directly to a tax liability to the best interest of the Government.
3. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).
4. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).
If neither 1) or 2) above are applicable, apply in the following order:
• Non-trust fund portion of tax (employer’s share of FICA)
• Assessed lien fees and collection costs
• Assessed penalty
• Assessed interest
• Accrued penalty to date of payment
• Accrued interest to date of payment
5. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).
6. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).
If neither 1) or 2) above are applicable, apply in the following order:
• Non-trust fund portion of tax (employer's share of FICA)
• Assessed lien fees and collection costs
• Assessed penalty
• Assessed interest
• Accrued penalty to date of payment
• Accrued interest to date of payment
7. To the unpaid trust fund portion of the Form 941 (employee's and withholding share of FICA) in the earliest unexpired CSED order.
8. Annotate the AOIC history with the amount(s) and date(s) of receipt.
Note:
Use DPC 02 when posting subsequent periodic offer payments specified to the trust fund portion when the offer was submitted by a corporate taxpayer. In all other situations use DPC 35.
9. If the taxpayer fails to make a proposed installment for a periodic payment offer, the OI will allow one opportunity to pay the missing amount(s). Attempt to contact the taxpayer by telephone, and allow 15 calendar days for the taxpayer to submit the payment(s). If the taxpayer or the representative cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s).
. If the taxpayer submits the payment(s) within 30 calendar days from the date of the letter (allowing 15 calendar days for mail), continue the offer investigation. In some locations, it may be necessary to allow additional time for the taxpayer to submit the payments. Document the ICS or AOIC history with the reason for the delay.
A. If the taxpayer fails to submit the payment or request an extension of time within 30 calendar days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history.
Note:
Taxpayers will be afforded an opportunity to make up only one missed proposed payment for a periodic payment offer, including any amended offers, unless special circumstances exist.
10. The proposed offer amounts and terms submitted by a taxpayer dictate the required partial offer payments. The Service is not bound by those same terms in determining an acceptable offer. Therefore, OI's may negotiate different offer terms, when appropriate.
11. During evaluation of an offer, the offer investigator may determine that the proposed offer is too low or the payment terms too protracted to recommend acceptance. In this situation, the OI will advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance. If the taxpayer submits a revised offer reflecting a larger proposed offer amount or changing the terms, one or more additional payments may be required. The taxpayer will be given credit for partial payments already made with respect to the original offer.
If… And… Then…
Original offer was a lump sum cash offer Revised offer is a lump sum with a greater proposed offer amount Taxpayer must pay 20% of the revised amount, less the partial payment made with the original offer, with the revised OIC
Original offer was a periodic payment Revised offer is a lump sum cash Taxpayer must pay 20% of revised offer amount, less any installment payments already paid toward the original offer, with the revised OIC
Original offer was periodic payment Revised offer is periodic payment with greater proposed offer amount and/or different proposed installment amounts or schedule Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the OIC
Original offer was lump sum cash offer Revised offer is periodic payment with greater proposed offer amount Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the revised OIC
12. IRC Section § 7122(c), as amended by the TIPRA, requires that offers in compromise submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount.
13. If the taxpayer submitting a revised or amended offer does not make the additional required payment(s), the OI will return the offer as a processable return using the appropriate AOIC generated letter.
Note:
Cases worked prior to July 21, 2006 will be worked under the criteria defined in IRM 5.8 (revised 9/1/2005). No TIPRA payment requirements will apply to amended offers on those cases. TIPRA requirements only apply to those offers with an "IRS Received Date" of July 22, 2006 and after.
14. If the taxpayer fails to submit the revised offer, prepare the rejection letter.
15. For dishonored partial payments required with submission of offers, see IRM 5.8.3.6 for appropriate procedures.
5.8.4.7.3 (09-23-2008)
Follow-up Actions
1. In order to ensure timely case processing, all in-process offers must have follow-up dates scheduled for the next appropriate action.
2. Throughout the investigation, the scheduling of timely follow-up actions should be reasonable and appropriate, based on the facts of the case. In order to be considered timely, follow-up actions should be significant actions that can reasonably be expected to move the offer investigation toward resolution. Generally, follow-up actions should occur:
A. No later than 15 calendar days after a deadline for taxpayer action has passed without an adequate response.
B. No later than 15 calendar days of the receipt of additional information.
C. Within 30 calendar days in situations where no contact has been established with the taxpayer or no deadline has been given.
Exception:
See IRM 5.8.4.7.2.1 (7), for an exception to the 15 calendar day requirement in reference to a missed TIPRA periodic offer payment.
3. Follow-up actions may include:
• Recommending acceptance or rejection if the information received is sufficient to make a decision regarding the offer.
• Recommending the case for closure when the taxpayer has clearly failed to provide the requested documents or information.
• Personal contact when the taxpayer has made an attempt to comply with the requested documentation but the provided information is incomplete, or needs clarification.
5.8.4.7.4 (09-23-2008)
Case Recommendations and Closing Actions
1. Case Recommendations
A. OE's in COIC must submit all appropriate recommendation reports (i.e., Forms 1271/7249) within 10 calendar days from the date of the documented case decision.
B. OS's must submit all appropriate recommendation reports within 15 calendar days from the date of the documented case decision.
2. Closing Actions – Case must be submitted for closing actions (i.e. - dating/mailing of letters, closing on AOIC, ICS, etc.) within the defined 10 to 15 calendar days as described above.
5.8.4.8 (09-23-2008)
Documentation
1. Documentation must include but is not limited to:
• The basis of the processability determination
• Plans of action
• Case actions
• Requests for information/documentation
• Receipt of requested information
• Conversations with taxpayers or representatives
• Results of internal information analysis
• Special issues or circumstances
• Financial analysis, if applicable
• Case decisions
• The source of the funds, if the periodic payment amount is greater than the taxpayer's ability to pay
Note:
Do not repeat information already present on AOIC screens.
2. Documentation should include evaluation of the income, allowable expenses, asset values, and encumbrances. It should support and define differences and verification of the assets and expenses, including reasons for disallowance of income and expenses.
3. COIC employees will use AOIC to document case actions.
4. Field compliance employees will use ICS to document actions. When ICS is used to record documentation, a closing summary history must be placed on AOIC prior to closing the case, indicating the basis for the closure and a statement that the complete history is available on ICS.
5. Documentation should be recorded the day the action occurs or as soon as practical thereafter.
5.8.4.9 (09-23-2008)
Notice of Federal Tax Lien Filing
1. It is the responsibility of the employee to safeguard the government's interest and taxpayer rights. Employees must exercise judgment in deciding whether or not a Notice of Federal Tax Lien (NFTL) should be filed. See IRM 5.12, Federal Tax Liens, for further discussion on the NFTL.
2. A NFTL filing determination must be made and documented on all assigned cases as part of the initial offer actions defined in IRM 5.8.4.7.1 above.
Example:
Your initial case analysis reveals that the taxpayer has an interest in real property and no indication that a NFTL is filed. Or, your initial case analysis indicates that there are no NFTL's filed and the taxpayer threatens to file bankruptcy if we do not accept the offer. You should immediately file the lien to safeguard the governments interest.
3. The initial review of any case must include an analysis of whether a NFTL has been correctly filed on all tax modules owing, is filed in the correct jurisdiction, and whether or not any filed liens should be re-filed. If analysis indicates a lien was erroneously allowed to self-release, appropriate action must be taken to correct the problem.
4. A NFTL will generally be filed whenever the unpaid balance of assessments exceeds $5,000, and an offer is recommended for rejection or acceptance for the following:
A. Lump sum cash offer (20%), and five or fewer installments paid in six months or more
B. Short term periodic payment offer
C. deferred periodic payment offers
Example:
The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay $2,000 12 months after the date of acceptance, and $2,000 every 12 months thereafter until paid in full, a lien should be filed if it meets the IRM NFTL lien filing requirements as stated above.
5. Circumstances warranting non-filing of a NFTL in the above situations should be clearly documented on AOIC or ICS.
6. A lien will generally not be filed on accepted offers when the offer amount will be paid in 5 months or less.
Example:
The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay the $8,000 within 5 months from the date of acceptance, a lien will not be filed.
7. In those cases where an offer is being investigated and the taxpayer files a request for a CDP during the investigation, the case then becomes the jurisdiction of Appeals. If a determination to accept the offer has been made, the OI should contact Appeals to recommend the taxpayer withdraw the CDP request. If a determination to reject the offer has been made, the offer file should be forwarded to the Appeals Officer handling the CDP hearing before sending any rejection letters. Delete the offer from AOIC.
Exception:
See IRM 5.8.4.12.4 for CDP cases meeting COIC criteria and retained in COIC for processing and preliminary decision.
If… Then…
No lien has been filed and a decision is made to not file a lien until the conclusion of the investigation The case file should be documented when a lien determination was made and it should also include the basis for the decision to withhold filing. An additional determination will be required at the conclusion of the investigation. Generally, a lien will be filed if the offer is:
• accepted as a deferred payment offer,
• rejected
• returned
Caution:
Remember that an attempt must be made to contact the TP by phone, in person, or by letter to advise of the filing before requesting the lien. AOIC combo and rejection letters satisfy the notification requirement.
A determination is made to file a lien immediately Ensure that an attempt to notify the TP of the proposed filing (by phone, letter, or in person) has been made and documented before requesting the lien be filed. Provide the required appeal rights per IRM 5.12, Federal Tax Liens, if the taxpayer objects to the filing. If the lien is filed and a CDP request is received process it immediately following guidelines in IRM 5.1.9, Collection Appeal Rights.
Liens were previously filed but in an incorrect jurisdiction Determine whether to file a NFTL in the correct jurisdiction or withhold filing until the conclusion of the investigation. Follow instructions above based on your decision. If the decision is made to withhold the filing until the conclusion of the investigation, an additional determination must be made at that time.
Liens were filed but have expired Follow instructions in IRM 5.12, Federal Tax Liens.
Liens were filed and are currently in the refiled period Ensure that liens are correctly refiled in all required jurisdictions.
An offer where the unpaid balance of assessment is $5,000 or more and is being rejected or accepted with deferred payment terms A lien will normally be filed on these cases. Circumstances warranting non-filing must be documented in case history.
5.8.4.10 (09-23-2008)
Combination Offers
1. With the release of the Form 656–L, Offer in Compromise (Doubt as to Liability), which is for DATC only, and the 2007 Form 656 there will no longer be combination offers for consideration for DATL and DATC issues.
2. Combination offers submitted prior to the 2007 revision of Form 656 will be worked under procedures defined in IRM 5.8.4.10 (revised 09/01/2005).
5.8.4.11 (09-23-2008)
Responsibility of Offer Specialist and Field Revenue Officers
1. OI's are responsible for working only offer aspects of an investigation. During the offer process employees may discover collection issues that require traditional RO investigation. Generally, if these issues are initially identified by an OE in COIC, the case will be forwarded to a field OS, where the issues will be confirmed and if appropriate, action taken to refer the case to a traditional RO. Some of the issues that may be identified and the way they should be processed are:
Issue Procedure
Transferee, Nominee or Alter Ego When these issues arise during an offer investigation, OS should establish a valuation for the involved asset or income stream. The OS should include the value in computing the RCP but not actually complete the administrative actions required to establish the liability or secure a lien against the third party. If the value of the involved asset or income stream will be obtained through an accepted offer, that fact should be clearly documented and any transferee, nominee or alter ego remedy not pursued through administrative or judicial action. If the offer is rejected or moving toward rejection and time is of the essence due to the dissipation/transfer of assets or statute expiration, a Form 2209, Courtesy Investigation, or Other Investigation should be initiated to request the assignment of a RO to complete the required action to establish the transferee, nominee or alter ego liability or lien.
Levy or seizure related actions If during the course of an offer investigation an OI determines that immediate levy or seizure action may be needed, the case will be referred to the Collection field function. The OI will initiate an Other Investigation request to an RO group outlining the actions needed and providing any additional information that would assist the RO. Upon notification that a jeopardy levy has been approved the OI will follow the procedures to close the offer outlined in IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, if the field RO and their manager determine that the offer was filed to hinder or delay collection.
Suit recommendations OS should consider the value of any recovery that may be made through a suit when determining RCP. If the anticipated recovery amount is obtained through an accepted offer this fact should be clearly documented and the suit recommendation not pursued. If the offer is rejected or moving toward rejection and time is of the essence due to the statute expiration for filing suit, an Other Investigation should be initiated to request the assignment of a RO to complete the suit recommendation.
Continuing action on In Business Trust Fund (IBTF) cases Due to the potential for the pyramiding of liabilities and dissipation of assets in IBTF cases, the OS will initiate an Other Investigation on rejected or returned offers involving ongoing businesses with employment tax liabilities. Because rejected, returned and withdrawn offers do not systemically revert to Status 26 (field assignment), the Other Investigation serves as an open assignment until the case is systemically assigned to Status 24 (queue), at which time the collection group manager can assign the case to an RO and close the Other Investigation. This process will generally take about 30 days.
Trust Fund Recovery Penalty (TFRP) And Personal Liability for Excise Tax (PLET) cases It is the responsibility of the traditional RO to complete the investigation and make a determination regarding personal responsibility in these cases. Follow the provisions in IRM 5.7.4 Investigation and Recommendation of TFRP. The TFRP must be assessed, the outstanding trust fund amounts paid or the TFRP package forwarded for assessment prior to consideration of the offer. See IRM 5.8.4.13.2 below for instructions on processing these investigations in conjunction with open offers. The process of completing the PLET can be ongoing while the offer is pending but before the offer determination is finalized.
Note:
Other Investigations referred per these instructions should be considered high risk case (i.e., risk code 100) and processed accordingly.
Development of Potential Fraud When indicators of potential fraud arise during an offer investigation, the OS will discuss the case with the OS local fraud technical advisor (FTA). If the FTA agrees that the potential for fraud exists, the OS will issue a Other Investigation to the Collection office which covers the geographic area where the taxpayer is located. The field RO will be responsible for gathering the information required and developing the fraud referral. The office assigned the offer investigation will retain the offer pending the outcome of the potential fraud inquiry. If the potential fraud investigation has not been concluded within 20 months of the date IRS received the offer, consider rejection of the offer as not in the best interest of the government.
2. Note:
3. In the above situations , except in the case of TFRP or PLET investigations, an Other Investigation will be initiated only after the OIC manager and RO manager have discussed the issue and agree that the situation warrants the issuance of the Other Investigation.
5.8.4.12 (09-23-2008)
Coordination with Other Functions
1. Coordination with other functions is sometimes required during offer investigations. The most common coordination occurs between Collection and Examination or Collection and Appeals offices.
5.8.4.12.1 (09-23-2008)
Cases Pending in Examination
1. During initial analysis of an offer, IDRS should be checked to verify there are no actions for any periods either included or not included on the offer; such as, open audits, underreporter cases, TEFRA proceedings, or amended returns pending but not yet assessed. Pending examination cases may be identified by:
• TC 922 without a CP 2000 process code or TC 290/291
• TC 976 or 977 without a subsequent tax increase or decrease
• -L Freeze and/or an AMDIS record
• Partnership Investor Control File (PIFC) code on AMDIS of 5 indicating an investor with at least one open TEFRA key case linkage
2. If any potential adjustments are identified the assigned Examination or AUR function or employee should be contacted to determine the status of the audit and informed that an offer based on DATC has been received. The decision on how to proceed with the offer should be based on the status of the potential adjustment. The table below provide some examples.
If… Then…
The TP was involved in abusive tax avoidance transactions (ATAT), appears to have substantial unreported income (UIDIF), or there is another reasonable explanation given by the assigned Examination employee as to why the audit should continue The TP should be advised that the offer investigation cannot proceed until the Exam issues have been resolved. Solicit a withdrawal explaining that it is in the TPs best interest due to CSED suspension. If the TP refuses to withdraw, consider returning the offer using the AOIC reason that other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.
The audit is routine and the assigned Exam employee has agreed to close the tax year(s) with no change Proceed with the offer investigation.
The audit is routine, but nearly concluded, and Examination wishes to conclude and assess the tax. Proceed with the offer investigation. Talk to the TP and the Revenue Agent (RA) to coordinate securing an agreement to the deficiency to expedite assessment. Include the tax year in the acceptance, but do not issue the acceptance letter until the tax is assessed.
The return has been selected for examination or Automated Under Reporter (AUR) consideration, but not yet assigned. Contact the controlling Examination or AUR function to advise that we are proceeding with the offer investigation.
The Partnership Investor File Control (PIFC) code on AMDIS is a 5, indicating at least one open TEFRA key case linkage exists Advise the TP that we cannot consider an offer until all TEFRA partnership issues have been resolved. Attempt to secure a withdrawal. If the taxpayer refuses to withdraw, consider returning the offer using the AOIC Return Letter paragraph that other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted.
The Partnership Investor File Control (PIFTD) code on AMDIS is a 7, the TEFRA case is closed Verify with the assigned Examination employee that the assessment was made and include the additional liability(s) in the offer.
3. Within 7 to 14 calendar days prior to accepting an offer, IDRS should be rechecked to ensure that there are no new audit issues pending.
5.8.4.12.2 (09-23-2008)
Claims for Relief from Joint and Several Liability Under Section 6015 (Commonly Referred to as Innocent Spouse Claims)
1. When one spouse files a claim for relief from joint and several liability and the other spouse submits an offer, the Service employee considering the section 6015 claim should be contacted prior to proceeding to ensure there are no reasons to delay the offer investigation until the 6015 claim is resolved.
2. If a taxpayer files a DATC offer but raises relief from joint and several liability issues during the investigation, the issue should be discussed with the taxpayer. If appropriate, the offer should be withdrawn and the claim should be forwarded to the Cincinnati Centralized Innocent Spouse Operations Unit (CCISO).
3. If IDRS indicates that the taxpayer has an open claim for relief from a joint and several liability, or if a DATC offer and a claim for joint and several liability are filed simultaneously the taxpayer should be requested to withdraw the offer unless CCISO advises that the claim will be closed immediately with no change. If CCISO indicates that the claim appears valid and the taxpayer will not withdraw the offer it should be suspended pending disposition of the section 6015 claim.
5.8.4.12.3 (09-23-2008)
Cases Pending or Decided in Appeals
1. During a CDP or equivalent hearing (EH) assigned to Appeals, an offer may be submitted by the taxpayer. Taxpayers also occasionally submit a DATC offer during an appeal of a proposed audit deficiency. Appeals retains jurisdiction of both these types of offers, but may send an Appeals Referral Investigation (ARI) to Collection.
Exception:
For exceptions to Appeals jurisdiction for offers submitted with a CDP, see IRM 5.8.4.12.4 below.
2. An ARI requesting CIS verification of a complex nature should be assigned to a field RO. The results of the investigation will be reported via memorandum to Appeals and Appeals will conclude the investigation. Requests for any expeditious treatment of an ARI will be decided on a case by case basis through a discussion between the two functional managers.
3. Offers based on DATL on TFRP or PLET assessments must be reviewed upon receipt to ensure that the case is not pending or was not already heard in Appeals. If a DATL assessment had previously been determined in Appeals or is found to be currently assigned to an Appeals office, the offer should be removed from AOIC and transferred to Appeals. Coordination should be made with Appeals to ensure that the TC 480 (and if applicable Command Code STAUP to Status 71) is re-input with the proper Appeals jurisdiction code, since removing the offer from AOIC will reverse the TC 480.
4. If an offer based on DATC only is received and there is an open case pending in Appeals, contact Appeals to determine who will have jurisdiction of the offer.
5.8.4.12.4 (09-23-2008)
Investigation of Offers Under Appeals Jurisdiction in the Collection Offer Program
1. All offers submitted during a CDP hearing or EH meeting COIC criteria will be investigated in a COIC site.
2. COIC is responsible for making a processability determination. Once a determination is made, COIC will notify Appeals using the form provided in Exhibit 5.8.4–4.
3. Procedures defined in this section apply only to those cases meeting COIC criteria, which consists of wage earners and self-employed taxpayers with gross receipts up to $500,000 and no employees. See IRM 5.8.2.8, Processing Offers to be Assigned to Area Offices From Centralized Offers in Compromise Sites, for the categories of cases to be worked by the field. All other cases can be worked by COIC.
5.8.4.12.4.1 (09-23-2008)
Offers Received by Appeals With A CDP
1. Appeals will:
A. Suspend the CDP case while COIC completes the offer investigation.
B. Forward the case to the appropriate COIC site for processability determination. IN these cases, Appeals is not required to generate and include the processable and not processable letters with the offer prior to forwarding the case to COIC.
Note:
If the offer is determined to be not processable, COIC will follow procedures in IRM 5.8.3.4.3. COIC will be required to generate and mail the not processable letter, refund all applicable fees, and return the case to Appeals with no further action. COIC will include a copy of the letter in the case file.
2. COIC will:
A. Load the case on AOIC
Note:
By loading the case on AOIC, the system will generate the TC 480 with jurisdiction code 1. The jurisdiction code will not be changed even though Appeals will be making the final decision.
B. Follow procedures in IRM 5.8.3.4. These cases will not be screened through the Screen for Obvious Full pay process.
C. Assign the case for investigation.
D. Investigate the offer and close as indicated below.
Note:
TIPRA regulations state that an offer must be processed and a final determination regarding the offer must be made within 24 months from the date the offer was received in Appeals. If a final offer determination has not been made within that 24-month timeframe, the offer will be deemed accepted under 25 U.S.C. § 7122(f).
E. COIC must return a CDP OIC case to Appeals with no less than one year (12 months) remaining on the 24-month timeframe in order for Appeals to make its final determination on the offer, in addition to any other issues the taxpayer may raise in a timely manner.
F. If there are less than 12 months remaining on the 24-month period, COIC must contact the Appeals employee assigned the case, and provide a status report on the anticipated completion date of the investigation. Do not discuss the merits of the offer, since this is prohibited under ex parte communication.
G. If Appeals determines a final decision cannot be made within the 24-month timeframe, Appeals may ask COIC to immediately return the case to Appeals.
In that case, COIC will:
• Input the TC 480 with jurisdiction code 3 to prevent collection activity during the transfer.
• Delete the case from AOIC.
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail.
• Notify the Appeals employee the date the case was mailed, either through encrypted e-mail or telephone.
3. Proposed Decision by COIC — If the offer is to be rejected, returned, or withdrawn (voluntary or mandatory)
Note:
Rejected offers worked under this guidance do not require submission to the IAR prior to forwarding to Appeals.
A. Rejected, returned, or mandatory withdrawn offers
COIC will:
• Issue a pre-determination letter to the taxpayer (include the AET/IET, if completed)
• Assign the case to XXXX9020
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the letter (return, rejection, or mandatory withdrawal), using the transmittal document in Exhibit 5.8.4–5
B. Voluntary withdrawn offers
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Withdrawal Letter to the taxpayer
• Close the case as a withdrawal on AOIC
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
E. Rejected, returned, mandatory or voluntary withdrawn offers
Appeals will:
• Make a final determination within 60 calendar days from the date Collection shipped the offer
• Notify COIC of the final case determination by encrypted e-mail
• Explore other collection alternatives, such as an installment agreement, within a reasonable amount of time.
4. Appeals will work these CDP offers in an expedited manner. A determination will be made, and inform COIC of the final decision, within 60 calendar days of the date the Collection offer was sent to Appeals.
5. If the taxpayer requests a different collection alternative and Appeals is unable to make a final determination within 60 days of COIC's preliminary determination (i.e., the taxpayer requests innocent spouse relief after the offer is rejected), Appeals will send the COIC case worker an encrypted e-mail with the reason the 60 days cannot be met.
6. If Appeals does not inform COIC of its final determination within those 60 days, and an extension has not been granted based on the above criteria, COIC should contact the AO/SO assigned the case either by telephone or encrypted e-mail to determine the status of the offer. Do not discuss the merits of the OIC or have any other prohibited ex parte conversations.
7. If no reply, notify the National Senior Program Analyst for Offer in Compromise, by encrypted e-mail with the following information:
• Taxpayer Name
• Taxpayer Identification Number
• Date case originally sent to Appeals
• Offer number
8. Proposed Decision by COIC
. If the offer is to be accepted
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Acceptance Letter to the taxpayer (include the AET/IET if appropriate)
• Close the case as an acceptance on AOIC
• Forward the case file to the appropriate MOIC function for acceptance monitoring
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the acceptance letter, Form 7249, amended Form 656 (if applicable), using the transmittal document in Exhibit 5.8.4–5.
• Input a STAUP on the account before transfer to Appeals to prevent collection activity during the transfer.
Note:
The case must be reassigned form XXXX9020 back to the offer specialist before it can be closed on or deleted from AOIC.
A. If the offer is to be accepted
Appeals will:
• Adopt the decision of COIC to accept the offer in its entirety
• Close the CDP/EH
• Close the OIC WUNO
9. If the taxpayer sends in a withdrawal of the CDP hearing request to Appeals more than 30 calendar days after the withdrawal timeframe, Appeals will contact the taxpayer to confirm the withdrawal of the CDP hearing. If the taxpayer wishes to withdraw and wants Collection to work the offer, Appeals will inform the taxpayer that more than 30 days has passed, and the offer as well as the CDP hearing request will need to be withdrawn from Appeals. At that point, the taxpayer will need to submit a new offer with another application fee and TIPRA payment directly to COIC.
10. Appeals will be responsible for inputting the TC 521 cc 76/77, as appropriate.
5.8.4.12.4.2 (09-23-2008)
Collection Due Process Received by COIC While an Offer is Pending
1. COIC will:
A. Follow current procedures to forward the CDP to Appeals within five workdays. Collection will complete the Form 12153A or 12153B and e-mail Compliance Case Processing (CCP) for input of Stage 1 and 3 into the CDP Tracking System (CDPTS). Follow procedures defined in IRM 5.1.9.3.3.3(4).
B. The Stage 1 location codes are 0100 for Brookhaven an 0300 for Memphis. If a CDP request is withdrawn, request input of Stage 12 to reflect withdrawal of the CDP hearing request.
C. If the hearing request was timely, Appeals will input the TC 520 cc 76/77, when needed, on COIC originated CDP cases. Do not forward a CDP hearing request to Appeals until the posting of the TC 971 A/C 275 (for timely requests) or TC 971 A/C 278 (for untimely requests) has been verified. See IRM 5.1.9 for timeliness.
2. Appeals will:
A. Follow current Appeals procedures to notify the taxpayer and/or the POA of the receipt of the CDP
B. Inform the taxpayer and/or the POA that COIC will continue working the offer
3. Proposed Decision by COIC— If the offer is to be rejected, returned, or withdrawn (voluntary or mandatory)
Note:
Rejected offers worked under this guidance do not require submission to the IAR prior to forwarding to Appeals.
A. Rejected, returned, or mandatory withdrawn offers
COIC will:
• Issue a pre-determination letter to the taxpayer (include the AET/IET, if completed)
• Assign the case to XXXX9020
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the reject, return, or withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
B. Voluntary withdrawn offers
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Withdrawal Letter to the taxpayer
• Close the case as a withdrawal on AOIC
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the withdrawal letter, using the transmittal document in Exhibit 5.8.4–5.
C. Rejected, returned, mandatory or voluntary withdrawn offers
Appeals will:
• Make a final determination within 60 calendar days from the date Collection shipped the offer
• Notify COIC of the final case determination by encrypted e-mail
• Explore other collection alternatives, such as an installment agreement, within a reasonable amount of time
4. If there are less than 12 months remaining on the 24-month period, COIC must contact the Appeals employee assigned the case, and provide a status report on the anticipated completion date of the investigation. Do not discuss the merits of the offer, since this is prohibited under ex parte communication.
5. If Appeals determines a final decision cannot be made within the required 24-month timeframe, Appeals may ask COIC to immediately return the case to Appeals.
6. If Appeals requests the case, COIC will:
• Input the TC 480 with jurisdiction code 3 to prevent collection activity during the transfer.
• Delete the case from AOIC
• Mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail.
• Notify the Appeals employee the date the case was mailed, either through e-mail or telephone.
7. Appeals will work these CDP offers in an expedited manner. A determination will be made, and COIC informed of the final decision, within 60 calendar days of the date the Collection offer was sent to Appeals.
8. If the taxpayer requests a different collection alternative and Appeals is unable to make a final determination within 60 calendar days of COIC's preliminary determination (i.e., the taxpayer requests innocent spouse relief after the offer is rejected), Appeals will send the COIC case worker an encrypted e-mail with the reason the 60 days cannot be met.
9. If Appeals does not inform COIC of its final determination within those 60 calendar days, and an extension has not been granted based on the above criteria, COIC should contact the AO/SO assigned the case either by telephone or e-mail to determine the status of the offer. DO NOT discuss the merits of the OIC or have any other prohibited ex parte conversations.
10. If no reply, notify the National Senior Program Analyst for Offer in Compromise, by encrypted e-mail with the following information:
• Taxpayer Name
• Taxpayer Identification Number
• Date case originally sent to Appeals
• Offer number
11. COIC will forward the OIC case to Appeals with no less than one year (12 months) left on the 24-month timeframe in which a final determination on the OIC must be made.
12. Proposed Decision by COIC
. If the offer is to be accepted
COIC will:
• Assign the case to XXXX9020
• Issue the AOIC Acceptance Letter to the taxpayer (include the AET/IET if appropriate)
• Close the case as an acceptance on AOIC
• Forward the case file to the appropriate MOIC function for acceptance monitoring
• Immediately mail the entire case file to Appeals using UPS Ground mail. If the timeframe becomes an issue, the case must be shipped using overnight mail. Include in the file a complete copy of the AOIC case history, copy of the acceptance letter, Form 7249, amended Form 656 (if applicable), using the transmittal document in Exhibit 5.8.4–5.
• Input a STAUP on the account before transfer to Appeals to prevent collection activity during the transfer
A. If the offer is to be accepted
Appeals will:
• Adopt the decision of COIC to accept the offer in its entirety
• Close the CDP/EH
• Close the OIC WUNO
Note:
The case must be reassigned from XXXX9020 back to the offer specialist before it can be closed or deleted on AOIC.
13. If the taxpayer sends in a withdrawal of the CDP hearing request to Appeals more than 30 calendar days after the withdrawal timeframe, Appeals will contact the taxpayer to confirm the withdrawal of the CDP hearing. If the taxpayer wishes to withdraw and wants Collection to work the offer, Appeals will inform the taxpayer that more than 30 days has passed, and the offer as well as the CDP hearing request will need to be withdrawn from Appeals. At that point, the taxpayer will need to submit a new offer with another application fee and TIPRA payment directly to COIC.
5.8.4.12.4.3 (09-23-2008)
Complex Issues Discovered During Investigation
1. If during the investigation COIC discovers complex issues that would normally be worked by the field, COIC will:
A. Document the case file regarding the complex issue
B. Return the entire case file with all documentation to Appeals
C. Delete the case from AOIC
D. Follow procedures in IRM 5.8.3.4.3, Determining Processability for Appeals Collection Due Process Offers.
Note:
All cases will be worked in the appropriate COIC site. If the case has complex issues that cannot be worked by COIC, Appeals will retain jurisdiction of the case, and issue an ARI for field investigation when appropriate.
5.8.4.12.4.4 (09-23-2008)
Closing The Case on AOIC After Appeals Has Made The Final Determination
1. Upon notification from Appeals with the final decisionCOIC will:
A. Reassign the case from XXXX9020 on AOIC to any employee number determined by COIC management.
B. Use the following final disposition codes:
Code Disposition
1 Accept
5 Rejected (did not exercise appeal rights)
6 Withdrawn
8 Termination of Consideration
10 Return
2. When inputting a rejected offer, use the mail date of the Appeals Notice of Determination (NOD) or Decision Letter, minus 30 calendar days.
3. All other cases will be closed using the mail date of the Appeals NOD or Decision Letter.
4. It is important that only these codes be used to ensure accurate calculation of the collection statute.
5.8.4.12.5 (09-23-2008)
Open Criminal Investigations
1. Open criminal investigations can be identified on IDRS by an unreversed TC 914 or TC 916. When these transaction codes are discovered contact must be made with the assigned Special Agent and procedures in IRM 5.1.5 followed. It may be necessary for the group or unit managers to discuss with the Criminal Investigation (CI) manager to determine the next appropriate action. A decision will need to be made on the appropriate actions to take (including disposition of any application fee or deposit) and what may or may not be discussed with the taxpayer.
2. Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer a joint decision should be made whether it should be closed as a return or held open until the investigation is closed.
5.8.4.12.6 (09-23-2008)
Offer Submitted Solely to Delay Collection
1. When it is determined that an offer is submitted solely to delay collection, the offer should be returned to the taxpayer without further consideration. The term solely to delay collection means an offer was submitted for the sole purpose of avoiding or delaying collection activity. A determination that an offer is submitted solely for the purpose of delaying collection should be apparent to an impartial observer. See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, for a complete discussion of this topic and procedures to follow when a case meeting this criteria is identified.
5.8.4.13 (09-23-2008)
Procedures for Certain Types of Taxpayers and Liabilities
1. Certain types of taxpayers and/or liabilities require unique considerations. The instructions described below should be followed when considering cases of this nature.
5.8.4.13.1 (09-23-2008)
Offers From Operating Businesses
1. Trust fund taxes are taxes withheld or collected from an individual and paid over to the government on that person’s behalf. See IRM 5.7.3 for a list of tax returns used to report trust fund taxes and where assessment of the TFRP based on the liabilities reported on the returns is possible.
2. When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer is relieved of a significant operating expense. The effect is to grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of fairness to all taxpayers the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. The following procedures apply to all In Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, as well as corporations.
A. These taxpayers must remain in compliance while the offer is being considered. An untimely Federal Tax Deposit made after assignment to an OI, and during the investigation will result in a return of the offer. It is necessary for the taxpayer to be current with the quarter that the offer was submitted and remain in compliance with the filing and deposits requirements during the offer process.
B. For offers involving corporate entities, or any entity in which assertion of the TFRP is applicable, the trust fund portion of the tax liabilities must be assessed against all responsible persons before the Service will investigate an offer. See IRM 5.8.4.13.2.
C. If financial analysis reveals that the taxpayer cannot pay operating expenses and remain current with taxes (i.e. the business is operating at a loss), all business assets should be valued rather than valuing the income stream. The value of the business as a going concern should also be evaluated. Close review should be conducted as well to see whether the offer meets the criteria for rejection as not in the best interest of the government. See IRM 5.8.7.6(6).
D. If the offer is from an ongoing business that appears to be insolvent and it appears that the governments position would be better protected through a formal insolvency proceeding consideration should be given to the rejection as not in the best interest of the government. See IRM 5.8.7.6(6).
E. Business tax returns (Schedule C, Form 1120, and Form 1065), the taxpayers balance sheet, income statements, and the Form 433-B need to be carefully analyzed to arrive at the correct RCP.
The following issues should be carefully reviewed and/or considered:
1. Depreciation — Do not allow depreciation. Instead allow necessary actual monthly obligations paid to secured creditors on depreciable assets (i.e. autos, equipment, or real estate loans).
2. Accounts Receivable — Accounts receivable that are current (i.e. generally less than 90 days past due) generally should not be discounted at Quick Sale Value (QSV). Value all accounts receivable at 100% of the balance due, unless the taxpayer can substantiate the account has been delinquent over 90 days. If the account is determined to be delinquent, it may be discounted up to a maximum of 50%. However, supporting documentation is required to substantiate accounts the taxpayer claims are delinquent over 90 days; such as a request for the taxpayer to provide an aging report. If the account is over 90 days and the taxpayer fails to provide substantiation, it will be valued at 100%.
Note:
A delinquent account is defined as an uncollectible account that has been delinquent for more than 90 days. A collectible account is defined as one that may be considered to be past due, but is still an active client.
3. Personal Expenses Paid by the Business — Financial statements must be reviewed to ensure expenses such as car payments, insurance, utilities, etc. are not claimed on both the Form 433-A and the Form 433-B.
4. Compensation to Corporate Officers — Wages and/or other compensation paid to corporate officers in excess of applicable expenses allowable per National and Local standards should generally not be allowed as business expenses.
5. Stock Holder Distributions and Repayment of Loans to Officers — These expenses are discretionary in nature. Distributions of this nature made after the incurrence of the employment tax delinquency should be factored into the RCP analysis as dissipated assets. Loans to officers should be considered an account receivable and valued according to their collectibility.
6. Potential Recovery of "Priority Taxes" — Trust fund tax plus associated interest is classified as a "priority tax" in the U.S. Bankruptcy code. As such this tax must be paid in full, in a Chapter 11 or 13 payment schedule. If it is probable that the taxpayer will file a Chapter 11 or 13 if the offer is returned or rejected, then an offer should not be considered for less than what would be recovered through the bankruptcy proceeding.
7. Field Visits to Evaluate Business Assets — A field call may be made to validate the existence and value of business assets and inventory for all offers involving an operating business and that will be recommended for acceptance. The offer specialist should make the call, if practical, or initiate an Other Investigation to request that a call be made by another RO if the taxpayer operates in a remote location.
Note:
Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
5.8.4.13.2 (09-23-2008)
Trust Fund Liabilities
1. Before an offer to compromise trust fund tax will be investigated, for entities in which the trust fund recovery penalty is applicable (in business or out of business) all the issues outlined in IRM 5.8.4.13.1 above should be considered. In addition, as a prerequisite, the trust fund portion of the taxes must be paid, the TFRP must be assessed against all responsible persons, or the trust fund package forwarded for assessment.
2. It is the Service's policy that the amount offered to compromise a liability subject to assertion of the TFRP will represent what can be collected from the employer. If the Service enters into a compromise with an employer for a portion of the trust fund tax liability, the remainder of the trust fund taxes may still be collected from a responsible person pursuant to Section 6672 of the Internal Revenue Code.
3. Revenue officers have two options when they negotiate with the entity principals. This applies to trust fund liabilities in status 26, with any unpaid trust fund amount still within the TFRP Assessment Statute Expiration Date (ASED). They are:
• If the entity wishes to file an offer, generally, all responsible persons must first agree to the assessment of the TFRP. This requires the field RO to secure basic documentary evidence per LEM 5.7 to support assertion and that all responsible persons signed Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. The signing of the Form 2751 does not preclude the responsible person from challenging this assessment by paying a divisible portion of the tax, filing a refund claim and if unsuccessful, a refund suit. The responsible person should be advised of the right to file a refund claim when the From 2751 is provided to the responsible person.
• Alternatively, the responsible person(s) can personally full pay the trust fund amount on behalf of the entity. IRM 5.7.4.4 contains instructions when a responsible person chooses to pay on behalf of the entity. Failure to do either will result in a solely to delay determination if the entity files an offer. See IRM 5.8.3.19.
Note:
If extenuating circumstances are present that prevent the assessment of the TFRP against all responsible persons, the revenue officer, after consulting with a manager, may consider processing the OIC without the assessment of all potential responsible persons. For example, if a potential responsible person cannot be located. The RO may allow the OIC to be investigated if the governments interests are sufficiently protected if the other responsible persons have agreed to assessment of the TFRP.
4. Offers submitted on accounts in Status 26 before assessment of the TFRP but prior to the responsible person(s) being advised that an offer will not be considered unless the TFRP has been assessed or the trust fund paid in full. Otherwise, the offer will be returned as solely to delay collection. The assigned RO will retain the balance due case, and annotate this on From 657. The offer will be returned by COIC without input of ST 71 in accordance with the Form 657.
Note:
If the liabilities are not currently in status 26 and/or the responsible individuals were not previously advised that an offer will not be investigated unless the TFRP has been assessed or the trust fund paid, the OS will retain the offer and follow the instructions contained in IRM 5.8.4.13.2(7) below.
5. Only the amount that can be collected from the entity (including dissipated assets) will be considered in the RCP calculation of an acceptable offer. The Service will pursue collection of the TFRP assessed against the responsible person(s), unless the trust fund portion has been full paid.
Note:
A taxpayer may designate TIPRA payments (pre-acceptance) to a specific liability including trust fund liabilities. Once the offer has been accepted, the funds will be applied in the governments best interest and the taxpayer no longer has the right to designate payments.
6. During initial analysis of an offer received from an entity subject to the assertion of the TFRP and involving unpaid trust fund tax the offer specialist must determine the ASED of each period and take immediate steps to protect it if expiration is imminent.
7. The following actions should be taken based on the facts of the case:
If… Then the RO will… Then the Offer Specialist will…
The TFRP has been completed and the assessment processed prior to the time the corporate offer is filed Obtain a copy of the Form 4183 and the CIS for each responsible person and proceed with the offer investigation Document this fact in the ICS history and on the Form 657 submitted with the offer
The account is in status 26, the TFRP has not been assessed, but the taxpayer was advised that an offer will not be investigated until the TFRP is assessed or full paid and submitted an OIC anyway Forward the case to COIC with a Form 657 requesting the case be returned as solely to delay Return the case as solely to delay
The account is not in status 26 and/or the responsible person(s) were not previously advised that an offer will not be investigated until the trust fund is paid or the TFRP assessed Retain the offer. Generate an Other Investigation (coded 100) to the field for completion of the TFRP. Coordinate with the RO to ensure the TFRP is assessed or trust fund portion fully paid by the responsible person(s).
Note:
A formal appeal of the proposed TFRP will result in return of the offer as solely to delay. Complete the TFRP investigation using an Other Investigation (coded 100) The Other Investigation should be completed in 90 days
The ASED has expired without any TFRP assessment Annotate the expiration in the case history and continue processing the offer determining only the corporation’s RCP. Prepare an expired statute notification and submit to the OIC group manager for processing.
8. In the situation where the amount offered by a corporation combined with the payments already made on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax periods:
A. Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP accounts to the related corporation liability.
B. Complete and process Form 3870 to accomplish the credit transfer.
C. Secure full payment of the balance due from the corporation.
D. Secure a withdrawal of the offer.
Note:
The above situation should be rare. If the combined payments made on the related TFRP assessments exceed the total employment tax liability of the corporation, then the accounting transactions completed by the campus should have posted the related payments to all accounts.
5.8.4.13.3 (09-23-2008)
Partnership Liabilities
1. Partnership employment tax liabilities are not "joint and several" as are joint income tax assessments. The Service's ability to collect from the partners is based on state law.
2. When a partnership liability is compromised for any individual general partner our ability to collect from all other general partners may be affected. Therefore, the amount offered to compromise a partnership tax liability must include what we can collect from the partnership plus what can be collected from each of the general partners. No offer should be accepted to compromise only one partners individual liability for the partnership debt.
3. When investigating partnership offers a CIS should be secured from the partnership and from all general partners. The RCP for the partnership must equal what could be collected from the partnership plus what could be collected from all general partners. Generally, an offer based on DATC from a partnership will not be accepted when the RCP of one or more of the general partners cannot be determined. When it is not possible to secure a CIS from one or more of the general partners, because they cannot be located or they refuse to cooperate or join in the offer, the offer may still be accepted if the investigation is able to establish that there is no collection potential from the non-participating partners.
5.8.4.13.4 (09-23-2008)
Child Support Obligations
1. While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise them. These accounts are identified on the Non-Master-File with a MFT code of 59.
2. 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 acceptable it can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be rejected using the public policy reason and the open paragraph stating that "We do not have authority to compromise child support obligations" .
5.8.4.14 (09-23-2008)
Concluding the Offer Investigation
1. Once the RCP has been calculated, immediate action should be taken to bring the case to closure. See IRM 5.8.4.7.3 above for time frames within which closing actions must be taken.
Exhibit 5.8.4-1 (09-23-2008)
Asset/Equity Table (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.
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Exhibit 5.8.4-2 (09-23-2008)
Income/Expense Table (IET)
Income/Expense Table – A table that lists the income and expenses both claimed and allowed for purposes of calculating reasonable collection potential (RCP).
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Exhibit 5.8.4-3 (09-23-2008)
Offer in Compromise Recommendation Report
Form 657 is a report used to refer an OIC for consideration from a field Collection RO.
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Exhibit 5.8.4-4 (09-23-2008)
Expedite Processing - Processability Determination
This document is used by COIC only as a cover sheet to notify Appeals upon processability determination.
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Exhibit 5.8.4-5 (09-23-2008)
Expedite Processing - Notification of Preliminary Case Decision
This document is a cover sheet used by COIC to ship the case to Appeals upon preliminary case decision.
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5.8.5 Financial Analysis
• 5.8.5.1 Overview
• 5.8.5.2 Ability to Pay
• 5.8.5.3 Verification
• 5.8.5.4 Equity in Assets
• 5.8.5.5 Dissipation of Assets
• 5.8.5.6 Future Income
• 5.8.5.7 Payment Terms
• Exhibit 5.8.5-1 Deferred Payments Limited by Short Statute
• Exhibit 5.8.5-2 Deferred Payments Limited by Small Amount Due
• Exhibit 5.8.5-3 Deferred Payments Limited by Application of Payment From Equity in Assets
5.8.5.1 (09-23-2008)
Overview
1. This chapter provides instructions for analyzing the taxpayer's financial condition to determine RCP. IRM 5.15, Financial Analysis Handbook, provides information on analyzing and verifying of financial information and should be used in conjunction with this section.
5.8.5.2 (09-23-2008)
Ability to Pay
1. The ability to pay determination should be made on the liability(s) due prior to the application of TIPRA payments. If using Decision Point, the automated calculation should be run from the MFT screen on AOIC. Do not update the MFT screen on AOIC to current K-Data using IDRS command code INTST until this calculation has been run. If the MFT screen on AOIC has been updated, a manual computation must be completed.
2. A current IDRS or K-Data print showing the original liability(s) should be included in the case file.
5.8.5.3 (09-23-2008)
Verification
1. A thorough verification of the taxpayer's CIS, Form 433-A and/or Form 433-B involves reviewing information available from internal sources and requesting the taxpayer provide additional information or documents that are necessary to determine RCP.
As a general rule, requests for a real estate appraisal should not be requested from a taxpayer when the information would not be necessary, and/or is readily available from other internal sources. These types of requests should be tailored to the specific taxpayer situation.
2. Collection issues that have been previously addressed during a balance due investigation by field personnel will not be re-examined unless there is convincing evidence that such reinvestigation is absolutely necessary. It is expected that the results of a previous collection investigation will be used and only supplemented when necessary to make a determination on an OIC. Investigative actions that are less than 12 months old may be used to evaluate the OIC, unless the taxpayer indicates there has been a material change or there is evidence indicating his financial situation has changed in the intervening months.
Example:
If a Revenue Officer has completed a full CIS analysis, including verification of assets, income, and expenses, and has made a determination of the fair market value (FMV) of assets, equity in assets and monthly ability to pay, this information should not be reinvestigated. The OI should use the RO's determinations to calculate RCP. If the balance due case file does not provide documentation to indicate the source of the offer amount, the taxpayer will be contacted to determine the source of the offer funds
5.8.5.3.1 (09-23-2008)
Internal Sources
1. Verify as much of the CIS as possible through internal sources.
2. When internal locator services are not available or indicate a discrepancy, request that the taxpayer provide reasonable information necessary to support the CIS.
3. A full credit report should be requested prior to accepting an offer when the current balance due exceeds $100,000.
4. Regardless of the amount of the liability, the following information sources may be considered:
Internal Sources Review
ENMOD and INOLES Identify cross reference TINs for related business activity not declared on the CIS.
SUMRY, IMFOL and BMFOL Verify full compliance.
RTVUE (IMF) or copy of the last filed income tax return • Compare the amount of reported income to that declared on the CIS.
• Identify past sources of income: Schedule B — interest and dividends; Schedule C — self-employment income; Schedule D — capital gains or losses; Schedule E — rental or other investment income, net operating loss deduction; Schedule F — farm income.
IRPTRO and/or copy of older year income tax returns • Compare real estate tax and mortgage interest deductions to the amounts declared on the CIS. Higher amounts may indicate present or past real property ownership not declared on the CIS. Lower amounts may indicate property has been recently sold or transferred.
• Identify accounts not reported on the CIS, such as certificates of deposit or investment accounts.
• Verify sources of income, such as employers, bank accounts, and retirement accounts.
• Identify recently transferred or disposed of assets.
BRTVUE (BMF) or copy of last filed income tax return • Compare the amount of reported income to that declared on the CIS.
• Compare the value of assets and the amount of reported depreciation to the asset values declared on the CIS.
State Motor Vehicle Records Identify motor vehicles registered to the taxpayer but not declared on the CIS. Also check for ownership in business names.
Real Estate Records • Identify real property titled to the taxpayer but not declared on the CIS.
• Identify property held by transferee, nominee, or alter ego. Also check for ownership in business names.
Credit Bureau Report • Identify past residences and employers.
• Verify competing lien holders, balances due and payment history.
• Identify property not listed on CIS.
5.8.5.3.2 (09-23-2008)
Taxpayer Submitted Documents
1. Collection Information Statements submitted with an OIC should reflect information no older than the prior six months. If during the processing of the offer, the financial information becomes older than 12 months, contact should be made with the taxpayer to update the information.
2. In certain situations, information may become outdated due to significant processing delays caused by the Service and through no fault of the taxpayer. In those cases, it may be appropriate to rely on the outdated information if there is no indication the taxpayer's overall situation has significantly changed. Judgment should be exercised to determine whether, and to what extent, updated information is necessary. If there is any reason to believe the taxpayer's situation may have significantly changed, secure a new CIS.
3. Do not make a blanket request for information that would include such items as real estate appraisals, or information that is not necessary based on the financial statement or taxpayer’s facts and circumstances. Requests for financial information should be tailored to the taxpayer’s specific situation. Do not require the taxpayer to provide information that is available from internal sources, or information that would have no impact on the case resolution.
4. Offer Investigators may receive offers (other than those identified by the "Screen for Obvious Full Pay" process) where the taxpayers have not provided, either proof of payment for certain monthly expenses claimed on the Form 433-A or statements showing current real estate mortgage or motor vehicle loan balance. Often the taxpayers are not actually paying claimed expenses, or they are not allowable under offer program guidelines.
Example:
Taxpayers frequently list their unsecured credit card bills under "secured debt" or other expenses. While a taxpayer may have a liability for a court ordered judgment that is senior to the NFTL, unless the taxpayer is actually making payments on that liability, it is not considered as an allowable monthly expense.
5. If a taxpayer does not substantiate claimed expenses for Form 433-A categories of court ordered payments, child/dependent care, life insurance, other secured debt, or other expenses OI will complete the IET assuming that the taxpayer is not making any payments for the particular unsubstantiated expense. However, substantiation of claimed health cases expenses of less than the allowable standard is not required.
6. When computing equity in real estate or allowable motor vehicles, and the taxpayer has not submitted substantiation of loan balances claimed on the Form 433-A, OI's should request a credit report and use the loan balance information to determine the current balances of any relevant loans from commercial lenders. If the loan is from a private source, it may be necessary to contact the taxpayer/representative for the information.
7. If not present in the file when assigned for investigation, appropriate documentation from the chart below should be requested to verify the information on the CIS.
Taxpayer Documentation Review
Wage Earner — wage statements for the prior three months or a current statement with current year–to–date figures • Compare average earnings to the income declared on the CIS.
• Verify adequate tax withholding.
• Identify payroll deductions to ensure the expense is necessary and not claimed again on the CIS.
• Identify deductions to savings accounts, credit union accounts, or retirement accounts.
Self-employed — proof of gross income (invoices, accounts receivable, commission statements, etc.) for the prior three months • Compare average earnings to the income declared on the CIS.
• Identify deductions to ensure the expense is necessary and not claimed again on the CIS.
Three current months of bank statements that show the monthly transactions, withdrawals, and deposits.
Note:
Current is defined as 3 months as of the date the Form 656 was signed. Not the date the Form 656 was received. Compare deposit amounts to income reported on the tax return and CIS. Question deposits that exceed reported income and unusual expenses paid. Consider asking for the cancelled checks and deposit items for a specified time frame if questionable items cannot be adequately explained.
Retirement account statements and brochures, brokerage account statements, securities, or other investments Identify the type, conditions for withdrawal, and current market value.
Life insurance policies • Identify the type, conditions for borrowing or cancellation, and the current loan and cash values.
• Verify the amount of the required premiums and ensure payments are being made.
Motor vehicle purchase or lease contracts, statements from the lender indicating the payoff amount Verify equity and monthly payment expense.
Real estate warranty deeds, mortgage deeds, HUD closing statements, statements from the lender indicating the pay off amount Identify the type of ownership, amount of equity, and monthly payment expense.
Homeowners or renters insurance policies and riders • Compare the insured value to the value declared on the CIS.
• Identify high value personal items such as jewelry, antiques or artwork.
Financial statements recently provided to lending institutions or others Compare the financial information on the CIS to those submitted to other lending institutions.
Divorce court orders Verify disposition of assets in the property settlement.
Court orders for child support and proof of payment Verify responsibility for child support, that the payments are actually being made, and the length of time payments are required to be made. A copy of the court order is not critical or required if the taxpayer does not provide supporting documentation that payments are being made. In those cases, the payment will be disallowed as an expense. If the payment is to be allowed, a copy of the Court Order must be secured.
5.8.5.4 (09-23-2008)
Equity in Assets
1. Proper asset valuation is essential to determine RCP.
2. Field calls may be made to locate or personally ascertain the condition of assets.
3. Assets should not be eliminated or valued at zero dollars simply because the Service may choose not to take enforcement action against the asset. However, special circumstances should be taken into consideration when making the offer determination.
5.8.5.4.1 (09-23-2008)
Net Realizable Equity
1. For offer purposes, assets are valued at net realizable equity (NRE). Net realizable equity is defined as quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien.
2. QSV is defined as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short period of time, usually 90 calendar days or less. Generally, QSV is an amount less than fair market value (FMV) but greater than forced sale value (FSV). FSV is defined as no less than 75% of FMV.
3. Normally, QSV is calculated at 80% of FMV. A higher or lower percentage may be applied in determining QSV when appropriate, depending on the type of asset and current market conditions. If, based on the current market and area economic conditions, it is believed that the property would quickly sell at full FMV, then it may be appropriate to consider QSV to be the same as FMV. This is occasionally found to be true in real estate markets where real estate is selling quickly at or above the listing price. As long as the value chosen represents a fair estimate of the price a seller could get for the asset in a situation where the asset must be sold quickly (usually 90 calendar days or less) then it would be appropriate to use a percentage other than 80%. Generally, it is the policy of the Service to apply QSV in valuing property for offer purposes.
4. When a particular asset has been sold (or a sale is pending) in order to fund the offer, no reduction for QSV should be made. Instead, verify the actual sale price, ensuring that the sale is an arms length transaction, and use that amount as the QSV. A reduction may be made for the costs of the sale and the expected current year tax consequence to arrive at the NRE of the asset.
5.8.5.4.2 (09-23-2008)
Jointly Held Assets
1. When taxpayers submit separate offers but have jointly owned assets, allocate equity in the assets equally between the owners. However:
If… Then…
The joint owners demonstrate their interest in the property is not equally divided Allocate the equity based on each owner's contribution to the value of the asset.
The joint owners have joint and individual tax liabilities included in the offer investigation Apply the equity first to the joint liability and then to the individual liability.
2. See IRM 5.8.5.4.11(4) below for the treatment of assets held as tenancies by the entirety.
5.8.5.4.3 (09-23-2008)
Income-Producing Assets
1. When investigating the RCP for an offer that includes business assets, an analysis is necessary to determine if certain assets are essential for the production of income. When it has been identified that an asset or a portion of an asset is necessary for the production of income, it may be appropriate to adjust the income or expense calculation for that taxpayer to account for the loss of income stream if the asset was either liquidated or used as collateral to secure a loan to fund the offer.
2. When valuing income-producing assets:
If… Then…
There is no equity in the assets There is no adjustment necessary to the income stream.
There is equity and no available income stream (i.e. profit) produced by those assets There is no adjustment necessary to the income stream. Consider including the equity in the asset in the RCP.
There are both equity in assets that are determined to be necessary for the production of income and an available income stream produced by those assets • Compare the value of the income stream produced by the income producing asset(s) to the equity that is available.
• Determine if an adjustment to income or expenses is appropriate.
An asset used in the production of income will be liquidated to help fund an offer Adjusting the income to account for the loss of the asset.
A taxpayer borrows against an asset that is necessary for the production of income, and devotes the proceeds to the payment of the offer Consider the effect that loan will have on future expenses and the future income stream.
The taxpayer is either unable or unwilling to secure a loan on the equity in income producing assets • Compare the equity in the assets with the income produced by those assets.
• Determine if an adjustment to income stream is appropriate to account for the potential loss of the assets.
3. These considerations should be fully documented in the case history. For example:
If… Then…
A self-employed construction tradesman sells a truck, which he used to haul materials, and devotes the proceeds to the offer Consider allowing the expected cost of delivery services as a business expense.
A tradesman borrows against the truck instead of selling it and devotes the proceeds to the offer Consider allowing the loan repayment as a business expense.
A loan cannot be secured and loss of the truck would create an economic hardship When special circumstances warrant acceptance of less than RCP, document the circumstances and recommend acceptance to the authorized official in Delegation Order No. 5-1.
An outside salesman has a luxury car when all that is necessary is a moderate value sedan The equity should be included in the offer. Consider allowing only a portion of the loan repayment that would be required to purchase a moderate value replacement vehicle.
An outside salesman has a luxury car but no ability to make installment payments for purchase of a moderate value replacement vehicle The equity should be included in the offer. When special circumstances warrant acceptance of less than the RCP, document the circumstances and recommend acceptance to the authorized official in Delegation Order No. 5-1. Determine the acceptable amount of a special circumstances offer by allowing the taxpayer to retain only enough equity to purchase a moderate value replacement vehicle.
A business owns a vacation property, which is used for annual board meetings. The equity should be included in the offer. Do not allow any loan repayment.
5.8.5.4.4 (09-23-2008)
Assets Held By Others as Transferees, Nominees, or Alter Egos
1. A critical part of the financial analysis is to determine what degree of control the taxpayer has over assets and income in the possession of others. This is especially true when the offer will be funded by a third party.
2. When these issues arise, apply the principles in IRM 5.17.1 or request a Counsel opinion.
3. It is not necessary to actually seek or obtain any specific legal remedy in order to address these issues in an offer.
4. If the taxpayer has a beneficial interest in the asset or income stream, then the value should be reflected in the RCP.
5.8.5.4.5 (09-23-2008)
Cash
1. Review checking account statements over a reasonable period of time (generally three months).
• Determine if there are funds in the account that are not spent on a monthly basis. Generally, this would be the amount reflected on each month's statement when the account is at its lowest point.
• Treat overdrafts as a zero balance.
• Average the lowest daily ending balance on each of the three statements and use this amount as the value of the account.
• If the statements reflect an amount that is not spent, this amount will be added to the AET as an asset, however, it cannot be valued for less than zero.
Note:
This should represent any amount available in the account each month after alldeposits and withdrawals have been allowed.
2. Determine the taxpayer's interest in bank accounts by ascertaining the manner in which they are held and applying the principles described in IRM 5.17.1.
3. If analysis of the bank statements or discussions with the taxpayer reveal that an adjustment to the balance is appropriate based on unusual expenses that are necessary for the production of income or the health and welfare of the taxpayer or their family, consider adjusting the balance. The case file should clearly document these determinations.
4. Analyze the statement for any unusual activity, such as deposit in excess of reported income, withdrawals, transfers, or checks for expenses not reflected on the CIS. The OI should question these inconsistencies, as appropriate.
5. Review savings accounts statements over a reasonable period of time, generally three months.
• If the account has little withdrawal activity, use the ending balance on the latest statement as the asset value for the AET.
• If it is apparent that the account is used for paying monthly living expenses, treat it as a checking account and follow the instructions in paragraphs (1) through (4) above to determine its value.
6. If analysis of the bank statement reveals large amounts of recently expended funds, see IRM 5.8.5.5 below for a full discussion of the treatment of dissipated assets.
7. If the taxpayer offers the balances of accounts to fund the offer, allow for any penalty for early withdrawal and the expected current year tax consequence.
8. Verify whether deposits in escrow or trust accounts are actually held for the benefit of others.
9. For funds on deposit with the OIC, allow as an encumbrance any amount borrowed under the provision that, if the offer is not accepted, it must be repaid.
5.8.5.4.5.1 (09-23-2008)
Treatment of TIPRA Payments When Conducting Cash Analysis
1. Do not include any TIPRA payments (lump sum or periodic) as a separate asset on the AET.
2. Subtract all TIPRA payments (lump sum or periodic) from the RCP to yield the net remaining offer amount.
3. Include any deposits as an asset on the AET.
Note:
Deposits are refundable, and must be considered an asset. However, deposits designated as a payment of tax will not be considered an asset.
4. Payments in excess of any required TIPRA payment(s) are treated as a tax payment, and will not be included on the AET, unless designated as a deposit by the taxpayer.
5.8.5.4.6 (09-23-2008)
Securities
1. Financial securities are considered an asset and their value should be determined and included in the RCP when investigating an offer.
2. When the taxpayer will liquidate the investment to fund the offer, allow any penalty for early withdrawal and the current year tax consequence.
3. To determine the value of publicly traded stock, research a daily paper or inquire with a broker for the current market price. Then, allow for the estimated costs of the sale to arrive at the QSV.
4. To determine the value of closely held stock that is either not traded publicly or for which there is no established market, consider the following methods of valuing the company and assign a portion of the company's value to the taxpayer's stock:
• Secure and verify a CIS.
• Review recent year's annual report to stockholders.
• Review recent year's corporate income tax returns.
• Request an appraisal of the business as a going concern by a qualified and impartial appraiser.
5. When a taxpayer holds only a negligible or token interest, has made no investment and exercises no control over the corporate affairs, it is permissible to assign no value to the stock.
5.8.5.4.7 (09-23-2008)
Life Insurance
1. Life insurance as an investment (e.g., whole life) is not considered necessary. However, reasonable premiums for term life policies may be allowed as a necessary expense.
2. When determining the value in a taxpayer's insurance policy, consider:
If… Then…
The taxpayer will retain or sell the policy to help fund the offer Equity is the cash surrender value.
The taxpayer will borrow on the policy to help fund the offer Equity is the cash loan value less any prior policy loans or automatic premium loans required to keep the contract in force.
5.8.5.4.8 (09-23-2008)
Retirement or Profit Sharing Plans
1. Funds held in a retirement or profit sharing plan are considered an asset and must be valued for offer purposes.
2. Contributions to voluntary retirement plans are not a necessary expense. Review of the retirement plan document is generally necessary to determine the taxpayer's benefits and options under the plan.
3. When the taxpayer will liquidate the retirement plan to fund the offer, allow any penalty for early withdrawal and the current year tax consequence.
4. When determining the value of a taxpayer's pension and profit sharing plans consider:
If… And… Then…
The account is an Individual Retirement Account (IRA), 401(k), or Keogh Account The taxpayer is not retired or close to retirement Equity is the cash value less any expense for liquidating the account and early withdrawal penalty.
The account is an Individual Retirement Account (IRA), 401(k), or Keogh Account The taxpayer is retired or close to retirement • Equity is the cash value less any expense for liquidating the account and early withdrawal penalty.
• The plan may be considered as income, if the income from the plan is necessary to provide for necessary living expenses.
The contribution to a retirement plan is required as a condition of employment The taxpayer is able to withdraw funds from the account Equity is the amount the taxpayer can withdraw less any expense associated with the withdrawal
The contribution to an employer's plan is required as a condition of employment The taxpayer is unable to withdraw funds from the account but is permitted to borrow on the plan Equity is the available loan value.
Any retirement plan that may not be borrowed on or liquidated until separation from employment The taxpayer is retired, eligible to retire, or close to retirement Equity is the cash value less any expense for liquidating the account and early withdrawal penalty, or consider the plan as income if the income from the plan is necessary to provide for necessary living expenses.
The plan may not be borrowed on or liquidated until separation from employment The taxpayer is not eligible to retire until after the period for which we are calculating future income The plan has no equity.
The plan includes a stock option The taxpayer is eligible to take the option Equity is the value of the stock at current market price less any expense to exercise the option.
5.8.5.4.9 (09-23-2008)
Furniture, Fixtures, and Personal Effects
1. The taxpayer's declared value of household goods is usually acceptable unless there are articles of extraordinary value, such as antiques, artwork, jewelry, or collector's items. Exercise discretion in determining whether the assets warrant personal inspection.
2. There is a statutory exemption from levy that applies to the taxpayer's furniture and personal effects. This exemption amount is updated on an annual basis.
Note:
This exemption applies only to individual taxpayers.
3. When determining the value consider the following:
If… Then…
The taxpayer qualifies as head of household, single, or married Grant a reduction in the value of personal effects for the levy exemption amount.
The property is owned jointly with any person who is not liable for the tax Determine the value of the taxpayer's proportionate share of property before allowing the levy exemption.
Some of the furniture or fixtures are used in a business They are not personal effects, but they may qualify for the levy exemption as tools of a trade.
5.8.5.4.10 (09-23-2008)
Motor Vehicles, Airplanes, and Boats
1. Equity in motor vehicles, airplanes, and boats must be determined and included in the RCP. The general rule for determining NRE, as discussed in IRM 5.8.5.4.1 above, applies when determining equity in these assets. Unusual assets such as airplanes and boats may require an appraisal to determine FMV, unless the items can be located in a trade association guide. The case file should document how the values were determined.
2. It is not necessary to personally inspect automobiles used for personal transportation. When it appears reasonable, accept the taxpayers stated value. For these vehicles, consult a trade association guide. In most cases, the vehicle will be discounted for the FMV to 80% to arrive at the QSV.
3. When these assets are used for business purposes, they may be considered income producing assets. See IRM 5.8.5.4.3 above for a full discussion on the treatment of income producing assets.
5.8.5.4.11 (09-23-2008)
Real Estate
1. Equity in real estate is included when calculating the taxpayer's RCP in an acceptable offer amount.
2. When determining equity in real estate, the FMV of the property must be established. FMV is defined as the price at which a willing seller will sell and a willing buyer will pay for the property, given time to obtain the best and highest possible price. The following methods may be used to establish FMV:
• Recent purchase price or an existing contract to sell
• Recent appraisals
• Real estate tax assessment
• Market comparable
• Homeowner's insurance replacement cost
3. Once the FMV of real estate is established, a determination regarding a reduction of value for offer purposes must be made. Procedures outlining reduction to QSV are discussed in IRM 5.8.5.4.1 above. If the value of real estate is reduced beyond 80% or if FMV is not reduced to QSV, document the basis for the value used.
4. For real estate and other related property held as tenancies by the entirety when the tax is owed by only one spouse, the taxpayer's portion is usually 50% of the property's NRE.
5.8.5.4.12 (09-23-2008)
Accounts and Notes Receivable
1. Accounts and notes receivable are considered assets unless a determination is made to treat them as part of the income stream when they are required for the production of income. When it is determined that liquidation of a receivable would be detrimental to the continued operation of an otherwise profitable business, it may be treated as future income.
2. To determine the value of accounts receivable:
A. When the receivables have been sold at a discount or pledged as collateral on a loan, apply the provisions of IRC 6323(c) to determine the lien priority of commercial transactions and financing agreements.
B. Closely examine accounts of significant value that the taxpayer is not attempting to collect, or that are receivable from officers, stockholders, or relatives.
3. To determine the value of a note receivable, consider the following:
• Whether it is secured and if so by what asset(s).
• What is collectible from the borrower.
• If it could be successfully levied upon.
5.8.5.4.13 (09-23-2008)
Inventory, Machinery, and Equipment
1. Inventory, machinery, and equipment may be considered income producing assets. See IRM 5.8.5.4.3 above when it is determined that liquidation of these assets would be detrimental to the continued operation of an otherwise profitable business.
2. To determine the value of business assets, use the following:
• For assets commonly used in many businesses, such as automobiles and trucks, the value may be easily determined by consulting trade association guides.
• For specialized machinery and equipment suitable for only certain applications, consult a trade association guide, secure an appraisal from a knowledgeable and impartial dealer, or contact the manufacturer.
• When the property is unique or difficult to value and no other resource will meet the need, follow local procedure to request the services of an IRS valuation engineer.
• Consider asking the taxpayer to secure an appraisal from a qualified business appraiser.
3. There is a statutory exemption from levy that applies to an individual taxpayer's tools used in a trade or business. This exemption for tools of the trade generally does not apply to automobiles. The levy exemption amount is updated on an annual basis.
5.8.5.4.14 (09-23-2008)
Business as a Going Concern
1. Evaluation of a business as a going concern, is sometimes necessary when determining RCP of an operating business owned individually or by a corporation, partnership, or LLC. This analysis recognizes that a business may be worth more than the sum of its parts, when sold as a going concern.
2. To determine the value of a business as a going concern consider the value of assets, future income, and intangible assets such as:
• Ability or reputation of a professional
• Established customer base
• Prominent location
• Well known trade name, trademark, or telephone number
• Possession of government licenses, copyrights, or patents
Generally, the difference between what an ongoing business would realize if sold on the open market as a going concern and the traditional RCP analysis is attributable to the value of these intangibles.
3. Request the assistance of an IRS valuation engineer when a difficult or complex valuation is necessary.
4. When determining RCP for an individual taxpayer who has an interest in a business entity, flexibility should be used with consideration given to the taxpayer's control over the business.
5.8.5.5 (09-23-2008)
Dissipation of Assets
1. During an offer investigation it may be discovered that assets (liquid or non liquid) have been sold, gifted, transferred, or spent on non-priority items or debts and are no longer available to pay the tax liability. This section discusses treatment of the value of these assets when considering an OIC.
Note:
The scope of an offer investigation should not be expanded beyond the requirements defined in IRM 5.8.5.4, for the sole purpose of attempting to locate dissipated assets.
2. Once it is determined that a specific asset has been dissipated, the investigation should address whether the value of the asset, or a portion of the value, should be included in an acceptable offer amount.
3. Inclusion of the value of dissipated assets must clearly be justified in the case file and documented on the ICS or AOIC history, as appropriate. A determination that assets were dissipated should include an analysis of the following facts:
• When the asset(s) were dissipated in relation to the offer submission.
• When the asset(s) were dissipated in relation to the liability.
• How the asset was transferred.
• If the taxpayer realized any funds from the transfer of assets.
• How any funds realized from the disposition of assets were used.
• The value of the assets and the taxpayer's interest in those assets.
4. When the taxpayer can show that funds have been spent to provide for necessary living expenses, these amounts should not be included in the reasonable collection potential (RCP) calculation.
Example:
(1) Dissolving an IRA account to pay for necessary living expenses during unemployment; (2) Using bank accounts to pay for medical expenses; (3) Disposing of an asset and using the funds to purchase another asset that is included in the offer evaluation.
5. If the investigation clearly reveals that assets have been dissipated with a disregard of the outstanding tax liability, consider including the value in the RCP calculation.
Example:
Dissipated Assets that may result in an increase to the RCP calculation:
• Dissolving an IRA account to pay unsecured credit card debt
• Sale of real estate and "gifting" the funds from the sale to family members.
• A recent refinancing of equity in property and using the funds to pay unsecured debt.
6. The value of dissipated assets should not automatically be included in the calculation of the RCP. Each particular case must be evaluated on its own merit, and meeting the facts stated in paragraph (3) above.
7. If the tax liability did not exist prior to the transfer or the transfer occurred prior to the taxable event giving rise to the tax liability, generally, a taxpayer cannot be said to have dissipated the assets in disregard of the outstanding tax liability.
Example:
If a taxpayer withdraws funds from an IRA to invest in a business opportunity but does not have any tax liability prior to the withdrawal, the funds were not dissipated.
8. If the taxpayer does not provide information showing the disposition of funds from transferred assets, consider including all of these amounts in an acceptable offer amount.
5.8.5.6 (09-23-2008)
Future Income
1. Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. The number of months used depends on the payment terms of the offer.
A. For Lump Sum Cash offers:
If… Then…
The offer is to be paid in 5 months or less Project for the next 48 months or the statutory period, whichever is less
The offer is payable in 5 to 24 months Project for the next 60 months or the statutory period, whichever is less
The offer is payable more than 24 months Project over the remaining statutory period
B. For Short Term Periodic Payment offers — project for the next 60 months or the statutory period, whichever is less.
C. For Deferred Periodic Payment offers — project for the number of months remaining on the statutory period for collection.
2. Consider the taxpayer's overall general situation including such facts as age, health, marital status, number and age of dependents, level of education or occupational training, and work experience.
3. Retired Debts — A taxpayer's ability to pay in the future may change during the period being considered because necessary expenses may increase or decrease. Adjust the amount or number of payments to be included in the future income calculation, based on the expected change in necessary expenses.
Example:
Child support payments may stop before the future income period ends because the child turns a certain age. It is expected that these retired payments would increase the taxpayer's ability to pay.
4. Inclusion of retired debt should not be added automatically in the calculation of the RCP. The Offer Investigator should use judgment in determining whether inclusion of the retired debt is appropriate based on the facts of the case; such as special circumstances or ETA situations. In all instances, the case histories should be documented to support the inclusion or exclusion of the retired debt.
5. Some situations may warrant placing a different value on future income than current or past income indicates:
If… Then…
Income will increase or decrease or current necessary expenses will increase or decrease Adjust the amount or number of payments to what is expected during the appropriate number of months.
A taxpayer is temporarily unemployed or underemployed Use the level of income expected if the taxpayer were fully employed and if the potential for employment is apparent. Each case should be judged on its own merit, including consideration of special circumstances or ETA issues.
Example:
Underemployed – If a taxpayer is a teacher but recently moved and is currently working as a janitor until a teaching position becomes available, or has been hired and does not begin work until the school season begins, the taxpayer is considered to be currently underemployed.
A taxpayer has a sporadic employment history or fluctuating income Average earnings over several prior years. Usually this is the prior 3 years.
Note:
This practice does not apply to wage earners.
A taxpayer is elderly, in poor health, or both and the ability to continue working is questionable Adjust the amount or number of payments to the expected earnings during the appropriate number of months. Consider special circumstance situations when making any adjustments.
A taxpayer will file a petition for liquidating bankruptcy Consider reducing the value of future income. The total value of future income should not be reduced to an amount less than what could be paid toward non-dischargeable periods, or what could be recovered through bankruptcy. When considering a reduction in future income also consider the intangible value to the taxpayer of avoiding bankruptcy.
6. Below are some examples on when it is and is not appropriate to income average. Judgment should be used in determining the appropriate time to apply income averaging on a case by case basis. All circumstances of the taxpayer should be considered when determining the appropriate application of income averaging, including special circumstances and ETA considerations.
A. The examples below are instances when income averaging may or may not be appropriate.
Example:
Taxpayer is a commissioned sales person and the income varies year from year to year. It would be appropriate to income average in this case.
Example:
Taxpayer was on a fixed retirement and the spouse had not worked for over 2 1/2 years with no potential for future employment. Do not average income for the spouse's past employment.
Example:
Taxpayer had been unemployed for over a year and provided proof that Social Security Disability income was the sole source of income. Do not apply income averaging in this case.
Example:
The taxpayer was incarcerated and unable to work for the past 4 years and provided proof that a relative was paying for all expenses, including child support payments. The taxpayer had no skills or promise of work in the near future but was planning on attending trade school to improve his chances of getting a job. Do not include income prior to the incarceration. In this case, the income and expenses would be zero. Consideration should be given whether it would be in the best interest of the Government to accept the offer or reject the offer in favor of other case resolutions.
Example:
The taxpayer recently began working after several months of unemployment. Use the most recent 3 months pay statements to determine future income. Do not income average.
7. In some instances, a future income collateral agreement may be used in lieu of including the estimated value of future income in RCP. When investigating an offer where current or past income does not provide an ability to accurately estimate future income, the use of a future income collateral agreement may provide a better means of calculating an acceptable offer amount.
Future income collateral agreements should not be used to enable a taxpayer to submit an offer in a lesser amount than the current or past financial condition dictates. However, if the future is uncertain, but it is reasonably expected that the taxpayer will be receiving a substantial increase in income, it may be appropriate. See IRM 5.8.6.3.1, Future Income, for instructions on completing collateral agreements.
Example:
A taxpayer is currently in medical school; upon graduation income should increase dramatically. See IRM 5.8.6.3.1, Future Income, for instructions on completing collateral agreements.
Example:
A taxpayer recently secured a job as an attorney with a starting salary of $80,000 per year, with potential for significant increases in salary.
5.8.5.6.1 (09-23-2008)
Allowable Expenses
1. Allowable expenses consist of necessary and conditional expenses, as defined in IRM 5.15.1, Financial Analysis Handbook, and further discussed below. Once allowable expenses are determined, they are used to calculate the amount that can be collected from the taxpayer's future income. See IRM 5.8.5.6, above, for additional information on future income.
2. When determining a taxpayer’s housing and utility expense, use an amount sufficient to provide for basic living expenses. Use the amount shown in the expense standard schedules as a guideline except to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses.
5.8.5.6.2 (09-23-2008)
Necessary Expenses
1. A necessary expense is one that is necessary for the production of income or for the health and welfare of the taxpayer's family. IRM 5.15.1, Financial Analysis Handbook, discusses the national and local expense standards, which serve as guidelines to provide accuracy and consistency in determining a taxpayer's basic living expenses. The standards are available on the IRS web site and are periodically updated.
2. Taxpayers are allowed the National Standard Expense amount for their family size, without questioning the amount actually spent. If the total amount claimed is more than the total allowed by the National Standards, the taxpayer must provide documentation to substantiate and justify the expenses that exceed the National Standard amounts. Fully document the reason for the exception or allowance of additional expenses.
3. Generally, the total number of persons allowed for national standard expenses should be the same as those allowed as dependents on the taxpayer's current year income tax return. There may be reasonable exceptions. Fully document the reasons for any exceptions.
Example:
Foster children or children for whom adoption is pending; Custodial parent has released dependency exemption to ex-spouse.
4. When determining a taxpayer’s housing and utility expense, use an amount sufficient to provide for basic living expenses. Use the amount shown in the expense standard schedules as a guideline unless such use results in the taxpayer not having adequate means to provide for basic living expenses. If it is determined that a standard amount is inadequate to provide for a specific taxpayers basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file. Deviations from the National Standard Expenses must be verified, reasonable, and documented in the case history.
Example:
A taxpayer with a physical disability or an unusually large family requires a housing cost that is not covered by the local standard. Require the taxpayer to provide copies of mortgage or rent payments, utility bills and maintenance costs to verify the necessary amount.
5. A deviation from the local standard should not be considered merely because it is inconvenient for the taxpayer to dispose of high value assets. In some situations, taxpayer's may be expected to make life-style choices that will facilitate collection of the delinquent tax.
6. Absent special circumstances, when determining a taxpayer’s housing and utility expense, use the amount that is claimed or the standard, whichever is less.
5.8.5.6.3 (09-23-2008)
Treatment of Non-Business Transportation Expenses
1. Transportation expenses are considered necessary when they are used by taxpayer's and their families to provide for their health and welfare and/or the production of income. Employees investigating OIC's are expected to exercise appropriate judgment in determining whether claimed transportation expenses meet these standards. Expenses that appear excessive should be questioned and, in appropriate situations, disallowed.
2. Operating Expenses — Allow the full operating costs portion of the local transportation standard, or the amount actually claimed by the taxpayer, whichever is less.
Note:
Substantiation for this allowance is not required.
3. Ownership Expenses — Expenses are allowed for purchase or lease of a vehicle.
Taxpayers will be allowed the local standard or the amount actually paid, whichever is less. Generally, auto loan or lease payments will not continue as allowed expenses after the terms of the loan/lease have been satisfied. However, depending on the age or condition of the vehicle, the complete disallowance of the ownership expense may result in a transportation expense allowance that does not adequately meet the necessary expenses of the taxpayer.
Therefore, in situations where the taxpayer owns a vehicle that is currently over six years old or has reported mileage of 75,000 miles or more, an additional monthly operating expense of $200 will be allowed per vehicle, for the collection period that remains after the loan/lease has been retired, plus the operating expense.
Example:
The taxpayer, owns a 1995 Ford Taurus, with 90,000 reported miles. The vehicle was bought used, and the auto loan will be fully paid in 30 months, at $300 per month. In this situation, the taxpayer will be allowed the ownership expense until the loan is fully paid, i.e., $300 plus the allowable operating expense of $231 per month, for a total transportation allowance of $531 per month. After the auto loan is retired in 30 months, the ownership expense is not applicable; however, at that point, the taxpayer will be allowed a $200 operating expense allowance, in addition to the standard $231, for a total operating expense allowance of $431 per month.
Example:
The taxpayer who owns a 1998 Chevrolet Cavalier with 50,000 miles, will be allowed the standard of $231 per month, plus $200 per month operating expense (because of the age of the vehicle), for a total operating expense allowance of $431 per month.
5.8.5.6.4 (09-23-2008)
Conditional Expenses
1. Conditional expenses are defined in IRM 5.15, Financial Analysis Handbook, as those that may be allowed when the tax will be paid in full by an installment agreement. within 5 years, i.e., with an installment agreement. For offer purposes, the full amount of the tax will not be collected, therefore, the rules for conditional expenses are different.
2. The one year rule which allows time for a taxpayer to adjust current expenses to meet the terms of an installment agreement is not allowed for Offers in Compromise.
3. The purchase of discretionary investments is not allowed in the calculation of the RCP.
Example:
Payroll savings plans, purchase of whole life policies, mutual funds, or voluntary retirement plan contributions.
4. Repayment of loans incurred to fund the offer and secured by the taxpayer's assets are allowed when those assets are of reasonable value and necessary to provide for the health and welfare of the taxpayer's family. The same rule applies whether the equity is paid to IRS before the offer is submitted or will be paid upon acceptance of the offer. See IRM 5.8.5.4.3, Income-Producing Assets, to determine when to allow repayment of loans on those assets used to fund the offer.
5. Repayment of student loans secured by the federal government will be allowed only for the taxpayer's post-secondary education. If student loans are owed but no payments are being made, do not allow them.
6. Education expenses will be allowed only for the taxpayer and only if it they are required as a condition of present employment. Expenses for dependents to attend colleges, universities, or private schools will not be allowed unless the dependents have special needs that cannot be met by public schools.
7. Child support payments for natural children or legally adopted dependents may be allowed, based on the taxpayer's situation, even when they are not court ordered. Regardless of whether they are court ordered, if no child support payments are being made, do not allow them.
Note:
Do not allow payments for expenses, such as college tuition or life insurance for children, made pursuant to a court order. The fact that the taxpayer may be under court order to make payments with respect to such expenses does not change the character of the expense. Therefore, that the taxpayer is under court order to provide a payment should not in the ordinary course elevate that expense to allowable status as an offer expense, when the Service would not otherwise allow it.
8. Monthly payments to state or local taxing agencies should not be allowed as a necessary expense, even if the state or local taxing agency has a lien that is senior to the IRS's lien or is collecting funds through a wage attachment or approved installment agreement. State and federal liens (regardless of priority) attach simultaneously to after-acquired-property. In general, if the federal tax lien attaches to after acquired property simultaneously with a competing perfected lien, the federal tax lien will take priority (see IRM 5.17.2.4.5, After-Acquired Property). Since future earnings of the taxpayer are after-acquired-property, the Service has first right to the earnings. Explain to the taxpayer that although the payment may be allowed in an installment agreement, where the tax will be paid in full, it will not be allowed for computation of an acceptable offer amount because the Federal government has priority rights to the funds.
Note:
State or local liens may enjoy a priority in fixed payment streams such as annuity payments. If necessary, consult with Area Counsel to determine lien priorities.
9. Generally, charitable contributions are not allowed in the RCP calculation. However, charitable contributions may be an allowable expense if they are a condition of employment or meet the necessary expense test.
Example:
A minister is required to tithe according to his employment contract. See IRM 5.15.1.10, Financial Analysis Handbook, Other Expenses.
10. Payments being made to fund or repay loans from voluntary plans will not be allowed. Taxpayer's who cannot repay these loans will have a tax consequence in the year that the loan is declared in default and that consequence should be estimated and allowed as an additional tax expense on the IET for the required number of months necessary to cover the additional tax consequence. The OI should request the taxpayer or their representative to estimate the tax ramification of the failure to re-pay the loan, or may request assistance from the Examination function or Customer Service to determine the tax consequences.
5.8.5.6.5 (09-23-2008)
Shared Expenses
1. Generally, a taxpayer will be allowed only the expenses the taxpayer is required to pay. Consideration must be given to situations where the taxpayer shares expenses with another. Shared expenses may exist in one of two situations:
1. An offer is submitted by a taxpayer who shares living expenses with another individual who is not liable for the tax.
2. Separate offers are submitted by two or more persons who owe joint liabilities and/or separate liabilities and who share the same household.
Note:
Treasury Reg. § 301.7122–1 (c) (2) (ii) (A) only applies in "not liable" and not in "partially liable" situations.
2. Generally, the assets and income of a "not liable" person are excluded from the computation of the taxpayer’s ability to pay.
Exception:
Related offers including both joint and separate liabilities. The amount of both offers should equal the total amount collectable from the shared household. IRM 5.8.5.4.2 provides that the equity in jointly owned assets should be applied first to the joint liabilities and then to the separate liabilities.
Exception:
Community property states. Follow community property laws in these states to determine what assets and income of the non-liable person are subject to the collection of tax. See IRM 25.18.1.1.2 Community Property Law.
3. The offer investigator should secure sufficient information concerning the non-liable person’s assets and income to determine the taxpayer’s proportionate share of the total household income and expenses. Review the entire household's information and:
A. Determine the total actual household income and expense.
B. Determine what percentage of the total household income the taxpayer contributes.
C. Determine allowable expense amounts using the rules in this chapter and IRM 5.15.1, Financial Analysis Handbook.
D. Determine which expenses are shared and which expenses are the sole responsibility of the taxpayer.
E. Apply the taxpayer's percentage of income to the shared expenses.
F. Verify that the taxpayer actually contributes at least this amount to the total household expense.
G. Do not allow the taxpayer any amount paid toward the other person's discretionary expenses.
4. When the taxpayer can provide documentation that income is not mingled (as in the case of roommates who share housing) and responsibility for household expenses are divided equally between co-habitants (as documented by rental agreements, bank statement analysis, etc.), the total allowable expenses should not exceed the total allowable housing standard for the taxpayer.
In this situation, it would not be necessary to obtain the income information of the other person(s). However, sufficient financial information must be secured to verify the total household expenses and prove that the taxpayer is paying his/her proportionate share. The investigating employees should exercise sound judgment in these situations to determine which approach is most appropriate, based on the facts of each case.
Example:
In the situation where the taxpayer is renting an apartment or room and the owner of the property is not the taxpayer, the rental agreement or signed statement from the owner of the property should support the decision not to require the owner to divulge any personal information regarding income or household expenses. In this case, the investigating employee should accept the information provided by the taxpayer and make a determination based on that information.
5. If an in-house verification is conducted on the not liable person, this information cannot be relayed to the taxpayer. This is not an Unauthorized Access (UNAX) violation but would be considered an unauthorized disclosure if any information is shared with the taxpayer.
5.8.5.6.6 (09-23-2008)
Calculation of Future Income
1. Generally, the amount to be collected from future income is calculated by taking the projected gross monthly income, less allowable expenses, and multiplying the difference by the number of months remaining on the statutory period for collection.
2. For lump sum cash and short term periodic payment offers, when there are less than 48 or 60 months remaining on the statutory period for collection, use the number of months remaining. To determine the amount collectible from future income on a deferred payment offer through the life of the statutory period for collection, take the following steps:
A. Subtract allowable expenses from the monthly income to determine the monthly installment amount.
B. Determine the valid CSED for each tax period included in the offer.
C. Sort the tax periods by earliest CSED.
D. For each tax period, determine the number of months remaining on the statutory period for collection. Begin with the day the offer was determined to be processable and end on the CSED. Round partial months up to the nearest whole month.
E. For each tax period, determine the number of installments that may be applied before running out of available funds. Round partial payments up to the nearest whole payment.
F. Calculate the number of installments applied to each period. For succeeding periods, do not count months on the CSED that were used for applying installments to prior periods.
G. Add the number of installments applied to all the periods and multiply the sum by the monthly installment amount to arrive at the total amount collectible from future income. For examples of situations where the amount that may be applied to a period is limited. See Exhibits 5.8.5-1 through 5.8.5-3.
5.8.5.6.7 (09-23-2008)
Deferred Payment Offer in Compromise Received After Collection Statute Expiration Date Extension
1. Taxpayers that previously extended the CSED in connection with an installment agreement may request approval of a deferred payment OIC.
2. On March 24, 1998, the Service issued procedures that limited the length of CSED extensions. See IRM 5.14, Installment Agreements, for further instruction on the policy of the Service.
3. By policy, if extensions granted prior to October 18, 1999, resulted in collection periods longer than 15 years; and a deferred payment OIC is later submitted on the balance due accounts (subject to the extension), then, for the purpose of reviewing the OIC, CSEDs are considered to be the later of the following:
• The original CSED (10 years from the tax assessment upon which the liability is based); or,
• 5 years from the date of acceptance of the OIC.
4. IDRS will not reflect any adjustments based on these procedures. Therefore, it is essential that case histories be fully documented and reflect the following statement:
"Time left prior to the CSED (per IDRS) was not used for computation of the deferred offer payment amount, per IRM 5.8.5.5.6."
Note:
These procedures do not apply to extensions up to 6 years. They only apply to CSED extensions longer than 5 years, as agreed to prior to October 18, 1999, and that were granted in conjunction with an installment agreement.
5.8.5.7 (09-23-2008)
Payment Terms
1. Payment terms are negotiable, but should provide for payment of the offered amount in the least time possible. If a taxpayer is planning to sell asset(s) to fund all or a portion of the offer, the payment terms for the offer should provide for immediate payment of the amounts received from the sale. If the taxpayer is planning to borrow a portion of the money, the OI should determine when the loan will be received and the payment terms of the offer should provide for payment of the borrowed portion at the time the funds are received.
2. For those taxpayers who agree to shorter payment terms, fewer months of future income are required:
Payment Type Payment Terms Number of Months Future Income Required
Lump Sum Cash 5 installments within 5 months 48 months or the remaining statutory period, whichever is less
Lump Sum Cash 5 installments paid in more than 5 months and less than 24 months 60 months or the remaining statutory period, whichever is less
Lump Sum Cash 5 installments paid in more than 24 months Number of months remaining on the statute
Short Term Periodic Payment Within 6 to 24 months 60 months or the remaining statutory period, whichever is less
Deferred Periodic Payment Within time remaining on the statute Number of months remaining on the statute
3. While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed installment payments as they become due. There is no requirement that the payments be made monthly or in equal amounts. However, the Service is not bound by either the offer amount or the terms. The OI may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the OI may advise the taxpayer of a larger amount or different terms that would likely be considered for acceptance.
Example:
Acceptable Payment Terms for a Short Term Periodic Payment Offer– A taxpayer submits an offer for $10,000. The IRS received date is January 1, 2007. The taxpayer's offer of $10,000 was accepted in November 2007. Therefore, the taxpayer has 24 months to complete the terms of the offer. The taxpayer pays $100 every other month for a total of 23 months. On the 24th month, January 2009, the taxpayer would then be required to pay the balance of $8,800 ($10,000 less $1,200 in installments). No adjustments to the terms would be required.
Example:
Unacceptable Payment Terms for a Short Term Periodic Payment Offer – A taxpayer submits an offer for $1,000. The IRS received date is January 1, 2007. The taxpayer has 24 months to complete the offer. The taxpayer pays $100 with the offer as the first payment. The taxpayer structures the remaining payments as follows: $100 within 90 days from written notice of acceptance; $100 by the 4th month following the date of the written notice of acceptance of the offer; $100 per month for the next 7 months thereafter for a total of $1,000 ($100 times 10 payments).
Note:
Although the taxpayer may technically structure payments in this manner, the Service is not bound by either the offer amount or the terms proposed by the taxpayer, and the offer investigator may negotiate a different offer amount or terms when appropriate. In this case, the taxpayer has proposed payment terms that may not meet the requirements of a short term payment offer, and the taxpayer should be contacted to re-negotiate the offer terms.
4. A third party source of funds may be required to make the portion of the monthly payment that is greater than we determined the taxpayer can afford from future income. Document the case history with source of the funds.
Exhibit 5.8.5-1 (09-23-2008)
Deferred Payments Limited by Short Statute
For example, the taxpayer has accrued the following tax liability:
MFT–Period CSED Liability
30-9312 07/20/2005 $29,000
30-9412 07/20/2005 $61,000
30-9512 09/27/2006 $ 8,900
30-9612 09/20/2007 $ 7,400
The offer was determined processable on May 31, 1999. The taxpayer has no equity in assets and can pay $300 per month.
MFT–Period Months on the statute Installments Due Installments Applied
30-9312 74 96 74
30-9412 74 203 0
30-9512 87 29 14
30-9612 99 24 12
Total 99
The amount collectible from future income is: $300 times 100 months = $30,000.
Exhibit 5.8.5-2 (09-23-2008)
Deferred Payments Limited by Small Amount Due
For example the taxpayer accrued the following liability:
MFT–Period CSED Liability
30-8912 07/20/2000 $100,000
30-9512 09/27/2006 $ 1,200
30-9612 09/20/2007 $ 600
The offer was determined processable on May 31, 1999. The taxpayer has no equity in assets and can pay $300 per month.
MFT–Period Months on the statute Installments Due Installments Applied
30-8912 14 333 14
30-9512 87 4 4
30-9612 99 2 2
Total 20
The amount collectible from future income is $300 times 20 months = $6,000.
Exhibit 5.8.5-3 (09-23-2008)
Deferred Payments Limited by Application of Payment From Equity in Assets
For example the taxpayer accrued the following liability:
MFT–Period CSED Liability
30-8912 07/20/2000 $30,000
30-9512 09/27/2006 $ 1,200
30-9612 09/20/2007 $ 600
The offer was determined processable on May 31, 1999. The taxpayer has $30,000 equity in assets which he will pay within 90 calendar days and can pay $300 per month which he will begin paying within 30 calendar days.
MFT–Period Months on the statute Installments Due Installments Applied
30-8912 13 0 0
30-9512 87 4 4
30-9612 99 2 2
Total 6
After applying the $30,000 payment for the equity in assets, the amount collectible from future income is $300 times 6 months = $1,800. Reasonable collection potential is $31,800.

5.8.6 Collateral Agreements
• 5.8.6.1 Overview
• 5.8.6.2 Co-obligor Agreements
• 5.8.6.3 Other Collateral Agreements
• 5.8.6.4 Multiple Agreements
• 5.8.6.5 Waiver of Refunds
• Exhibit 5.8.6-1 Co-obligor Agreement Common Law States Pattern Letter P–229 (Rev. 6-90)
• Exhibit 5.8.6-2 Co-obligor Agreement Other States Pattern Letter P–230 (Rev. 6-90)
• Exhibit 5.8.6-3 Collateral Agreement – Modification of Waiver Provisions of Compromise Agreement
• Exhibit 5.8.6-4 Form 2261-C, Collateral Agreement Waiver of Net Operating Losses, Capital Losses and Unused Investment Credits
5.8.6.1 (09-23-2008)
Overview
1. A collateral agreement enables the government to collect funds in addition to the amount actually secured by the offer or to add additional terms not included in the standard Form 656 agreement, thereby recouping part or all of the difference between the amount of the offer or additional terms of the offer and the liability compromised.
5.8.6.2 (09-23-2008)
Co-obligor Agreements
1. When a compromise is accepted from one party to a joint liability, the other party is not released from their several liability. Secure a co-obligor agreement from the taxpayer submitting the offer to clarify the effect of the compromise on the obligations of the other parties.
Note:
TFRP assessments are not joint liability assessments and do not require a co-obligor agreement.
If… Then…
The taxpayer lives in a state where acceptance of an OIC from one party to a joint assessment also releases the other party Secure the common law co-obligor agreement. See Exhibit 5.8.6-1.
The taxpayer lives in a state where the right is expressly reserved to proceed against the other taxpayer who is not a party to the compromise Secure the non-common law co-obligor agreement. See Exhibit 5.8.6-2.
The taxpayer lives in a state where acceptance of an OIC from one party to a joint assessment also releases the other party up to the amount of their proportionate share of the liability There is no co-obligor agreement available for this case. An acceptable offer should include the RCP of all the obligors. When it is impossible to investigate all the obligors, there is a risk that the full collection potential will not be collected. Such an offer must meet the criteria for acceptance on the basis of Doubt as to Collectibility with Special Circumstances (DCSC) or ETA.
Both parties have submitted separate offers which are recommended for acceptance If appropriate, the parties may submit a joint offer to eliminate the need for co-obligor agreements. Otherwise, secure a co-obligor agreement from each taxpayer.
2. A co-obligor agreement is not warranted in the following instances:
A. In a proportionate liability state, when the offer amount is equal to or exceeds the not compromising taxpayers proportionate liability.
B. No possibility exists for collecting from the other obligors.
C. Under state law, no specific reservation of collection rights is required to protect the ability to collect from co-obligors.
5.8.6.3 (09-23-2008)
Other Collateral Agreements
1. Other collateral agreements may be appropriate in certain circumstances. Because all other collateral agreements must be monitored for compliance, they should only be secured when a significant recovery is anticipated. Securing a collateral agreement should be the exception and not the rule.
2. Do not use a collateral agreement to accept an offer amount less than the taxpayers financial condition indicates.
3. In lieu of a collateral agreement, the taxpayer may increase the amount of the offer equivalent to what the government could reasonably expect to recover from the collateral agreement.
4. A collateral agreement may be appropriate in the following situations:
If the taxpayer… Then consider securing a…
Anticipates a substantial increase in future income Future income collateral agreement.
Is compromising the income tax liability of a defunct professional corporation Future income collateral agreement from the professional to collect from future individual income.
Has real or personal property that is being depreciated Collateral agreement to reduce the basis of the asset.
Has net operating losses or capital losses arising from prior years available for deduction in future years A collateral agreement to waive the loss.
Is seeking to compromise a TFRP and qualifies to take a capital loss benefit from the defunct corporation on the Form 1040 A collateral agreement from the individual taxpayer to waive the capital loss.
5.8.6.3.1 (09-23-2008)
Future Income
1. It is appropriate to consider future collateral agreements for both individuals and corporations when the investigation reveals that a substantial increase in the taxpayers future income is expected.
2. The use of a future income collateral agreement may be an option when attempting to determine a taxpayers future income for RCP purposes. When investigating an OIC where the taxpayers past income does not provide an accurate analysis for what may be earned in the future then the use of a future income collateral agreement may be a better option.
Example:
(1) The taxpayer is an engineer, but is currently employed as a salesman earning less than half of his prior salary due to difficulty he has had in obtaining a job in the engineering field at the present time; (2) The taxpayer is a student and is expected to graduate soon and begin earning a significant annual income.
3. The period of time a future income collateral agreement should cover will be determined by the circumstances identified in the offer investigation based on the taxpayers financial situation. Generally the period of time the agreement covers should coincide with the future compliance provision.
Example:
(1) If the offer terms are for a cash or short term deferred payment and based on 48 or 60 months, the future income collateral agreement should generally run for five years; (2) If the offer terms are based on deferred payments calculated through the collection statute periods, the future income collateral should generally run through the last full year before the statutory period for collection expires; (3) The offer file should document the basis for the time frame used for each collateral agreement.
4. Use the Form 2261, Collateral Agreement — Future Income (Individual), for individual taxpayers or the Form 2261–A, Collateral Agreement — Future Income (Corporation) for corporate taxpayers. The beginning year is defined as the year following acceptance of the offer. The ending year is defined as the last year for which the collateral agreement will remain in effect. The beginning dollar amount is negotiable but generally should be the amount determined necessary to meet living expenses during the term of the offer. In determining the beginning dollar amount the expected rate of inflation during the term of the agreement should be considered, as well as any additional expenses such as those for an expected additional child or a replacement auto.
5. Offers with future income collateral agreements must be approved by a second level manager. The Territory manager for the field and Department manager for COIC will indicate approval by signing the Form 7249, Offer Acceptance Report, and the acceptance letter. The Form 2261 may be signed by the authorized official in Delegation Order 42.
6. Do not secure a future income collateral agreement:
• To collect future income that should be included in the offer amount.
• Merely on unfounded speculation about an increase in income.
• To cover statistically improbable events, such as lottery winnings.
• To attempt collection from a potential inheritance.
Example:
Do not secure a future income collateral agreement when the investigation reveals that the taxpayer is the only child of wealthy parents, and the surviving parent is well advanced in years and in poor health.
7. Future income collateral agreements must be monitored annually for the life of the agreement. The cost of monitoring and the difficulty in tracing income structured through other entities should be considered when deciding whether such an agreement is warranted.
5.8.6.3.2 (09-23-2008)
Adjusted Basis of Specific Assets
1. The initial basis of an asset is equal to the cost of acquiring it. Adjustments to the basis are made each year for the cost of improvements and accumulated depreciation. When an asset is sold, the basis is used to determine the amount of capital gain to be taxed.
2. A collateral agreement may be used to reduce the basis after accumulated depreciation, or book value, of a specific asset to a lesser amount or zero. This will have two effects. It will limit or eliminate the amount of deprecation deduction allowed in future years and it will cause a higher capital gain tax to be paid if the asset is later sold for an amount more than the adjusted basis.
3. Use the Form 2261–B, Collateral Agreement — Adjusted Basis of Specific Assets. The beginning year is defined as the year after the last filed tax return. Insert the year of the last filed tax return in the phrase "for all taxable years beginning after" . Specifically describe each asset. Set the amount of the basis at the reduced or zero value.
4. Adjusted basis collateral agreements must be monitored annually until the asset is ultimately disposed of all value. Consider the cost to monitor the agreement and the difficulty in tracing the sale or exchange of the property when deciding whether such an agreement is warranted.
5.8.6.3.3 (09-23-2008)
Waiver of Losses
1. Use the Form 2261–C, Collateral Agreement —Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits. The beginning year is defined as the next year after the last filed tax return. Insert the year of the last filed tax return in the phrase "for all taxable years beginning after" . Waive net operating losses and capital losses arising from all years prior to and including the last filed tax return.
2. Do not prohibit the deduction of losses that arise in years after the offer is accepted.
3. The waiver of investment credits is obsolete.
4. Waiver of losses collateral agreements must be monitored annually until all the losses are extinguished, potentially for decades. Consider the cost to monitor the agreement and potential for recovery of future tax liabilities when deciding whether such an agreement is warranted.
5. A waiver of losses collateral agreement may be secured to partially waive a loss, if the facts of the case support this determination.
5.8.6.3.3.1 (09-23-2008)
Net Operating Loss
1. Net Operating Loss (NOL) may be incurred when expenses exceed the income of a business.
• The taxpayer must be able to prove the amount of the loss.
• Generally, losses may be carried back no more than two years and forward no more than twenty years or until all the loss is offset against taxable income.
• If the taxpayer only wishes to carry the loss forward, the taxpayer must elect to do so on a timely field return for the year of the loss, or if the original return is filed timely but no election is made on an amended return by the close of the period 6 months after the due date of the return excluding extensions.
2. When the taxpayer has claimed a NOL, determine and verify the exact origin and amount of the loss. If a taxpayer has been associated with more than one business there may be multiple losses.
When… Then…
Calculating the remainder of the NOL The loss can be located on the "other income" line or the "business loss" line on the Form 1040 and should be labeled as Net Operating Loss.
1. Determine the original loss amount claimed on the tax return.
2. Subtract any carry backs.
3. Subtract the amounts claimed on subsequent tax returns from the year the NOL was established.
5.8.6.3.3.2 (09-23-2008)
Capital Loss
1. Capital Loss is one in which the taxpayer experiences a loss associated with such investments as land, stock, paid in capital, or loans from shareholders. This loss is:
• Found on a Schedule D.
• Only offset against income or capital gain in the year in which it is incurred and the remainder carried forward at a limit of $3,000 per year against other income or;
• Offset against a capital gain in total
Example:
A taxpayer has a $100,000 loss and a $40,000 gain. The taxpayer may offset $40,000 against the gain and an additional $3,000 loss against other income leaving a $57,000 loss that may be carried forward in future years.
• Individuals may deduct $3,000 each year until the loss is extinguished with no limit on the number of years. Corporations are generally limited to 3 preceding and 5 succeeding taxable years.
2. When the taxpayer claims a capital loss, determine and verify the exact origin and amount of the loss.
If… Then…
The loss is derived from personal investment The investment can be either loans to the corporation or the individual's capital investment in the corporation.
• Verify loans through copies of checks or general journal entries that establish the loan and track repayment.
• Verify capital investment through canceled checks or other documents which support the amount of the original loan.
Determining the remaining amount of the loss once you have determined the origin Trace the loss forward through the tax return copy or RTVUE.
5.8.6.3.3.3 (09-23-2008)
Passive Loss
1. Passive Activity Loss is one that involves the conduct of any trade or business in which the taxpayer does not materially participate. This loss should not be confused with net operating loss.
• Any rental activity is a passive activity even if the taxpayer does materially participate.
• Losses from a passive activity generally cannot be deducted from other types of income (e.g., wages, interest, or dividends).
• The amount of the taxpayers allowable loss is subject to the "at-risk" rules. Generally losses are limited to the amount of the taxpayers cash contribution, adjusted basis of other property which contributes to the activity, and amounts borrowed for use in the activity if the taxpayer has personal liability for the borrowed amounts.
Note:
Refer to the current Master Tax Guide for additional information.
2. Because passive losses are not deducted from earned income, waiving them may have little or no effect. One option is to reduce the basis of the property to zero so that the taxpayer cannot carry the loss over to the tax year in which the property is sold and receive benefit of the loss against a capital gain at that time.
5.8.6.4 (09-23-2008)
Multiple Agreements
1. When related taxpayers submit more than one offer to compromise different tax liabilities secure only one collateral agreement. Describe on the collateral agreement all the offers to which it relates.
2. When more than one type of collateral agreement is secured for the same offer, the terms of all the agreements may be incorporated into one Form 2261, Collateral Agreements – Future Income (Individuals) or Form 2261–A, Collateral Agreements – Future Income Corporation. The appropriate language may be found on the Form 2261–B, Collateral Agreement – Adjusted Basis of Specific Assets, or Form 2261–C, Collateral Agreement – Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits.
Type of Agreement… Statement…
Adjusted Basis of Assets "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, the basis for certain assets, under existing law for computing depreciation and the gain or loss upon sale, exchange or other disposition shall be as follows:
Name of asset _____
Dollar amount ______
That in no event shall the basis set forth above be in excess of the basis that would otherwise be allowable for tax purposes, except for this agreement."
Waiver of Net Operating Loss "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, Any net operating losses sustained for the years before __shall not be claimed as net operating loss deductions under the provisions of Section 172 of the Internal Revenue Code."
Waiver of Capital Losses "For the purpose of computing income taxes of the taxpayer for all years beginning after ___, Any net capital losses sustained for the years before __shall not be claimed as carryovers or carrybacks under the provisions of Section 1212 of the Internal Revenue Code."
3. If there is insufficient space on the form to insert all the necessary paragraphs simply type the paragraph numbers followed by "See Attached" and fasten a separate sheet containing the added provisions.
5.8.6.5 (09-23-2008)
Waiver of Refunds
1. Form 656 contains a term which waives refunds and overpayments for all tax years through the year the offer in compromise is accepted. This waiver is a standard term, which cannot be altered.
2. When accepting an offer based on DATL or under the basis of ETA based on public policy/equity considerations, the waiver of refunds is not applicable.
3. In order to remove the waiver of refund provision for these type of offers, both the taxpayer and the investigating employee must sign an agreement and include it with the accepted offer in compromise. See Exhibit 5.8.6-3.
Exhibit 5.8.6-1 (09-23-2008)
Co-obligor Agreement Common Law States Pattern Letter P–229 (Rev. 6-90)
Collateral Agreement—Taxpayer Involved in Joint Assessment
(For Use in States Where Common Law Rule Applies)

To: Commissioner of Internal Revenue:
I submitted an offer dated  (date) in the amount of $(amount) to compromise unpaid (Kind of tax) tax, plus statutory additions, for the tax period(s) (date(s)).
The purpose of this letter is to  amend that offer by adding the following provisions:
The (a) liability, which is the  subject of this proposed agreement, is the joint and individual responsibility of myself and my co-obligor(s). I agree to pay the United States $(amount). The United States agrees, in turn, not to:
(1) sue the undersigned for the   difference between the amount of the offer in compromise and the amount of the Iiability, or
(2) collect the difference from   assets of the undersigned by levy or any other means.
If this proposal is accepted, it does not mean that the liability or any part of the liability is settled for myself or the co-obligor(s). The United States still reserves all its rights to collect the liability from the co-obligors.

________________
Taxpayer's Signature

________________
Date
Exhibit 5.8.6-2 (09-23-2008)
Co-obligor Agreement Other States Pattern Letter P–230 (Rev. 6-90)
This is an example of a co-obligor collateral agreement.
Collateral Agreement — Taxpayer Involved in Joint Assessment
(For Use in States Where Statutes Expressly Reserve Right to Proceed Against Co-obligor)

To: Commissioner of Internal Revenue

I submitted an offer dated  (date) in the amount of $(amount), to compromise unpaid (kind of tax) tax, plus statutory additions, for the tax periods (dates).
The purpose of this letter is to  amend and clarify that offer by adding the following provision:
Although the liability sought to  be compromised is the joint and individual liability of myself and my co-obligors, I am submitting this offer to compromise my individual liability only. If this offer is accepted, it does not release or discharge my co-obligor(s) from liability. The United States still reserves all rights of collection against co-obligors.

________________
Taxpayer's Signature

________________
Date
Exhibit 5.8.6-3 (09-23-2008)
Collateral Agreement – Modification of Waiver Provisions of Compromise Agreement
This is an example of a collateral agreement modifying waiver provisions.

Collateral Agreement — Modification of Waiver Provisions of Compromise Agreement
(For Use when offer is being accepted under Detriment to Voluntary Compliance only)

To: Commissioner of Internal Revenue

I submitted an offer dated  (date) in the amount of $(amount), to compromise unpaid (kind of tax) tax, plus statutory additions, for the tax periods (dates).
The purpose of this letter is to  modify that offer by stating that Items 8(g) and (h) of the agreement, Form 656, governing refunds and overpayments, will not apply to this offer. Acceptance of this offer will in no way alter my rights to refunds of overpayment or my ability to designate an overpayment to estimated tax payments for the following year:

________________
Taxpayer's Signature
________________
Date

I accept this modification on behalf of the Internal Revenue Service:

________________
Signature of delegated official — Date
________________
Exhibit 5.8.6-4 (09-23-2008)
Form 2261-C, Collateral Agreement Waiver of Net Operating Losses, Capital Losses and Unused Investment Credits
This is a table to help with the completion of Form 2261-C.
1 — Name and Address of Taxpayer :
This must be the same as the name on address that show on the Offer Form 656 7 — line item 1 - first space
Earliest loss years which could be carried forward to the year of acceptance
2 — Social Security and Employer Identification Number:
Both need to be shown 8 — line item 1 - second space
Year offer is to be accepted
3 — In the body of the form- an offer dated:
Date the taxpayer signed the offer. If Amended then the date the taxpayer signed the offer being accepted. 9 — line item 2 - space
Year following acceptance of the offer
4 — In the body of the form-$ amount
This is the amount of the offer in Item 7. If Amended then the amount of the offer being accepted. 10 — line item 3 - first space
Earliest year of unused investment credit which could be carried forward to the year of acceptance
5 — In the body of the form-Type of tax and taxable periods
Liability identified as to the kind of tax with each year or period involved exactly stated. 11 — line item 3 - second space
Year offer is to be accepted
6 — In the body of the form-beginning after ___
Ending date of taxable year preceding the year of acceptance 12 — Signature and Title line
Waiver of statute of limitations should be signed at the earliest possible date by the investigation employee
.8.7 Return, Terminate, Withdraw, and Reject Processing
• 5.8.7.1 Overview
• 5.8.7.2 Returns
• 5.8.7.3 Return Reconsideration
• 5.8.7.4 Withdrawal
• 5.8.7.5 Termination of Consideration
• 5.8.7.6 Rejection
• 5.8.7.7 Authorization to Apply Deposit
• 5.8.7.8 Alternative Resolutions
• 5.8.7.9 Closed File Retention
5.8.7.1 (09-23-2008)
Overview
1. Offers that are not recommended for acceptance will be closed by return, rejection, withdrawal, or termination. This chapter defines the types of dispositions other than acceptance and describes the procedures for completing each type of closure.
5.8.7.2 (09-23-2008)
Returns
1. An offer can be returned as either a "not processable return" or a "processable return" . It is important to note the distinction because the collection statute is not suspended for a "not processable return" , and the $150 Application fee will be refunded.
5.8.7.2.1 (09-23-2008)
Not Processable Returns
1. Not processable returns are those returns made when upon receipt, an offer meets one or more of the "Not Processable" criteria listed in IRM 5.8.3.4.1.
Note:
This is the responsibility of the COIC sites.
5.8.7.2.1.1 (09-23-2008)
Closing an Offer as a Not Processable Return
1. See IRM 5.8.3.9 for complete procedures.
5.8.7.2.2 (09-23-2008)
Processable Returns
1. Processable returns include all returns made after the offer has been determined to be processable.
2. During the offer investigation, there are a number of situations that may result in a processable offer being returned to a taxpayer. A processable return will result in a suspension of the collection statute for the period of time that the offer was considered processable and will result in the Service keeping the $150 application fee, and applicable TIPRA payment(s). A taxpayer whose offer is closed as a return does not receive appeal rights; however different levels of approval exist for some return situations. The Service's return of an offer may be reconsidered in limited situations. See IRM 5.8.7.3 below.
3. The following chart lists the reasons a processable offer may be returned and who can authorize the return.
Reason for Return Who has delegated authority to sign the letter? See the following IRM references for additional information on the "Reason for Return"
Taxpayer failed to remain in filing or payment compliance, or an in-business taxpayer failed to make required FTDs' during investigation. Group Managers, Compliance Services Unit managers (COIC) • 5.8.3.4.1, Processability
• 5.8.3.8, Centralized Offers in Compromise Processability Determinations
• 5.8.4.7.1, Initial Offer Actions
• 5.8.4.13.2, Trust Fund Liabilities
Taxpayer filed bankruptcy during a pending investigation. Investigating PE, OE, OS 5.8.10, Special Case Processing
Tax is paid, has been abated, or no tax can be identified as owing. Investigating PE, OE, OS 5.8.3.11, Types of Perfection
Taxpayer failed to perfect offer forms necessary to process the offer for acceptance. Investigating PE, OE, OS • 5.8.3.7, Forms 656 Application Fee, TIPRA Payments, and Perfection
• 5.8.3.11, Types of Perfection
All other return reasons Group Manager in area office and Unit Manager in COIC • 5.8.3.11, Types of Perfection
• 5.8.3.15, Processing Taxpayer Responses to Combo Letters
4. Approval authority is outlined in Delegation Order No. 5-1.
5.8.7.2.2.1 (09-23-2008)
Return for Inadequate Estimated or Insufficient Withholding Tax Payments
1. A processable offer must be returned when the investigation reveals the taxpayer does not have sufficient estimated tax paid or income tax withheld to cover the current year estimated tax due. See IRM 5.8.3.4.1 for additional information.
The requirement to have adequate estimated tax paid prior to acceptance of an offer applies to corporate as well as individual taxpayers.
Example:
While investigating an OIC on July 15, 2007, you learn that the taxpayer has an extension until October 15, 2007 to file their 2006 Form 1040. You should determine whether the taxpayer has sufficient income tax withheld or estimated taxes paid for the entire 2007 tax year, as well as for the first two quarters of the 2008 tax year.
2. Who should make estimated tax payments?
A. A person that is considered to be self-employed is generally required to make estimated tax payments during the tax year.
B. Self-employment tax is based on the taxpayer's net self-employment income or earnings.
C. See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.
3. How much is due and when should the payment(s) be made?
A. For individuals the amount of the payment will be based on 100% of the prior year's tax or 90% of the current year's tax due at the time of the offer, whichever is less. Current year's tax should be based on current income and all legally allowable expenses.
Note:
If the prior year's net earnings showed no estimated payments were due, then the taxpayer would not legally be required to make any payments for the current year. However, a taxpayer must be made aware of the consequences of filing a return with a balance due if the offer was to be accepted.
B. The amount of the estimated tax payment is generally based on the net earnings. Net earnings are defined as the gross income earned, less allowable deductions. This includes depreciation, home office expenses, automobile expense, and depletion.
C. Generally, payments should be made quarterly and are due April 15th, June 15th, September 15th, and January 15th of the following year.
D. See Pub 505, Tax Withholding and Estimated Tax, and Pub 334, Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ), which provides a more detailed and complete discussion on the matter.
4. The OI should determine the appropriate amount due during the initial analysis of the case as defined in IRM 5.8.4.7.1.
5. If it is determined that the taxpayer is delinquent in the payment of estimated tax, the OI should calculate the appropriate amount due and give the taxpayer up to 30 calendar days to make the payments. One attempt should be made to contact the taxpayer by telephone to request the necessary tax payment(s). Document the case history with the results of the phone contact attempt.
6. If no telephone contact can be made, a letter must be prepared and mailed to the taxpayer requesting the payment. Allow 30 calendar days from the date of the letter for the taxpayer to respond (plus 5 calendar days for mailing for a total of 35 calendar days), before taking the next action. Document the case history.
Note:
If the OI is preparing an additional information letter, the request for the ES payment may be included at that time. This is only after one phone contact has been attempted and the history appropriately reflects this action.
7. Prior to returning an offer for this reason, the following actions must be taken:
A. A determination must be made if the taxpayer has earned sufficient taxable income to require ES payments or income tax withholding for the year(s) in question.
B. A calculation should be made to determine the amount of tax that should have been paid in ES tax payments to date (or withheld) on the income earned.
C. Contact with the taxpayer or representative must be made explaining the calculated non-compliance. The OI must attempt to contact the taxpayer by telephone to explain the calculation and request payment(s). Once contact has been made, the OI will allow up to 30 calendar days for the taxpayer to comply with the request.
Note:
A "no answer" contact does not meet the criteria as an attempt. If contact by telephone could not be made, a letter must have been sent requesting payment and a copy must be retained in the case file.
D. If the taxpayer or their representative provides a legitimate reason for requesting additional time to make the payment(s), a reasonable deadline for responding must be given along with a warning that the offer will be returned if the payment is not received by the established deadline. This may be an additional 15 calendar days from the original established deadline. Barring any special circumstances such as, medical reasons that may extend the request beyond the additional 15 calendar days, the offer may be returned if the taxpayer fails to comply with the request for the payment(s). The case history must be sufficiently documented indicating the attempts made to secure the payment(s).
Note:
Proof of payment may include a copy of a cancelled check, a receipt issued by the walk-in site that accepted the payment; certification of mailing to the appropriate Campus for processing, or a receipt from the bank that processed the payment.
8. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into compliance.
9. A return for failing to make required estimated tax payments or insufficient withheld tax requires approval of a Group Manager in the field or a Unit Manager in COIC.
5.8.7.2.2.2 (09-23-2008)
Return for Insufficient Failure to Make Timely Federal Tax Deposit
1. A processable offer may be returned when the investigation reveals the taxpayer has not made federal tax deposits for the current quarter. An untimely Federal Tax Deposit (FTD) during the investigation will result in a return of the offer.
2. Initial review by field OS
A. Review IDRS to determine if there are open employment tax filing requirements. If the taxpayer is in-business and has an open filing requirement, research the quarter in which the offer was received and all subsequent quarters for FTD payments. When FTD payments are required, if no payments have been made or payments are missing and there is no TC59X transaction, return the offer.
B. Generally, a taxpayer will have multiple open employment tax filing requirements at one time. For example, for 2006 an employer may have Form 941 (or 943, 944, or CT1) and Form 940 and Form 945 filing requirements. Required FTD payments must have been made for all open filing requirements.
3. Who should make FTDs?
A. Generally, every employer who pays wages to an employee must withhold income tax from the employee’s gross wages and report the tax liability on an employer’s federal tax return (941, 943, 944, 945 or CT-1). Non-payroll income tax withholding must be reported on Form 945. If the employer accumulates an employment tax liability greater than $2500 or more during a quarter (for returns due quarterly) or a year (for returns due annually), this liability must be deposited monthly or semi-weekly depending upon the employer's deposit schedule.
Note:
The deposit rules for Form 941 also apply to tax liabilities for Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees; Form 944, Employer’s Annual Federal Tax Return; Form 945, Annual Return of Withheld Federal Income Tax; and Form CT-1, Employer’s Annual Railroad Retirement Tax Return. However, because Forms 943, 944, 945 and CT-1 are annual returns, the rules for determining the deposit schedule apply to a calendar year rather than a calendar quarter.
4. How much is due and when should federal tax deposits be made?
A. There are two deposit schedules: monthly and semi-weekly. The deposit schedule a taxpayer must use is based on the total tax liability the taxpayer reported during a lookback period. The lookback period begins July 1 and ends June 30. If the taxpayer reported $50,000 or less of employment taxes during the lookback period, they would be classified as a monthly depositor. If the taxpayer reported more than $50,000 of employment taxes in the lookback period, they would be classified as a semi-weekly depositor.
Exception: If an employer’s total tax liability for any quarter is less than $2,500, payment may be made with the Form 941 on the due date of the return in lieu of making deposits.
B. Use IDRS command code ENMOD to determine if the taxpayer has an open employment tax filing requirement. Use BMFOLK to determine if a taxpayer is a monthly or semi-weekly depositor for a particular quarter.
C. Monthly depositors must deposit accumulated taxes on payments made during a calendar month by the 15th day of the following month.
D. Semi-weekly depositors must deposit accumulated taxes on payments using the following schedule:
Payment Days Deposit By
Wednesday, Thursday, and/or Friday Following Wednesday
Saturday, Sunday, Monday, and/or Tuesday Following Friday
E. Generally, the amount required to be deposited is comprised of the federal income tax withheld plus both the employee and employer social security and Medicare taxes.
Note:
For more information on federal tax deposit requirements, see IRM 20.1.4, Failure to Deposit Penalty.
5. The OS should determine the type of depositor (monthly or semi-weekly) and verify that deposits are being made, and should monitor compliance with FTDs throughout the offer investigation. The taxpayer will be asked to provide proof of each required deposit while the investigation remains open.
6. Most employers will also have an employment tax filing requirement for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. If an employer’s FUTA tax liability for any calendar quarter is over $500 (including any FUTA tax carried forward from an earlier quarter), the employer must deposit the tax (i.e., make an FTD) by electronic funds transfer (EFTPS) or in an authorized financial institution using Form 8109, Federal Tax Deposit Coupon. The employer must include liabilities owed for credit reduction with the 4th quarter FTD. If an employer’s FUTA tax liability for a quarter is $500 or less, the employer does not have to deposit the tax. Instead, it may be carried forward and added to the liability for the next quarter.
7. During the initial OIC review, the OS will review the taxpayer’s account for FTD compliance during the quarter in which the offer was submitted and any subsequent quarters. If it is determined that the taxpayer is missing or is not current with FTD(s), contact the taxpayer and request the missing deposits. Allow the taxpayer 15 calendar days to make up the missing deposits. One attempt to contact the taxpayer by telephone should be made. Document the case history with the results of the phone contact attempt.
If telephone contact cannot be made, a letter must be prepared and mailed to the taxpayer requesting the missing FTD(s). Allow the taxpayer 30 calendar days from the date of the letter (plus five days for mailing for a total of 35 calendar days) for the taxpayer to respond. Document the case history.
Note:
Depending on the taxpayer’s required method of deposit, current quarter deposits must be made using the Electronic Federal Tax Payment System (EFTPS) or via Form 8109, Federal Tax Deposit Coupon, at an authorized financial institution. Missing deposits for quarters in which the due date for the return has passed should be forwarded directly to the OS for processing as a TC 670 (subsequent payment). Proof of deposit for the current quarter may be provided in the form of an FTD receipt from an authorized financial institution or an EFTPS acknowledgement number.
8. The taxpayer will be allowed one opportunity to make up missed deposits. Subsequent missed deposits will result in immediate return of the offer.
9. The history must be documented to support the reason for the return and all attempted requests to bring the taxpayer into FTD compliance.
10. A return of an offer for failure to make required FTDs requires approval of the Group Manager.
11. A taxpayer whose offer is returned for failure to make FTDs will not include appeal rights. The $150 application fee, as well as any TIPRA payments will also be retained.
5.8.7.2.2.3 (09-23-2008)
Return for Failure to Provide Information
1. An offer may be returned at any time during processing if the taxpayer fails to provide information necessary to determine whether it should be accepted.
2. Prior to returning an offer for this reason the following actions must be taken:
• A review must be made to determine if the missing information would prohibit the Service's ability to determine the RCP of the taxpayer.
Note:
If the taxpayer has substantively complied or if only limited information is missing, the OI will attempt to contact the taxpayer by telephone to secure the missing information prior to returning the offer. A "no answer" contact does not meet the criteria as an attempt.
• A request for the needed information must be made by phone, in person, and/or by letter. A reasonable deadline for responding must be given along with a warning that the offer will be returned if the information is not received by the deadline.
• The above information must be clearly documented in the case history. A reasonable deadline should be determined by the amount of information required from the taxpayer.
3. In those cases where the taxpayer or their representative have attempted to cooperate with any requests, the OI will make attempt a second telephone call the taxpayer or their representative to request the additional information prior to returning the offer.
Note:
A "no answer" contact does not meet the criteria as an attempt.
4. If the taxpayer or Power of Attorney notifies the OI that the payment was made prior to deadline, but after the return letter was issued and the case has been closed, the case will be reopened and worked in accordance to criteria in IRM 5.8.7.3, Return Reconsideration.
5. The history should be clearly documented to reflect the missing information requested and results of the telephone call.
6. The return letter must be signed by the Group Manager in the field or a Unit Manager in COIC.
5.8.7.2.2.4 (09-23-2008)
Closing an Offer as a Processable Return
1. Processable returns do not require preparation of the Form 1271.
2. The following actions should be taken to close a case as a processable return:
A. Verify that the AOIC record reflects a "Y" in the Processable status field.
B. Generate the AOIC "Return Letter" for the signature of the appropriate delegated official, listing the reason(s) the offer is no longer processable.
C. Generate the POA letter for any authorized representative. If a disclosure issue exists, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.
D. Stamp the Form 656 "RETURN" in red, or circle in red ink. Cross out the IRS received date(s) with a red "X" .
E. Document the history, indicating the reason(s) the offer is no longer processable and with any other pertinent information regarding the case.
F. Attach a copy of the offer to the taxpayer's letter and submit the letter(s) for approval and required signature.
G. Keep the original offer, any amended offers, the closing letter(s), the CIS, all supporting documentation, and all internal documentation secured in connection with the investigation in the case file. Purge the file of any duplicate IDRS prints or other data not related to the offer.
H. Close the case on AOIC as a "return" once the letter is signed.
I. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
3. See IRM 5.8.3.6 for procedures to return an offer based upon notification of a dishonored payments, after issuance of a rejection letter.
5.8.7.3 (09-23-2008)
Return Reconsideration
1. This section does not apply to the return of offers deemed not processable. It also does not apply to processable offers returned for any of the following reason codes, unless the return was determined to have been in error.
• P (filed bankruptcy after offer submission)
• Q (non-compliance after offer submission)
• R, V, W ("solely to delay" submissions)
• S (collection is in jeopardy)
• X ("other investigations are pending that may effect …" )
• Y (original assessment fully abated)
2. Situations may arise when the reconsideration of a returned offer would best serve the interests of both the Service and the taxpayer. In most cases, an additional application fee and mandatory payment is not required. Upon receipt of a return letter, taxpayers may telephone to object to the return of an offer. Below are the criteria for possible reconsideration.
5.8.7.3.1 (09-23-2008)
Criteria for Return Reconsideration
1. Generally, the taxpayer or the representative must contact the Service to raise objections and justify the failure to provide the requested items within 30 calendar days from the date of the return letter (unless the condition that caused the failure to supply the substantiation continued for a prolonged period).
2. Acceptable criterion for potential situations where return reconsideration may be applicable are listed below. These are not all inclusive. Judgment should be used when considering re-opening an offer that was returned in error.
A. The offer was returned in error by either the field or the COIC site.
B. The information was sent timely but it was not associated with the case.
Note:
The postmark date should be used to determine if the information was "received timely" .
Note:
Special rules apply in determining the postmark date for documents sent by private delivery services. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
C. Serious illness or injury prevented the taxpayer from submitting the information timely.
Note:
Serious illness or injury may not apply to the representative, since the taxpayer controlling the information receives a copy of the combo or additional information letter.
D. There was a death in the taxpayer's immediate family that prevented timely mailing of the information.
E. The taxpayer suffered a disaster, such as a fire or flood, or any other disaster, that prevented timely mailing of the information.
F. The failure to perfect by providing a required additional Form 656, required TIPRA payment (i.e., remainder of 20% of the amount of a lump sum cash offer), and application fee when the original Form 656 included both joint and separate liabilities or individual or joint and corporation or partnership liabilities.
G. The taxpayer submitted a Form 656-A certification instead of paying the $150 fee and required TIPRA payment, and then provides proof that an incorrect conclusion was made.
H. The taxpayer failed to make estimated payments but provides proof that estimated payments or withheld taxes were not due.
I. The taxpayer provided proof of estimated payments, but it was not received until after the deadline.
J. The taxpayer provided proof that the required TIPRA payments were made, but not posted.
K. The taxpayer submitted certified funds (e.g., money order, cashiers check, etc.) within the required timeframes to replace previously dishonored check(s).
5.8.7.3.2 (09-23-2008)
Conditions for Return Reconsiderations
1. Before reconsidering the closed offer, the following conditions must be met:
A. The total offer amount must be equal to the amount offered on the returned Form(s) 656;
B. The taxpayer or authorized representative must have requested return reconsideration within 30 calendar days from the date of the return letter
2. The following would not be acceptable reasons for return reconsideration:
A. "Unavailable absence" of either the taxpayer or representative, since they control the timing of the filing of the offer;
B. Representatives’ "filing season" activity, since they control the timing of the filing of the offer.
5.8.7.3.3 (09-23-2008)
Approval Authority for Return Reconsideration
1. Approval to reconsider a returned, processable offer(s) will be obtained from COIC Department Managers or field Group Managers before requesting the taxpayer or authorized representative to send any missing documentation, payments or fees. This authority may not be re-delegated. The manager will indicate approval or denial of the request by making a history entry on AOIC or ICS.
5.8.7.3.4 (09-23-2008)
Reconsideration Procedures
1. If the employee receiving a telephone request from a taxpayer or authorized representative for reconsideration determines the request does not have merit, based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will advise the taxpayer or their authorized representative and annotate the closed offer record history on AOIC.
Note:
Any request by the taxpayer or authorized representative to speak with the employee's manager should be honored.
2. If the employee receiving a telephone request for reconsideration determines that the request does have merit based upon the acceptable criteria outlined in IRM 5.8.7.3.1 above, the employee will:
• Contact the taxpayer or their representative and request additional information to support the reconsideration request, if applicable.
• The information must be sent within 10 calendar days of the contact. Fax is the preferred method of receipt.
• Annotate the closed AOIC or ICS offer history.
3. If the taxpayer or their representative fails to provide the requested information, annotate the closed AOIC history that there will be no reconsideration.
4. If the taxpayer or their representative provides the requested information, the recommending employee will:
• Annotate the closed AOIC history and request the reconsideration by making a history entry on the closed offer record on AOIC (not ICS), describing the taxpayer's claim or supporting verification and why the reconsideration request is justified.
• Submit the closed offer case file, along with any verification submitted by the taxpayer to support the reconsideration request, through the appropriate management channels to the approving official.
5. Denial of the Reconsideration – If the approving official denies the reconsideration request, the employee assigned the case should clearly communicate by telephone to the taxpayer or their representative that the request for reconsideration was denied and that the matter is closed. Document the AOIC history of the closed offer information with the information.
6. Approval of the Reconsideration – If the approving official agrees that a returned offer should be reconsidered, the employee assigned the case will telephone the taxpayer or their representative and advise that the offer is being reconsidered. They should also be advised that they must be able to provide the missing or required information, substantiation, Forms 656, and/or applicable fees within 10 calendar days of that telephonic communication of the reconsideration approval.
Field offices should fax a copy of the front page of the original Form 656, including the offer number and received date of the requested information and/or substantiation, to the respective COIC sites. This will enable the COIC sites to create the new offer record.
The offer information will not be reloaded to AOIC or worked until receipt of any required information or substantiation, Forms 656, and/or applicable fees. If the taxpayer fails to submit the promised items, document the AOIC history of the closed offer and take no further action.
7. Reloading the Reconsideration Offer – For purposes of an approved "return reconsideration," do not reopen the closed offer record on AOIC. Instead, take the following actions:
• Create a new AOIC offer record by reloading the same AOIC data as the returned offer, except for "IRS Rcvd Dt," "AO Rcvd Dt" and "Pend Dt" fields which will contain the date that we receive any missing information, substantiation, Forms 656, and/or applicable fees.
• Associate the documents from the closed offer with the new, reloaded offer folder.
• Enter an AOIC history notation in the closed offer record to indicate the documents were refiled with the reloaded offer.
• Place a hard copy of the AOIC history in the closed offer folder.
• Reloading Offers With a Previously Submitted Application Fee
If the taxpayer paid the application fee with the original returned offer, for the new AOIC offer record enter:
o "N" in the "Fee Due" field
o "ME" in the "Waiver Criteria" field
o The number of the original, returned offer in the "Master Offer #" field of AOIC Application Fee screen
• Reloading Offers With a Previously Submitted Form 656-A
If the taxpayer previously submitted a Form 656-A with the returned offer, enter the following for the new AOIC offer record:
o "N" in the "Fee Due" field
o "LI" in the "Waiver Criteria" field of AOIC Application Fee screen
• Additional Form(s) 656 and Application Fee(s) Received as Condition for Reconsideration
Some reconsideration situations may involve an original offer that included either joint and individual tax liabilities, or joint or individual and corporation or partnership liabilities on one Form 656. The offer may have been returned because the taxpayers failed to perfect the offer by submitting additional Forms 656 and the applicable application fee and required TIPRA payments for each. Since the taxpayers met the fee and payment requirement for the original, returned Form 656 they must submit and meet the fee requirement for each additional Form 656 before the original offer can be reloaded under return reconsideration procedures. Therefore, both the "Amended/Revised" and "Related to" offers that were previously provided with the Combo letter, must be loaded to AOIC, but not until the application fee is received for the "Related to" offer along with any additional substantiation that was required.
8. Retain the original Form(s) 656 in the case file and take the following actions on the original Form 656 retained in the case file:
• Sign and insert the employees title in Item 11 of the Form 656 for the authorized Service official. This information is to be inserted alongside the entries on the original offer.
• Enter on the date line of AOIC "Pending Dt" used for the new offer record.
Note:
A copy of the Form 656 will be returned to the taxpayer or their POA. Originals will be retained in the case files.
5.8.7.4 (09-23-2008)
Withdrawal
1. There are now two kinds of withdrawn offers; they are (1) Voluntary and (2) Mandatory.
2. Voluntary Withdrawal of Offers – An action that may be taken by the taxpayer at any time during the offer investigation. See IRM 5.8.7.4.1 below for more information.
3. Mandatory Withdrawn Offers – An action that may be taken by an Offer Investigator during the offer investigation. See IRM 5.8.7.4.2 below for more information.
5.8.7.4.1 (09-23-2008)
Voluntary Withdrawal
1. Taxpayers may voluntarily withdraw their OIC at any time after the offer has been submitted. A withdrawal must never be solicited merely to avoid a complete investigation or deny taxpayers access to Appeals.
2. When an OIC cannot be recommended for acceptance the OI should give the taxpayer an opportunity to voluntarily withdraw the offer and at the same time inform the taxpayer that withdrawing the offer forfeits their appeal rights.
3. Document the case history or correspondence must document that the taxpayer was informed of these rights.
4. A voluntary withdrawal request may be made orally, by fax, or in writing. The Letter 3504(SC/CG) is available for taxpayers to request a withdrawal. Service employees should encourage taxpayers to provide the withdrawal in writing, but if a taxpayer or authorized representative provides a clear statement, either in writing or orally, indicating a wish to withdraw the offer, the offer may be closed as a withdrawal.
Note:
The request for a voluntary withdrawal may be either in writing or orally. Receipt of a withdrawal request must be clearly documented in the case file indicating how the request was received.
5. If a request for a voluntary withdrawal is made by a Service employee, and a deposit has been received, the taxpayer should be asked to:
• Provide a request in writing clearly indicating a desire to withdraw the offer.
• Include a statement indicating that it is understood that rights to appeal are forfeited by a withdrawal.
• Include a statement indicating how any deposit made (if any) should be disposed (i.e. should it be refunded or applied to the tax debt).
• Sign and date the request.
5.8.7.4.2 (09-23-2008)
Mandatory Withdrawal
1. TIPRA requires the taxpayer to submit an initial payment with the offer. See IRM 5.8.1.9 for more information. If the taxpayer sends a portion of the money, but not all, an attempt to contact the taxpayer must be made before closing the offer. This may be accomplished by including the request in the combo letter or by telephone.
2. If during the investigation the taxpayer fails to make the subsequent periodic payments as required by TIPRA, the offer may be considered withdrawn. One request for the missed payment(s) must be made by telephone or by issuing a letter. A reasonable amount of time must be given for the taxpayer to make up the missed payment(s). Generally, this will be 2 weeks. If the taxpayer provides a reasonable explanation for missing the payment(s) (i.e. special circumstances exist) the investigation of the offer should continue.
3. If a decision on the offer can be made before contacting the taxpayer (i.e. a rejection has been determined), then no contact is necessary. Issue the rejection letter, document the case history, and close the case on AOIC. In this case, the taxpayer will receive appeal rights.
4. If the taxpayer fails to respond within a reasonable amount of time to the request to pay the remainder of the required initial payment, the offer will be considered withdrawn.
• This should not be considered an optional or voluntary withdrawal.
• No additional written or oral requests will be made.
• No additional notification will be provided to the taxpayer.
5. Issue the withdrawal letter indicating that the taxpayer failed to comply with the request for the required payment(s), therefore the offer is withdrawn.
6. The letter must include the following information:
• A statement indicating that the taxpayer failed to respond to the request for the remainder of the required initial payment or missed periodic payments.
• A statement indicating how any deposit made should be disposed of (i.e., refunded or applied to the tax deposit).
7. Close the offer as withdrawn as defined in IRM 5.8.7.4.3 below.
8. Document the case history, thoroughly describing the attempts to secure the funds and the decision to consider the offer withdrawn.
5.8.7.4.3 (09-23-2008)
Closing an Offer as a Withdrawal
1. Offers closed as a withdrawals do not require preparation of Form 1271, Rejection or Memorandum.
2. The effective date of the withdrawal will depend on the method of receipt of the request to withdraw. The following chart shows the correct date to use as the withdrawal date:
If taxpayer withdraws an offer in compromise by… Then the offer will be considered withdrawn …
personal delivery when notification of the withdrawal is received by the Service.
mailing written notification of the withdrawal via U.S. certified mail on the date the Service receives the certified mail.
non-certified mail, fax, or phone on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.
3. The following actions should be taken to close an offer as a withdrawal:
A. Generate the AOIC "Withdrawal Letter" for the signature of the authorized delegated employee. Use the chart above to determine the correct date to use as the effective date of the withdrawal.
• Voluntary withdrawal – Use the chart above to determine the correct date to use as the effective date of the withdrawal.
• Mandatory withdrawal – The date of the withdrawal is the date of the "Withdrawal Letter."
B. Generate the POA letter for any authorized representative.
C. Document the history, indicating the date, method of receipt, and type of withdrawal (e.g., voluntary or mandatory).
D. Submit the file for approval and signature of the letter(s).
E. Close the case on AOIC as withdrawn after approval has been received. If there is a deposit and the taxpayer has requested that the deposit be applied to the tax, input "A" and mail a copy of the taxpayer's written request for application of the funds to the appropriate MOIC Unit. If there is a deposit and the taxpayer has asked for a refund or provided no instructions for disposition, input "R" to refund the deposit.
F. Keep a copy of the letter(s) with the closed offer file.
5.8.7.5 (09-23-2008)
Termination of Consideration
1. Consideration of an offer must be terminated upon the death of a single proponent. The date of termination is the taxpayer's date of death and the date used for the TC 482. Offers that are terminated do not receive appeal rights. See IRM 5.8.10.4 for instructions on actions to take prior to termination when advised that one party to a joint offer has died.
5.8.7.5.1 (09-23-2008)
Closing an Offer as a Termination
1. Offers closed as terminations do not require preparation of Form 1271.
2. The following actions should be taken to close an offer as a Termination:
A. Generate the AOIC Termination Letter for the signature of the authorized delegated employee.
B. Generate a copy of the letter for any authorized representative.
C. Document the history indicating the date of death and how notification was received.
D. Request input of TC 540 to IDRS if the exact date of death is confirmed.
E. Submit the package for approval and signature of the letter(s).
F. Close the case on AOIC as a "Termination" after approval and document the date of death in the case history.
G. Keep a copy of the letter(s) with the closed offer file.
H. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 482 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
5.8.7.6 (09-23-2008)
Rejection
1. When the facts of the case do not support acceptance and the taxpayer will not agree to an acceptable offer or an alternative resolution of the delinquency and withdraw the offer, the taxpayer should be informed that the offer will be recommended for rejection.
2. When the offer is rejected, the taxpayer will be notified in writing and the letter will explain how the taxpayer may exercise their appeal rights. Information received from the taxpayer in response to a conversation or letter must be considered before proceeding with the rejection.
3. Generally, rejections on offers based on DATL are because the tax is believed to be correct as assessed.
4. The most common reason for rejecting an offer based on DATC are because it has been determined that more can be collected than was offered. In all cases (other than those processed under "Screen for Obvious Full Pay" ), the taxpayer should be informed prior to the issuance of the rejection letter that an acceptance cannot be recommended. This communication should be by telephone.
The computation of RCP should be explained, a copy of the financial analysis provided, and the taxpayer should be given an opportunity to submit any additional financial information (except for those cases rejected under "public policy" or as not in the "best interest of the government" ). If no conversation is held with the taxpayer to convey this information, Letters 3498 (SC/CG) and 3499 (SC/CG) may be used for this purpose.
Note:
When preparing the letter for potential rejection or requesting an increased offer, the calculation should reflect any TIPRA payments made. For example, "Your RCP is $5,000. To date you have made (insert number) payments totaling $2,000. Your balance must be paid in an additional 6 months at $500 per month."
5. If the taxpayer or their representative presents new information, it must be considered and addressed in the history. If the information does not change the decision to reject, issue the appropriate AOIC rejection letter and document the AOIC or ICS history.
6. An offer rejection may also be based on a determination that acceptance of the specific offer at hand is not in the "best interest of the government" as discussed in policy statement P-5-100. Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative. Offers rejected under this section require the review and approval of the second level manager; that is, Territory Manager for the field or Department Manager for COIC. Examples of situations that may warrant rejection as not being in the "best interest of the government" include:
• Recent compliance satisfies offer processability criteria; however, the taxpayer has an egregious history of past noncompliance and our analysis of his current finances reveals that it will be highly unlikely the taxpayer will be able to remain in compliance during the offer period.
• An in-business taxpayer compromising employment taxes, where financial analysis indicates the business does not have the ability to fund the offer, remain current with future tax obligations, and meet the business's normal operating expenses.
• Any offer involving deferred payment where financial analysis indicates the taxpayer cannot fund the offer.
• The taxpayer is the primary responsible party for a related entity, i.e. corporation, partnership, etc., that is not in compliance with its filing and paying requirements.
• The offer is from an ongoing business that appears to be insolvent, and it appears that the government's position would be better protected through a formal insolvency proceeding.
7. When an offer is rejected, there is no obligation on the part of the taxpayer to continue to make periodic payments pursuant to the offer schedule, even if the taxpayer has appealed the rejection.
5.8.7.6.1 (09-23-2008)
Public Policy Rejection
1. Policy Statement P-5-89 establishes that offers may be rejected on the basis of public policy if acceptance might in any way be detrimental to the interests of fair tax administration, even though it is shown conclusively that the amount offered is greater than could be collected by any other means, provided no ETA issues exist.
Note:
This section should not be confused with IRM 5.8.11.2.2 under ETA offers.
2. A decision to reject an offer for public policy reason(s) should be based on the fact that public reaction to the acceptance of the offer could be so negative as to diminish future voluntary compliance by the general public. Decisions to reject offers for this reason should be rare.
3. Below are some examples of situations that may warrant rejection based on a public policy decision.
• The taxpayer has openly encouraged others to refuse to comply with the tax laws.
• Indicators exist showing that the financial benefits of a criminal activity are concealed or the criminal activity is continuing.
4. An offer will not be rejected on public policy grounds solely because:
• It would generate considerable public interest, some of it critical.
• A taxpayer was criminally prosecuted for a tax or non-tax violation.
5. The rejection narrative should discuss the specific public policy issues.
6. Rejections of this type require the approval of the SB/SE Collection, Territory Managers (2nd level) in the field or SB/SE Compliance Services Operations Managers for COIC. Refer to Delegation Order 5-1 for approval authority.
5.8.7.6.2 (09-23-2008)
Closing an Offer as a Rejection
1. The following actions should be taken to close an offer as a rejection:
A. Update the balance for all modules on the MFT screen by pressing "I" . Enter the proposed disposition code"2" .
B. Generate the AOIC "Rejection Letter" using the appropriate optional paragraph(s) for the signature of the authorized delegated official. Attach the IET and AET (or the "Screen for Obvious Full Pay" Worksheet) to the letter when the offer is based on DATC.
C. Generate the POA letter, if applicable.
D. Generate Form 1271 for signature by the appropriate delegated officials. The Reviewer on Form 1271 must be the Independent Administrative Reviewer (IAR).
E. Document the history regarding the decision. Include the following:
• Amount of the RCP
• Attempts to negotiate an alternative resolution
• Key issues in the disagreement
• Discussion of any special circumstances noted
F. Print the AOIC or ICS history and include it in the offer file.
G. Prepare a supplemental memorandum to report any rare facts of a confidential nature that should not be disclosed through a Freedom of Information Act (FOIA) request and include it in the file clearly identifying it as "Confidential Information– Not to be Disclosed" .
H. Place Tabs (Document 9600B) in the case file for ease in review or if the decision is appealed.
I. Submit the package for approval and signing of Form 1271.
J. After approval, route the file to the IAR.
K. After approval of the IAR, route the offer for signature, dating, and mailing of the letter(s).
L. Assign the case on AOIC to the designated "30 day hold" assignment number and route the case file to the hold file for monitoring of the appeal period.
M. Prepare Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
2. See IRM 5.8.3.6 for procedures to close the offer as a return based on notification of a dishonored check after issuance of a rejection letter.
5.8.7.6.2.1 (09-23-2008)
Closing a Combination DATC/DATL Offer Investigated By the Centralized DATL Unit as a Rejection
1. The centralized DATL processing unit will provide a narrative explaining the reasons for the DATL offer rejection determination to the originating Collection function. The Collection function will include this narrative in the AOIC rejection letter that it sends to the taxpayer, addressing both bases of the taxpayer's offer.
Note:
The higher delegated authority (Compliance Services Department or Collection Territory managers) for rejection on the basis of DATL should sign the combination rejection letter issued by the originating Collection function.
5.8.7.6.3 (09-23-2008)
Rejection Not Appealed
1. Treas. Reg. 301.7122-1(f)(5) provides that the 30-day period to request an appeal starts the day after the date on the rejection letter. The rejected offer must be suspended during this 30-day period to allow the taxpayer an opportunity to request an appeal, even if the taxpayer advises the Service that no appeal is desired. These cases should be monitored for receipt of a request for appeal.
2. Rejected offers should be held in the suspense file for 15 calendar days past the 30-day deadline to allow time for an appeal request to be received and associated with the offer file.
Note:
If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 6, 2008. The request for the appeal is dated Monday, August 8, 2008. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.
Note:
Special rules apply in determining the postmark date for documents sent by private delivery service. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
3. If no appeal request is received by the 45th day from the dy of the rejection letter, the following actions should be taken:
A. Close the offer record as a rejection with no appeal on AOIC.
B. If warranted, take action to return the accounts to the Field Compliance function for immediate resumption of collection activities.
C. Prepare the Form 3177, Notice of Action for Entry on Master File, to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
D. Route the offer file to the closed files.
5.8.7.6.4 (09-23-2008)
Fast Track Mediation for Offers in Compromise
1. A joint memorandum, dated May 8, 2002, from the Commissioner, SB/SE and National Chief, Appeals, implemented the Fast Track Mediation (FTM) process. The goal of FTM is to help taxpayers resolve disputes arising in examination and collection source work without having to send the case to Appeals.
Note:
This program is not available for any work in the COIC sites.
5.8.7.6.4.1 (09-23-2008)
Criteria for Fast Track Mediation
1. Mediation may only be considered after the OS has fully developed the case facts and made a reasonable attempt to negotiate an acceptable offer.
Note:
Mediation is not a substitute for the taxpayer's or their representative's right to a conference with the manager.
2. Taxpayers, or representatives who express an interest in mediating must first request a conference with the manager.
3. The opportunity to mediate should only be granted after the first level manager has reviewed the case and determined that the issues in dispute may be resolved in mediation.
4. When appropriate, mediation should be offered before the case is forwarded to the IAR for approval.
5. Below are some examples of when it would be appropriate or inappropriate to offer mediation. The examples are not all inclusive.
Example:
Appropriate — valuations of ongoing business' goodwill; artwork with collector or sentimental value; valuation of assets including real property.
Example:
Inappropriate — taxpayer has ability to full pay based on financial data; taxpayer declines to increase the amount offered and does not disagree with the values; rejection is based on public policy.
5.8.7.6.4.2 (09-23-2008)
Processing Granted Requests for Fast Track Mediation
1. When the request for mediation is granted, the OS will complete the following actions:
• Complete the Form 13369, Agreement to Mediate
• Complete a summary of issues
• Within 3 business days of securing the taxpayer's or their representative's signature, follow local established procedures to submit the request to Appeals.
• Provide a copy of the Form 13369 to the taxpayer or their representative.
• The OS will represent Collection in the mediation session.
Note:
Collection retains jurisdiction of the offer throughout the mediation process.
5.8.7.6.4.3 (09-23-2008)
Processing Denied Requests for Fast Track Mediation
1. If the taxpayer or their representative's request is denied, document the case file with the reason for the denial, including how it was relayed to the taxpayer and/or their representative.
2. Secure the approval of the first and second level manager.
5.8.7.6.5 (09-23-2008)
Rejection Appealed
1. If a request for an appeal is received that is postmarked no later than the 30 calendar days following the date of the rejection letter, the case must be forwarded to Appeals function for consideration.
Note:
If the 30th day falls on a Saturday, Sunday, or holiday the date for timely submission will be the next business day. For example, the 30th day for appeal falls on Saturday, August 6, 2005. The request for the appeal is dated Monday, August 8, 2005. This is considered to be a timely appeal because it was postmarked on the first regular business day following the 30th calendar day.
Note:
Special rules apply in determining the postmark date for documents sent by private delivery services. See IRM 3.10.72.7, Procedures for Private Delivery Services (PDS).
• Timely appeals- Upon transfer of the case to Appeals notify the taxpayer that the case is being transferred and provide the telephone number of Appeals Customer Service. Notification may be verbal or in writing but should be documented. Written notification may be completed using the AOIC transfer letter, paragraph B.
• Untimely appeals- Notify the taxpayer that the appeal was not timely and will not be forwarded to Appeals for consideration. Notification may be verbal or in writing but should be documented. Written notification may be completed using AOIC transfer letter, paragraph C.
2. The taxpayer should provide specific information with the appeal letter, including a list of items of disagreement and evidence to support any of those items. If the letter provides new information not previously considered, the case should be reassigned to an Offer Examiner or Offer Specialist for reconsideration.
Note:
Caution must be exercised when reviewing a case where new information is received and the offer reconsidered following issuance of a rejection letter. If the taxpayer's letter requested an appeal, the offer must still be forwarded to Appeals if this reconsideration of the offer results in no change to the initial decision to reject. A new rejection letter should be not sent.
3. The taxpayer is entitled to an appeal of the offer rejection even if items of disagreement are not provided or argued. If it can reasonably be determined that the letter is a request for an appeal, the taxpayer should be afforded that right.
4. If an appeal is received that includes additional information to reconsider but it does not change the rejection determination:
A. Attempt to reach the taxpayer by phone to advise that we have received and considered the information provided, however, the decision to reject the offer has not changed, so the offer will be forwarded to Appeals for consideration as requested.
B. Document any rebuttal to arguments the taxpayer raised in the rejection letter. Print the additional case history and include it in the offer file.
C. Transfer the case to 90XX on AOIC.
D. Mail the case to the appropriate Appeals Area office based on the taxpayer's zip code.
E. Prepare the Form 3177 to request input of a TC 483 to reverse the TC 480 for any NMF tax period that is listed on the MFT screen and not on Form 656.
5. If Appeals sustains the rejection determination or the taxpayer withdraws the offer in Appeals:
. Close the offer record on AOIC as:
• Closing code "9" if withdrawn in Appeals.
• Closing code "3" if Appeals sustained the rejection.
A. If warranted, take action to return the offer to the Field Compliance function for immediate resumption of collection activities.
B. Route the offer file to the closed files.
5.8.7.7 (09-23-2008)
Authorization to Apply Deposit
1. When a deposit is made with an offer, Service employees should ask taxpayers if they wish to have the funds applied to the delinquent tax debt whenever a withdrawal is solicited or when advising taxpayers that acceptance cannot be recommended. See IRM 5.8.2.7 for further information regarding deposits.
2. If a taxpayer agrees to the application of the deposit to a tax liability, a written authorization or Form 3040 should be completed, signed, and submitted to the MOIC unit when the case is closed. A copy of the withdrawal or rejection letter must be included with the Form 3040 and forwarded to the appropriate Monitoring OIC (MOIC) unit for processing.
Note:
When closing the AOIC record, input "A" in the pop up screen to alert MOIC that the funds are to be applied and immediately mail the written authorization to that unit. The Accounting Branch requires written authorization from the taxpayer before the funds can be applied to any tax period.
3. If a taxpayer does not authorize application of the deposit to a tax liability it will be returned to the taxpayer.
4. Occasionally requests for a discharge or subordination are received while an offer is pending. See IRM 5.8.10.6 for instructions on processing the Form 3040 received in conjunction with issuance of the lien certificates.
5.8.7.8 (09-23-2008)
Alternative Resolutions
1. Whenever an OIC cannot be recommended for acceptance, OI should discuss alternative resolutions with the taxpayer. All actions necessary to complete the agreed resolution should be taken prior to closing the case.
Note:
In cases where the taxpayer does not agree with the proposed alternative resolution, such as an installment agreement, refer the case to the appropriate Collection function for the next appropriate action.
2. Alternative resolutions that may be appropriate include:
• Negotiating and processing the Form 433-D, Installment Agreement, to fully pay the tax due or processing a partial payment installment agreement.
• Preparing the Form 53, Report of Currently Not Collectible Taxes, to report the account uncollectible when requesting current payment would create an undue hardship, the taxpayer is deceased and there is no probate, or the taxpayer cannot be located.
• Preparing and processing the Form 3870, Request for Adjustment, when a reasonable cause abatement or other adjustment to a liability should be made.
• Assigning the case to the ACS or a field RO when prompt enforcement action is warranted.
• Processing a lien subordination request
3. The above actions cannot be processed on IDRS until the TC 48X posts. If the OIC group is able to input actions to IDRS, the actions should be suspended in the group until the offer closing transactions post. If the actions are to be processed by another Service function, the request should be mailed immediately to that office with a cover memo explaining the TC 48X transactions have been initiated and the requested actions should be processed once the offer closing transactions post.
4. The appropriate IRM Part V Chapter should be followed to process an installment agreement, report an account uncollectible, or process a request for adjustment.
5. To assign a case to ACS or an RO follow locally established guidelines.
5.8.7.9 (09-23-2008)
Closed File Retention
1. Closed cases (other than acceptances) are to be retained in closed files in the Area or COIC offices. See IRM 1.15.28, Records Control Schedule for Collection Function, directs that the Area and COIC offices may retire the closed files to the Federal Records Center (FRC) when it is determined they are no longer needed for current business.
2. As space dictates in the offices, the files should be prepared to be retired to the FRC. Instructions for shipping files should be secured from the appropriate AWSS area Records Manager. A record of the cases shipped, including taxpayers name, TIN, and year closed, with a cross reference to the FRC box number and location, should be maintained in the Area or COIC office so the closed case file can be retrieved, if necessary, for litigation or other necessary action.
3. Prior to shipping these cases they should be purged so that only the following documents are shipped:
If… Then ship…
Returned, Terminated or Withdrawn Return, Termination or Withdrawal letter to the taxpayer (and POA letter if applicable)
• All Forms 656 received
• Form 2848, if applicable
• CIS
• Case history sheets
• Other significant correspondence/ documents
Rejected Rejection letter to taxpayer (and POA letter if applicable)
• All Forms 656 received
• Form 2848, if applicable
• Form 1271
• Narrative report
• CIS with supporting verification/documentation
• Case history sheets
• Other significant correspondence/documents
5.8.8 Acceptance Processing
• 5.8.8.1 Overview
• 5.8.8.2 Amending Form 656
• 5.8.8.3 Closing a Case as an Acceptance
• 5.8.8.4 Acceptance Processing for Specific Types of Offers
• 5.8.8.5 Legal Opinion of Counsel
• 5.8.8.6 Public Inspection File
• 5.8.8.7 Accepted Offer File Processing
5.8.8.1 (09-23-2008)
Overview
1. The determination to accept an offer is based on sound decisions relating to an analysis of the taxpayer's facts, circumstances, and financial situation. Documentation supporting this decision and proper approval levels are required to complete the acceptance. This section describes the process for accepting an OIC.
5.8.8.2 (09-23-2008)
Amending Form 656
1. When an offer is being recommended for acceptance, the tax periods owing and/or payment terms may need to be adjusted. This will require the taxpayer to submit an amended Form 656 to reflect the new terms.
A. Mark it "amended" in red on the top margin of page one.
B. Input "A" (amended) on screen one of the AOIC record to reflect receipt of an amended offer, but do not change the "offer pending date" .
C. Add any new tax periods not included on the original Form 656 to the MFT screen. The date the IRS official signed the amended offer should be added to the MFT screen as the waiver date for the new periods only.
D. Delete any tax periods found on the MFT screen that are no longer owed.
E. Add the new terms for payment, if any, to the terms screen.
Note:
Amended offers will show the total offer amount, not the amount remaining after applied TIPRA payments.
2. Offers received on or after July 21, 2006, that require the submission of an amended Form 656 will also require submission of either 20% of the revised offer amount (less the amount previously submitted) or the revised periodic payment. See IRM 5.8.4.7.2 for periodic payment requirements for revised offers.
5.8.8.3 (09-23-2008)
Closing a Case as an Acceptance
1. Prior to preparing an acceptance report, IDRS command code "AMDIS" should be checked to ensure that no additional assessments are pending. If an open audit is found contact should be made to resolve the issue per instructions in IRM 5.8.4.12.1 for additional instructions. The tax must not be compromised unless it is assessed and legally due; therefore, IDRS should also be checked to ensure that all taxes included on the accepted offer have been properly assessed and are still due and owing.
2. At the time the acceptance report is prepared, update the MFT screens on AOIC using the current K-Data or IDRS command code INTST to reflect the current liability(s). This will ensure the Form 7249, and the MFTRA-X are in close agreement since the Form 7249 requires various levels of approval, and both become public documents.
3. Before closing a case as an acceptance, document the case history on AOIC regarding the decision. Include any special instructions for the Monitoring Offer in Compromise (MOIC) unit regarding application of funds or requesting a lien re-filing if one will be required during the terms of any deferred payment offer. See IRM 5.12 for more information about when to re-file a lien.
4. Order a MFTRA-X as close to the acceptance date as possible without delaying acceptance. Sanitize the MFTRA-X or K-Data transcript to "black out" or redact the taxpayer's social security number (both primary and secondary, if a joint offer) and all tax information that is not to be disclosed to the public as follows:
Note:
The AOIC download process may be used to generate and print a sanitized report, which may be used instead of the MFTRA-X.
A. Name and SSN of a co-obligor spouse if the spouse is not a party to the compromise.
B. Number of exemptions.
C. Filing status.
D. Adjusted gross income.
E. Taxable income.
F. Principal Industry Activity Code.
G. Transaction Codes without dollar amounts. The entire line including the date should be redacted.
H. Transaction Codes and explanations dealing with fraud, negligence, or criminal investigations, but not the date and amount of the transaction.
I. Power of Attorney/Tax Information Authorization (POA/TIA) on file.
5. Prepare an Acceptance Report. The report referenced in IRM Exhibit 5.8.4–3 may be used for this purpose. The report should contain at a minimum:
A. The taxpayer's personal information such as age, health, dependents, education and occupation.
B. The cause of the delinquency and status of current compliance.
C. The amount of RCP and an explanation of how the RCP was calculated.
Note:
The AET and IET shown in IRM Exhibits 5.8.4–1 and 5.8.4–2, respectively, will generally fulfill this requirement.
D. Whether or not special circumstances exist and how they affected the amount agreed upon.
E. Negotiations resulting in the acceptable offer amount.
F. A conclusion that summarizes the basis for acceptance.
6. In the rare situation where relevant facts of a confidential nature exist that should not be included in the recommendation report, complete a supplemental memorandum for the record and include it in the case file. Do not include information already discussed in the offer recommendation report.
7. Update the AOIC record as follows:
A. Main Screen — Update to reflect the correct basis for compromise and, if appropriate, to indicate the existence of special circumstances. Update the disposition code to "1" (proposed acceptance).
If… Then…
Any modules have restricted penalty or interest Use IDRS command code COMPAD or COMPAF to determine the accrued amounts. Include the accrued amounts in the total liability listed on the MFT screen. The manually accrued amounts must also be added to the paper transcript.
Any modules are Non-Masterfile, and not on IDRS Secure an Automated Non-Masterfile (ANMF) transcript, and update it as necessary using IDRS command code COMPAD and/or COMPAF.
The module was full paid as a result of a payment action other than TIPRA (such as, refund offset, prior levy payment) Remove the period from the MFT screen on AOIC, and amend the offer to remove the tax period from the Form 656.
The payment that satisfied the tax period included both a TIPRA payment, and other payment (such as, refund offset, prior levy payment) Do not remove the period from the MFT screen on AOIC.
The period was full paid The MFT screen will reflect a zero balance due.
Note:
An amended Form 656 is not required to remove periods that were full paid due to TIPRA payments.
B. MFT Screen — Input the assessment date for each module. Press "I" to update interest to the current date using the INTST command.
Note:
If any modules have restricted penalty or interest, use IDRS command code COMPAD or COMPAF to determine the accrued amounts. Include the accrued amounts in the total liability listed on the MFT screen. The manually accrued amounts must also be added to the paper transcript.
Note:
If any modules are Non-Master File and not on IDRS, secure an ANMF transcript and update it as necessary using IDRS command code COMPAD or COMPAF.
C. K-Data Request Screen — Do a re-request for an IDRS download on all applicable TINS to update the AOIC screens with the accruals to the current date. Once the screens are updated generate and print the Public Offer report to use in lieu of a MFTRA-X.
Note:
A MFTRA-X may be requested through IDRS instead of taking this step.
D. Terms screen — Update the terms to those reflected on the offer that is being accepted ensuring that any collateral agreement(s) are referenced as necessary.
8. Generate and print the Form 7249 for the required signatures. The accepting official is the official that has delegated responsibility for accepting based on the type and dollar amount of the case. Delegation Order No. 5-1 provides the level of authority for approving all Offer in Compromise dispositions.
9. Generate and print the appropriate acceptance letter for the signature of the delegated official. Attach copies of the accepted Form 656 and any applicable collateral agreement(s).
10. Generate and print the POA letter if there is an authorized representative.
11. Assemble the file using Document 9600 B, Tab Dividers for Offer-in-Compromise Case Files Document. The use of labeled dividers is required.
12. Submit the file for approval, routing to Counsel for review. See IRM 5.8.8.5, Legal Opinion of Counsel.
13. Upon approval and signature, date and mail the acceptance letter(s). The acceptance letters should be mailed the same calendar year that the letters are signed. Ensure signed and dated copies are retained in the offer file.
14. Make a copy of the Form 7249, sanitize to black out or redact the taxpayer's social security number (both primary and secondary, if a joint offer) and mail it together with the sanitized transcripts to the appropriate office for placing in the public offer file.
15. Close the case on AOIC and process. See IRM 5.8.8.7 below.
5.8.8.4 (09-23-2008)
Acceptance Processing for Specific Types of Offers
1. When two or more related offers are being recommended for acceptance, but acceptance is based on one financial analysis, one acceptance narrative may be used. Multiple files should be created containing the separate items that pertain to each offer. It is not necessary to duplicate the information that pertains to both files. The files should be clearly marked indicating that there are related offers, for example "1 of 2" and "2 of 2."
2. When the accepted offer includes TFRP assessments, a careful review must be made to ensure all TFRP assessments are included. Generally, TFRP assessments made before August, 2000, combine all unpaid corporate tax quarters and were assessed under the tax period of the latest quarterly period owed by the corporation. Since August, 2000, TFRP assessments are made for each quarterly period that is owed by the corporation. The Form 656 and the Form 7249, Offer Acceptance Report, must match and must reflect each individually assessed TFRP tax period.
3. Offers from Federal employees require a determination of whether public policy implications exist based on the sensitivity of the employee's position or area of responsibility. The result of this consideration should be documented in the case file. Offer acceptances for employees of the IRS also require the approval of the SB/SE Territory Manager (2nd level) or SB/SE Compliance Services Department Manager (COIC).
Note:
Offers from Federal civil service retirees are to be considered under normal procedures.
5.8.8.5 (09-23-2008)
Legal Opinion of Counsel
1. Counsel is required to review offers when the total liability for all related offers on the same taxpayer is $50,000 or more. The purpose of Counsel's review is to determine whether the offer legally meets the standards of DATL, DATC or the promotion of ETA. Counsel reviews the offer to ensure it meets the legal requirements for compromise and conforms to the Service's policy and procedures.
2. If the liability(s) at the time of submission is $50,000 or greater, Counsel opinion is required.
3. Counsel’s signature on Form 7249 constitutes the legal opinion required by IRC § 7122(b). By signing the form, Counsel is certifying that all of the legal requirements for compromise have been met. If Counsel does not sign the form, the case cannot be compromised until any legal issues are resolved.
4. Counsel’s signature does not necessarily indicate concurrence with the acceptance decision, but only that there are no legal barriers to compromise. In some cases, Counsel may determine that the compromise is legally permissible, but raise policy concerns or other issues of a nonlegal nature. In such cases, Form 7249 will be signed and any other issues will be communicated by separate memorandum.
5. It is not required that Counsel concur in the acceptance decision in order for a compromise to go forward. However, the accepting official reviews and considers any opinion from Counsel prior to making the acceptance final. Where major policy concerns have been raised, it is appropriate to document the case history indicating that the accepting official fully considered the issues before accepting the offer.
5.8.8.6 (09-23-2008)
Public Inspection File
1. Public inspection of certain information regarding all OIC's accepted under I.R.C. section § 7122 and is authorized by I.R.C. section § 6103(k)(1).
2. Treas. Reg. 601.702 (d) (8) provides that for one year after the date of execution, a copy of the Form 7249, "Offer Acceptance Report," for each accepted OIC with respect to any liability for a tax imposed by title 26 shall be made available for inspection and copying. A separate file of accepted OIC records will be maintained for this purpose and made available to the public for a period of one year. The public inspection file will be maintained in a location designated by the Area office. The file will be maintained in the Area where the taxpayer resides . The Area office may destroy the Public Inspection file after the year has expired.
3. For each accepted offer, the file will only contain the following items:
• A copy of the redacted Form 7249
• The sanitized MFTRA-X or ANMF transcript.
4. The office that has accepted the offer will be responsible for providing all required documents as soon as possible after acceptance, for inclusion in the public inspection file.
5.8.8.7 (09-23-2008)
Accepted Offer File Processing
1. Once an offer has been closed on AOIC, it should be held in-house until the following Monday. On Monday, or as soon as practical thereafter, the offer should be released on AOIC and the entire file mailed to the proper MOIC unit. Care must be used to ensure that the offer is mailed to the same unit it is released to on AOIC. If two related offers are accepted and one has a Business Operating Division (BOD) code of Small Business (SB) and the other is coded Wage & Investment (WI), change the BOD code on the WI offer on AOIC to match the BOD code of the SB offer before releasing it to the MOIC unit and ship both to the designated SB site.
2. If the case is chosen for Embedded Quality (EQ) review, copies of the following documents should be made and placed in the file in lieu of the originals before the offer is forwarded for review. The following original documents should be sent to the MOIC unit in a file folder clearly indicating that the remaining information was mailed to EQ.
A. Original and amended Form 656, Offer in Compromise
B. Form 7249, Offer Acceptance Report
C. Copy of the Acceptance letter(s)
D. Any collateral agreements
Note:
Before forwarding the case to the MOIC unit take the following steps: (1) Verify that the original and any amended Form(s) 656 are in the case file; (2) Check to be sure that the Form(s) 656, Form 7249, IDRS, and AOIC all reflect the same tax liability period(s); (3) Verify that the waiver dates on the Form(s) 656, IDRS, and AOIC are correct and consistent.
3. Accepted offer files should be mailed with a Form 3210. Shipping offices must ensure that a receipted copy of the Form 3210 is received. If a receipted copy of the Form 3210 is not received within 30 calendar days of mailing, contact should be made with the receiving office and tracing actions taken. Appropriate actions must be taken to recover or replace missing files.
5.8.9 Possible Actions on Accepted Offers
• 5.8.9.1 Overview
• 5.8.9.2 Rescission of Accepted Offers
• 5.8.9.3 Potential Default Cases
• 5.8.9.4 Compromise of a Compromise
• 5.8.9.5 Overlooked Periods
• Exhibit 5.8.9-1 Pattern Letter 1603(P)
• Exhibit 5.8.9-2 Pattern Letter 1604(P)
• Exhibit 5.8.9-3 Pattern Letter 1607(P)
• Exhibit 5.8.9-4 Default Letter
5.8.9.1 (09-23-2008)
Overview
1. During the time an accepted offer is monitored, a determination to terminate or rescind an existing compromise agreement may need to be made. A determination whether to compromise an existing accepted offer may also be considered. This chapter addresses the situations which lead to the need for such decisions to be made and the procedures to follow.
5.8.9.2 (09-23-2008)
Rescission of Accepted Offers
1. An offer is an agreement which is binding on both the government and the taxpayer, and precludes further inquiry into the matters to which it relates, unless fraud or a mutual mistake of fact is identified.
2. An offer may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or a false representation that was made by one party.
3. A "mutual mistake of fact" is defined as an erroneous belief held by both parties about the facts as they existed at the time the contract was entered into.
4. The mere fact that both parties are mistaken with respect to the same basic assumption about an existing fact does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the offer in compromise.
5. To constitute fraud or false representation, the following must be present:
A. The representations related to material facts were false.
B. The maker knew the facts to be false.
C. The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.
6. If the offer was accepted by Appeals, the offer should be sent to the appropriate Appeals office to make the determination that the offer should be rescinded.
5.8.9.2.1 (09-23-2008)
Rescission Procedures
1. Rescind an offer in the following manner:
1. Prepare a letter to the taxpayer identifying the offer by the day it was accepted, and advising that the acceptance of the offer is rescinded and the acceptance letter is revoked.
2. Include in the letter the grounds for rescission in general terms with a demand for payment of the unpaid tax liability.
3. All rescission determinations must be reviewed and approved by Counsel before a rescission letter is forwarded to the taxpayer.
Note:
The letter must be signed by the same level of approval that accepted the offer.
4. Document the basis for the decision to rescind and any taxpayer contact on AOIC.
5. After all approvals have been received, notify the appropriate MOIC liaison of the rescission and request input of a TC 781 to ensure the case is reassigned to the field for appropriate collection action.
5.8.9.3 (09-23-2008)
Potential Default Cases
1. An offer can reach a potential default status in one of three ways:
A. The taxpayer failed to make timely payment of the amount due based on the terms of the offer or a related collateral agreement;
B. The taxpayer has not adhered to the compliance provisions of the offer; or
C. Taxpayer failed to return an erroneously issued refund.
Note:
Offers accepted after December 31, 1999 contain a clause relating to the severability of joint offer periods when a joint Form 656 is accepted. The severability clause will be applied to all joint offers, including those accepted prior to 1/1/2000.
2. Campus MOIC units have responsibility and authority to make determinations on potential offer default cases.
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 will default the offer. After all appropriate letters have been sent, generate a TDI or TDA, as appropriate and close the case as a default.
5.8.9.4 (09-23-2008)
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. However, in cases where the taxpayer is unable to pay the balance of an accepted offer 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, which would justify that a default is not in the best interest of the government, the Service has the option to:
A. Adjust the payment terms of the offer,
B. Formally compromise the existing compromise, or
C. Obtain managerial approval to settle the offer for the amount already paid and not default the offer.
2. A Other Investigation request will be made by the monitoring campuses to the field Offer groups only if a compromise of an accepted offer is received. An Other Investigation to the field should be rare, but when issued, the courtesy investigation should be coded with a priority code 100 and worked in an expeditious manner.
Note:
An Other Investigation to the field 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.
5.8.9.4.1 (09-23-2008)
Authority to Compromise Under a Compromise Contract
1. The Commissioner is authorized to accept an offer to compromise an accepted offer.
2. A proposal to compromise the balance of an accepted offer must rest on DATC.
5.8.9.4.2 (09-01-2005)
Receipt and Processing
1. The office of jurisdiction that initially accepted the offer will consider the taxpayer's proposal.
2. No specific offer form (such as Form 656) is prescribed for use in submitting such a proposal. The proposal should be:
• Made in letter format, and
• Include 20% initial required payment of the lump sum offer or the periodic payment.
3. Upon receipt of the proposal, add a history entry to AOIC indicating that an offer to compromise the offer has been received and notify the MOIC unit that the offer should not be defaulted until the results of the investigation are known.
Note:
For ICS, create an OI or CIP to control the taxpayer's proposal. When closing, be sure to note the results in the AOIC history.
4. The total amount offered to satisfy the balance due under a compromise contract must be fully paid no later than 10 calendar days after a notice of acceptance is issued. The taxpayer may:
A. Enclose full payment of the proposed amount with the proposal.
B. Pay part of the proposed amount with the proposal and pay the balance when notice of acceptance is received.
C. Full pay the proposed amount within 10 calendar days of the date the notice of acceptance is received.
5. The proposal letter should be addressed to the Commissioner of Internal Revenue Service and must conform to pattern Letter 1603(P), shown in Exhibit 5.8.9-1 below.
6. The taxpayer must submit a current financial statement(s) and all required supporting documentation.
5.8.9.4.3 (09-23-2008)
Consideration of Proposal
1. The consideration of such a proposal will be made by the office of jurisdiction that originally accepted the offer. Acceptance will depend on:
A. If it is in the best interest of the Government; and
B. 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:
• Copy of the taxpayer's most recent income tax return or Command Code (CC) RTVUE/BRTVU print.
• 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 which might have a bearing upon the acceptability of the offer.
• Estimated and projected amount of future income over the period covered by the remaining terms of the original offer in compromise agreement.
3. Compare the amount of the taxpayer's offer and the amount which is anticipated to be recouped under the remaining terms of the original offer agreement.
5.8.9.4.4 (09-23-2008)
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.
If… Then…
The taxpayer's proposal is acceptable The procedures for acceptance of original offers will be followed which include an opinion of Counsel as set forth in IRM 5.8.8.5, Legal Opinion of Counsel.
The offer is accepted The acceptance file will contain the following:
• Copy of Acceptance Letter
• Taxpayer's proposal
• Memorandum supporting the compromise of a compromise
• Work papers and financial information
• Original acceptance recommendation, if available
The proposal is not acceptable Forward to the delegated official for approval and signature. Include:
• Denial Letter (return without appeals)
• Taxpayer's proposal
• Memorandum supporting the recommendation
• Offer case file
Note:
No appeal rights are granted to the taxpayer.
3. Update the AOIC history with the results of the investigation. If the proposal is accepted, include in the AOIC history the amount of the accepted proposal and the terms for payment.
4. Once the decision letter has been signed and mailed, the Other Investigation or CIP should be closed. There is no open AOIC record.
5. Document the case history indicating that the OI is closed and the final resolution of the offer.
6. The closed file should be mailed to the appropriate MOIC unit for monitoring, if accepted, or defaulting if it was not accepted.
5.8.9.5 (09-23-2008)
Overlooked Periods
1. Occasionally, additional periods or years are discovered subsequent to the acceptance of an offer. When such liabilities are discovered, the offer agreement may be modified to include the additional period(s) as long as both the Service and the taxpayer are in agreement. The tax must have been assessed prior to the issuance of the notice of acceptance. Such modification would not require a determination of "mutual mistake of material fact."
2. If the overlooked periods are discovered by the local office then they should secure the original offer file and have the taxpayer add the omitted period(s) to the original offer. A pen and ink change should be made to the Form 7249 including the additional period(s). The appropriate officials must initial the recommended changes to the Form 7249.
3. Document the AOIC history indicating the period(s) added.
4. Return the case file to the MOIC unit.
5. If the overlooked periods are discovered by the MOIC unit then, they should send the file back to the original appropriate Area office or COIC site for consideration of whether to include the periods, per (2) above.
Exhibit 5.8.9-1 (09-23-2008)
Pattern Letter 1603(P)
This is an example of a proposal letter to compromise a balance due on an OIC or to compromise future income collateral agreements.
Proposal letter to compromise balance due on offer in compromise and/or to compromise future income collateral agreement contingent liability. The information that is printed in bold letters is to be added for a collateral agreement.
Commissioner of Internal Revenue
Washington, DC 20224
On [enter date from upper right corner 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 amount from Form 656, Offer in Compromise; if you amended Form 656, you must take this information from the latest amendment] to compromise the tax liability(s) listed below:
[List type(s) of tax and period(s) from Form 656 or the latest amendment, if applicable.]
 Instead of future payments specified in Form [2261; or 2261–A], [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  [my/our] proposed amount when you notify [me/us] that you have accepted 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.]
[If your original offer was submitted on a  Form 656, Offer in Compromise, with a revision date of February, 1992, or later, please insert the following sentence:
[I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years from [enter the date from the upper right corner of the acceptance letter.
[I/we] agree to waive any and all claims  to overpayments of tax or other liabilities, including interest on those payments, that I 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.
[Enter your signature and today's date.
Each person who is submitting this    proposal must
sign here.]
Enclosure:
Exhibit 5.8.9-2 (09-23-2008)
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 letters is to be added for a collateral agreement.
Date: Social Security or Employer
Identification Number:
Salutation Person to Contact:

Telephone Number:
We accept your proposal to pay  $---- to settle the remaining liability under the offer in compromise accepted on Enter Dateand/or the related collateral agreement.
Since you have paid the amount  proposed, you do not need to take further action. (or: Since you enclosed $---- with your proposal, please send the balance of $---- by Enter Date) (or: Since payment was to be made on notice of acceptance of your proposal, please send $---- by Enter Date.)
Your check or money order should  be made payable to the United States Treasury and sent to (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 service center, to the attention of the Offer Unit.
If you have any questions,  please contact the person whose name and telephone number are shown above.
Sincerely yours,
(Signature and title)
Exhibit 5.8.9-3 (09-23-2008)
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.
Salutation
We are sorry, but we cannot accept your proposal dated ---- 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 (name, Internal Revenue Service Center, address, telephone number).
Sincerely yours,
(Signature and title)
Exhibit 5.8.9-4 (09-23-2008)
Default Letter
This is an example of a default of an offer for failure to meet the agreed terms.
Failure to Comply with the terms of an accepted offer in compromise and/or related collateral agreement. The information that is printed in bold letters should be added for a collateral agreement.
Salutation:
This refers to our letter of  [date], accepting your offer of $[amount], in compromise of your [kind of tax] tax liability, plus statutory additions, for [years or tax periods]. Your offer included your agreement to the default provisions, waiver of refunds, payment of interest, and other terms provided on the Form 656.
 Also included was a related collateral agreement(s) you submitted as additional consideration for acceptance of your offer.
Under the terms of your offer,  $[amount] was to be paid as follows:
[Quote terms of payment shown on Form 656]
 The collateral agreement(s) provide that you must file annual income statements and pay graduated percentages of annual income for the years [date] through [date].
Our records show that you did  not comply with the terms of the offer and collateral agreement(s) [specify reason for non-compliance], therefore your offer in compromise is declared in default and the agreement to compromise the original liability is terminated. All payments on the offer and collateral agreement(s) will be applied to the original liability.
Please contact [name, address,  and telephone number] if you have any questions and to discuss payment of the remaining amount of the original liability.
Sincerely yours,
[signature and title]
.8.10 Special Case Processing
• 5.8.10.1 Overview
• 5.8.10.2 Bankruptcy
• 5.8.10.3 Other Insolvency Cases
• 5.8.10.4 Death of Taxpayer
• 5.8.10.5 Transferee
• 5.8.10.6 Discharge and Subordination Requests
• 5.8.10.7 Effect of Previous Offers on Collection Statute
• 5.8.10.8 Indicators of Practitioner Fraud
• 5.8.10.9 Indicators of Taxpayer Fraud
5.8.10.1 (09-23-2008)
Overview
1. During the investigation of an offer, certain situations may be encountered that require consideration before a final determination can be made. This section discusses how to treat these situations when evaluating an offer.
5.8.10.2 (09-23-2008)
Bankruptcy
1. Bankruptcy can have a specific impact on the Service's consideration of an offer. The taxpayer may file bankruptcy and an offer simultaneously, or file an offer in an attempt to avoid bankruptcy, or a file an offer after a bankruptcy has been concluded. The following discusses these situations.
5.8.10.2.1 (09-23-2008)
Offer in Compromise During Bankruptcy
1. The Service will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides procedures to resolve the Service's claim.
2. An OIC will not be considered under administrative OIC procedures until the bankruptcy is concluded. In Chapter 7 cases, an administrative compromise with the taxpayer can be considered after the taxpayer has received a discharge. See IRM 5.8.10.2.3 below. In Chapter 11, 12, and 13 cases, an administrative compromise will not be considered until the taxpayer completes payments under the plan or the bankruptcy is dismissed by the court.
3. If a taxpayer is in bankruptcy when an administrative OIC is submitted or during a pending offer investigation, the offer is returned.
5.8.10.2.2 (09-23-2008)
Offers in Compromise Before Bankruptcy
1. When a taxpayer threatens bankruptcy, the impact of bankruptcy on the Service's ability to collect must be considered. If the OI believes, based upon factual information, that the taxpayer is seriously considering filing bankruptcy, the employee should discuss the benefits of filing an administrative offer instead.
2. Benefits to the Service:
• The Service can negotiate for amounts collectible from future income and from assets beyond the reach of the government, that may not be collectible if the taxpayer files bankruptcy.
• Negotiations may result in an offer amount that exceeds the amount recoverable in an insolvency proceeding.
• Terms for payment of an offer may result in funds being collected in a shorter time than through bankruptcy.
3. Benefits to the Taxpayer:
• Bankruptcy carries certain negative repercussions that an OIC will not cause, such as the effect on credit ratings.
• Bankruptcy does not discharge all tax liabilities.
• If a NFTL has been filed, the federal tax lien may survive bankruptcy against certain assets.
4. While evaluating the acceptability of an OIC when the threat of bankruptcy is a consideration, determine the RCP as defined in IRM 5.8.5. To determine the amount that would be collected through bankruptcy and what liabilities would be discharged, contact an advisor in the Insolvency Section and discuss the facts of the case.
5. Analysis of the collectibility, if bankruptcy were filed, along with the financial analysis and a determination of liabilities that would be fully discharged, should result in the ability to make an informed decision regarding the OIC. It should also open negotiation with the taxpayer.
6. When doing the analysis consider the following questions:
• Is the Service the sole or major creditor?
• Would taxes be dischargeable in bankruptcy?
• Does the offer amount equal or exceed what the Service can reasonably expect to recover from bankruptcy?
• Are there other considerations, such as what could be collected on liabilities that would not be discharged, or what could be collected from property outside of the bankruptcy, including third parties?
Note:
Under no circumstances will the Service accept less than would be recoverable from a Chapter 7 bankruptcy, unless special circumstances exist.
7. If it is determined that processing an offer under the Service's administrative procedures is the better alternative, then proceed with the offer process.
5.8.10.2.3 (09-23-2008)
Acceptance of Offer in Compromise After Chapter 7 Bankruptcy
1. In most Chapter 7 bankruptcies, the discharge is issued and the stay lifted in approximately 5 months. An OIC will not normally be considered under the Service's administrative procedures until the discharge is granted.
2. For debtors discharged in Chapter 7, where the bankruptcy case is still pending, it is uncertain whether the Service would still have a valid claim in bankruptcy if an OIC is accepted. Therefore, the amount acceptable should include the amount that the Service can reasonably expect to recover from the bankruptcy in addition to what can be collected from the taxpayer on non-discharged liabilities or from property outside the bankruptcy.
5.8.10.2.4 (09-23-2008)
Bankruptcy After Offer In Compromise Acceptance
1. When a taxpayer files bankruptcy after an OIC is accepted, the Service may need to take specific actions to secure unpaid offer funds or to secure payment of tax through the bankruptcy proceeding. (See IRM 25.17, Bankruptcy, for additional information.)
2. In accordance with the Bankruptcy Code, the offer should not be defaulted or payments solicited while the taxpayer is in bankruptcy.
3. When the Service becomes aware that a bankruptcy has been filed after the acceptance of an OIC:
If… Then…
The offer funds have been paid in full The bankruptcy filing has no effect on the accepted offer.
The offer funds have not been paid in full Contact the Insolvency Unit to determine necessary action to secure the Service's interest in the bankruptcy proceeding.
5.8.10.3 (09-23-2008)
Other Insolvency Cases
1. A copy of the court order or other evidence should accompany Form 656.
2. The following should be secured in "Receiverships" and other non-bankruptcy insolvencies:
• A general statement of the circumstances which resulted in the receivership and the purpose of the receivership; that is, whether the objective is liquidation of assets, conservation of assets, foreclosure of a mortgage or reorganization.
• A copy of the petition for the appointment of a receiver and a copy of the court order appointing the receiver or trustee can be used in lieu of a general statement, if the petition provides the information above.
• Copies of all pertinent schedules filed with the court.
3. Consideration of an OIC frequently presents questions concerning the rights of the government to priority in the collection of the tax claims over the claims of other creditors of the taxpayer.
4. The rights of other creditors are based on liens which may be recognized by state law, but because of the taxpayer's assignment of assets for the benefit of other creditors, the provisions of 31 U.S.C. § 3713 apply.
5. When considering the offer:
• Evaluate the rights of all creditors,
• Evaluate all facts and circumstances relating to the various claims,
• Verify all pertinent dates, such as the origin and filing of all claims and liens, and
• Verify the steps which have been taken towards the enforcement of the claimant's alleged rights.
If… Then…
The priority rights of the United States are disregarded when the funds of the estate are disbursed An assignee for the benefit of creditors, as well as an executor or administrator of a decedent's estate, may become personally liable.
A corporation is the assignor and the tax liability sought to be compromised consists of withholding of Federal Insurance Contribution Act (FICA) taxes, or taxes which the assignor might be required to withhold or collect from others and pay over to the government Consider the possibility of enforcing the TFRP provisions of the code.
6. When questions arise regarding the priority rights of the United States contact Area Counsel.
5.8.10.4 (09-23-2008)
Death of Taxpayer
1. When the Service is notified of the death of the taxpayer who submitted an OIC that is currently under consideration, the Service can no longer consider the OIC. A termination letter will be generated from AOIC and the offer should be closed with the termination closure option.
2. Many times the OIC under consideration was submitted jointly by a husband and wife. In that situation, contact with the surviving spouse should be made to determine whether there is a probate proceeding pending. See IRM 5.5, Insolvencies, Descendents' Estates and Estate Taxes, and IRM 5.17.13.10, Descendents Estates, for more information about decedent taxpayers and probate proceedings.
If… Then…
There is a probate Explain that consideration of the offer will be terminated and that another offer can be submitted once the probate has been concluded. Contact Technical Support and advise of the probate proceeding and the tax liability due. Terminate consideration of the offer.
There will be no probate proceeding and the surviving spouse does not want us to continue considering the OIC Terminate consideration of the joint offer due to the death of the spouse.
There will be no probate proceeding, the surviving spouse does want us to continue considering the OIC, and the surviving spouse is named as executor by a will, or if there is no will, the spouse is named as the personal representative by the probate court Even if the surviving spouse is named as the executor in a will, the spouse may need approval from the probate court, which determines the validity of wills, prior to acting on behalf of the decedent spouse. Consult Area Counsel.
Once the surviving spouse is authorized to act on behalf of the decedent by the probate court, obtain a copy of the will and/or court order, and an amended OIC reflecting the spouse as deceased and continue consideration of the joint offer.
There is no probate proceeding and the surviving spouse wants the Service to continue consideration of the OIC; however, the spouse was not appointed executor by a will (with approval by the probate court), or if there is no will, the surviving spouse is not named as the personal representative by the probate court Since the surviving spouse does not have the authority to compromise the liability of the deceased taxpayer, secure an amended offer removing the deceased spouse's name and continue consideration of an offer for the surviving spouse's obligation only.
5.8.10.5 (09-23-2008)
Transferee
1. When an OIC investigation reveals the potential for a transferee situation, the burden of proof of transferee liability rests with the government.
Note:
If it is determined that a transferee investigation should be initiated, it will not be conducted by the Offer Investigator. Instead, it will be conducted by a field RO by generating an Other Investigation. Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
If… Then…
A potential transferee is discovered during an OIC investigation Conduct an investigation to determine if a transferee exists.
A transferee liability exits 1. Determine the amount the Service may reasonably expect to collect from the transferee.
2. Attempt to negotiate an acceptable OIC amount with the transferee value included in the RCP calculation.
There is a question whether a transferee liability may be established and sustained 3. Determine the value of the transferee based on the degree of doubt regarding the transferee being sustained.
4. Attempt to negotiate an acceptable offer amount including this value in the RCP.
Note:
Flexibility should be exercised during negotiations if the transferee assessment will not be pursued.
While investigating an OIC and the OI determines that a transferee assessment should be pursued and negotiations have not resulted in an acceptable offer amount 5. Attempt to secure a withdrawal letter from the taxpayer.
6. If the taxpayer does not withdraw the OIC, prepare the rejection closing documents and follow procedures for recommending rejection with appeal rights. Include the value of the transferee in the RCP.
7. Prepare an Other Investigation to be issue to a field RO to investigate the transferee issue.
5.8.10.6 (09-23-2008)
Discharge and Subordination Requests
1. The government is bound by the payment terms of an accepted OIC. The Service cannot require payment of the offer amount in different terms, other than agreed to in the OIC agreement.
Note:
In these cases, the discharge or subordination investigation will not be conducted by the OI. Instead, it must be conducted by the appropriate Technical Support by generating an Other Investigation.Other Investigations referred per these instructions should be considered high risk cases, code 100, and processed accordingly.
2. Requests for discharge or subordination received while an OIC is pending are to be handled as follows:
If… Then…
The discharge or subordination request is approved. Advise the taxpayer that proceeds from the discharge or subordination will be applied to the OIC, if accepted. If the OIC is not accepted, the proceeds will be applied to the tax liability. Before delivering the certificate of discharge or subordination, require the taxpayer to execute a Form 3040. In the signature block, have them write the word "irrevocable" . Retain the signed Form 3040 in the case file for use in the event the OIC is returned, withdrawn, or rejected.
Note:
For those taxpayers who have submitted a discharge or subordination while the OIC is pending, the taxpayer should check the box and place their initials next to that box. This will serve the same purpose as having the taxpayer write "irrevocable" on the Form 3040.
3. Requests for discharge or subordination received after an OIC has been accepted, but before all the payment terms have been met, should be handled as follows:
If… Then…
The taxpayer does not intend to apply the proceeds received from the discharge or subordination to the OIC amount Deny the discharge or subordination request.
The taxpayer does intend to apply the proceeds toward the OIC amount Request an investigation of the discharge or subordination from Technical Support and then coordinate with Technical Support to apply the proceeds to the OIC amount.
5.8.10.7 (09-23-2008)
Effect of Previous Offers on Collection Statute
1. Over the years there have been numerous changes in the law and IRS procedures relating to the extension of the statutory period for collection while OIC's are being considered. The information provided in this section will assist in determining the correct CSED, which can impact the number of required payments.
2. For OIC's pending prior to 1/1/2000, the taxpayer executed a waiver of the statutory period for collection, extending the collection statute for the period the OIC was under consideration and for an additional one year. For OIC's accepted prior to 1/1/2000 this waiver of the statutory period for collection also included the period of time the terms of an accepted OIC were still in effect.
Note:
RRA 98 imposed a limitation for OIC's subject to a waiver of collection statute. The waiver cannot extend the CSED beyond either 12/31/2002, or the original CSED, whichever is later.
3. For OIC's submitted or pending after 12/31/1999, the statutory period for collection was suspended, by operation of law, while the OIC was pending, for 30 calendar days following rejection of an OIC, and for the period the rejection was being considered in Appeals. This suspension of the collection statute is effective through 12/20/2000.
4. For OIC's that were pending prior to 1/1/2000 and were still pending on or after 1/1/2000, the collection statute is extended by both waiver periods and by the suspension period (See paragraphs 2 and 3 above).
Note:
The limitation on the waiver of collection statute applies to these OIC periods.
5. The Community Renewal Tax Relief Act of 2000 was signed into law on 12/21/2000. This act eliminated the suspension of the statutory period for collection, effective on the day of enactment (12/21/2000).
6. The Job Creation and Workers Assistance Act was signed into law March 9, 2002. This law reinstated the suspension of the statutory period for collection, by operation of law, while the OIC is pending, for 30 calendar days following rejection of an OIC, and for the period the rejection is being considered in Appeals.
7. Cases may be encountered where prior rules were in effect. The following chart shows the changes that have occurred in this area.
If the offer has a… and was… then…
Pending date of 1/1/2000 or later Accepted prior to 12/21/2000 The CSED is extended from the pending date (TC 480) until the acceptance date (TC 781/788).
Pending date of 1/1/2000 or later Accepted between 12/21/2000 and 3/8/2002 The CSED is only extended from the pending date (TC 480) through 12/20/2000.
Pending date of 1/1/2000 or later Accepted after 3/8/2002 The CSED is extended from the pending date (TC 480) through 12/20/2000 and if the offer was still pending, it was also extended from 3/9/02 until the date of acceptance (TC 780).
Pending date of 1/1/2000 or later Rejected and taxpayer does not appeal The CSED is extended from the pending date (TC 480) until 30 calendar days after the rejection letter is issued (TC 481), excluding any portion of that period which falls between 12/21/2000 and 3/8/2002.
Note:
As of 2/2/2004, the AOIC system automatically 30 days to the date of the TC 481 on rejected not Appealed offer closures prior to transmission to master file. Appealed rejections carry the Appeals rejection date.
Pending date of 1/1/2000 or later Rejected and sustained in Appeals The CSED is extended from the pending date (TC 480) until the date that Appeals issues a decision letter (TC 481), excluding any portion of that period which falls between 12/21/2000 and 3/8/2002.
Pending date prior to 1/1/2000 Accepted prior to 1/1/2000 The CSED is extended from the pending date (TC 480) until all payment installments are made (TC 780) plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later.
Pending date prior to 1/1/2000 Accepted after 12/31/1999 but prior to 12/21/2000 The CSED is extended from the pending date (TC 480) through 12/31/99 plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later. If the offer was still pending on 1/1/2000, the CSED would also be extended from that date until the date of acceptance (TC 780).
Pending date prior to 1/1/2000 Accepted after 12/20/2000 The CSED is extended from the pending date (TC 480) through 12/31/99 plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later. In addition, the CSED is extended from 1/1/2000 through 12/20/2000. However, the CSED would not be extended from 12/21/2000 until 3/8/2002. If the offer was still pending on 3/9/2002 the CSED would also be extended from that date until it was accepted (TC 780).
Pending date prior to 1/1/2000 Rejected prior to 1/1/2000 The CSED is extended from the pending date (TC 480) until the rejection date (TC 481) plus 1 year. The CSED cannot be extended beyond 12/31/2002 or the original CSED date, whichever is later.
Pending date prior to 1/1/2000 Rejected 1/1/2000 or later The CSED is extended from the pending date (TC 480) until 12/31/1999 plus 1 year. The CSED cannot be extended beyond 12/31/2002. In addition, the CSED is extended from 1/1/2000 until 12/20/2000 or the rejection date (TC 481) plus 30 calendar days, whichever is earlier, and from 3/9/2002 until the rejection date (TC 481) plus 30 calendar days.
8. If only one party to a joint assessment files an OIC, then the statute is suspended just for that person. The appropriate CSED suspension code must be input on IDRS to identify the specific taxpayer for which the offer applies. They are described below.
• P = Primary
• S = Secondary
• B = Both
5.8.10.8 (09-23-2008)
Indicators of Practitioner Fraud
1. During the verification of financial statements, employees should always be aware of any indications that a practitioner violated the duties relating to practice before the IRS (Circular No. 230 Sections 10.20 to 10.23) or engaged in incompetent or disreputable conduct (Circular No. 230 Section 10.51) relating to OIC. Also, be aware of indicators of fraud. A referral to the Office of Professional Responsibility (OPR) may be appropriate. Some examples of those indicators are:
A. Failure to exercise due diligence. This is conduct that shows that the practitioner did not act consistently with the affirmative duties requiring a thorough effort on the taxpayer's behalf.
B. Deceptive advertising with respect to offers (such as unqualified promises of settlement, or "pennies on the dollar" ).
2. Section 822 of the American Jobs Creation Act of 2004, PL. 108-357, 118 Stat. 1418, expands the sanctions that the Secretary may impose on representatives to include both censure and monetary penalties. If the employee is acting on behalf of an employer or other entity, the Secretary may impose a monetary penalty on the employer or other entity if it knew, or reasonably should have known, of the conduct.
3. A referral should also be made if the employee becomes aware that a suspended or disbarred practitioner is practicing or attempting to practice before the IRS, or when it is noted that an unenrolled return preparer has been added to an otherwise valid Form 2848, Power of Attorney and Declaration of Representative , to attempt to have this person represent the taxpayer before the IRS during the course of the offer investigation.
Note:
The referral process is required by Section § 10.53(a) and 10.53(b) of Circular No. 230.
4. Employees should also report suspected violations of 18, U.S.C. § 207, Post Employment Conflicts of Interest (Circular No. 230, Section 10.25), to TIGTA or the Associate chief counsel (General Legal Services).
5.8.10.8.1 (09-23-2008)
The Role of the Office of Professional Responsibility
1. Under the authority provided by 31 U.S.C. § 330 and 31 CFR § 10, which is published asTreasury Department Circular No. 230 "Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service" (Revised 6/20/2005), OPR renders decisions on applications for enrollment to practice, makes inquiries into matters under its jurisdiction, and institutes disciplinary proceedings against tax practitioners who are found to have violated any part of Circular No. 230.
5.8.10.8.2 (09-23-2008)
Badges of Tax Practitioner Abuse in the Offer in Compromise Program
1. A pattern of inappropriate conduct is a factor that the OPR will consider in determining whether to bring disciplinary action against a practitioner under Circular No. 230.
2. Below are some indicators of abuse by practitioners.
A. Badge of Abuse #1 — Establishing a pattern on several Offer in Compromise investigations to influence the case disposition or Service employee to obtain the desired results by:
• Using abusive language
• Threatening claims of misconduct (e.g., Section 1203 of the RRA)
• Making false claims of misconduct
• Making false accusations
• Verbal/Physical threats or assaults
• Offering a bribe (e.g., offering gifts or other things of value)
Note:
Verbal and/or physical threats/assaults should be referred directly to the local TIGTA office or by calling the TIGTA National Hotline at 1–800–366–4484 or 1–800–589–3718 after hours.
B. Badge of Abuse #2 — Establishing a pattern on several OIC cases in which investigations are delayed by the practitioner performing one or several of the following actions:
• Missing appointments
• Canceling appointments at the last moment with no good cause provided
• Agreeing to provide requested documentation and/or information and then refusing to follow through, hindering the ability of the employee to complete the investigation of the offer
• Providing partial information requiring repeated call backs/correspondence and delays.
Note:
IRM 1.25.1.3 provides that a referral must clearly document all case actions leading to the request for information/documents/substantiation, and the practitioner's failure to comply. This set of facts may also support a referral under Section 10.22 (Diligence as to accuracy) and Section 10.23 (Prompt disposition of pending matters) of Circular 230. In the event that a practitioner refused to provide documentation on grounds of privilege, the Office of Chief Counsel should be consulted.
C. Badge of Abuse #3 — Establishing a pattern on several offer submissions, which would include significant omissions, or significant and unreasonable discounts on a number of assets. The information provided must be shown to be materially misrepresented, not merely a simple error. The omissions or material misrepresentations could include, but are not limited to, the following:
• Assets are omitted
• Listed assets are undervalued
• Understating the taxpayer's income
• Over stating the taxpayer's expenses
• CIS reflects a large number of claimed dependents
• CIS reflects similar dollar amounts in both checking and savings accounts
• CIS reflects no available credit, including credit cards
• CIS reflects omissions of assets
• CIS shows similar listings for monthly income and expenses (e.g. same low wages, same child care expenses)
3. The badges of practitioner abuse may also be indicators of potential fraud. The inappropriate misconduct should be discussed with your Fraud Technical Advisor (FTA) if appropriate. If a decision is made to refer the practitioner to TIGTA and/or the Fraud program for potential criminal sanctions, these actions must be clearly documented in the OPR referral.
5.8.10.8.3 (09-23-2008)
Referring Tax Practitioner Abuse to the Office of Professional Responsibility
1. Employees should be alert to the patterns and/or trends of inappropriate conduct as discussed in IRM 5.8.10.8.2 above. When patterns and/or trends are identified through OIC's submitted by a tax practitioner, or when reported to an employee by any other person other than an officer or employee of the Service, the employee should complete and submit Form 8484, Report of Suspected Practitioner Misconduct and Report of Appraiser Penalty, to the OPR, and refer the suspected practitioner misconduct for appropriate disciplinary action.
2. Circular No. 230, Section 10.53 states a referral should include all of the basic information, as well as the reasons supporting the Service employee's belief that the information submitted by the practitioner was below the expected standard.
3. Mail or fax the Form 8484, the accompanying narrative, and any other supporting documents to:
Office of Professional Responsibility
SE:OPR
Attn: Misconduct Reports Desk
1111 Constitution Ave, NW
Washington, DC 20224
FAX: (202) 622–2207
4. Additional information about reporting suspected practitioner misconduct may be found on the OPR Intranet Website at http://nhq.no.irs.gov/OPR/ or go to irweb at irs.gov. OPR has established an e-mail address to answer questions about Circular No. 230 issues at OPR@irs.gov.
5.8.10.8.4 (09-23-2008)
Preparation of Form 8484, Report of Suspected Practitioner Misconduct and Report of Appraiser Penalty to the Office of Professional Responsibility (OPR)
1. Part A – Practitioner Information
Practitioner information must include the practitioner's name, mailing address, telephone number, fax number, social security number, and CAF number. Indicate whether the practitioner is an attorney, certified public accountant, enrolled agent, or enrolled actuary.
2. Part B – Evidence of Practice before the IRS
If available, attach a copy of the Form 2848, Power of Attorney and Declaration of Representative, or an IDRS CAF printout to the Form 8484. If neither a copy of the Form 2848 nor a CAF printout is available, but the employee has personal knowledge of the practice, provide the following statement, "I dealt with this practitioner during (year) regarding a collection matter. The Form 2848 was not put on the CAF and I do not have access to the closed case file." OPR must be able to accurately identify and locate the tax practitioner in order to process the referral and establish proof of practice before the Internal Revenue Service.
3. Part C – Explanation of Suspected Misconduct
Complete and attach a narrative to the Form 8484. The narrative should be detailed enough to allow the OPR to give the practitioner fair notice of the suspected misconduct. It should list all significant events that illustrate the inappropriate conduct in chronological order, explain how the conduct impacts on the administration of the tax laws, as well as any other supporting information that will establish a pattern of abuse. It should include appropriate quotations from the case history that would support the alleged misconduct. If applicable, hand-written material should be transcribed. The narrative should be specific and should include: who, what, when, where, and why.
4. Part D – Contact Person and Address
The contact person is not necessarily the person with first-hand knowledge of the suspected misconduct. Rather, the contact person may be an Area employee responsible for collecting misconduct reports and submitting them to the OPR. OPR will direct questions concerning the referral to the contact person.
5. Part E – Management Approval
While OPR does not require any particular level of management approval that is required, referrals made by OIC employees, the referral should be reviewed and approved by field Group Managers or Offer Examiner Unit Managers (COIC) before documents are sent to the OPR.
6. Part F – Office of Professional Responsibility (OPR) Acknowledgement of Report
Upon receiving the Form 8484 and the corresponding narrative, OPR will complete Part F and return a copy to the contact person.
5.8.10.9 (09-23-2008)
Indicators of Taxpayer Fraud
1. The following are potential fraud warning signs most identifiable during an interview:
A. Failing to keep proper books and records in a business or profession.
B. No records, poorly kept records, or attempts to falsify or alter records.
C. Destroying books and records without plausible explanation or refusal to make certain records available.
D. Extent of taxpayer's control of sales and receipts and the apparent unwillingness to delegate this function to employees.
E. Engaging in illegal activities.
F. Personal living standard and asset acquisition is inconsistent with reported income.
G. Indications that valuable assets belonging to the taxpayer are being acquired and held in the name of others.
H. Self-serving statements with no documented proof.
I. Repeated procrastination on the part of the taxpayer in making and keeping appointments.
J. Hasty agreement to adjust and undue concern about immediate closing of the case may indicate a more thorough examination may be necessary.
2. The following are potential fraud warning signs most identifiable during verification of the financial statement:
A. Uncooperative attitude displayed by:
• Not providing requested information
• Refusal to make certain records available
• Not furnishing adequate explanations for discrepancies or questionable items
B. Trying to conceal a pertinent fact or record.
C. Failing to deposit all receipts to the business account.
D. Use of nominees or false names.
E. Unusual depletion of assets shortly before filing an offer.
F. Inflated salaries, payment of bonuses or cash withdrawals by officers, directors, shareholders, or other insiders.
G. Transfers of property to insiders, shareholders, or relatives shortly before filing the offer.
H. Payoff of loans to directors, officers, shareholders, relatives, or other insiders shortly before filing of the offer.
I. Complicated corporate structures and relationships.
J. Undervaluing of assets.
K. Overstatement of liabilities.
3. The fraud indicators below can fall into any of the categories in paragraphs (1) and (2) above:
A. Making false, misleading, and inconsistent statements.
B. Using currency instead of bank accounts or making large expenditures in currency.
C. Concealment of bank accounts and other property.
4. If indications of fraud are identified, follow established procedures for preparing a referral to Criminal Investigation and suspend the offer investigation in the following manner:
If Criminal Investigation… Then…
Rejects the referral Investigation of the OIC may continue.
Accepts the referral No contact will be made with the taxpayer regarding the status of the offer until Criminal Investigation informs the taxpayer of the criminal investigation and /or authorizes the OI to contact the taxpayer.
5. Once the taxpayer has been notified by CI of the pending investigation and Collection has been authorized to contact the taxpayer, the OI will advise the taxpayer of the following:
• The OIC could be returned because other investigations are pending that may affect the liability sought to be compromised or the grounds on which it was submitted
• Action on the OIC will be suspended pending the outcome of the criminal investigation
• The offer could be withdrawn.
.8.11 Effective Tax Administration
• 5.8.11.1 Overview
• 5.8.11.2 Legal Basis for Effective Tax Administration Offer
• 5.8.11.3 Initial Processing of Effective Tax Administration Offers
• 5.8.11.4 Evaluation of Offers
• 5.8.11.5 Documentation and Verification
• 5.8.11.6 Final Processing
• Exhibit 5.8.11-1 Effective Tax Administration Non-Hardship OIC Check Sheet
5.8.11.1 (09-23-2008)
Overview
1. As part of the IRS Restructuring and Reform Act of 1998 (RRA 98), Congress added section 7122(c) to the Internal Revenue Code. That section provides that the Service shall set forth guidelines for determining when an OIC should be accepted. Congress explained that these guidelines should allow the Service to consider:
• Hardship,
• Public policy, and
• Equity
Treasury Regulation § 301.7122-1 authorizes the Service to consider OIC's raising these issues. These offers are called Effective Tax Administration (ETA) offers.
2. The availability of an ETA offer encourages taxpayers to comply with the tax laws because taxpayers will believe the tax laws are fair and equitable. The ETA offer allows for situations where tax liabilities should not be collected even though:
• The tax is legally owed, and
• The taxpayer has the ability to pay it in full
3. No compromise to promote ETA may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.
4. If a taxpayer submits an ETA offer, first investigate the offer for:
• DATL, and/or
• DATC
5. An ETA offer can only be considered when the Service has determined that the taxpayer does not qualify for consideration under DATL and/or DATC.
6. The taxpayer must include the CIS (Form 433-A and/or Form 433-B) when submitting an offer requesting consideration under ETA.
7. Economic hardship standard of § 301.6343-1 specifically applies only to individuals.
5.8.11.2 (09-23-2008)
Legal Basis for Effective Tax Administration Offer
1. Compared to Doubt as to Collectibility (DATC)
A. In a DATC offer, the tax liability equals or exceeds the taxpayers RCP which is:
• Net equity, plus
• Future income, and
• Other components of collectibility
B. In an ETA offer the tax liability is less than the taxpayers RCP. The RCP shows the taxes owed can be collected in full either:
• In a lump sum, or
• Through an installment agreement (IA)
C. A DATC offer does not convert to an ETA offer if the OI and the taxpayer cannot agree on an acceptable offer amount.
2. Compared to Doubt as to Collectibility with Special Circumstances (DCSC)
A. Taxpayers may qualify for an ETA offer when their RCP is greater than the liability but there are economic or public policy/equity circumstances that would justify accepting the offer for an amount less than full payment.
B. Taxpayers may qualify for a DCSC offer when they cannot fully pay the tax due but have proven special circumstances that warrant acceptance for less than RCP. Factors establishing special circumstances under DATC are the same as those considered under ETA. Refer to IRM 5.8.4.3.
Example:
The taxpayer owes $ 20,000. The RCP is $ 25,000. The taxpayer could have an offer accepted for less than the total liability of $ 20,000 under the ETA provisions if economic hardship, or public policy/equity issues exist which would support an acceptance recommendation.
Example:
The taxpayer owes $20,000. However his RCP is $15,000. The offer does not meet the legal basis for an ETA because the RCP is lower than the liability. However, applying the same factors of economic hardship, or public policy/equity, an offer could be accepted for less than the RCP ($15,000) under DCSC provisions.
3. Compared to Doubt as to Liability
An offer can be considered under ETA provisions only when there are no DATL issues.
4. In reaching these determinations:
If… Then…
The Service determines that there is doubt as to the amount of the liability the taxpayer owes Taxpayer is not eligible for ETA consideration. The OIC is considered based on the DATL issue.
The Service determines that the taxpayers equity in assets plus future income (RCP) does not exceed the amount of the tax liability Taxpayer is not eligible for an ETA offer. The OIC is considered based on DATC. However, hardship or public policy/equity may be present in the case to allow consideration under DCSC.
The Service determines the taxpayer is not eligible for compromise based on DATL or DATC and the taxpayer can demonstrate that collection of the tax liability in full would create economic hardship, or demonstrate that there is compelling public policy or equity issues in the case that would provide sufficient basis for compromise The taxpayer would be eligible for ETA consideration.
5. Before we can consider an OIC based on economic hardship or public policy/equity considerations, three factors must exist:
A. A liability has been or will be assessed against taxpayer(s) before acceptance of the OIC
B. The sum of net equity in assets, future income, and the other components of collectibility making up RCP must be greater than the amount owed.
C. Exceptional circumstances exist, such as the collection of the tax would create an economic hardship, or there is compelling public policy or equity considerations that provide sufficient basis for compromise.
5.8.11.2.1 (09-23-2008)
Economic Hardship
1. When a taxpayers liability can be collected in full but collection would create an economic hardship, an ETA offer based on economic hardship can be considered.
2. The definition of economic hardship as it applies to ETA offers is derived from Treasury Regulations § 301.6343-1. Economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses. The determination of a reasonable amount for basic living expenses will be made by the Commissioner and will vary according to the unique circumstances of the individual taxpayer. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.
Note:
Because economic hardship is defined as the inability to meet reasonable basic living expenses, it applies only to individuals (including sole proprietorship entities). Compromise on economic hardship grounds is not available to corporations, partnerships, or other non-individual entities.
3. The taxpayers financial information and special circumstances must be examined to determine if they qualify for an ETA offer based on economic hardship. Financial analysis includes reviewing basic living expenses as well as other considerations.
4. The taxpayer’s income and basic living expenses must be considered to determine if the claim for economic hardship should be accepted. Basic living expenses are those expenses that provide for health, welfare, and production of income of the taxpayer and the taxpayer’s family. National and local standard expense amounts are designed to provide accuracy and consistency in determining taxpayer’s basic living expenses. These standards are guidelines and if it is determined that a standard amount is inadequate to provide for a specific taxpayer’s basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file.
5. In addition to the basic living expenses, other factors to consider that impact upon the taxpayers financial condition include:
• The taxpayers age and employment status,
• Number, age, and health of the taxpayers dependents,
• Cost of living in the area the taxpayer resides, and
• Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster.
Note:
This list is not all-inclusive. Other factors may be considered in making an economic hardship determination.
6. Factors that support an economic hardship determination may include:
1. The taxpayer is incapable of earning a living because of a long term illness, medical condition or disability, and it is reasonably foreseeable that the financial resources will be exhausted providing for care and support during the course of the condition.
2. The taxpayer may have a set monthly income and no other means of support and the income is exhausted each month in providing for the care of dependents.
3. The taxpayer has assets, but is unable to borrow against the equity in those assets, and liquidation to pay the outstanding tax liabilitie(s) would render the taxpayer unable to meet basic living expenses.
Note:
These factors are representative of situations the Service regularly encounters when working with taxpayers to resolve delinquent accounts. They are not intended to provide an exhaustive list of the types of cases that can be compromised based on economic hardship.
7. The following examples illustrate the types of cases that may be compromised under the economic hardship standard.
Example:
The taxpayer has assets sufficient to satisfy the tax liability and provides full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. The taxpayers overall compliance history does not weigh against compromise.
Example:
The taxpayer is retired and the only income is from a pension. The only asset is a retirement account and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without adequate means to provide for basic living expenses. The taxpayers overall compliance history does not weigh against compromise.
Example:
The taxpayer is disabled and lives on a fixed income that will not, after allowance of adequate basic living expenses, permit full payment of the liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate for a disability. The equity in the house is sufficient to permit payment of the liability owed. However, because of the disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayers home has been specially equipped to accommodate the disability, forced sale of the taxpayers residence would create severe adverse consequences for the taxpayer, making such a sale unlikely. The taxpayers overall compliance history does not weigh against compromise.
8. The economic hardship standard authorizes compromise regardless of the cause of the liability, provided compromise does not undermine compliance by other taxpayers.
Example:
The taxpayer submitted an ETA offer based on economic hardship. The financial statement appears to support the offer. When a research of the county property records is conducted, it is noted that the home was transferred to a child for $100 plus love and affection. The transfer of the home was made after the tax was assessed. It is confirmed that deliberate actions were taken to avoid the payment of tax; therefore, the offer should not be accepted.
9. In economic hardship cases, an acceptable offer amount is determined by analyzing the financial information, supporting documentation, and the hardship that would be created if certain assets, or a portion of certain assets, were used to pay the liability.
Example:
The taxpayer was diagnosed with an illness that eventually will hinder any ability to work. Although currently employed, the taxpayer will soon be forced to quit their job and will use personal funds for basic living expenses. The taxpayer owes $ 100,000 and has a reasonable collection potential of $ 150,000. An offer was submitted for $ 35,000. Through the investigation, it is determined that collecting more than $ 50,000 would cause an economic hardship for the taxpayer. A determination on economic hardship was made due to the fact the taxpayer’s reasonable living expenses, including ongoing medical costs will exceed their income once the taxpayer is unemployed. The taxpayer is advised to raise the offer to $ 50,000 since it is the amount the Service can collect without creating an economic hardship.
10. The existence of economic hardship criteria does not dictate that an OIC must be accepted. An acceptable offer amount must still be determined based on a full financial analysis and negotiation with the taxpayer. When hardship criteria are identified but the taxpayer does not offer an acceptable amount, the OIC should not be recommended for acceptance.
5.8.11.2.2 (09-23-2008)
Public Policy or Equity Grounds
1. Acceptance of an OIC based on considerations of equity and public policy will generally be based on a combination of facts and circumstances. It is important that appropriate cases are identified and forwarded to the NEH-ETA group in Austin, TX for consideration. Generally, the circumstances should be such that acceptance of the offer is fair and equitable and promotes ETA.
2. Where there is no DATL, no DATC, and the liability could be collected in full without causing economic hardship, the Service may compromise to promote ETA where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for accepting less than full payment. Compromise is authorized on this basis only where, due to exceptional circumstances, collection in full would undermine public confidence that the tax laws are being administered in a fair and equitable manner. Because the Service assumes that Congress imposes tax liabilities only where it determines it is fair to do so, compromise on these grounds will be rare.
3. The Service recognizes that compromise on these grounds will often raise the issue of disparate treatment of taxpayers who can pay in full and whose liabilities arose under substantially similar circumstances. Taxpayers seeking compromise on this basis bear the burden of demonstrating circumstances that are compelling enough to justify compromise notwithstanding this inherent inequity.
4. All non-hardship ETA offers should meet the following requirements:
• The taxpayer has remained in compliance since incurring the liability and overall their compliance history does not weigh against compromise;
• The taxpayer must have acted reasonably and responsibly in the situation giving rise to the liabilities; and
• The circumstances of the case must be such that other taxpayers would view the compromise as a fair and equitable result. For example, it should not appear to other taxpayers that the result of the compromise places the taxpayer in a better position than they would occupy had they timely and fully met their obligations.
Note:
Generally, tax liabilities associated with the taxpayer’s participation in abusive tax avoidance transactions will not be compromised under these procedures.
5.8.11.2.2.1 (09-23-2008)
Public Policy or Equity Compelling Factors
1. Compromise may promote ETA where a taxpayer’s liability was directly caused by a processing error on the part of the Service and would otherwise have been avoided. Compromise to remedy the mistake may be appropriate to the extent correction of the mistake (such as through abatements, reversal of credits, etc) does not put the taxpayer back in the same position that he or she would have occupied if the error had not been made.
Example:
The taxpayer is a closely-held corporation. The IRS audited the taxpayer’s tax returns for 2000, 2001, and 2002 and determined that the taxpayer was a personal holding company liable for personal holding company tax. The taxpayer agreed to immediate assessment of the tax, but attempted to take advantage of the deduction for deficiency dividends under section 547. Although the taxpayer made the distributions necessary to qualify for the deduction, the IRS made several errors in executing the required agreements and other paperwork. As a result, the taxpayer could not avail itself of the section 547 deduction. Under the statute, applicable regulations, and pertinent case law, there is no means by which the mistakes can be corrected to allow the taxpayer to take advantage of the deduction. There is documentary evidence that all of the required Service officials intended to complete the processing of the agreements and that, but for their failure to do so, the taxpayer would have qualified for the deduction. The taxpayer has no prior history of noncompliance.
Note:
The fact that the tax liability was caused solely by an error on the part of the Service supports the determination that collection in full would cause other taxpayers to question the fairness of the tax system. Furthermore, the policies underlying the imposition of the personal holding company tax and the rules regarding deficiency deductions are not undermined by compromise under these circumstances. The Service may consider accepting a compromise that would reflect the amount the taxpayer would now owe had the Service not made an error.
2. Compromise may promote ETA where the taxpayer incurred the liability because of having followed erroneous advice or instructions from the Service. The advice or instructions caused the taxpayer to incur a tax liability that would not otherwise have been incurred.
Example:
The taxpayer is a salaried sales manager at a department store who has been able to place $ 2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that a higher rate of interest can be earned on his IRA savings by moving the savings from a Money Management account to a Certificate of Deposit at a different financial institution. Prior to transferring the savings, the taxpayer submits an E-mail inquiry to the IRS at its Web Page, requesting information about the steps needed to preserve the tax benefits currently enjoyed and to avoid any penalty. The IRS responds in an answering E-mail that the taxpayer may withdraw the IRA savings from the neighborhood bank, but it must be redeposited in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and is now liable for additional taxes, penalties and interest for not redepositing the amount within 60 days. Had the advice provided been accurate, the taxpayer would have redeposited the funds in a timely manner. The taxpayer is able to provide documentation that demonstrates the taxpayer was provided incorrect information. . The taxpayers overall compliance history does not weigh against compromise.
Note:
Because the tax liability in this example was caused by relying on the Service's erroneous statement, and the taxpayer clearly could have avoided the liability had the Service given correct information, it is reasonable to conclude that collection in full would cause other taxpayers to question the fairness of the tax system. The Service may consider accepting a compromise that would reflect the amount the taxpayer would now owe had the Service not made an error.
3. If actions or inaction of the Service unreasonably delayed resolution of the taxpayer’s case and interest or penalty abatement is not available, compromise may still be warranted if the circumstances are sufficiently compelling. An OIC should not be accepted under ETA provisions, in lieu of abatement under IRC Section 6404(e), when appropriate.
4. These provisions may allow for relief if the taxpayer alleges that the criminal or fraudulent act of a third party is directly responsible for the tax liability. The taxpayer should be able to provide supporting documentation that the act occurred and was the direct cause of the delinquency. The taxpayer should also be able to show that the nature of the crime was such that even a prudent, responsible business owner would have been misled to believe the tax obligations were properly addressed. There should be evidence that the funds required for the payment of the taxes were segregated or otherwise identified and were available to pay the taxes in a timely manner. Compromise would promote ETA in such situations only where the failure to comply is directly attributable to intervention by a third party and where the taxpayer has made every effort to comply and taken reasonable precautions to prevent the criminal or fraudulent acts at issue. The taxpayer’s efforts to mitigate the damages by pursuing collection from the third party should also be considered. Compromise for this reason would only promote ETA where there is a very close nexus between the actions at issue and the failure to comply.
Example:
The taxpayer was using a payroll service provider (PSP) who deducted all tax payments from the taxpayer’s bank account, yet did not remit them to the Service. The taxpayer took all reasonable precautions to prevent this from occurring. The PSP also falsified documents to conceal the embezzlement. Since the abatement of interest is not available under 6404(e) on employment taxes, an offer in the amount of the tax balance may be accepted. The taxpayer’s overall compliance history does not weigh against acceptance of the offer.
Note:
The Service will not compromise on public policy or equity grounds solely on the argument that the acts of a third party caused the unpaid tax liability. Third parties include: Representatives, Partners, Agent, or Employee.
The actions of the third party may be part of a fact pattern that, viewed as a whole, present compelling public policy or equity concerns justifying compromise. As with all compromises based on public policy or equity, the taxpayer’s situations must be compelling enough to justify compromise even though similarly situated taxpayers may have paid in full.
This section does not apply to TEFRA liabilities. Refer to Example 2 under paragraph (7) in this subsection for discussion of TEFRA cases.
5. Compromise may be appropriate where there is clear and convincing evidence that rejecting the OIC, and pursuing other collection alternatives, would have a significantly negative impact on the community in which the taxpayer lives or does business, i.e. does the taxpayer provide essential services to the community that would be lost if the tax liability was collected in full? The taxpayer should be asked to provide documentation that full payment of the tax liabilities would likely result in the inability of the business to provide these essential services. The businesses that would typically qualify under this provision are not for profit, charitable, or exempt organizations.
Example:
A non-profit organization provides quality health and human services to indigent, low-income and under-served residents in two counties. Rejecting the offer and pursuing collection action for full payment would result in forcing the center to choose between paying the delinquent taxes or providing competent medical care.
After conducting a thorough review of the facts; it was determined that services would not be provided to the community if the taxpayer was no longer able to operate.
Since the taxpayer took all reasonable actions to prevent the delinquency from occurring and the taxpayer’s overall compliance history does not weigh against acceptance of the offer, an offer amount for less than the remaining tax balance may be considered.
6. Compromise may promote ETA where the taxpayer was incapacitated and thus unable to comply with the tax laws.
Example:
In October 2003, the taxpayer developed a serious illness that resulted in almost continuous hospitalization for a number of years. The medical condition was such that during this period, the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer’s health has now improved and has promptly begun to attend to tax matters. The taxpayer discovered that the IRS prepared a substitute for return for the 2003 tax year based on information documents it had received and assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill was more than three times the original tax liability. The taxpayer’s overall compliance history does not weigh against compromise.
Note:
In this situation, the Service should first work with the taxpayer and attempt to prepare an accurate return for the 2003 tax year and adjust the taxpayers account accordingly. The Service should also work with the taxpayer to secure the filing of any missing returns. Following that, the Service should consider accepting a compromise that would approximate the amount the taxpayer would have been assessed had he been able to comply with his filing and payment responsibilities in a timely manner. Such a compromise would be fair and equitable to the taxpayer and, under these circumstances, would advance the public policy of voluntary compliance with the tax laws.
Note:
It would not promote ETA to compromise with the taxpayer, if the investigation revealed that the taxpayer was able to attend to financial matters during the time of the illness. For example, assume the taxpayer, paid all other bills and continued to successfully operate a business during the illness. Under such circumstances, compromise would not promote ETA, and could serve to undermine compliance by other taxpayers.
7. Compromise on public policy or equity grounds is not authorized based solely on a taxpayer’s belief that a provision of the tax law is itself unfair. Where a taxpayer is clearly liable for taxes, penalties, or interest due to operation of law, a finding that the law is unfair would undermine the will of Congress in imposing liability under those circumstances.
Example:
The taxpayer argues that collection would be inequitable because the liability resulted from a discharge of indebtedness rather than from wages. Because Congress has clearly stated that a discharge of indebtedness results in taxable income to the taxpayer it would not promote ETA to compromise on these grounds. See Internal Revenue Code (IRC) 61(a)(12).
Example:
In 2000, the taxpayer invested in a nationally marketed partnership which promised the taxpayer tax benefits far exceeding the amount of the investment. Immediately upon investing, the taxpayer claimed investment tax credits that significantly reduced or eliminated the tax liabilities for the years 1997 through 2000. In 2001, the IRS opened an audit of the partnership under the provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). After issuance of the Final Partnership Administrative Adjustment (FPAA), but prior to any proceedings in Tax Court, the IRS made a global settlement offer in which it offered to concede a substantial portion of the interest and penalties that could be expected to be assessed if the IRS's determinations were upheld by the court. The taxpayer rejected the settlement offer. After several years of litigation, the partnership level proceeding eventually ended in Tax Court decisions upholding the vast majority of the deficiencies asserted in the FPAA on the grounds that the partnership's activities lacked economic substance. The taxpayer has now offered to compromise all the penalties and interest on terms more favorable than those contained in the prior settlement offer, arguing that TEFRA is unfair and that the liabilities accrued in large part due to the actions of the Tax Matters Partner (TMP) during the audit and litigation. Neither the operation of the TEFRA rules nor the TMP's actions on behalf of the taxpayer provide grounds to compromise under the equity provision of 5.8.11.2.2. Compromise on those grounds would undermine the purpose of both the penalty and interest provisions at issue and the consistent settlement principles of TEFRA. Furthermore, reducing the risks of participating in tax shelters would encourage more taxpayers to run those risks, which would undermine compliance. Depending on the taxpayers particular facts and circumstances, however, compromise may be authorized on the grounds of Doubt as to Collectibility (DATC), or because collection of the full liability would cause an economic hardship within the meaning of section 5.8.11.2.1.
Note:
In both of these examples, the taxpayers are essentially claiming that Congress enacted unfair statutes and are arguing that the Service should use its compromise authority to rewrite those statutes based on a perception of unfairness. Compromise for that reason would not promote ETA. The compromise authority under Section 7122 is not so broad as to allow the Service to disregard or override the judgments of Congress.
8. There may be other circumstances involved in a case that would lead a reasonable third party to conclude that acceptance of the OIC would be fair, equitable, and promote effective tax administration. Other factors not discussed above or in the IRM, may be present to support the conclusion that the case presents compelling public policy or equity considerations sufficient to justify compromise. Documentation of the presence of those factors which weigh in favor of compromise to promote effective tax administration must be thoroughly documented in the case file. Because these cases have the potential to establish new policy for the IRS in this area, offers recommended for acceptance under this paragraph should be routed through the National OIC Program Manager in order to obtain concurrence of the Director, Collection. The Office of Appeals should establish within their IRM a level of concurrence commensurate with the Director of Collection so the issue of establishing new policy is addressed.
9. Once it has been determined that a case raises compelling public policy or equity considerations, Refer to IRM 5.8.11.4.3, Determining Acceptable Offer Amount.
5.8.11.2.3 (09-23-2008)
Compromise Would Not Undermine Compliance With Tax Laws
1. Compromise under the ETA economic hardship or non-economic hardship provisions are permissible if acceptance does not undermine compliance. The public should not perceive that the taxpayer whose offer is accepted benefited by not complying with the tax laws.
2. Factors supporting (but not conclusive of), a determination that compromise would undermine compliance includes; but is not limited to:
• The taxpayer has an overall history of noncompliance with the filing and payment requirements of the Internal Revenue Code
• The taxpayer has taken deliberate actions to avoid the payment of taxes.
• The taxpayer has encouraged others to refuse to comply with the tax laws.
Note:
There may be other situations where compromise would be undermined.
5.8.11.3 (09-23-2008)
Initial Processing of Effective Tax Administration Offers
1. Offers submitted on the grounds of ETA will be worked either by the COIC units or field specialists.
2. Taxpayers seeking a compromise under ETA will submit the Form 656 selecting ETA along with the CIS (Form 433-A and/or Form 433-B). Taxpayers must complete Section 9 (or attach a separate statement) and document their special circumstances. The documentation should explain why collection of the liability in full would cause economic hardship, or the public policy/equity issues present that would justify compromising the liability. An attachment can be provided if additional space is needed. If the taxpayer does not submit a financial statement with the offer, normal correspondence activity should be undertaken to secure the financial statement, and any other data determined necessary for evaluation of the offer. If the taxpayer fails to provide the requested information, normal "return" procedures should be followed since ETA criteria can not be considered until all other bases have been addressed.
3. Like all other offers, the Service will only consider an ETA offer when taxpayers have met the processability criteria (e.g. paid the application fee or filed Form 656-A, submitted the required initial TIPRA payment with the offer or filed Form 656-A, and are not a debtor in bankruptcy.
Note:
Follow IRM 5.8.3 for initial processing of offers.
4. Elements necessary to perfect an OIC also apply to ETA offers. The requirement to submit complete financial statements for ETA offers is the same as for DATC offers.
Note:
Follow IRM 5.8.3.11 for procedures on perfecting offers.
5. ETA offers are initially added to AOIC as DATC offers. Once the offer investigation reveals that the taxpayers assets and future income exceed the tax liability thereby indicating no basis for a DATC, the offer should be considered under the ETA provisions. AOIC must be updated to reflect the correct basis for the compromise (e.g. ETA). Refer to IRM 5.8.11.6 below for a full discussion of requirements to update AOIC prior to final processing of ETA and DCSC offers.
5.8.11.4 (09-23-2008)
Evaluation of Offers
1. ETA offers cannot be considered if the taxpayer qualifies for DATC or DATL.
Note:
Follow IRM 5.8.4, Evaluation of Offers, for DATC issues and determining RCP.
2. If the assets and future income do not exceed the tax liability and special circumstances exist, the taxpayers offer must be considered under DCSC. The taxpayers may have checked the ETA box and given an explanation of circumstance on the Form 656, however unless they have the ability to full pay the liability, the offer would not meet the legal standard for ETA consideration. The offer must be considered under DCSC.
3. If the taxpayer submits an offer based on DATC but collection potential exceeds the liability and there are special circumstances, the offer should be considered on the basis of ETA. The employee that investigates the OIC is required to address any potential special circumstances during first contact with the taxpayer or POA. This will be accomplished in conjunction with the current requirement to verify receipt of Publication 1 and Publication 594 and must be documented in the OIC case history. This requirement does not apply where the only taxpayer contact is through correspondence.
4. If the offer is rejected, the narrative should describe the considerations of both bases. If the offer is accepted the offer report must reflect the basis upon which the offer is accepted.
5.8.11.4.1 (09-23-2008)
Public Policy/Equity Processing
1. OIC's submitted under the Public Policy/Equity provisions are authorized under these guidelines only when there are exceptional circumstances. While compromise under these guidelines is expected to be rare, appropriate recommendations for acceptance will be made.
2. In order to develop consistency in the interpretation and application of Treasury Regulations (TD 9007) published on July 22, 2002, a Specialty Group has been established in Austin, TX to work these offers.
3. Only after consideration has been given to all other potential bases for acceptance (e.g. DATL, DATC, DCSC, and/or ETA based on economic hardship) will ETA-Public Policy/Equity be considered. Therefore, all cases must have been completely developed under all other bases before transfer will be accepted by the Austin Group.
4. After all other potential bases have been considered; complete Exhibit 5.8.11-1 "Non-Economic Hardship Effective Tax Administration (NEH-ETA) OIC Check Sheet." The check sheet must be completed and sent to the Austin group before any cases are transferred. The purpose of the check sheet is to document that all issues other than Public Policy/Equity ETA have been evaluated and to provide information on the non-economic ETA factors present.
5. The completed check sheet and a copy of the entire Form 656 should be faxed to offer Group Manager in Austin. The sender should include a copy of any letter or document presented by the taxpayer to support the special circumstances. The group will evaluate the information and respond to the sender within 10 workdays. This response will either be an explanation of why the taxpayers offer cannot be investigated under Public Policy/Equity ETA provisions, or a request to transfer the offer to the Austin group.
6. If the Austin group determines that the offer cannot be investigated under the Public Policy/Equity ETA provisions, the information will be faxed back to the sender who will be responsible for issuing the proposed rejection letter to the taxpayer, covering all factors considered.
7. If the Austin group determines that the information presented requires further analysis, the sender will be notified to transfer the case to the Austin group. Referrals of cases to the ETA group should include the OI’s recommendation as to what would constitute an acceptable compromise amount.
• The sender should contact the taxpayer by telephone and advise the taxpayer of the results of the collectibility and liability portions of the offer investigation prior to transfer. If the taxpayer cannot be reached by phone then a standard transfer letter should be sent.
• The file should be sent by overnight mail on a Form 3210 to the Austin group.
• At the time of mailing, the case should be transferred on AOIC to Area 05 (Gulf States).
• A history item should be added to AOIC to show the case is being sent to the Austin group, Area 05 (Gulf States).
• The Austin group will maintain the faxed copies of all check sheets received and appropriate documentation on all offers accepted for transfer. This documentation will provide a historical record to support a decision to accept or reject the offer.
Note:
The OI may also seek guidance from the Austin group on a DCSC offers that involve Public Policy/Equity issues. The guidance should be solicited by preparing the check sheet and documenting the issues involved in the case. However, these cases will not be transferred to the Austin group.
5.8.11.4.2 (09-23-2008)
Financial Statement Analysis
1. Offers submitted under ETA require the same full financial analysis as DATC offers in order to determine RCP and to determine an acceptable offer amount. Procedures for financial analysis are contained in IRM 5.8.5, Financial Analysis.
2. Once the RCP is completed, a determination can be made as to whether the OIC qualifies for consideration under ETA or DATC.
3. If the taxpayers assets and future income exceed the tax liability, the taxpayers OIC can be considered under the ETA basis.
5.8.11.4.3 (09-23-2008)
Determining an Acceptable Offer Amount
1. An acceptable offer amount, based on economic hardship, is determined by analyzing the financial information and the hardship that would be created if certain assets, or a portion of certain assets, were used to pay the liability.
Example:
The taxpayer has a $100,000 liability and a RCP of $125,000. To avoid economic hardship, it is determined that the taxpayer will need $75,000. The remaining $50,000 should be considered the acceptable offer amount.
2. In OIC's based on Public Policy/Equity, the Service would expect the taxpayer to offer an amount that is fair and equitable under the circumstances. The Service does not anticipate accepting compromises offering only nominal or token funds. Rather, the amount accepted should be determined by reference to the factors giving rise to the decision that compromise is appropriate. For example:
A. In cases compromised under IRM 5.8.11.2.2.1 above, paragraphs 1, 2, and 3, an acceptable offer would be expected to result in the taxpayer being placed in the same position as if the error or delay on the part of the Service had not occurred.
B. In cases compromised under IRM 5.8.11.2.2.1 above. paragraphs 4 and 5, the taxpayer’s financial condition may be a relevant consideration, after considering all other facts and circumstances. The justification for a particular amount to be accepted should be clearly documented.
C. When compromising based on IRM 5.8.11.2.2.1 paragraphs 4, 5, and 8, in business cases in particular, the Service must be cautious to avoid providing financial advantages through the forgiveness of tax debt. This may create the appearance that the delinquent business has been able to profit from its failure to pay, giving it a competitive advantage over other, fully compliant businesses. For this reason, the Service will generally insist that a compromise with an operating business provide for payment of the full amount of tax, exclusive of interest and penalties.
3. Generally, it is the responsibility of the taxpayer to make decisions and take the appropriate actions needed to fund the acceptable offer amount. However, due consideration of these funding options is often needed for the Service to arrive at an acceptable offer amount. For example, based on the taxpayer’s situation and geographic location, funding options may allow the taxpayer to tap into available equity without creating economic hardship. When appropriate, these options should be taken into consideration in determining an acceptable offer amount for an ETA offer based on economic hardship.
5.8.11.5 (09-23-2008)
Documentation and Verification
1. To verify the taxpayers special circumstances and support a basis of ETA:
A. Request supporting documentation of the taxpayers situation. Exercise sound judgement in determining the degree of verification necessary. For example, verification of a health problem could be a doctor’s letter or copies of medical expenses.
B. When special circumstances are found to exist, the amount offered will be less than RCP. For ETA, the RCP is always greater than the full liability. In the report narrative, explain clearly the rationale for acceptance of the amount offered. The documentation must include reasons why some or all of the equity in certain assets is not being offered, how the offer amount is being funded, and any other pertinent information that indicates how the amount offered was determined to be acceptable.
2. As is the case with all compromise determinations, referrals, and acceptance/rejection decisions, employees need to exercise good judgment. This good judgment needs to be clearly evident and articulated in the case file documentation and should be supported by the known case facts, circumstances, and supporting documents. There is no clearly defined formula to follow in ultimately making these decisions, and each case needs to be evaluated on its own particular set of facts and circumstances. Particularly in regard to acceptance/rejection decisions, the recommendation report must clearly explain the reasoning behind our actions.
5.8.11.6 (09-23-2008)
Final Processing
1. Prior to final processing, AOIC must be updated to indicate the correct basis for closing the offer. This will ensure that all final closing reports generated from AOIC reflect the correct basis. The approval levels indicated on closing reports and letters must be consistent with the basis for closure.
2. The following is a guide to these determinations:
If… And… Then…
The offer was submitted under ETA An economic hardship has been determined to exist, but the RCP is less than the liability balance due 1. Update the AOIC offer screen to indicate a "C" under the offer type.
2. Generate all closing reports with the proper approving official for DCSC.
The offer was submitted under DCSC An economic hardship has been determined to exist, and the RCP is greater than the liability balance due 3. Update AOIC offer screen to indicate "A" under offer type.
4. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under ETA The offer is being recommended for acceptance under DATC with the offer exceeding the RCP 5. AOIC offer screen does not require updating for special circumstances. The type of offer on AOIC should reflect "C" for DATC.
6. Generate closing reports with the proper approving official for DATC without special circumstances.
The offer was submitted under Doubt as to Collectibility with item 9 of Form 656 completed with circumstances that do not meet any of the elements that define economic hardship, or Public Policy/Equity criteria The offer cannot be recommended for acceptance under DATC. 7. Generate closing reports with the proper approving official for DATC without special circumstances.
8. Address in the history, why the circumstances described in item 9 do not meet defined economic hardship, or Public Policy/Equity criteria.
The offer was submitted under ETA with item 9 of Form 656 completed with circumstances that do not meet ETA criteria The taxpayer does not qualify for ETA because the RCP is less than the liability and the offer cannot be recommended for acceptance under DCSC. 9. Update AOIC offer screen to indicate a "C" under special circumstances.
10. Generate closing reports with the proper approving official for DCSC.
The offer was submitted under ETA with item 9 of the Form 656 completed with circumstances that the investigation reveals do not meet ETA criteria The offer cannot be recommended for acceptance and the RCP exceeds the liability 11. Update AOIC offer screen to indicate "A" under offer type.
12. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under ETA The special circumstances meet economic hardship, or Public Policy/Equity criteria and the RCP exceeds the tax liability. However, the offer cannot be recommended for acceptance. 13. Update AOIC offer screen to indicate "A" under offer type.
14. Generate closing reports with the proper approving official for ETA offers.
The offer was submitted under DCSC The special circumstances meet economic hardship, or Public Policy/Equity criteria and the RCP is less than the tax liability, however, the offer cannot be recommended for acceptance. Generate closing reports with the proper approving official for DCSC.
5.8.11.6.1 (09-23-2008)
Rejection/Return/Withdrawal Processing
1. The procedures in IRM 5.8.7 should be followed when processing ETA rejected, withdrawn or returned offers.
2. IRM 5.8.12 provides instructions for IAR review of rejected offers.
3. See IRM 1.2.44.2 – Delegation Order No. 5-1 for the official with delegated authority based on ETA. The delegated official’s signature is required on the Form 1271 and the closing letter
5.8.11.6.2 (09-23-2008)
Acceptance Processing
1. The procedures in IRM 5.8.8, Acceptance Processing, should be followed when processing accepted ETA offers.
2. Area Counsel’s opinion is required on ETA offers where the unpaid amount of tax assessed (including any interest, addition to the tax, or assessable penalty) is $50,000 or more.
3. See IRM 1.2.44.2 – Delegation Order No. 5-1 for the official with delegated authority based on ETA. The delegated official’s signature is required on the Form 1271 and the closing letter
Exhibit 5.8.11-1 (09-23-2008)
Effective Tax Administration Non-Hardship OIC Check Sheet
This is a two-page check sheet used for ETA Non-hardship OIC's.
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.8.12 Independent Administrative Review
• 5.8.12.1 Overview
• 5.8.12.2 Role of the Independent Administrative Reviewer
• 5.8.12.3 The Review
• 5.8.12.4 Independent Review Process
5.8.12.1 (09-23-2008)
Overview
1. IRC Section § 7122(d)(1) requires the Service to conduct an independent administrative review of all proposed OIC rejections. The review must be conducted prior to the rejection being communicated to the taxpayer.
2. The IAR is responsible for conducting this review. Generally, the IAR should report to the Technical Services manager.
5.8.12.2 (09-23-2008)
Role of the Independent Administrative Reviewer
1. The IAR is responsible for reviewing each case to determine if the proposed rejection is reasonable based on the taxpayer's facts and circumstances. The IAR is not responsible for conducting a quality analysis of completeness, and accuracy of the documents used to support the case.
5.8.12.3 (09-23-2008)
The Review
1. The OI's analysis of the taxpayers offer should be reviewed to determine if the basis for the rejection determination was appropriate.
2. The IAR should consider if the taxpayers rights have been observed during the offer investigation and during communication and discussions with the taxpayer or POA. These considerations should be based on issues that would impact the recommended rejection.
3. The IAR should compare the amount that the taxpayer offered with the RCP in order to determine if the rejection determination is reasonable. If the file indicates any circumstances that could impact either future earning potential or allowable expenses, the file should document this information and the determinations relating to the taxpayers circumstances.
4. If the case file indicates issues are raised that meet either ETA or DCSC criteria, as defined in IRM 5.8.11 the case history must address these issues and discuss the determinations made.
5. The IAR should ensure that all of the facts and circumstances of the case were considered during the investigation and that the decision to reject the offer is reasonable, based on the case analysis.
Note:
The IAR is not responsible for conducting a quality analysis of completeness and accuracy of the documents used to support the case decision. That is the responsibility of the manager.
6. The case file should indicate an attempt to communicate the results of the offer investigation with the taxpayer or POA, prior to recommending the rejection. This communication can be accomplished by personal contact or by letter.
Exception:
The only exception is for those cases rejected based on the Screen for Obvious Full Pay criteria as outlined in IRM 5.8.4.5.
5.8.12.3.1 (09-23-2008)
Case File
1. The following items should be present in the file and used as an aid for the IAR to ensure the decision was appropriate.
A. Form 656, Offer in Compromise
B. Form 1271, Rejection or Withdrawal memorandum
C. Rejection letter
D. Asset/Equity Table (AET)
E. Income/Expense Table (IET)
F. Rejection summary
G. Collection Information Statements (CIS)
H. Case history
I. Any pertinent supporting documents
2. If any information is missing or unavailable that hinders the IAR in making a determination that the decision was appropriate, the case file should be returned or a memorandum sent to the OI or the manager requesting the missing documentation or supporting information. In the case where the IAR is located off-site, the information needed may be faxed to the IAR for inclusion in the analysis.
5.8.12.3.2 (09-23-2008)
Communication
1. The IAR should consider if required communication with the taxpayer or POA was attempted and if these communications were reasonable based on the facts of the case. The case file should indicate an attempt to communicate the results of the offer investigation with the taxpayer prior to recommending the rejection.
2. Communications need not necessarily include phone calls. They may be conducted entirely in the form of letters to the taxpayer or their authorized representative.
3. The case file should document these communications and any specific issues that are in dispute.
5.8.12.4 (09-23-2008)
Independent Review Process
1. Prior to the proposed rejection being submitted to the IAR, the authorized official must have reviewed the file and signed the Form 1271 indicating concurrence with the proposed disposition.
2. Once the approving official has signed the Form 1271, the offer must be re-assigned to the IAR pool on AOIC. The file is then forwarded to an IAR for review using the Form 3210.
3. Upon receipt of the file by the IAR, AOIC should be updated to reflect the individual IAR assignment number. The IAR should create an Other Investigation on ICS and document receipt of the offer file into their inventory.
4. Once the offer is reviewed by the IAR, AOIC must be updated to reflect the results of the review. The IAR must also document the results of the review on ICS, and complete the disposition of the assigned Other Investigation.
5.8.12.4.1 (09-23-2008)
Rejections Sustained by the Independent Administrative Review
1. If the proposed rejection of the offer is sustained by the IAR, the reviewer will:
A. Update the IAR "Main Screen" on AOIC indicating the appropriate disposition.
B. Sign the Form 1271 as the reviewer, indicating concurrence with the proposed disposition.
C. Document the results of their review on ICS indicating concurrence with the proposed disposition and close the OI assignment.
D. Return the case file to the originator using a Form 3210.
5.8.12.4.2 (09-23-2008)
Rejections Not Sustained by the Independent Administrative Reviewer
1. If the proposed rejection is not sustained by the IAR, the reviewer will:
A. Update the IAR "Main Screen" on AOIC indicating the appropriate IAR disposition.
B. Document the results would not support sustaining the rejection recommendation, and the specifics of the review were noted on the Form 5942, Reviewers Report, on ICS and close the Other Investigation assignment on ICS.
C. Prepare the Form 5942 providing an explanation of why the determination was not sustained and indicating additional actions necessary by the investigating employee.
D. Route the Form 5942 and the offer case file to the IAR Manager for approval.
2. After the IAR Manager approves the Form 5942, the case will be routed as follows:
A. The original Form 5942 and the offer file will be returned to the OI's manager.
B. A copy of the Form 5942 will be sent to the OI's second level manager.
C. A copy of the 5942 will be retained by the IAR group manager.
3. The following procedures describe necessary actions once the offer file is received by the originating office:
If… Then…
Reconsideration of the offer based on recommendations from the IAR results in a determination to accept the offer Process the acceptance recommendation following procedures defined in IRM 5.8.8
Reconsideration of the offer based on recommendations from the IAR results in a determination to continue to recommend rejection of the offer Update the case file with the additional case actions and any new information and re-submit to the IAR for a second review.
The investigating employee determines that the rejection is the correct action without further development, after reviewing the Form 5942 The offer file will be returned to the IAR for reconsideration. If necessary, additional history should be included to further support the offer rejection.
After a second review by the IAR, the rejection is still not sustained by the IAR and the Offer Investigator and the IAR disagree with the decision of the IAR The decision will be raised to the second level manager for resolution.
• The IAR Manager will forward a memorandum to the Offer Manager with an explanation of why the rejection cannot be sustained.
• A copy of the memorandum will be forwarded to the second level manager.
• The IAR manager and the second level manager will discuss the issues to reach a resolution.
• The final decision will be made by the field second level manager for cases assigned to the field and the second level manager for those cases decided by the COIC sites.
4. The original Form 5942 and any other documentation regarding second level management involvement and decisions must be retained in the offer file as a record of actions taken during the IAR process.

Board of Equalization Expands Offers In Compromise Program


Last update: 1:01 p.m. EDT Oct. 9, 2008
SACRAMENTO, Calif., Oct 09, 2008 (BUSINESS WIRE) -- The State Board of Equalization's Offers in Compromise program will be expanded under Board sponsored legislation recently signed by the Governor, the BOE announced today.
The BOE will be able to accept more offers in compromise beginning in January 2009 for certain tax or fee liabilities, and such offers will be expanded to qualified businesses that are still operating under provisions of AB 2047. Under previous law only businesses that had been discontinued or transferred could make offers in compromise.
In general, an offer in compromise is a process in which a taxpayer offers to pay an amount that he or she believes to be the maximum amount that he or she can afford to pay within a reasonable time based on his or her income or assets. If the parties agree to the amount offered, the debt is compromised or reduced to that amount.
AB 2047 (Horton) -- Chapter 222, which will be in effect only until January 1, 2013 unless extended by the legislature, also allows compromises from use tax assessed by the BOE against a consumer who is not required to hold a seller's permit. The BOE bill analysis notes that these liabilities often come as a surprise to the taxpayer and can financially cripple otherwise law-abiding taxpayers.
An estimated 202 additional offers in compromise applications are expected to be granted annually from this new law. To begin the process for making an offer in compromise, a taxpayer should complete an Offer in Compromise Application (form BOE-490 for individuals or form BOE-490-C for all other entities) and submit it to their local district office. For more information or assistance with the OIC process, taxpayers may contact the BOE's Offers in Compromise Section at 916-322-7931. BOE forms and publications can be found here: http://www.boe.ca.gov/formspubs/index.htm.
Other Board sponsored bills signed into law by the Governor include:
AB 1452 (Budget Committee) -- Chapter 763, provides that it shall be rebuttably presumed that, except as specified, a vehicle, vessel, or aircraft purchased outside this state and brought into California within 12 months from the date of purchase is purchased for use in California and is subject to California use tax.
AB 1895 (Silva) -- Chapter 24, limits the amount of time the BOE has to issue a deficiency determination (billing) against corporate officers and other responsible persons. The bill requires that such a determination be mailed within whichever of the following periods expires the earliest: 1) three years after the last day of the calendar month following the quarterly period in which the Board obtains actual knowledge of the termination, dissolution, or abandonment of the entity, 2) three years after the last day of the calendar month following the quarterly period in which the Board obtains written communication by the business or its representative of the termination, dissolution, or abandonment of the entity, or 3) eight years after the last day of the calendar month following the quarterly period in which the entity was terminated, dissolved, or abandoned.
AB 3079 (AR&T) -- Chapter 306 -- (1) authorizes the Department of Industrial Relations to share specified information available in the department's records with the Board to assist the Board in determining taxpayers' compliance with the Sales and Use Tax Law; (2) reinstates the Board's voluntary use tax disclosure program for unregistered California purchasers; (3) extends the Board's managed audit program indefinitely; and (4) requires a train operator transporting fuel products to obtain a license and file monthly information reports on fuel products entering, moving within, and departing the state.
SB 1495 (Kehoe) -- Chapter 594 - for purposes of the disabled veterans' property tax exemption, provides that a dwelling not occupied because of a misfortune or calamity or a home totally destroyed in a governor-declared disaster will continue to receive the exemption while the home is being reconstructed.
The five-member California State Board of Equalization is a publicly elected tax board. The BOE collects more than $53 billion annually in taxes and fees supporting state and local government services. It hears business tax appeals, acts as the appellate body for franchise and personal income tax appeals, and serves a significant role in the assessment and administration of property taxes.
SOURCE: California State Board of Equalization
California State Board of Equalization
Anita Gore, 916-327-8988

Treasury Decisions dealing with Offers in Compromise, Section 7122.


These regulations relate to the compromise of internal revenue taxes. The regulations adopt the rules of the temporary regulations and reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998 and the Taxpayer Bill of Rights 2.


T.D. 9007 I.R.B. 2002-33, 349 (August 19, 2002)

[Code Sec. 7122]


Tax liabilities: Compromise: Offer-in-compromise: Statute of limitations: Economic hardship.
[4830-01-p]



DEPARTMENT OF THE TREASURY
Internal Revenue Service

26 CFR Part 301

[TD 9007]

RIN 1545-AW87

Compromise of Tax Liabilities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to the compromise of internal revenue taxes. The regulations adopt the rules of the temporary regulations and reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998 and the Taxpayer Bill of Rights 2.

EFFECTIVE DATE: These regulations are effective July 18, 2002.

FOR FURTHER INFORMATION CONTACT: Frederick W. Schindler, (202) 622-3620 (not a toll-free number).



SUPPLEMENTARY INFORMATION:



Background
This document contains final regulations amending the Procedure and Administration Regulations (26 CFR part 301) under section 7122 of the Internal Revenue Code (Code). The regulations reflect the amendment of section 7122 by section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Public Law 105-206 (112 Stat. 685, 764) and by section 503 of the Taxpayer Bill of Rights II, Public Law 104-168 (110 Stat. 1452, 1461).

As amended by RRA 1998, section 7122 provides that the Secretary will develop guidelines to determine when an offer to compromise is adequate and should be accepted to resolve a dispute. The legislative history accompanying RRA 1998 explains that Congress intended that, in certain circumstances, factors such as equity, hardship, and public policy be taken into account by the IRS in evaluating whether the compromise of individual tax liabilities would promote effective tax administration. H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998). On July 21, 1999, temporary regulations (TD 8829; 64 FR 39020) and a notice of proposed rulemaking (REG-116991-98; 64 FR 39106) reflecting these changes were published in the Federal Register. Four written comments on the temporary and proposed regulations were received. A public hearing on the regulations was requested but that request was later withdrawn. No public hearing was scheduled or held. The final regulations adopt the rules of the temporary regulations with minor changes.

Explanation of Provisions

A compromise is an agreement between a taxpayer and the Government that settles a tax liability for payment of less that the total amount determined and assessed. Consistent with its mission of applying the tax laws with integrity and fairness to all, the IRS generally expects that all taxpayers will pay the total amount due, regardless of amount. See Policy Statement P-5-2, Collecting Principles (Approved February 17, 2000), reprinted at IRM 1.2.1.5.2. When attempting to resolve a tax delinquency, the IRS will work with taxpayers to achieve full payment of all tax, penalties, and interest imposed by Congress. Where payment in full cannot immediately be achieved, the IRS may, at its discretion, allow taxpayers to pay over time through installment agreements.

The IRS recognizes that it is both sound business practice and good tax policy to settle some cases for less than the total amount due. Prior to issuance of the temporary regulations, the IRS had a longstanding practice of compromising where there was doubt as to the existence or amount of the tax liability or doubt that the total amount due could be collected. The final regulations continue these traditional grounds for compromise. In addition, to reflect the changes made by RRA 1998, the final regulations allow compromise where there is no doubt as to liability or as to collectibility, but where compromise would promote effective tax administration because either (1) collection of the liability would create economic hardship, or (2) compelling public policy or equity considerations provide a sufficient basis for compromising the liability. Compromise based on these hardship and public policy/equity bases, however, may not be authorized if compromise would undermine compliance with the tax laws.

Effective Tax Administration--Economic Hardship

The final regulations retain the reference in the temporary regulations to the economic hardship standard of §301.6343-1, which defines economic hardship as the inability to pay reasonable basic living expenses. In determining reasonable basic living expenses, §301.6343-1 directs the IRS to consider relevant information such as the taxpayer's age, employment status and history, number of dependents, and other "unique circumstances." The final regulations supplement this standard by providing a non-exclusive list of factors which support a finding of economic hardship, and by providing examples to illustrate application of the standard.

The fourth example of economic hardship in the temporary regulations, involving a business taxpayer, has been removed in order to eliminate an inconsistency. The economic hardship standard of §301.6343-1 specifically applies only to individuals. The fourth example was included in the temporary regulations in the event that a standard for evaluating economic hardship with respect to non-individuals could be developed. After evaluating this issue further, the IRS and Treasury Department have concluded that an economic hardship standard for non-individuals does not necessarily promote effective tax administration. Permitting compromise in non-individual cases where there is no doubt as to collectibility, for instance, would raise the issue of whether the Government should be foregoing the collection of taxes to support a nonviable business.

Although economic hardship therefore is not a basis for compromise for non-individuals under the final regulations, IRS experience has shown that the doubt as to collectibility standard often may permit the resolution of cases involving businesses and other non-individual taxpayers. In addition, even if a business or other non-individual is unable to compromise on liability or collectibility grounds, compelling public policy or equity considerations (discussed below) may provide sufficient grounds to compromise the case.

A commenting party suggested that the economic hardship standard and examples were not inclusive enough, specifically stating that the first two examples of economic hardship in the temporary regulations were drawn too narrowly. The first example illustrating economic hardship described a taxpayer whose assets and income are likely to be exhausted caring for a dependent child. The commenting party believed that the regulations would better promote effective tax administration if the example were expanded to include care of a dependent parent or other family member. The second example described a retired taxpayer whose only income is from a pension and whose only asset is a retirement account. The taxpayer could pay the tax liability in full by liquidating his retirement account, but doing so would leave the taxpayer without adequate means of support. The commenting party suggested that the example should specifically state that the age of the taxpayer should be taken into account. Otherwise, a taxpayer close to retirement age may feel compelled to retire so as to eliminate other sources of income and qualify under this example since retirement funds would then be the only source of income. A second commenting party also suggested that the moral or legal obligation to support others be listed as a factor supporting a finding of economic hardship.

The final regulations adopt these suggestions, in part, by stating that one factor supporting a finding of economic hardship might be that all available funds are used for the care of a dependent. Although the final regulations include examples to illustrate the application of the economic hardship standard, the central inquiry is whether full collection of the liability would render the taxpayer unable to provide for reasonable basic living expenses. Facts such as the number of dependents and the age and health of taxpayers and their dependents are factors which §301.6343-1 provides should be considered when making that economic hardship determination. Furthermore, the examples in the final regulations are not intended to be exclusive and should not be read to suggest that all of the facts discussed in a given example must be present in a case in order for compromise to be authorized.

Effective Tax Administration--Public Policy and Equity

The temporary regulations provided that the IRS may compromise a liability to promote effective tax administration even if no other basis for compromise is available. (As discussed above, compromise on the basis of economic hardship is not available to non-individuals under the final regulations.) The temporary regulations provided that the IRS may compromise under the non-hardship effective tax administration standard to promote effective tax administration when, "[r]egardless of the taxpayer's financial circumstances, exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers."

The "detrimental to voluntary compliance" standard in the temporary regulations was intended to indicate that the IRS may compromise in those rare cases where collection of the full liability would adversely affect the overall tax system. Based on public comments and on IRS experience in implementing the temporary regulations, this standard has been restated in the final regulations to clarify the types of cases that may qualify for compromise on these grounds. Compromise under the non-hardship effective tax administration standard in the final regulations, however, still is expected to be appropriate only in those rare cases where collection would adversely affect the overall tax system.

Under the final regulations, a taxpayer seeking to compromise a liability on this basis must identify compelling public policy or equity considerations providing a sufficient basis for compromising the liability. The circumstances must be such that compromise is justified even though a similarly situated taxpayer may have paid his liability in full. Before accepting an offer based on equity and public policy considerations, the IRS must conclude that collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner.

The clarification to the non-hardship effective tax administration standard in the final regulations recognizes that compromise on these grounds raises the issue of disparate treatment of taxpayers who are able to pay the full amount of their liabilities without economic hardship. Some taxpayers will pay less than the full amount owed, while others must pay in full. (Some taxpayers who pay in full also may be in situations similar to that of the taxpayer requesting compromise.) Accordingly, the final regulations specify that a taxpayer must demonstrate that the circumstances of the taxpayer's liability implicate public policy or equity concerns compelling enough to justify compromise notwithstanding this inherent inequity. As noted earlier, the cases satisfying the equity and public policy standard are expected to be rare. In applying this standard, the IRS will presume that the correct application of the tax laws produces a fair and equitable result, absent exceptional circumstances.

The notice of proposed rulemaking specifically encouraged the public to make comments or provide examples regarding the particular types of cases or situations in which the Secretary's authority to compromise should be used because: (1) collection of the full amount of tax liability would be detrimental to voluntary compliance (i.e., may be appropriate for compromise under the non-hardship effective tax administration standard) or (2) IRS delay in determining the tax liability has resulted in the accumulation of significant interest and penalties. Parties providing comments regarding delay in interest and penalty cases were asked to consider the possible interplay between cases compromised under this provision and the relief accorded taxpayers under section 6404(e).

Two parties submitted comments in response to this request. Both suggested that the regulations be expanded to authorize compromise in situations where delay in determining the taxpayer's liability caused substantial interest and penalties to accrue. The first suggested that compromise on the basis that collection in full would be detrimental to voluntary compliance was warranted when any undue delay by the IRS resulted in the accumulation of penalties and interest. The commenting party suggested that the regulations include delay by the IRS in determining the taxpayer's liability, issuing a revenue agent's report or notice of deficiency, or litigating the issues as factors and examples supporting compromise on these grounds. The commenting party did not suggest a standard for determining "undue delay" and did not discuss whether this kind of expansion of the compromise regulations would undermine the interest abatement provisions of section 6404(e).

The second party to comment on this provision in the regulations suggested compromise should be authorized where a liability results from factors beyond the taxpayer's control and the accumulation of interest and penalties is disproportionately large compared to the initial liability. The specific example suggested by the commenting party was one in which the Tax Matters Partner (TMP) in a partnership subject to the unified audit procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) fraudulently sells shares in a sham business to other partners and those partners incur substantial interest and penalties attributable to partnership items. According to the commenting party, the failure of the IRS to remove a TMP being investigated for fraud relating to the partnership, and to allow the TMP to continue to represent the partnership during the audit, creates "exceptional circumstances" warranting compromise with other partners. The commenting party acknowledged that section 6404(e) would not usually authorize the abatement of interest under such circumstances because the interest does not result from an unreasonable error or delay by an IRS official in performing a ministerial or managerial act. The commenting party also acknowledged that it would be unwise to craft a rule that would make the Government an insurer of individual taxpayer liabilities attributable to the misdeeds of a tax shelter promoter. However, the commenting party believed that where the IRS's failure to remove the TMP contributed to the problem, compromise is warranted.

The IRS and Treasury Department do not believe that it would promote effective tax administration to authorize compromise solely on the basis of an asserted delay by the IRS, particularly delay that does not support relief under section 6404(e) with respect to accrued interest, or on the basis that a third party, such as the taxpayer's partner, is claimed to have defrauded or otherwise caused financial harm to the taxpayer. Nevertheless, cases in which a taxpayer believes the liability was caused, in whole or in part, by delay on the part of the IRS or by the actions of third parties may be appropriate for compromise under the public policy and equity standard. Such cases, however, are expected to be rare, as the taxpayer must identify compelling public policy or equity concerns that satisfy the standard set forth above.

The IRS and Treasury Department are mindful that the Congressional Conference Committee, in adding section 7122(c) as part of RRA 1998, anticipated that the IRS may use the authority provided in section 7122(c) to resolve longstanding cases by foregoing penalties and interest resulting from delays in determining a taxpayer's liability. See H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998). The IRS' experience in applying the temporary regulations is that these regulations have given effect to the intent of Congress, as expressed in the Conference Report, since cases involving substantial interest and penalties often can be compromised under the standards of doubt as to collectibility and economic hardship. Similarly, although a taxpayer is in the best position to anticipate, and protect himself or herself from, the risks of business associations and transactions, the misdeeds of third parties that may have contributed to a tax liability may be taken into account when determining whether to accept a compromise based on doubt as to collectibility or on a finding that collection would cause economic hardship.

Amount of Compromise if Basis for Compromise Exists

The final regulations set forth the permissible bases for compromise, one of which must be established in order to accept an offer to compromise liabilities arising under the internal revenue laws. They do not, however, prescribe the amount which must be offered in order for an offer to be acceptable. The amount to be paid, future compliance, or other conditions precedent to satisfaction of a liability for less than the full amount due are matters left to the discretion of the Secretary. For the sake of clarity, the final regulations now expressly state this principle, which was stated only in the preamble to the temporary regulations.

As required by section 7122(c)(2)(A) and (B), added by RRA 1998, the final regulations provide for the development and publication of national and local living allowances that permit taxpayers entering into offers to compromise to have an adequate means to provide for their basic living expenses. The determination of whether the published standards should be applied in any particular case must be based upon an evaluation of the individual facts and circumstances presented. The Secretary will continue to determine the appropriate means to publish these national and local living allowances.

A commenting party suggested that the national and local living allowance standards be eliminated in favor of a rule requiring all offer specialists to look only to an individual taxpayer's actual facts and circumstances to determine the amount necessary to provide for reasonable basic living expenses. According to the commenting party, IRS employees rarely depart from the national and local standards, which, in practice, serve as a "cap" on expenses, rather than as a general guide to be applied based on the specific facts of a case.

Because publication of the national and local standards is required by section 7122(c)(2)(A), the suggestion that the standards be eliminated has not been adopted. In accordance with section 7122(c)(2)(B), the final regulations require that the IRS consider the facts and circumstances of the case when determining basic living expenses. Consistent with this requirement in the statute and regulations, the IRS has issued internal guidance requiring that the particular facts and circumstance of a taxpayer's case be considered whenever the expenses standards are applied, and that expense allowances beyond the standards be used whenever use of the standards would result in a taxpayer not having adequate means to provide for basic living expenses.

Other Provisions

Section 7122(c)(3)(A) prohibits the rejection of an offer to compromise by a low income taxpayer based solely on the amount of the offer. The final regulations expand this rule to apply to all taxpayers regardless of income level. The final regulations state that no offer may be rejected based solely on the amount of the offer. Offers will only be rejected when the IRS determines that no basis for compromise under this section is present or that the offer is unacceptable under the Secretary's policies and procedures.

In accordance with section 7122(d)(1), the final regulations provide that all proposed rejections of offers to compromise will receive independent administrative review prior to final rejection. Section 7122(d)(2) requires and the regulations also provide that the taxpayer may appeal any rejection of an offer to compromise to the IRS Office of Appeals. The final regulations provide, however, that when the IRS returns an offer to compromise because the offer was submitted solely to delay collection, or because the taxpayer failed to provide requested information required by the IRS to evaluate or process the offer under IRS procedures, the return of the offer does not constitute a rejection and, thus, is not subject to appeal. In the event that the IRS institutes collection action following the return of an offer to compromise, the taxpayer may have the right to consideration of the whole of his collection case under other provisions of the Code.

Although not required by any provision of the Code, the temporary regulations provided that an offer could not be returned to a taxpayer for failure to submit requested financial information until an independent administrative review of the proposed return was completed. The requirement of an independent administrative review of proposed returns was the source of significant delays and was redundant because an IRS manager must review and approve all returns of offers for failure to submit requested financial information. The final regulations therefore require review only by an IRS manager in these cases.

Pursuant to section 6331(k), the final regulations also provide that the IRS may not levy to collect a liability while an offer to compromise is pending, or for the 30 days following any rejection of an offer to compromise, or during any period that an appeal of any rejection is being considered, when such appeal is instituted within the 30 days following rejection. Levy will not, however, be precluded in any case where collection is in jeopardy or the offer to compromise was submitted solely to delay collection. The regulations also correct for an omission in the temporary regulations by providing that the IRS may not refer a case to the Department of Justice to collect an unpaid tax through a judicial proceeding while an offer to compromise that tax is pending or while a rejection of such an offer is being considered by the IRS Office of Appeals. The IRS may, however, authorize the Department of Justice to file a counterclaim in any refund proceeding commenced by a taxpayer, participate in bankruptcy or insolvency cases commenced by or against the taxpayer, or join a taxpayer in any other proceeding in which liability for the tax at issue may be established or disputed.

The final regulations also implement section 503(a) of the Taxpayer Bill of Rights II by specifying that Chief Counsel review of an accepted offer to compromise is required only for offers in compromise involving $50,000 or more in unpaid liabilities.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the preceding temporary regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.



Drafting Information
The principal author of these regulations is Frederick W. Schindler of the Office of Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy & Summonses Division.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805***

Par. 2. Sections 301.7122-0 and 301.7122-1 are added to read as follows:

§301.7122-0 Table of contents.

This section lists the major captions that appear in the regulations under §301.7122-1.

§301.7122-1 Compromises.

(a) In general.

(b) Grounds for compromise.

(c) Special rules for the evaluation of offers to compromise.

(d) Procedures for submission and consideration of offers.

(e) Acceptance of an offer to compromise a tax liability.

(f) Rejection of an offer to compromise.

(g) Effect of offer to compromise on collection activity

(h) Deposits.

(i) Statute of limitations.

(j) Inspection with respect to accepted offers to compromise.

(k) Effective date.

§301.7122-1 Compromises.

(a) In general--(1) If the Secretary determines that there are grounds for compromise under this section, the Secretary may, at the Secretary's discretion, compromise any civil or criminal liability arising under the internal revenue laws prior to reference of a case involving such a liability to the Department of Justice for prosecution or defense.

(2) An agreement to compromise may relate to a civil or criminal liability for taxes, interest, or penalties. Unless the terms of the offer and acceptance expressly provide otherwise, acceptance of an offer to compromise a civil liability does not remit a criminal liability, nor does acceptance of an offer to compromise a criminal liability remit a civil liability.

(b) Grounds for compromise--(1) Doubt as to liability. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the liability. See paragraph (f)(4) of this section for special rules applicable to rejection of offers in cases where the Internal Revenue Service (IRS) is unable to locate the taxpayer's return or return information to verify the liability.

(2) Doubt as to collectibility. Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability.

(3) Promote effective tax administration. (i) A compromise may be entered into to promote effective tax administration when the Secretary determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship within the meaning of §301.6343-1.

(ii) If there are no grounds for compromise under paragraphs (b)(1), (2), or (3)(i) of this section, the IRS may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this paragraph (b)(3)(ii) will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full.

(iii) No compromise to promote effective tax administration may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.

(c) Special rules for evaluating offers to compromise--(1) In general. Once a basis for compromise under paragraph (b) of this section has been identified, the decision to accept or reject an offer to compromise, as well as the terms and conditions agreed to, is left to the discretion of the Secretary. The determination whether to accept or reject an offer to compromise will be based upon consideration of all the facts and circumstances, including whether the circumstances of a particular case warrant acceptance of an amount that might not otherwise be acceptable under the Secretary's policies and procedures.

(2) Doubt as to collectibility--(i) Allowable Expenses. A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account.

(ii) Nonliable spouses--(A) In general. Where a taxpayer is offering to compromise a liability for which the taxpayer's spouse has no liability, the assets and income of the nonliable spouse will not be considered in determining the amount of an adequate offer. The assets and income of a nonliable spouse may be considered, however, to the extent property has been transferred by the taxpayer to the nonliable spouse under circumstances that would permit the IRS to effect collection of the taxpayer's liability from such property (e.g., property that was conveyed in fraud of creditors), property has been transferred by the taxpayer to the nonliable spouse for the purpose of removing the property from consideration by the IRS in evaluating the compromise, or as provided in paragraph (c)(2)(ii)(B) of this section. The IRS also may request information regarding the assets and income of the nonliable spouse for the purpose of verifying the amount of and responsibility for expenses claimed by the taxpayer.

(B) Exception. Where collection of the taxpayer's liability from the assets and income of the nonliable spouse is permitted by applicable state law (e.g., under state community property laws), the assets and income of the nonliable spouse will be considered in determining the amount of an adequate offer except to the extent that the taxpayer and the nonliable spouse demonstrate that collection of such assets and income would have a material and adverse impact on the standard of living of the taxpayer, the nonliable spouse, and their dependents.

(3) Compromises to promote effective tax administration--(i) Factors supporting (but not conclusive of) a determination that collection would cause economic hardship within the meaning of paragraph (b)(3)(i) of this section include, but are not limited to--

(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and

(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.

(ii) Factors supporting (but not conclusive of) a determination that compromise would undermine compliance within the meaning of paragraph (b)(3)(iii) of this section include, but are not limited to--

(A) Taxpayer has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code;

(B) Taxpayer has taken deliberate actions to avoid the payment of taxes; and

(C) Taxpayer has encouraged others to refuse to comply with the tax laws.

(iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section:

Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise.

Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise.

Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise.

(iv) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the public policy and equity provisions of paragraph (b)(3)(ii) of this section:

Example 1. In October of 1986, the taxpayer developed a serious illness that resulted in almost continuous hospitalizations for a number of years. The taxpayer's medical condition was such that during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer's health has now improved and he has promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for return for the 1986 tax year on the basis of information returns it had received and had assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill is more than three times the original tax liability. The taxpayer's overall compliance history does not weigh against compromise.

Example 2. The taxpayer is a salaried sales manager at a department store who has been able to place $2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that he can earn a higher rate of interest on his IRA savings by moving those savings from a money management account to a certificate of deposit at a different financial institution. Prior to transferring his savings, the taxpayer submits an e-mail inquiry to the IRS at its Web Page, requesting information about the steps he must take to preserve the tax benefits he has enjoyed and to avoid penalties. The IRS responds in an answering e-mail that the taxpayer may withdraw his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and that he is liable for additional taxes, penalties and additions to tax for not having redeposited the amount within 60 days. Had it not been for the erroneous advice that is reflected in the taxpayer's retained copy of the IRS e-mail response to his inquiry, the taxpayer would have redeposited the amount within the required 60-day period. The taxpayer's overall compliance history does not weigh against compromise.

(d) Procedures for submission and consideration of offers--(1) In general. An offer to compromise a tax liability pursuant to section 7122 must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary. An offer to compromise a tax liability must be made in writing, must be signed by the taxpayer under penalty of perjury, and must contain all of the information prescribed or requested by the Secretary. However, taxpayers submitting offers to compromise liabilities solely on the basis of doubt as to liability will not be required to provide financial statements.

(2) When offers become pending and return of offers. An offer to compromise becomes pending when it is accepted for processing. The IRS may not accept for processing any offer to compromise a liability following reference of a case involving such liability to the Attorney General for prosecution or defense. If an offer accepted for processing does not contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. If the taxpayer does not submit the additional information that the IRS has requested within a reasonable time period after such a request, the IRS may return the offer to the taxpayer. The IRS may also return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer. See paragraphs (f)(5)(ii) and (g)(4) of this section for rules regarding the effect of such returns of offers.

(3) Withdrawal. An offer to compromise a tax liability may be withdrawn by the taxpayer or the taxpayer's representative at any time prior to the IRS' acceptance of the offer to compromise. An offer will be considered withdrawn upon the IRS' receipt of written notification of the withdrawal of the offer either by personal delivery or certified mail, or upon issuance of a letter by the IRS confirming the taxpayer's intent to withdraw the offer.

(e) Acceptance of an offer to compromise a tax liability. (1) An offer to compromise has not been accepted until the IRS issues a written notification of acceptance to the taxpayer or the taxpayer's representative.

(2) As additional consideration for the acceptance of an offer to compromise, the IRS may request that taxpayer enter into any collateral agreement or post any security which is deemed necessary for the protection of the interests of the United States.

(3) Offers may be accepted when they provide for payment of compromised amounts in one or more equal or unequal installments.

(4) If the final payment on an accepted offer to compromise is contingent upon the immediate and simultaneous release of a tax lien in whole or in part, such payment must be made in accordance with the forms, instructions, or procedures prescribed by the Secretary.

(5) Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of, nor prevent the IRS from taking action to collect from, any person not named in the offer who is also liable for the tax to which the compromise relates. Neither the taxpayer nor the Government will, following acceptance of an offer to compromise, be permitted to reopen the case except in instances where--

(i) False information or documents are supplied in conjunction with the offer;

(ii) The ability to pay or the assets of the taxpayer are concealed; or

(iii) A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered.

(6) Opinion of Chief Counsel. Except as otherwise provided in this paragraph (e)(6), if an offer to compromise is accepted, there will be placed on file the opinion of the Chief Counsel for the IRS with respect to such compromise, along with the reasons therefor. However, no such opinion will be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. Also placed on file will be a statement of--

(i) The amount of tax assessed;

(ii) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed; and

(iii) The amount actually paid in accordance with the terms of the compromise.

(f) Rejection of an offer to compromise. (1) An offer to compromise has not been rejected until the IRS issues a written notice to the taxpayer or his representative, advising of the rejection, the reason(s) for rejection, and the right to an appeal.

(2) The IRS may not notify a taxpayer or taxpayer's representative of the rejection of an offer to compromise until an independent administrative review of the proposed rejection is completed.

(3) No offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of this section and the Secretary's policies and procedures regarding the compromise of cases.

(4) Offers based upon doubt as to liability. Offers submitted on the basis of doubt as to liability cannot be rejected solely because the IRS is unable to locate the taxpayer's return or return information for verification of the liability.

(5) Appeal of rejection of an offer to compromise--(i) In general. The taxpayer may administratively appeal a rejection of an offer to compromise to the IRS Office of Appeals (Appeals) if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary.

(ii) Offer to compromise returned following a determination that the offer was nonprocessable, a failure by the taxpayer to provide requested information, or a determination that the offer was submitted for purposes of delay. Where a determination is made to return offer documents because the offer to compromise was nonprocessable, because the taxpayer failed to provide requested information, or because the IRS determined that the offer to compromise was submitted solely for purposes of delay under paragraph (d)(2) of this section, the return of the offer does not constitute a rejection of the offer for purposes of this provision and does not entitle the taxpayer to appeal the matter to Appeals under the provisions of this paragraph (f)(5). However, if the offer is returned because the taxpayer failed to provide requested financial information, the offer will not be returned until a managerial review of the proposed return is completed.

(g) Effect of offer to compromise on collection activity--(1) In general. The IRS will not levy against the property or rights to property of a taxpayer who submits an offer to compromise, to collect the liability that is the subject of the offer, during the period the offer is pending, for 30 days immediately following the rejection of the offer, and for any period when a timely filed appeal from the rejection is being considered by Appeals.

(2) Revised offers submitted following rejection. If, following the rejection of an offer to compromise, the taxpayer makes a good faith revision of that offer and submits the revised offer within 30 days after the date of rejection, the IRS will not levy to collect from the taxpayer the liability that is the subject of the revised offer to compromise while that revised offer is pending.

(3) Jeopardy. The IRS may levy to collect the liability that is the subject of an offer to compromise during the period the IRS is evaluating whether that offer will be accepted if it determines that collection of the liability is in jeopardy.

(4) Offers to compromise determined by IRS to be nonprocessable or submitted solely for purposes of delay. If the IRS determines, under paragraph (d)(2) of this section, that a pending offer did not contain sufficient information to permit evaluation of whether the offer should be accepted, that the offer was submitted solely to delay collection, or that the offer was otherwise nonprocessable, then the IRS may levy to collect the liability that is the subject of that offer at any time after it returns the offer to the taxpayer.

(5) Offsets under section 6402. Notwithstanding the evaluation and processing of an offer to compromise, the IRS may, in accordance with section 6402, credit any overpayments made by the taxpayer against a liability that is the subject of an offer to compromise and may offset such overpayments against other liabilities owed by the taxpayer to the extent authorized by section 6402.

(6) Proceedings in court. Except as otherwise provided in this paragraph (g)(6), the IRS will not refer a case to the Department of Justice for the commencement of a proceeding in court, against a person named in a pending offer to compromise, if levy to collect the liability is prohibited by paragraph (g)(1) of this section. Without regard to whether a person is named in a pending offer to compromise, however, the IRS may authorize the Department of Justice to file a counterclaim or third-party complaint in a refund action or to join that person in any other proceeding in which liability for the tax that is the subject of the pending offer to compromise may be established or disputed, including a suit against the United States under 28 U.S.C. 2410. In addition, the United States may file a claim in any bankruptcy proceeding or insolvency action brought by or against such person.

(h) Deposits. Sums submitted with an offer to compromise a liability or during the pendency of an offer to compromise are considered deposits and will not be applied to the liability until the offer is accepted unless the taxpayer provides written authorization for application of the payments. If an offer to compromise is withdrawn, is determined to be nonprocessable, or is submitted solely for purposes of delay and returned to the taxpayer, any amount tendered with the offer, including all installments paid on the offer, will be refunded without interest. If an offer is rejected, any amount tendered with the offer, including all installments paid on the offer, will be refunded, without interest, after the conclusion of any review sought by the taxpayer with Appeals. Refund will not be required if the taxpayer has agreed in writing that amounts tendered pursuant to the offer may be applied to the liability for which the offer was submitted.

(i) Statute of limitations--(1) Suspension of the statute of limitations on collection. The statute of limitations on collection will be suspended while levy is prohibited under paragraph (g)(1) of this section.

(2) Extension of the statute of limitations on assessment. For any offer to compromise, the IRS may require, where appropriate, the extension of the statute of limitations on assessment. However, in any case where waiver of the running of the statutory period of limitations on assessment is sought, the taxpayer must be notified of the right to refuse to extend the period of limitations or to limit the extension to particular issues or particular periods of time.

(j) Inspection with respect to accepted offers to compromise. For provisions relating to the inspection of returns and accepted offers to compromise, see section 6103(k)(1).

(k) Effective date. This section applies to offers to compromise pending on or submitted on or after July 18, 2002.

Par. 3. Sections 301.7122-0T and 301.7122-1T are removed.

§301.7122-1T [Removed]

Commissioner of Internal Revenue

Charles O. Rossotti

Approved: July 15, 2002

Acting Assistant Secretary of the Treasury (Tax Policy)

Pamela F. Olson

Dale D. Goode

CERTIFIED COPY

T.D. 9007 I.R.B. 2002-33, 349 (August 19, 2002)

[Code Sec. 7122]


Tax liabilities: Compromise: Offer-in-compromise: Statute of limitations: Economic hardship.
[4830-01-p]



DEPARTMENT OF THE TREASURY
Internal Revenue Service

26 CFR Part 301

[TD 9007]

RIN 1545-AW87

Compromise of Tax Liabilities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to the compromise of internal revenue taxes. The regulations adopt the rules of the temporary regulations and reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998 and the Taxpayer Bill of Rights 2.

EFFECTIVE DATE: These regulations are effective July 18, 2002.

FOR FURTHER INFORMATION CONTACT: Frederick W. Schindler, (202) 622-3620 (not a toll-free number).



SUPPLEMENTARY INFORMATION:



Background
This document contains final regulations amending the Procedure and Administration Regulations (26 CFR part 301) under section 7122 of the Internal Revenue Code (Code). The regulations reflect the amendment of section 7122 by section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Public Law 105-206 (112 Stat. 685, 764) and by section 503 of the Taxpayer Bill of Rights II, Public Law 104-168 (110 Stat. 1452, 1461).

As amended by RRA 1998, section 7122 provides that the Secretary will develop guidelines to determine when an offer to compromise is adequate and should be accepted to resolve a dispute. The legislative history accompanying RRA 1998 explains that Congress intended that, in certain circumstances, factors such as equity, hardship, and public policy be taken into account by the IRS in evaluating whether the compromise of individual tax liabilities would promote effective tax administration. H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998). On July 21, 1999, temporary regulations (TD 8829; 64 FR 39020) and a notice of proposed rulemaking (REG-116991-98; 64 FR 39106) reflecting these changes were published in the Federal Register. Four written comments on the temporary and proposed regulations were received. A public hearing on the regulations was requested but that request was later withdrawn. No public hearing was scheduled or held. The final regulations adopt the rules of the temporary regulations with minor changes.

Explanation of Provisions

A compromise is an agreement between a taxpayer and the Government that settles a tax liability for payment of less that the total amount determined and assessed. Consistent with its mission of applying the tax laws with integrity and fairness to all, the IRS generally expects that all taxpayers will pay the total amount due, regardless of amount. See Policy Statement P-5-2, Collecting Principles (Approved February 17, 2000), reprinted at IRM 1.2.1.5.2. When attempting to resolve a tax delinquency, the IRS will work with taxpayers to achieve full payment of all tax, penalties, and interest imposed by Congress. Where payment in full cannot immediately be achieved, the IRS may, at its discretion, allow taxpayers to pay over time through installment agreements.

The IRS recognizes that it is both sound business practice and good tax policy to settle some cases for less than the total amount due. Prior to issuance of the temporary regulations, the IRS had a longstanding practice of compromising where there was doubt as to the existence or amount of the tax liability or doubt that the total amount due could be collected. The final regulations continue these traditional grounds for compromise. In addition, to reflect the changes made by RRA 1998, the final regulations allow compromise where there is no doubt as to liability or as to collectibility, but where compromise would promote effective tax administration because either (1) collection of the liability would create economic hardship, or (2) compelling public policy or equity considerations provide a sufficient basis for compromising the liability. Compromise based on these hardship and public policy/equity bases, however, may not be authorized if compromise would undermine compliance with the tax laws.

Effective Tax Administration--Economic Hardship

The final regulations retain the reference in the temporary regulations to the economic hardship standard of §301.6343-1, which defines economic hardship as the inability to pay reasonable basic living expenses. In determining reasonable basic living expenses, §301.6343-1 directs the IRS to consider relevant information such as the taxpayer's age, employment status and history, number of dependents, and other "unique circumstances." The final regulations supplement this standard by providing a non-exclusive list of factors which support a finding of economic hardship, and by providing examples to illustrate application of the standard.

The fourth example of economic hardship in the temporary regulations, involving a business taxpayer, has been removed in order to eliminate an inconsistency. The economic hardship standard of §301.6343-1 specifically applies only to individuals. The fourth example was included in the temporary regulations in the event that a standard for evaluating economic hardship with respect to non-individuals could be developed. After evaluating this issue further, the IRS and Treasury Department have concluded that an economic hardship standard for non-individuals does not necessarily promote effective tax administration. Permitting compromise in non-individual cases where there is no doubt as to collectibility, for instance, would raise the issue of whether the Government should be foregoing the collection of taxes to support a nonviable business.

Although economic hardship therefore is not a basis for compromise for non-individuals under the final regulations, IRS experience has shown that the doubt as to collectibility standard often may permit the resolution of cases involving businesses and other non-individual taxpayers. In addition, even if a business or other non-individual is unable to compromise on liability or collectibility grounds, compelling public policy or equity considerations (discussed below) may provide sufficient grounds to compromise the case.

A commenting party suggested that the economic hardship standard and examples were not inclusive enough, specifically stating that the first two examples of economic hardship in the temporary regulations were drawn too narrowly. The first example illustrating economic hardship described a taxpayer whose assets and income are likely to be exhausted caring for a dependent child. The commenting party believed that the regulations would better promote effective tax administration if the example were expanded to include care of a dependent parent or other family member. The second example described a retired taxpayer whose only income is from a pension and whose only asset is a retirement account. The taxpayer could pay the tax liability in full by liquidating his retirement account, but doing so would leave the taxpayer without adequate means of support. The commenting party suggested that the example should specifically state that the age of the taxpayer should be taken into account. Otherwise, a taxpayer close to retirement age may feel compelled to retire so as to eliminate other sources of income and qualify under this example since retirement funds would then be the only source of income. A second commenting party also suggested that the moral or legal obligation to support others be listed as a factor supporting a finding of economic hardship.

The final regulations adopt these suggestions, in part, by stating that one factor supporting a finding of economic hardship might be that all available funds are used for the care of a dependent. Although the final regulations include examples to illustrate the application of the economic hardship standard, the central inquiry is whether full collection of the liability would render the taxpayer unable to provide for reasonable basic living expenses. Facts such as the number of dependents and the age and health of taxpayers and their dependents are factors which §301.6343-1 provides should be considered when making that economic hardship determination. Furthermore, the examples in the final regulations are not intended to be exclusive and should not be read to suggest that all of the facts discussed in a given example must be present in a case in order for compromise to be authorized.

Effective Tax Administration--Public Policy and Equity

The temporary regulations provided that the IRS may compromise a liability to promote effective tax administration even if no other basis for compromise is available. (As discussed above, compromise on the basis of economic hardship is not available to non-individuals under the final regulations.) The temporary regulations provided that the IRS may compromise under the non-hardship effective tax administration standard to promote effective tax administration when, "[r]egardless of the taxpayer's financial circumstances, exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers."

The "detrimental to voluntary compliance" standard in the temporary regulations was intended to indicate that the IRS may compromise in those rare cases where collection of the full liability would adversely affect the overall tax system. Based on public comments and on IRS experience in implementing the temporary regulations, this standard has been restated in the final regulations to clarify the types of cases that may qualify for compromise on these grounds. Compromise under the non-hardship effective tax administration standard in the final regulations, however, still is expected to be appropriate only in those rare cases where collection would adversely affect the overall tax system.

Under the final regulations, a taxpayer seeking to compromise a liability on this basis must identify compelling public policy or equity considerations providing a sufficient basis for compromising the liability. The circumstances must be such that compromise is justified even though a similarly situated taxpayer may have paid his liability in full. Before accepting an offer based on equity and public policy considerations, the IRS must conclude that collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner.

The clarification to the non-hardship effective tax administration standard in the final regulations recognizes that compromise on these grounds raises the issue of disparate treatment of taxpayers who are able to pay the full amount of their liabilities without economic hardship. Some taxpayers will pay less than the full amount owed, while others must pay in full. (Some taxpayers who pay in full also may be in situations similar to that of the taxpayer requesting compromise.) Accordingly, the final regulations specify that a taxpayer must demonstrate that the circumstances of the taxpayer's liability implicate public policy or equity concerns compelling enough to justify compromise notwithstanding this inherent inequity. As noted earlier, the cases satisfying the equity and public policy standard are expected to be rare. In applying this standard, the IRS will presume that the correct application of the tax laws produces a fair and equitable result, absent exceptional circumstances.

The notice of proposed rulemaking specifically encouraged the public to make comments or provide examples regarding the particular types of cases or situations in which the Secretary's authority to compromise should be used because: (1) collection of the full amount of tax liability would be detrimental to voluntary compliance (i.e., may be appropriate for compromise under the non-hardship effective tax administration standard) or (2) IRS delay in determining the tax liability has resulted in the accumulation of significant interest and penalties. Parties providing comments regarding delay in interest and penalty cases were asked to consider the possible interplay between cases compromised under this provision and the relief accorded taxpayers under section 6404(e).

Two parties submitted comments in response to this request. Both suggested that the regulations be expanded to authorize compromise in situations where delay in determining the taxpayer's liability caused substantial interest and penalties to accrue. The first suggested that compromise on the basis that collection in full would be detrimental to voluntary compliance was warranted when any undue delay by the IRS resulted in the accumulation of penalties and interest. The commenting party suggested that the regulations include delay by the IRS in determining the taxpayer's liability, issuing a revenue agent's report or notice of deficiency, or litigating the issues as factors and examples supporting compromise on these grounds. The commenting party did not suggest a standard for determining "undue delay" and did not discuss whether this kind of expansion of the compromise regulations would undermine the interest abatement provisions of section 6404(e).

The second party to comment on this provision in the regulations suggested compromise should be authorized where a liability results from factors beyond the taxpayer's control and the accumulation of interest and penalties is disproportionately large compared to the initial liability. The specific example suggested by the commenting party was one in which the Tax Matters Partner (TMP) in a partnership subject to the unified audit procedures of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) fraudulently sells shares in a sham business to other partners and those partners incur substantial interest and penalties attributable to partnership items. According to the commenting party, the failure of the IRS to remove a TMP being investigated for fraud relating to the partnership, and to allow the TMP to continue to represent the partnership during the audit, creates "exceptional circumstances" warranting compromise with other partners. The commenting party acknowledged that section 6404(e) would not usually authorize the abatement of interest under such circumstances because the interest does not result from an unreasonable error or delay by an IRS official in performing a ministerial or managerial act. The commenting party also acknowledged that it would be unwise to craft a rule that would make the Government an insurer of individual taxpayer liabilities attributable to the misdeeds of a tax shelter promoter. However, the commenting party believed that where the IRS's failure to remove the TMP contributed to the problem, compromise is warranted.

The IRS and Treasury Department do not believe that it would promote effective tax administration to authorize compromise solely on the basis of an asserted delay by the IRS, particularly delay that does not support relief under section 6404(e) with respect to accrued interest, or on the basis that a third party, such as the taxpayer's partner, is claimed to have defrauded or otherwise caused financial harm to the taxpayer. Nevertheless, cases in which a taxpayer believes the liability was caused, in whole or in part, by delay on the part of the IRS or by the actions of third parties may be appropriate for compromise under the public policy and equity standard. Such cases, however, are expected to be rare, as the taxpayer must identify compelling public policy or equity concerns that satisfy the standard set forth above.

The IRS and Treasury Department are mindful that the Congressional Conference Committee, in adding section 7122(c) as part of RRA 1998, anticipated that the IRS may use the authority provided in section 7122(c) to resolve longstanding cases by foregoing penalties and interest resulting from delays in determining a taxpayer's liability. See H. Conf. Rep. 599, 105th Cong., 2d Sess. 289 (1998). The IRS' experience in applying the temporary regulations is that these regulations have given effect to the intent of Congress, as expressed in the Conference Report, since cases involving substantial interest and penalties often can be compromised under the standards of doubt as to collectibility and economic hardship. Similarly, although a taxpayer is in the best position to anticipate, and protect himself or herself from, the risks of business associations and transactions, the misdeeds of third parties that may have contributed to a tax liability may be taken into account when determining whether to accept a compromise based on doubt as to collectibility or on a finding that collection would cause economic hardship.

Amount of Compromise if Basis for Compromise Exists

The final regulations set forth the permissible bases for compromise, one of which must be established in order to accept an offer to compromise liabilities arising under the internal revenue laws. They do not, however, prescribe the amount which must be offered in order for an offer to be acceptable. The amount to be paid, future compliance, or other conditions precedent to satisfaction of a liability for less than the full amount due are matters left to the discretion of the Secretary. For the sake of clarity, the final regulations now expressly state this principle, which was stated only in the preamble to the temporary regulations.

As required by section 7122(c)(2)(A) and (B), added by RRA 1998, the final regulations provide for the development and publication of national and local living allowances that permit taxpayers entering into offers to compromise to have an adequate means to provide for their basic living expenses. The determination of whether the published standards should be applied in any particular case must be based upon an evaluation of the individual facts and circumstances presented. The Secretary will continue to determine the appropriate means to publish these national and local living allowances.

A commenting party suggested that the national and local living allowance standards be eliminated in favor of a rule requiring all offer specialists to look only to an individual taxpayer's actual facts and circumstances to determine the amount necessary to provide for reasonable basic living expenses. According to the commenting party, IRS employees rarely depart from the national and local standards, which, in practice, serve as a "cap" on expenses, rather than as a general guide to be applied based on the specific facts of a case.

Because publication of the national and local standards is required by section 7122(c)(2)(A), the suggestion that the standards be eliminated has not been adopted. In accordance with section 7122(c)(2)(B), the final regulations require that the IRS consider the facts and circumstances of the case when determining basic living expenses. Consistent with this requirement in the statute and regulations, the IRS has issued internal guidance requiring that the particular facts and circumstance of a taxpayer's case be considered whenever the expenses standards are applied, and that expense allowances beyond the standards be used whenever use of the standards would result in a taxpayer not having adequate means to provide for basic living expenses.

Other Provisions

Section 7122(c)(3)(A) prohibits the rejection of an offer to compromise by a low income taxpayer based solely on the amount of the offer. The final regulations expand this rule to apply to all taxpayers regardless of income level. The final regulations state that no offer may be rejected based solely on the amount of the offer. Offers will only be rejected when the IRS determines that no basis for compromise under this section is present or that the offer is unacceptable under the Secretary's policies and procedures.

In accordance with section 7122(d)(1), the final regulations provide that all proposed rejections of offers to compromise will receive independent administrative review prior to final rejection. Section 7122(d)(2) requires and the regulations also provide that the taxpayer may appeal any rejection of an offer to compromise to the IRS Office of Appeals. The final regulations provide, however, that when the IRS returns an offer to compromise because the offer was submitted solely to delay collection, or because the taxpayer failed to provide requested information required by the IRS to evaluate or process the offer under IRS procedures, the return of the offer does not constitute a rejection and, thus, is not subject to appeal. In the event that the IRS institutes collection action following the return of an offer to compromise, the taxpayer may have the right to consideration of the whole of his collection case under other provisions of the Code.

Although not required by any provision of the Code, the temporary regulations provided that an offer could not be returned to a taxpayer for failure to submit requested financial information until an independent administrative review of the proposed return was completed. The requirement of an independent administrative review of proposed returns was the source of significant delays and was redundant because an IRS manager must review and approve all returns of offers for failure to submit requested financial information. The final regulations therefore require review only by an IRS manager in these cases.

Pursuant to section 6331(k), the final regulations also provide that the IRS may not levy to collect a liability while an offer to compromise is pending, or for the 30 days following any rejection of an offer to compromise, or during any period that an appeal of any rejection is being considered, when such appeal is instituted within the 30 days following rejection. Levy will not, however, be precluded in any case where collection is in jeopardy or the offer to compromise was submitted solely to delay collection. The regulations also correct for an omission in the temporary regulations by providing that the IRS may not refer a case to the Department of Justice to collect an unpaid tax through a judicial proceeding while an offer to compromise that tax is pending or while a rejection of such an offer is being considered by the IRS Office of Appeals. The IRS may, however, authorize the Department of Justice to file a counterclaim in any refund proceeding commenced by a taxpayer, participate in bankruptcy or insolvency cases commenced by or against the taxpayer, or join a taxpayer in any other proceeding in which liability for the tax at issue may be established or disputed.

The final regulations also implement section 503(a) of the Taxpayer Bill of Rights II by specifying that Chief Counsel review of an accepted offer to compromise is required only for offers in compromise involving $50,000 or more in unpaid liabilities.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the preceding temporary regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.



Drafting Information
The principal author of these regulations is Frederick W. Schindler of the Office of Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy & Summonses Division.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805***

Par. 2. Sections 301.7122-0 and 301.7122-1 are added to read as follows:

§301.7122-0 Table of contents.

This section lists the major captions that appear in the regulations under §301.7122-1.

§301.7122-1 Compromises.

(a) In general.

(b) Grounds for compromise.

(c) Special rules for the evaluation of offers to compromise.

(d) Procedures for submission and consideration of offers.

(e) Acceptance of an offer to compromise a tax liability.

(f) Rejection of an offer to compromise.

(g) Effect of offer to compromise on collection activity

(h) Deposits.

(i) Statute of limitations.

(j) Inspection with respect to accepted offers to compromise.

(k) Effective date.

§301.7122-1 Compromises.

(a) In general--(1) If the Secretary determines that there are grounds for compromise under this section, the Secretary may, at the Secretary's discretion, compromise any civil or criminal liability arising under the internal revenue laws prior to reference of a case involving such a liability to the Department of Justice for prosecution or defense.

(2) An agreement to compromise may relate to a civil or criminal liability for taxes, interest, or penalties. Unless the terms of the offer and acceptance expressly provide otherwise, acceptance of an offer to compromise a civil liability does not remit a criminal liability, nor does acceptance of an offer to compromise a criminal liability remit a civil liability.

(b) Grounds for compromise--(1) Doubt as to liability. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the liability. See paragraph (f)(4) of this section for special rules applicable to rejection of offers in cases where the Internal Revenue Service (IRS) is unable to locate the taxpayer's return or return information to verify the liability.

(2) Doubt as to collectibility. Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability.

(3) Promote effective tax administration. (i) A compromise may be entered into to promote effective tax administration when the Secretary determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship within the meaning of §301.6343-1.

(ii) If there are no grounds for compromise under paragraphs (b)(1), (2), or (3)(i) of this section, the IRS may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this paragraph (b)(3)(ii) will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full.

(iii) No compromise to promote effective tax administration may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.

(c) Special rules for evaluating offers to compromise--(1) In general. Once a basis for compromise under paragraph (b) of this section has been identified, the decision to accept or reject an offer to compromise, as well as the terms and conditions agreed to, is left to the discretion of the Secretary. The determination whether to accept or reject an offer to compromise will be based upon consideration of all the facts and circumstances, including whether the circumstances of a particular case warrant acceptance of an amount that might not otherwise be acceptable under the Secretary's policies and procedures.

(2) Doubt as to collectibility--(i) Allowable Expenses. A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account.

(ii) Nonliable spouses--(A) In general. Where a taxpayer is offering to compromise a liability for which the taxpayer's spouse has no liability, the assets and income of the nonliable spouse will not be considered in determining the amount of an adequate offer. The assets and income of a nonliable spouse may be considered, however, to the extent property has been transferred by the taxpayer to the nonliable spouse under circumstances that would permit the IRS to effect collection of the taxpayer's liability from such property (e.g., property that was conveyed in fraud of creditors), property has been transferred by the taxpayer to the nonliable spouse for the purpose of removing the property from consideration by the IRS in evaluating the compromise, or as provided in paragraph (c)(2)(ii)(B) of this section. The IRS also may request information regarding the assets and income of the nonliable spouse for the purpose of verifying the amount of and responsibility for expenses claimed by the taxpayer.

(B) Exception. Where collection of the taxpayer's liability from the assets and income of the nonliable spouse is permitted by applicable state law (e.g., under state community property laws), the assets and income of the nonliable spouse will be considered in determining the amount of an adequate offer except to the extent that the taxpayer and the nonliable spouse demonstrate that collection of such assets and income would have a material and adverse impact on the standard of living of the taxpayer, the nonliable spouse, and their dependents.

(3) Compromises to promote effective tax administration--(i) Factors supporting (but not conclusive of) a determination that collection would cause economic hardship within the meaning of paragraph (b)(3)(i) of this section include, but are not limited to--

(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and

(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.

(ii) Factors supporting (but not conclusive of) a determination that compromise would undermine compliance within the meaning of paragraph (b)(3)(iii) of this section include, but are not limited to--

(A) Taxpayer has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code;

(B) Taxpayer has taken deliberate actions to avoid the payment of taxes; and

(C) Taxpayer has encouraged others to refuse to comply with the tax laws.

(iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section:

Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise.

Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise.

Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise.

(iv) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the public policy and equity provisions of paragraph (b)(3)(ii) of this section:

Example 1. In October of 1986, the taxpayer developed a serious illness that resulted in almost continuous hospitalizations for a number of years. The taxpayer's medical condition was such that during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer's health has now improved and he has promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for return for the 1986 tax year on the basis of information returns it had received and had assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill is more than three times the original tax liability. The taxpayer's overall compliance history does not weigh against compromise.

Example 2. The taxpayer is a salaried sales manager at a department store who has been able to place $2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that he can earn a higher rate of interest on his IRA savings by moving those savings from a money management account to a certificate of deposit at a different financial institution. Prior to transferring his savings, the taxpayer submits an e-mail inquiry to the IRS at its Web Page, requesting information about the steps he must take to preserve the tax benefits he has enjoyed and to avoid penalties. The IRS responds in an answering e-mail that the taxpayer may withdraw his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and that he is liable for additional taxes, penalties and additions to tax for not having redeposited the amount within 60 days. Had it not been for the erroneous advice that is reflected in the taxpayer's retained copy of the IRS e-mail response to his inquiry, the taxpayer would have redeposited the amount within the required 60-day period. The taxpayer's overall compliance history does not weigh against compromise.

(d) Procedures for submission and consideration of offers--(1) In general. An offer to compromise a tax liability pursuant to section 7122 must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary. An offer to compromise a tax liability must be made in writing, must be signed by the taxpayer under penalty of perjury, and must contain all of the information prescribed or requested by the Secretary. However, taxpayers submitting offers to compromise liabilities solely on the basis of doubt as to liability will not be required to provide financial statements.

(2) When offers become pending and return of offers. An offer to compromise becomes pending when it is accepted for processing. The IRS may not accept for processing any offer to compromise a liability following reference of a case involving such liability to the Attorney General for prosecution or defense. If an offer accepted for processing does not contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. If the taxpayer does not submit the additional information that the IRS has requested within a reasonable time period after such a request, the IRS may return the offer to the taxpayer. The IRS may also return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer. See paragraphs (f)(5)(ii) and (g)(4) of this section for rules regarding the effect of such returns of offers.

(3) Withdrawal. An offer to compromise a tax liability may be withdrawn by the taxpayer or the taxpayer's representative at any time prior to the IRS' acceptance of the offer to compromise. An offer will be considered withdrawn upon the IRS' receipt of written notification of the withdrawal of the offer either by personal delivery or certified mail, or upon issuance of a letter by the IRS confirming the taxpayer's intent to withdraw the offer.

(e) Acceptance of an offer to compromise a tax liability. (1) An offer to compromise has not been accepted until the IRS issues a written notification of acceptance to the taxpayer or the taxpayer's representative.

(2) As additional consideration for the acceptance of an offer to compromise, the IRS may request that taxpayer enter into any collateral agreement or post any security which is deemed necessary for the protection of the interests of the United States.

(3) Offers may be accepted when they provide for payment of compromised amounts in one or more equal or unequal installments.

(4) If the final payment on an accepted offer to compromise is contingent upon the immediate and simultaneous release of a tax lien in whole or in part, such payment must be made in accordance with the forms, instructions, or procedures prescribed by the Secretary.

(5) Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of, nor prevent the IRS from taking action to collect from, any person not named in the offer who is also liable for the tax to which the compromise relates. Neither the taxpayer nor the Government will, following acceptance of an offer to compromise, be permitted to reopen the case except in instances where--

(i) False information or documents are supplied in conjunction with the offer;

(ii) The ability to pay or the assets of the taxpayer are concealed; or

(iii) A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered.

(6) Opinion of Chief Counsel. Except as otherwise provided in this paragraph (e)(6), if an offer to compromise is accepted, there will be placed on file the opinion of the Chief Counsel for the IRS with respect to such compromise, along with the reasons therefor. However, no such opinion will be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. Also placed on file will be a statement of--

(i) The amount of tax assessed;

(ii) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed; and

(iii) The amount actually paid in accordance with the terms of the compromise.

(f) Rejection of an offer to compromise. (1) An offer to compromise has not been rejected until the IRS issues a written notice to the taxpayer or his representative, advising of the rejection, the reason(s) for rejection, and the right to an appeal.

(2) The IRS may not notify a taxpayer or taxpayer's representative of the rejection of an offer to compromise until an independent administrative review of the proposed rejection is completed.

(3) No offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of this section and the Secretary's policies and procedures regarding the compromise of cases.

(4) Offers based upon doubt as to liability. Offers submitted on the basis of doubt as to liability cannot be rejected solely because the IRS is unable to locate the taxpayer's return or return information for verification of the liability.

(5) Appeal of rejection of an offer to compromise--(i) In general. The taxpayer may administratively appeal a rejection of an offer to compromise to the IRS Office of Appeals (Appeals) if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary.

(ii) Offer to compromise returned following a determination that the offer was nonprocessable, a failure by the taxpayer to provide requested information, or a determination that the offer was submitted for purposes of delay. Where a determination is made to return offer documents because the offer to compromise was nonprocessable, because the taxpayer failed to provide requested information, or because the IRS determined that the offer to compromise was submitted solely for purposes of delay under paragraph (d)(2) of this section, the return of the offer does not constitute a rejection of the offer for purposes of this provision and does not entitle the taxpayer to appeal the matter to Appeals under the provisions of this paragraph (f)(5). However, if the offer is returned because the taxpayer failed to provide requested financial information, the offer will not be returned until a managerial review of the proposed return is completed.

(g) Effect of offer to compromise on collection activity--(1) In general. The IRS will not levy against the property or rights to property of a taxpayer who submits an offer to compromise, to collect the liability that is the subject of the offer, during the period the offer is pending, for 30 days immediately following the rejection of the offer, and for any period when a timely filed appeal from the rejection is being considered by Appeals.

(2) Revised offers submitted following rejection. If, following the rejection of an offer to compromise, the taxpayer makes a good faith revision of that offer and submits the revised offer within 30 days after the date of rejection, the IRS will not levy to collect from the taxpayer the liability that is the subject of the revised offer to compromise while that revised offer is pending.

(3) Jeopardy. The IRS may levy to collect the liability that is the subject of an offer to compromise during the period the IRS is evaluating whether that offer will be accepted if it determines that collection of the liability is in jeopardy.

(4) Offers to compromise determined by IRS to be nonprocessable or submitted solely for purposes of delay. If the IRS determines, under paragraph (d)(2) of this section, that a pending offer did not contain sufficient information to permit evaluation of whether the offer should be accepted, that the offer was submitted solely to delay collection, or that the offer was otherwise nonprocessable, then the IRS may levy to collect the liability that is the subject of that offer at any time after it returns the offer to the taxpayer.

(5) Offsets under section 6402. Notwithstanding the evaluation and processing of an offer to compromise, the IRS may, in accordance with section 6402, credit any overpayments made by the taxpayer against a liability that is the subject of an offer to compromise and may offset such overpayments against other liabilities owed by the taxpayer to the extent authorized by section 6402.

(6) Proceedings in court. Except as otherwise provided in this paragraph (g)(6), the IRS will not refer a case to the Department of Justice for the commencement of a proceeding in court, against a person named in a pending offer to compromise, if levy to collect the liability is prohibited by paragraph (g)(1) of this section. Without regard to whether a person is named in a pending offer to compromise, however, the IRS may authorize the Department of Justice to file a counterclaim or third-party complaint in a refund action or to join that person in any other proceeding in which liability for the tax that is the subject of the pending offer to compromise may be established or disputed, including a suit against the United States under 28 U.S.C. 2410. In addition, the United States may file a claim in any bankruptcy proceeding or insolvency action brought by or against such person.

(h) Deposits. Sums submitted with an offer to compromise a liability or during the pendency of an offer to compromise are considered deposits and will not be applied to the liability until the offer is accepted unless the taxpayer provides written authorization for application of the payments. If an offer to compromise is withdrawn, is determined to be nonprocessable, or is submitted solely for purposes of delay and returned to the taxpayer, any amount tendered with the offer, including all installments paid on the offer, will be refunded without interest. If an offer is rejected, any amount tendered with the offer, including all installments paid on the offer, will be refunded, without interest, after the conclusion of any review sought by the taxpayer with Appeals. Refund will not be required if the taxpayer has agreed in writing that amounts tendered pursuant to the offer may be applied to the liability for which the offer was submitted.

(i) Statute of limitations--(1) Suspension of the statute of limitations on collection. The statute of limitations on collection will be suspended while levy is prohibited under paragraph (g)(1) of this section.

(2) Extension of the statute of limitations on assessment. For any offer to compromise, the IRS may require, where appropriate, the extension of the statute of limitations on assessment. However, in any case where waiver of the running of the statutory period of limitations on assessment is sought, the taxpayer must be notified of the right to refuse to extend the period of limitations or to limit the extension to particular issues or particular periods of time.

(j) Inspection with respect to accepted offers to compromise. For provisions relating to the inspection of returns and accepted offers to compromise, see section 6103(k)(1).

(k) Effective date. This section applies to offers to compromise pending on or submitted on or after July 18, 2002.

Par. 3. Sections 301.7122-0T and 301.7122-1T are removed.

§301.7122-1T [Removed]

Commissioner of Internal Revenue

Charles O. Rossotti

Approved: July 15, 2002

Acting Assistant Secretary of the Treasury (Tax Policy)

Pamela F. Olson

Dale D. Goode

CERTIFIED COPY

Under Section 6321 of the I.R.C., unpaid taxes are "a lien in favor of the United States upon all property and rights to property" belonging to a taxpayer. A lien is not valid against any holder of a "security interest" until notice is given as required by Section 6323(f) ( i.e., filing in the county records). Certain lien holders who record first are entitled to protection from the statutory lien of 26 U.S.C. § 6321, as defined in 26 U.S.C. § 6323. Where the priority of the federal tax lien is challenged by the holder of a security interest in encumbered property, the relative priority of interests is controlled federal law, by I.R.C. § 6323. United States v. McCombs, 30 F.3d 310 (2nd Cir. 1994). The burden is on the taxpayer to prove by a preponderance of the evidence that it meets all the qualifications for priority status under I.R.C. § 6323. Rice Investment Co. v. United States, 625 F.2d 565, 571 (5th Cir. 1980). A "security interest" takes priority over a federal tax lien only when it is perfected under local law and only "to the extent that ... the holder has parted with money or money's worth..." 26 U.S.C. § 6323(a) and (h)(1). The term "security interest" means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. 26 U.S.C. § 6323(h)(1).


United States of America, Plaintiff v. Glenn D. Bell, Jeanette Bell, et al., Defendants.

U.S. District Court, East. Dist. Calif.; 1:95-CV-05346-OWW SMS, September 17, 2008.



[ Code Sec. 6323]

Tax liens-
A limited liability company (LLC) that acquired ownership of a mortgage established that its lien had priority over the federal tax lien on the property. However, the LLC failed to prove that its mortgage was worth more than the amount established by the government. While the mortgage provided for future advances, the LLC did not present any evidence that an advance was made before the federal tax lien attached to the property. The government's calculation of the amount owed to the LLC from the proceeds of the sale was consistent with the loan agreement, deed of trust, promissory note, the LLC officer's declaration and offer letter and other documents pertaining to the loan. Moreover, the government's letter accepting the LLC's offer of a private sale of the property specifically warned the LLC that the procedure was subject to overbid. The only benefit the LLC obtained from the "private sale" agreement was to lock in a price that a competing bidder was required to exceed by ten percent. The government did not promise the LLC that it would compensate it for losing out in the bidding process or that it was required to deliver the property to the LLC despite the overbid. The government did not commit any misconduct or any act, omission, misrepresentation, or agreement with the LLC beyond the acceptance letter and, therefore, could not be estopped from arguing that the LLC's lien was less than the demanded amount.




FINDINGS OF FACT AND CONCLUSIONS OF LAW


WANGER, United States District Judge: This case came before the Court for trial commencing April 25, 2008, in Courtroom 3, the Hon. Oliver W. Wanger presiding. The Court heard evidence during a one-day bench trial. The parties submitted trial briefs and proposed Findings of Fact and Conclusions of Law. Plaintiff United States ("US" or "the United States") is represented by G. Patrick Jennings of the U.S. Department of Justice. Defendant Dumas International, LLC ("Dumas") is represented by Frank T. Zumalt, of The Zumalt Law Firm, APC. After hearing all the evidence, legal submissions and arguments of the parties, the following Findings of Fact and Conclusions of Law are entered.


PRELIMINARY MATTERS




A. LEGAL STANDARD

In trials without juries, Fed. R. Civ. P. 52(a) requires a court to find the facts specially and state separately its conclusions of law thereon. See Barnett v. Sea Land Service, 875 F.2d 741, 744 (9th Cir. 1989). Even upon review, due regard is given to the district court's judgment as to the credibility of the witnesses, Fed. R. Civ. P. 52(a) and Courts of Appeal will give deference to a district court's choice between two permissible views of evidence provided it is not clearly erroneous. Moody v. Proctor, 986 F.2d 239, 241 (8th Cir. 1993).




FINDINGS OF FACT


To the extent that any Findings of Fact can be interpreted as a Conclusion of Law, it is intended.



A. THE PARTIES

1. Plaintiff is the United States of America, or the US. The US filed this action to reduce a tax assessment to judgment and to enforce tax liens against real property, known as the Bell Ranch.

2. Defendant Dumas International LLC, is a Delaware limited liability company, with its principal place of business in Modesto, California. Ron Malleck, is the principal of Dumas.

3. Dumas is in the business of purchasing "troubled" properties --those with outstanding liens or other defective-title problems --and clearing up those problems, and then re-selling the properties. Dumas becomes the owner of these distressed properties, with the intent to clear the problems associated with the properties and to later sell the properties at a profit.

4. Darrell Souza, is a managing member of Dumas who negotiated the purchase of the Deed of Trust from Guaranty Federal Bank ("Guaranty Bank"), successor-in-interest to Stockton Savings and Loan Association, a Federal Savings and Loan Association ("Stockton Savings"). He is a commercial real estate broker and so licensed in California.

5. Mr. Souza previously owned a real estate company, J Bar, from 1989 through 1996. During the course of Mr. Souza's experience as a realtor, he has dealt with mortgage loans and deeds of trust and familiarized himself with lienholders and their interests. He has acquired deeds of trust from banks from 1982 to the present time.

6. Mr. Souza has participated in judicial sales, such as probate sales, but had not participated in an IRS sale prior to the Bell Ranch judicial sale.

7. Dumas disputes the balance due under the Adjustable Rate Note and Deed of Trust owed by the judgment debtors, Glen and Jeanette Bell, which is senior in priority to the tax liens, as to the original loan amount and interest and penalties thereon.

8. Guaranty Bank was the previous holder of the Adjustable Rate Note and Deed of Trust, and the successor to the original Defendant to this suit, Stockton Savings.

9. Glen D. Bell and Jeanette Bell (the "Bells"), defendants and taxpayers, were legal owners of the Bell Ranch, having obtained legal title on May 1, 1984 from Paul and Rose Warda. The Bells paid $350,000 for the entire property and then constructed a residence on parcel A, 3549 Kiernan Road. United States v. Bell, 27 F.Supp.2d 1191, 1195 (E.D. Cal. 1998); 4/24 Tr. Transcript 106:20-23.



I. Bell Ranch

10. The "Bell Ranch" is commonly known as 3549 Kiernan Road, Modesto, California, APN 003-19-13-803; 3513 Kiernan Road & 3513 1/2 Kiernan Road, APN 003-19-14-803 and APN 003-19-15-807. The property has 29.233 acres in the County of Stanislaus, State of California. The acreage is divided into parcels A, B, and C, and is more particularly described as follows:
PARCELS "A", "B", AND "C", AS SHOWN AND DESIGNATED ON THAT CERTAIN PARCEL MAP FILED APRIL 26, 1984 IN VOLUME 35 OF PARCEL MAPS, AT PAGE 18, BEING A DIVISION OF LOTS 9, 10, 15, AND 16 OF EDEN COLONY ACCORDING TO THE OFFICIAL MAP THEREOF, FILED IN THE OFFICE OF THE RECORDER OF STANISLAUS COUNTY, CALIFORNIA ON AUGUST 14, 1909 IN VOLUME 4 OF MAPS, AT PAGE 32.

11. The large residence, located at 3549 Kiernan Road, parcel A, was constructed on the property following the Bells' purchase. Id. The two other houses on the Bell Ranch are older and have little value.

12. Mr. Souza first became aware of the Bell Ranch through a 2001 public auction of the property, a judicial or tax sale, that was noticed in the newspaper and the internet.



B. CONSTRUCTION LOAN- ADJUSTABLE RATE NOTE (AUGUST 1984)

13. The Bells obtained a construction loan from Stockton Savings in the amount of $251,000 in 1984 to construct a home on parcel A, 3549 Kiernan Road.

14. An adjustable rate note ("Adjustable Rate Note") dated August 9, 1984, evidenced the construction loan, in the principal amount of $310,000. United States v. Bell, 27 F.Supp.2d 1191, 1195 (E.D. Cal. 1998). Dumas is the current holder of the Adjustable Rate Note.

15. The Adjustable Rate Note matures in 2015.

16. The Adjustable Rate Note for Loan No. 72888-000527-001, bearing the signatures of Glen Bell and Jeanette Bell, provides for an interest rate 2.25 percentage points above the "monthly weighted average cost of funds index for Eleventh District Savings and Loan Associations." Ex. 3.

17. A note has not been located that references Loan No. 72888-000527-001 ADV, which Dumas contends refers to an advance loan on the construction loan. No checks evidencing payment on an advance have been located. 4/24 Tr. Transcript 118:14-16.

18. Many of the loan documents appear to have been misplaced in the transitions that have occurred since Stockton Savings was acquired by Guaranty Bank.

19. The only promissory note provided in evidence that references the Deed of Trust, is the Adjustable Rate Note, Exhibit 3. 4/25 Trial Tr. 100:21-25; 101:1-3; 107:18-20; Ex. 3, Adjustable Rate Note.

20. Both parties assume that the Bells stopped paying on the construction loan after 1998 to date.



C. DEED OF TRUST (AUGUST 1984)

21. In conjunction with the construction loan and Adjustable Rate Note, the Bells granted a first deed of trust interest in Parcel A of the real property to Stockton Savings, as trustee for Stockton Federal Savings and Loan Association ("Deed of Trust"). Ex. 4, Deed of Trust.

22. The Deed of Trust was dated August 9, 1984, executed by the Bells, and recorded in the Official Records of Stanislaus County, California on August 15, 1984, as Instrument No. 7773.

23. This Deed of Trust recites that the Bell Ranch, parcel A, and easement over parcel C, has been encumbered as security for a $310,000 construction loan.



I. FUTURE ADVANCES

24. Paragraph 21 of the Deed of Trust allows for future advances at the option of the lender: As "repayment of any future advances, with interest thereon, made to Borrower by Lender pursuant to paragraph 21 hereof (herein "future advances")." Ex. 4.

25. The Deed of Trust provides that such future advances, with interest, shall be secured by the Deed of Trust when evidenced by promissory notes. Ex. 4, ¶ 21, Future Advances.

26. Paragraph 21 states:
Upon request of Borrower, Lender, at Lender's option, prior to reconveyance of the property to Borrower, may make Future Advances to Borrower. Such Future Advances, together with interest thereon, shall be secured by this deed of trust when evidenced by promissory notes stating that said notes are secured hereby.

27. To the extent that it secures the repayment of the construction loan to the Bells, the Deed of Trust is senior in lien priority to the federal tax liens against the property of defendants the Bells. United States v. Bell, 27 F.Supp.2d 1191, 1200 (E.D. Cal. 1998).



D. THE BELL'S BANKRUPTCIES/TITLE TRANSFERS (1985-1987)

28. Through a variety of stratagems, including multiple bankruptcy filings, and fraudulent transfers, the Bells delayed and frustrated efforts by the IRS to collect taxes owed by the Bells to the United States Government. These activities are described, in part, in United States v. Bell, 27 F. Supp. 2d 1191, 1193-1197 (E.D. Cal. 1998).

29. The Bells made transfers of the Bell Ranch beginning less than one year after their purchase in August, 1984.
(1) On June 12, 1985, the Bells deeded the Bell Ranch to "Glen D. Bell and Jeanette Bell as trustees of the Glen D. Bell Family Trust." Id. at 1195.

(2) On September 25, 1985, Glen D. Bell recorded a "paper mortgage" to an entity he invented, the "International Bank of the South Pacific" in the amount of $300,000. Id.

(3) On May 27, 1986, the Bells as trustees transferred title to the Bell Ranch to the "Racine Trust." Id.

(4) On December 9, 1987, the Bells transferred the Bell Ranch from Racine Trust to the Stark Management Company. Id. 1



E. FEDERAL TAX LIENS (FEBRUARY 1989)

30. The earliest federal tax lien attached to the property on June 29, 1987, by operation of law. Doc. 103, Judgment. Numerous notices of federal tax lien for various tax assessments were subsequently filed with the Stanislaus County Recorder, the earliest being February 10, 1989. Ex. 16, Notices of Federal Tax Liens.



F. WARDA NOTE PAID (MARCH 1989)

31. A promissory note, existed, representing money owed to the previous owners, the Wardas. By March 19, 1989, the Warda note, secured by a deed of trust, which attached to all three parcels, A, B, and C, was satisfied by the Bells.



G. DEPOSITION OF KATHRYN LEWIS, STOCKTON SAVINGS BANK (SEPTEMBER 1996)

32. Kathryn I. Lewis, a Stockton Savings Bank employee, was deposed on September 18, 1996. Ex. 9, Depo. Kathryn I. Lewis, Dated September 18, 1996.

33. She began working for Stockton Savings in June 1990 or 1991. Ex. 9, Depo. Lewis 59:3-6.

34. In her deposition, she testified that there are five people in her department. The work on delinquent accounts is divided monthly, based on delinquency. Mr. Bell and his delinquent account may have been worked on by another collector in the company. Employees do not keep the delinquent account for the course of the loan. Ex. 9, Depo. Lewis, 59:15-60:3.

35. Ms. Lewis testified that the Bells were in default on the loan in 1994, but believes the default was later cured. Ex. 9, Depo. Lewis, 77:2-21. She testified that the principal loan balance as of August, 1996, was $267,429.05.



H. TAX JUDGMENTS (OCTOBER 1998)

36. On October 23, 1998, the Court in this case reduced to judgment the tax assessments at issue against Glen D. Bell in the amount of $2,680,283.30, plus interest, and against Jeanette Bell the amount of $1,022,865.20, plus interest, calculated according to law. The combined judgments total $3,703,148.50. Doc. 103, Judgment.



I. BANKRUPTCY COURT TENTATIVE RULING (DECEMBER 1999)

37. Judge McManus' tentative ruling in the Bells' bankruptcy proceedings, filed in 1999, refers to the Bells' bankruptcy schedules which state that their property "is encumbered by a first deed of trust securing a claim of $251,113.00." Ex. 8, Tentative Ruling from Bankruptcy Court, Dated 12/27/1999, US 050.



J. FAILED JUDICIAL SALE OF BELL RANCH (2001)

38. A judicial sale of the Bell Ranch property was conducted pursuant to court order in 2001. In the 2001 judicial sale, Mr. Mattos was the successful bidder for the property. He bid $770,000. Dumas also bid in that auction, but stopped bidding after the bid reached $760,000.

39. Mr. Mattos did not complete the purchase of the Bell Ranch. He concluded that Glen Bell and Jeanette Bell had left the condition of title to the property so clouded and tangled that it was doubtful he could ever get clear title.

40. Mr. Souza then commenced efforts to obtain Bell Ranch, in consultation with Attorney Patrick Jennings (who handled the Bell tax litigation for the Government), of the Treasury Department, and IRS personnel.

41. Mr. Souza decided the first step to acquiring Bell Ranch was to fix the title and loans. Mr. Souza decided to purchase the Adjustable Rate Note issued for the construction loan, at a discount from Stockton Savings. Mr. Souza discussed this with Mr. Jennings.



K. GUARANTY PAYOFF STATEMENT (OCTOBER 2003)

42. A payoff statement, a document provided by Guaranty Bank, from Guaranty Residential Lending, Inc., dated October 23, 2003, states that the unpaid principal balance as of November 1, 1998, is $251,112.49. The total due with interest and penalties is stated as $384,925.59. That figure closely matches the amount listed as the amount due ($384,907.59) in the Loan Purchase and Sale Agreement entered, into by Dumas and Guaranty Bank, when Dumas bought the Deed of Trust and Adjustable Rate Note in 2003 for $260,000. Ex. 2, Loan Purchase and Sale Agreement.



L. GUARANTY TWO (2) MORTGAGE STATEMENT - DECEMBER 9 & 15, 2003

43. Two separately dated residential mortgage loan statements from December 2003 related to the Bells and the Bell Ranch, were produced by Dumas during discovery. Ex. 6.



I. LOAN STMT - DECEMBER 9, 2003, LOAN NO.72888-000527-001

44. The first mortgage statement is dated December 9, 2003, referencing Loan No. 72888-000527-001. The principal balance is stated as $251,112.49, past-due balance is stated as $60,692, and the interest rate is stated as 4.375%. Ex. 6. The statement is addressed to the Bells main residence, 3549 Kiernan Ave.



II. LOAN STMT - DECEMBER 15, 2003, LOAN NO.72888-000527-001 ADV

45. The second mortgage statement is dated December 15, 2003, Loan No. 72888-000527-001 ADV, reflecting a principal balance of approximately $328,726.76, past-due balance of $462,862.85, and an interest rate of 10%. This is addressed to another residence on the Bell Ranch, 3513 Kiernan Avenue.

46 The second statement lists the "MONTHLY PAYMENTS" as $462,862.85. The second statement is the primary document which Dumas argues is evidence of a loan advance. Ex. 6 US 40.

47. The mailing envelopes for these statements show that Loan No. 72888-000527-001 ADV was serviced by a Guaranty Bank office in Austin, Texas; and the other statement, for Loan No. 72888-000527-001 is serviced by a different Guaranty Bank office, located in Dallas, Texas,

48. Mr. Souza received the December 15, 2003 mortgage loan statement from Mr. Bell and picked it up at the Bell Ranch. 4/25 Tr. Transcript 77:9-82:17; Exhibit 22.



M. LOAN PURCHASE AND SALE AGREEMENT (DECEMBER 2003)

49. Mr. Souza, on behalf of Dumas, negotiated at length to acquire the Deed of Trust and Adjustable Rate Note from Guaranty Bank, successor-in-interest to Stockton Savings. On or about December 10, 2003, Dumas paid, $260,000 to Guaranty Bank, to acquire all of its rights in the Deed of Trust. Ex. 2, Loan Purchase and Sale Agreement; 4/25 Tr. Transcript 57-:20-21.

50. Mr. Souza testified that Guaranty Bank was vague with him about the total amount due, including the principal, but assured him it was over $500,000. 4/24 Tr. Transcript 110:7-24

51. On or about December 10, 2003, Guaranty Bank, as successor-in-interest to Stockton Savings and Stockton Financial Corporation, sold, transferred and assigned to Dumas all of Guaranty Bank's right, title and interest in the Adjustable Rate Note, dated August 9, 1984, in the original face amount of $310,000.000. The repayment of which was secured by the Deed of Trust. Ex. 2, Loan Purchase and Sale Agreement.

52. The terms of the transaction are set forth in the Loan Purchase and Sale Agreement, entered into on December 10, 2003, between Guaranty Bank and Dumas ("Loan Purchase and Sale Agreement"). Ex. 2, Loan Purchase and Sale Agreement. The Loan Purchase and Sale Agreement states the unpaid principal balance as of November 1, 2003, in the amount of $251,112.49. Id., p. 1, ¶ F. The Loan Purchase and Sale Agreement states, the total due on the construction loan with accruals as of November 1, 2003, is $384,907.59. There is no mention of an advance of funds beyond the original loan in the Loan Purchase and Sale Agreement.

53. Mr. Souza testified at trial that Dumas offered to purchase the Adjustable Rate Note and the Deed of Trust from Guaranty Bank, with offers spanning from $100,000 to $325,000, believing the principal balance due was over $500,000, before settling on an agreed upon payment of $260,000.

54. Dumas paid $260,000 to Guaranty Bank for the Adjustable Rate Note and Deed of Trust. Mr. Souza testified that the reason for the lower purchase price, was because Dumas wanted to pay approximately 50% of the principal.

55. Section 16 of the Loan Purchase and Sale Agreement, is an integration clause, stating the agreement is the entire agreement between the parties, superseding any other, and requiring any future modifications to be in writing. Ex. 2, § 16.

56. Mr. Souza testified that the Loan Purchase and Sale Agreement amount refers to the initial construction loan balance only and did not include the advance balance. 4/25 Tr. Transcript 58:1-59:7.

57. Mr. Souza testified in response to questioning on why in the agreement the amount outstanding stated does not include the advance. He stated that he was first provided the wiring instructions for the funds, he then wired the funds, and only after wiring the funds did he receive from Mr. Nuss, of Guaranty Bank, the Loan Purchase and Sale Agreement to sign. The agreement was prepared by Mr. Nuss, of Guaranty Bank.

58. Mr. Souza asserted he would not have paid $260,000 for a loan in which the principal amount due was $251,000. 4/24 Tr. Transcript 127:12-19.

59. Mr. Souza does not know when the advance loan was made. But due to the recorded tax lien, he believes Mr. Bell's ability to borrow was non-existent after the tax lien was recorded. He testified that an advance must have been before the tax lien was filed. 4/24 Tr. Transcript 104:2-11.

60. Mr. Souza's testified that in his experience in attempting to qualify borrowers for loans, once a federal lien is in place, is that qualification for a loan is extremely difficult and rarely possible. 4/24 Tr. Transcript 128:11-129:7.

61. Mr. Souza also testified in an earlier deposition that he thought the advance was made after the tax lien was filed in 1995 or 1996. 4/24 Tr. Transcript 104:12-25.



N. NOTICE OF ASSIGNMENT (DECEMBER 15, 2003)

62. On December 15, 2003, Guaranty Bank sent a letter to Glen Bell and Jeanette Bell. Ex. 10, Guaranty Bank Letter of Assignment to the Bells. It stated: "This is to notify you the above loan has been sold and assigned to Dumas International LLC. Please make the appropriate changes to your records. You should be contacted by their representative(s) shortly."

63. The loan number is referenced as: "GRL Loan No.: 0001036207 ADV."

64. The property address referenced is: "Property Address: 3513 Kiernan Modesto CA 95356"

65. Mr. Souza received this Guaranty Bank Letter of Assignment in a Guaranty Bank envelope, addressed to him. Ex. 21, Guaranty Bank Letter of Assignment to Bells and Guaranty Bank envelope. It is time-stamped December 19, 2003 and Mr. Souza testified he received it December 24, 2003 per the received stamp on the envelope. Id.



O. NOTICE(S) OF SALE OF ADJUSTABLE RATE NOTE AND DEED OF TRUST

66. A Notice of Sale of an adjustable rate note and deed of trust from Guaranty Bank, is addressed to the Bells, December 18, 2003. Ex. 11, Notice, Dated 12/18/2003; Ex. 23, Notice, Dated 12/18/2003. The Notice of Sale is from Eddie Register, Vice President, Guaranty Bank. It states that Guaranty Bank sold, transferred and delivered to Dumas, an adjustable rate note, in the face amount of $310,000 and a deed of trust, encumbering the real property at 3549 Kiernan. Id.

67. Another Notice of Sale of an adjustable rate note and deed of trust is addressed to the Bells, from Guaranty Bank, dated December 30, 2003. Ex. 24, Notice, Dated 12/30/2003. The Notice of Sale is from Mary Ellen Orvis, Associate General Counsel, Guaranty Bank. It states that the Guaranty Bank sold, transferred and delivered to Dumas an adjustable rate note in the face amount of $310,000 and a deed of trust, encumbering the real property at 3549 Kiernan. Id.

68. Mr. Souza testified at trial that he received both Notices through the mail. He contends he received two notices for both the original loan and the advance. 4/24 Tr. Transcript 89:15-91:1.



P. DUMAS'S OFFERS TO IRS

69. Dumas, after its purchase of the Adjustable Rate Note and Deed of Trust, made a series of offers to the IRS to settle the Bells' tax liability. Exs. 29 and 31.

70. On March 12, 2004, Mr. Souza wrote an offer letter to G. Patrick Jennings of the U.S. Department of Justice. Ex. 14, Letter from Souza to Jennings, Dated 3/12/2004. The offer letter notifies Mr. Jennings, of the U.S. Department of Justice, that Dumas "acquired ownership of the first lien that encumbers the Bell Property..." The letter states that the current balance owed is "approximately $451,000.00." Id. (emphasis added).

71. The letter also informs Mr. Jennings that Mr. Souza's client deposited $150,000 with First American Title to be paid to the IRS upon completion of the court ordered sale of the real property to his client. The letter ends with: "At this time they are willing to accept ownership and subject to the Bell's possession of the real property." Id.

72. Mr. Souza testified at trial that the amount of $451,000 was a discounted amount and was the principal amount only. He did not have the exact amount. He admits he did not call it a discounted amount in this letter. He states that he offered this amount to ensure the offer would provide for the government to receive some money. 4/24 Tr. Transcript 96:3-19. Mr. Souza testified that if a debtor owes delinquent interest, the interest will be written off to acquire the property. 4/24 Tr. Transcript 96:24-97:2.

73. Another offer letter, dated April 14, 2004, states: "My clients have deposited an additional $225,000 with First American Title, this brings the total amount they are willing to pay to the IRS $375,000.00 above the existing $451,000.000 first deed of trust."

74. Another offer letter, dated December 23, 2004, states: "My clients have deposited $375,000.00 with First American Title for payment to the Internal Revenue Service. This amount is over and above the existing first of approximately $472,000.00." Ex. 15 (emphasis added).

75. Dumas states that it has deposited $375,000 with First American Title. It also states thee deposited funds are payable to the IRS, "upon completion of a court ordered sale of the [Bell Ranch] property to Dumas International." Ex. 15.



Q. Glen D. Bell, Deceased (DECEMBER 2004)

76. On December 28, 2004, after a long illness (multiple sclerosis), Glen D. Bell died. Ex. 26, Affidavit of Death of Glen Bell, Joint Tenant, Dated 1/24/2007.



R. DARRELL SOUZA DECLARATION (JUNE 2005)

77. On or about June 12, 2005, Mr. Souza, as managing member of Dumas, prepared and signed a declaration under penalty of perjury. This declaration does not identify a loan advance in describing the principal balance. Ex. 1, Souza Declaration.

78. Paragraph 2(A) states: "The certain Adjustable Rate Note ("Note"), dated August 9, 1984, in the original face amount of $310,000.00 made in favor of Stockton Savings and Loan Association, a Federal Savings and Loan Association ("Stockton Savings")..." Ex. 1, ¶ 2.

79. The declaration states in paragraph 4: "Pursuant to the terms of the Note [August 9, 1984 Adjustable Rate Note], Rider and Deed of Trust the total amount outstanding thereunder as of June 30, 2005 is as follows: "Principal $251,112.49 ... Total as of 5/15/05 $482,956.74." Ex. 1, ¶ 4; 4/25 Tr. Transcript 109:6-25, 110:1-19.

80. The Declaration separately itemized the principal, interest, and accruals to the Deed of Trust, including late fees and escrow advances.

81. Mr. Souza testified that the amount he provided in the declaration provides a discount to the US. "[H]ad Dumas been able to acquire the property, they would have foregone advance." 4/24 Tr. Transcript 110:9-15.

82. Mr. Souza testified that it was a mistake on his part not to state that Dumas is excluding any advance from the calculation. He never notified the US that he had made the mistake. 4/24 Tr. Transcript 110:14-19.

83. At trial, Darrell Souza claimed that Glen D. Bell spoke to him telephonically concerning the purported advance that Dumas claimed was made under the Deed of Trust. The Court sustained a hearsay objection to this testimony. 4/25 Tr. Transcript 78:10 - 82:15. If this conversation did occur between Darrell Souza and Glen D. Bell, it would have occurred prior to Mr. Bell's 2004 death but before the 2005 Souza Declaration in which Mr. Souza stated the principal balance was $251,112.49 . Presumably Mr. Souza would have taken into account any and all loan advances when he finalized his declaration.



S. DOJ ACCEPTANCE OF OFFER (SEPTEMBER 2005)

84. Eventually, an offer by Dumas to pay $375,000 was accepted by the Department of Justice on behalf of the Attorney General, in a letter dated September 9, 2005. Ex. 32, Letter of Acceptance.

85. The Letter of Acceptance states:
We have received your offer of April 14, 2004, on behalf of your client, Dumas International, to purchase the subject property in a private sale in the above-referenced case. We understand your offer to be as follows:

1. Dumas offers to the United States in the amount of $375,000 (the "settlement payment") in exchange for the United States' interest (relating to the tax liabilities of Glen D. Bell) in the Bell Ranch.

Ex. 32, p. 1.

86. The Letter of Acceptance also provides for payment date: "The settlement payment would be paid within 90 days after acceptance of this offer, if any, assuming court approval." Ex. 32, p. 1

87. Paragraph two of the Letter of Acceptance, specifically, sets forth the risks:
2. If the offer is accepted by the United States, the United States would cooperate in requesting Court approval of the offer as a private sale under 28 U.S.C. § 2001. However, Dumas would be responsible for all expenses required by § 2001(b), including but not limited to, payment for the three appraisals and the advertisement of the Court hearing. Dumas bears the risk that the Court may accept an overbid for the Bell Ranch.

Ex. 32, ¶ 2 (emphasis added). Paragraph 2, specifically states that the Court could accept an overbid over Dumas's offer, and Dumas is expressly notified of this risk.

88. The Letter of Acceptance concludes with: "This offer has been accepted on behalf of the Attorney General." Ex. 32, p. 2.

89. Dumas had already deposited $375,000 with First American Title in December 2004. The deposited funds were payable to the IRS, "upon completion of a court ordered sale of the [Bell Ranch] property to Dumas International." Ex. 15.



T. JEANETTE BELL'S BANKRUPTCY SCHEDULES (MARCH 2006)

90. Jeanette Bell's bankruptcy petition and schedules filed on March 10, 2006 provide at page US 045 that the only secured claim on real property is in the amount of approximately $300,000. Ex. 7, Jeanette Bell Bankruptcy Petition, Dated 3/10/2003. 3513 Kiernan Avenue address is the only property listed as unencumbered. At page US 047, the summary lists secured claims against Jeanette's property in the amount of $310,000. Ex. 7 US 45 and US 47.



U. DUMAS'S BANKRUPTCY PROOF OF CLAIM FOR LOAN (JUNE 2006)

91. Dumas completed on June 12, 2006, a Proof of Claim for the United States Bankruptcy Court, Eastern District of California for money loaned. The value listed is $525,000. Ex. 32, Proof of Claim.

92. The debt was listed as secured and incurred as of 1984. Ex. 32.

93. Mr. Souza, who signed the Proof of Claim, testified that the amount reflected the principle balance only of the initial construction loan and advance, and it was an approximation. 4/24 Tr. Transcript 130:4-25.

94. He testified that he based his approximation on being told the principal was over $500,000, the two mortgage statements, the two separate notices of sale, the separate transfer documents and his memory. 4/24 Tr. Transcript 130:14-131:1-7.



V. $75,000 PAYMENT TO THE BELLS (FEBRUARY 2007)

95. Following the Government's September 9, 2005 acceptance of the Dumas offer, Darrell Souza in reliance on the September 2005 Letter of Acceptance, made two substantial payments to clear the way for a judicial sale of Bell Ranch. Mr. Souza testified that he paid $75,000 to Jeanette Bell and Wayne Bevins for a complete relinquishment of their interests in the Bell Ranch property. $25,000 was paid to Mr. Bevins and $50,000 was paid to Ms. Bell. This removed the last remaining obstacles to a sale of the property.

96. The separate release of funds and sales agreement ("Separate Release of Funds and Sales Agreement") between Jeanette Bell and MedCal LLC, affiliate of Dumas, dated January 24, 2007, states that an additional $50,000 remains in an escrow account and is to be released to Jeanette Bell "upon MedCal LLC receiving Wayne Bevins ownership portion of title." Ex. 35, Separate Release of Funds and Sales Agreement. The Separate Release of Funds and Sales Agreement also references a prior agreement of November 20, 2006 between MedCal LLC and Jeanette Bell. Id. This agreement was not put into evidence by the parties.



W. DUMAS'S THREE APPRAISALS OF BELL RANCH ($7,500)

97. Dumas contends that in reliance on the September 2005 Letter of Acceptance, from the US, it obtained three appraisals of the Bell Ranch property to assist in the sale process, for a total cost of $4,500.

98. Mr. Souza testified at trial that the appraisals ranged between $730,000 to $770,000.



X. DUMAS LETTER TO MR. JENNINGS, U.S. DEPT. OF JUSTICE (FEBRUARY 2007)

99. On February 21, 2007, a year and half after the US accepted the Dumas's offer (September 2005), Mr. Souza wrote a letter to the US. The letter was written on behalf of MedCal LLC, an affiliate of Dumas, to Mr. Jennings, at the U.S. Department of Justice concerning the sale of the Bell Ranch. Ex. 36, Letter to US Department of Justice from Souza, Dated 2/21/2007.

100. The letter stated that MedCal LLC acquired 100% ownership in the Bell Ranch and it wished to obtain release of the government liens. Mr. Souza also stated, on behalf of MedCal LLC that it was "ready to pay fair market value" and could wire the funds immediately to expedite releases once an agreement had been made on the amount due. Ex. 36.

101. Mr. Souza testified at trial, that he was told thereafter by Mr. Jennings that it was too late, the decision was made by his bosses, and the government was going forward with a public sale. 4/25 Tr. Transcript 64:22:65:2; 124:20-24.

102. Mr. Souza testified that he was not pleased about hearing the government was going forward with a public sale after Dumas spent six years taking the risk, spending hundreds of hours on the transaction, and negotiating a settlement with the Bells to stop filing bankruptcy filings. 4/25 Tr. Transcript 65:3-13.

103. Mr. Souza believed he had an agreement with the government, and he would not have purchased Ms. Bell's and Mr. Bevin's interest for $75,000, nor sent over $75,000 to First American Title.

104. Mr. Souza also believed that Dumas would get the approximately $850,000 if there was an overbid in the judicial public sale. 4/24 Tr. Transcript 125:12-19.



Y. JUDICIAL NOTICE OF SALE (MARCH 2007)

105. A judicial public sale was ordered by this court to take place on March 7, 2007, a month after Mr. Souza sent the letter to the Mr. Jennings. The Judicial Notice of Sale stated: "The court has approved and authorized the Internal Revenue Service Representative to accept the minimum offer bid of $857,956.74 to Dumas. Ex. 25a, Judicial Notice of Sale, Dated 3/7/2007. "A subsequent bidder must offer at least ten (10) per cent more than the minimum bid at the sale in order to purchase the property". Id. The notice specifically states that an overbid is possible, if a bidder offers 10% over the pre-approved $857,956.74, offered by Dumas.

106. The Judicial Notice of Sale states that the "government reserves the right to reject any and all bids and to withdraw the property from sale." Id.

107. The Judicial Notice of Sale also states that the "Sale is free and clear of the liens or interests of all defendants [the Bells] and of the United States, and any persons obtaining a purported interest after the notice of federal tax lien recorded January 24, 1990." Id.

108. Mr. Souza testified he believed the Judicial Notice of Sale replaced the old agreement. He also testified that he believed the Judicial Notice of Sale indicates that Dumas is to receive $857,000 in the public auction, if there was an overbid. 4/25 Tr. Transcript 67:5-18; 68:7-9; 73:18-20.

'109. Mr. Souza assumed that as of February 2007 and March 2007, the principal balance of the initial construction loan and advance loan, coupled with interest was approximately $1,000,000. 4/25 Tr. Transcript 71:24-72:3.



Z. SALE OF BELL RANCH (MARCH 2007)

110. On March 7, 2007, the United States sold at public auction to the highest bidder the Bell Ranch in order to pay the judgment entered in this action. Dumas bid $2,700,000. The successful bidders, the Endsleys, bid $2,710,000 and paid $280,000.00 of the purchase price to the United States Treasury. The remaining balance of the purchase price, some $2.4 million, was deposited with the Court (the "Deposit").



AA. PARTIES STIPULATION TO PRIORITY OF LIENS

111. The parties have stipulated that (1) the Deed of Trust will follow and attach to the Deposit to the same extent and with the same priority that the Stockton Savings Deed of Trust had on the Bell Ranch and (2) the United States' federal tax liens. The judgment lien against Glen D. Bell and Jeanette Bell in this action will also follow and attach to the Deposit to the same extent and with the same priority that it had on the Bell Ranch.



BB. UNITED STATES EXPERT, ALAN POBRE - AMOUNT DUE TO DUMAS

112. Alan Pobre, employed for the Internal Revenue Service for the last twenty years, as a revenue officer, with his current title being advisor technical services, was called as an expert for the US. 4/24 Tr. Transcript 147:4-18;154:20-23. Mr. Pobre has an Bachelor of Science in Justice of Administration. He has taught statistics at Stanislaus State University. 4/24 Tr. Transcript 148:2-6. Mr. Pobre's cases, as a revenue officer, involve lien priority disputes. He has had over 100 cases. 159:22-160:4. Mr. Pobre routinely makes calculations using spreadsheets. 4/24 Tr. Transcript 147:23-24.

113. Mr. Pobre has testified once before in court, and it was not testimony on the valuation of an adjustable rate note. 4/24 Tr. Transcript 154:24-155:5.

114. Mr. Pobre stated that he relied on two documents to prepare calculations: (1) Exhibit 1, Mr. Souza's 2005 Declaration; and (2) Exhibit 5, Guaranty Bank Residential Lending Payoff Statement, dated 10/23/2003. 4/24 Tr. Transcript 153:2-10. Mr. Pobre's testimony is limited to Exhibit 5, Guaranty Bank Residential Lending Payoff Statement, dated 10/23/2003. 4/24 Tr. Transcript 155:11-20. He has not reviewed or seen the two residential mortgage loan statements from December 2003, which state different amounts. 4/24 Tr. Transcript 155:21-24.

115. Mr. Pobre testified that Mr. Jennings wanted him to figure out how Mr. Souza reached $482,000, the total amount due that is listed in Mr. Souza's 2005 Declaration. 4/24 Tr. Transcript 153:11-15. He therefore amortized the value of $310,000 Adjustable Rate Note to March 1, 2015, and the value is more or less $482,000. 4/24 Tr. Transcript. 153:16-23. He does not know the basis for calculations in Exhibit 1, Mr. Souza's 2005 Declaration. 4/24 Tr. Transcript 154:3-5.

116. Mr. Pobre calculates the total balance due on the Bell loan, with principal, interest, and penalties as of May 1, 2008 to be $499,999.46. This is the amount the US contends is owed to Dumas from the proceeds of the sale of the Bell Ranch.

117. Mr. Pobre created a spreadsheet using the COFI index rates prior to learning of the deposition of Kathryn Lewis, Stockton Savings Bank employee. 4/24 Tr. Transcript 148:16-149:8; Ex. 17, United States Calculation of Mortgage Balance.

118. Mr. Pobre's spreadsheet schedule, calculating the amount owed to Dumas, is consistent with the testimony of Kathryn Lewis, Stockton Savings Bank employee deposition testimony that the principal loan balance as of August 1996 was $267,429.05, Ex. 9, Depo. Lewis, 73:19-21, and Guaranty Bank Residential Lending Payoff Statement of October 23, 2003, where the principal balance for November 1, 1998 was $251,112.49. Ex. 5, Guaranty Bank Residential Lending Payoff Statement, Dated October 23, 2003.

119. Mr. Pobre's calculations freezes the principal balance from November 1988, at $250,000 and assumes no further payments were made on the loan. 4/24 Tr. Transcript 152:2-10.

120. Mr. Pobre testified that freezing the balance as of November 1988 benefits Dumas as it does not reduce the principal balance and the loan continues to accrue interest at the COFI index rates. 4/24 Tr. Transcript 152:11-15.

121. Mr. Pobre, testified at trial, after viewing the two December two mortgage statements for the first time, that he would conclude that the change in loan number between the two statements involved a recomputation of the loan, with a changed interest rate. 4/24 Tr. Transcript 160:12-18.

122. Mr. Pobre testified that in order for him to amortize an advance, he would require a note to provide the terms, including when the note started, which he does not have with the residential mortgage loan statements. 4/24 Tr. Transcript 161:8-12.



CC. DUMAS EXPERT, RICHARD GOLDSTEIN, CPA - AMOUNT DUE DUMAS

123. Mr. Goldstein, retained by Dumas, is a Certified Fraud Examiner and Certified Public Accountant. He received a Bachelor of Science in Business Administration in 1989 from California State University, Stanislaus. Ex. 37, Report of Richard L. Goldstein, Dated April 16, 2008. He states that he has fifteen years experience in accounting, financial management and consulting. Id.

124. Mr. Goldstein has experience assisting individuals and entities in preparing financial statements to obtain loans and experience in valuing notes and deeds of trust. 4/24 Tr. Transcript 133:9-14. He has prepared forecasts, budgets and profits/cost analyses for Fortune 500 subsidiary and was an Assistant to Controller for a wholly owned subsidiary of a Fortune 500 company. Ex. 37

125. He has been qualified as an expert witness and testified as an expert witness in State Superior Court, Bankruptcy Court, and before the Department of Worker's Compensation. Id.

126. Mr. Goldstein has been employed in various positions, including as CPA, Financial Analyst, Assistant to Comptroller, and a Senior Staff Accountant. Id.

127. Mr. Goldstein has been retained to render an opinion as to the value of the Deed of Trust interest in Dumas in relationship to the Bell Ranch. 4/24 Tr. Transcript 133:19-22.

128. Mr. Goldstein, testified that the total amount owed under the two loans secured by the Deed of Trust, recorded against the Bell Ranch, amounts to $1,034,011, as of April 25, 2008, for unpaid principal and accrued interest. Ex. 37

129. In coming to his conclusion in the calculation of the present value of the Adjustable Rate Note and Deed of Trust, he reviewed several documents, including, Deed of Trust, Adjustable Rate Note, Guaranty Bank Residential Lending Payoff Statement, Assignment of Deed of Trust between Dumas and Guaranty Bank, Guaranty Bank, Residential Mortgage Loan Statements, dated December 9, 2003 and December 15, 2003, Deposition of Ms. Lewis, Stockton Savings Bank employee, and Deposition of Mr. Souza.

130. He testified that he examined certain documents, including the payoff statement, the two residential mortgage loan statements, one with the same loan number but with "ADV" behind it and it appears there is an advance loan. 4/24 Tr. Transcript 134:11-13.

131. Based on his experience of completing 70 to 80 tax returns a year, and reviewing numerous loan documents, it appears that advancing money this way is the type of activity that loan companies do when lending. He testified that in construction loans, that many times there are advance loans. 4/24 Tr. Transcript 134:14-23.

132. He states in regards to a second loan, advance:
The second loan is an advance with an annual interest rate of 10%. This rate is documented by a statement from Guaranty Residential Lending dated 12/15/2003. The current principal balance at the statement date is $326,726.73. The interest rate per day at 10% is approximately 0.274%. There are 1,593 days from the date of the Guaranty Residential document to April 25, 2008. Multiplying the number of day (1,593) by the interest per day (.0274%) yields a simple interest amount for this period of $142,498.

Ex. 37.

133. Mr. Goldstein bases his opinion on several factors, including that the interest rates on the two residential mortgage loan statements coincide with the prevailing rates for that time period of 1987-1989, which was about ten percent. One mortgage loan statement states the interest is 10%, the other is COFI plus 2.25%, which is around 9.7% or 9.8%. 4/24 Tr. Transcript 136:18-24.

134. Mr. Goldstein assumes the Costs of Index Fund, or COFI, is used by banks because it is less volatile than other indexes and it lags the market, and here, the COFI index coincides with the loan at 10%. 4/24 Tr. Transcript 140:16-23.

135. Mr. Goldstein also relies on that fact that the Warda note had a five-year balloon period, that according to the documentation was probably paid off on time. He also relies on the fact that there is federal tax lien in place as of February 10, 1989. His experience is that clients who have a tax lien cannot obtain a loan until the lien is satisfied. 4/24 Tr. Transcript 137:1-15.

136. In terms of seeing advances, he has seen banks document the advances different ways, and there is no generic form or term for documenting the advances, such as through different loan numbers or rolling balances into the prior statement. 4/24 Tr. Transcript 139:13-19.

137. Mr. Goldstein believes that there is a greater likelihood that there was an advance than not. 4/24 Tr. Transcript 138:2-5.



DD. ATTORNEY'S FEES

138. The Adjustable Rate Note contains an "attorneys fees" provision whereby the lender shall be reimbursed for all of its "costs and expenses" incurred in obtaining repayment of loan: "If the Note Holder has required me to pay immediately in full as described above [for being in default], the Note Holder will have the right to be paid back by me for all its costs and expenses not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees." Ex. 3, Adjustable Rate Note, ¶ 7(E).

139. The Deed of Trust also contains an "attorneys fees" provision that entitles the lender to make disbursements for "reasonable attorneys fees" in the event that the borrower fails to make required payments under the Adjustable Rate Note. Ex. 4, ¶ 7. Such fees "become additional indebtedness" of the borrower, and bear interest at the rate set in the overlying promissory note. Id.

140. The attorney's fees provision in the Deed of Trust exists independently of the fees provision in the Adjustable Rate Note.

141. By virtue of its status as successor-in-interest to Guaranty Bank (and its predecessor Stockton Savings), Dumas is entitled to collect its attorneys fees and costs incurred in this litigation under the Deed of Trust.

142. A lender enforcing its lien may be entitled to reasonable attorney's fees, if local law also provides this interest or expense the same priority as the lien or security to which it relates. 26 U.S.C. § 6323(e)(3. Section 6323(e)(3) provides that: "If [a] lien imposed [by the government for taxes] is not valid as against a lien or security interest, the priority of such lien or security interest shall extend to-, ...(3) the reasonable expenses, including reasonable compensation for attorneys, actually incurred in collecting or enforcing the obligation secured." Attorney's fees contractually provided for in the trust deed and promissory note, provides the beneficiary to entitlement to recover such fees that are incurred to protect and enforce his or her secured obligation, and such award has equal priority status with principal amount of deed of trust. Wutze v. Bill Reid Painting Service, Inc., 151 Cal.App.3d 36, 46, 198 Cal.Rptr. 418 (1984).

143. Dumas shall file its application for attorneys fees in accordance with Fed. R. Civ. P. 54.

144. Federal Rule of Civil Procedures provides: "A claim for attorney's fees and related nontaxable expenses must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages." Fed. R. Civ. P. 54 (d)(2)(A). Unless a statute or a court order provides otherwise, the motion must: be filed no later than 14 days after the entry of judgment; specify the judgment and the statute, rule, or other grounds entitling the movant to the award; state the amount sought or provide a fair estimate of it; and disclose, if the court so orders, the terms of any agreement about fees for the services for which the claim is made. Fed. R. Civ. P. 54(d)(2)(B)(i-iv).


CONCLUSIONS OF LAW




A. JURISDICTION

1. This court has "federal question jurisdiction" over this civil action that arises "under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. This action arises under Section 6321 of the Internal Revenue Code of 1986 (26 U.S.C. or "I.R.C."), and Section 6323. This court also has federal jurisdiction under 28 U.S.C. Section 1345. "Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or by any agency or officer thereof expressly authorized to sue by Act of Congress." 28 U.S.C. § 1345.

2. Venue is proper in the Fresno Division of the Eastern District of California pursuant to 28 U.S.C. § 391(a) and (c). The lien claims sought to be enforced cover property located in the Eastern District of California. Defendant Dumas was doing business in the Fresno Division of the Eastern District of California at the time this case was filed and is subject to personal jurisdiction in this District by virtue of its conducting business with Plaintiffs in Stanislaus County, California (the County of Defendant's incorporation and their principal place of business), Eastern District of California, where the transactions occurred.



B. QUESTIONS PRESENTED

3. The first question is: What is the current balance due on the Adjustable Rate Note and Deed of Trust held by Dumas?

4. The second related question is: Whether there is a loan amount advanced under the Deed of Trust and if so, is it senior in priority to the federal tax liens?



C. PRIORITY OF FEDERAL TAX LIENS

5. Under Section 6321 of the I.R.C., unpaid taxes are "a lien in favor of the United States upon all property and rights to property" belonging to a taxpayer. A lien is not valid against any holder of a "security interest" until notice is given as required by Section 6323(f) ( i.e., filing in the county records). Certain lien holders who record first are entitled to protection from the statutory lien of 26 U.S.C. § 6321, as defined in 26 U.S.C. § 6323. Where the priority of the federal tax lien is challenged by the holder of a security interest in encumbered property, the relative priority of interests is controlled federal law, by I.R.C. § 6323. United States v. McCombs, 30 F.3d 310 (2nd Cir. 1994).

6. Dumas contends an advance was made, and it was made before the Federal Tax lien attached. US contends, if there was an advance, it was made following the completion of the Bells' residence. If an advance was made, the related question of whether the advance is senior in priority to the federal tax lien is to be addressed.

7. The burden is on Dumas to prove by a preponderance of the evidence that it meets all the qualifications for priority status under I.R.C. § 6323. Rice Investment Co. v. United States, 625 F.2d 565, 571 (5th Cir. 1980).

8. A "security interest" takes priority over a federal tax lien only when it is perfected under local law and only "to the extent that ... the holder has parted with money or money's worth..." 26 U.S.C. § 6323(a) and (h)(1). The term "security interest" means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. 26 U.S.C. § 6323(h)(1).

9. Nominal title to the Bells' real property was transferred away shortly after it was deeded to the Bells. There is no promissory note to evidence a purported advance, as required under the Loan Purchase and Sale Agreement, nor was there evidence provided of the terms and secured status of any advance.

10. Dumas has submitted two residential mortgage statements from December 2003, however no witness testimony from a witness with personal knowledge established that the statements reflect any advance for an initial construction loan or any other reason. Nor is there any evidence when such a purported advance was made. Mr. Souza has testified to two different time periods when an advance might have arisen, before the federal tax lien and after the tax lien.

11. Dumas's September 15, 2008 own declaration filed in December 2005 contradicts its claim of an advance, which was made after the purported advance was made. Under penalty of perjury, Mr. Souza on behalf of Dumas declared that the outstanding balance on the Adjustable Rate Note was $482,956.74, including interest, escrow advances and late fees, as of May 10, 2005. His testimony that he made a mistake in adding or reflecting that this amount does not include the purported advance, is not sufficient to overcome the lack of objective evidence establishing an advance was made or when it was made. Dumas's current claim that it has a claim of over $1,000,000 contradicts this amount stated in the 2005 Souza Declaration and in the various other statements and documents submitted for evidence.

12. Mr. Goldstein's, CPA, calculations that there are two loans, with the total secured by the Stockton Savings' Deed of Trust recorded against the Bell Ranch of $1,034,011 as of April 25, 2005 for unpaid principal and accrued interest is not supported by the underlying evidence.

13. US's calculation of the amount due Dumas, is consistent with (a) the Loan Purchase and Sale Agreement, Ex. 2; (b) the 2005 Souza Declaration, Ex. 1; (c) the 1999 Deposition of Kathryn Lewis, Stockton Savings bank employee, who was knowledgeable about the construction loan, Ex. 9; (d) the 2003 Guaranty Bank payoff statement, Ex. 5; (e) Dumas's December 2004 Offer Letter to the IRS, Ex. 15; and (f) The first mortgage statement, dated December 9, 2003, referencing Loan No. 72888-000527-001, Ex. 6.

14. None of these exhibits evidence that a second loan advance was an amount equal to or greater than the original construction loan and was made before the original claim of tax lien was filed.

15. None of the requirements for priority status under I.R.C. § 6323 have been met. The lien of a prior mortgagee is limited to the principal amount of the lien at the time notices of federal tax liens were filed (plus accruals) and a federal tax lien is paramount to any advances made subsequent to such notice (plus 45 days). 26 U.S.C. § 6323(d); United States v. Christensen, 269 F.2d 624, 626 (9th Cir. 1959). Section 6323(d) provides that advances made 45 days after the filing of the notice of federal tax lien are deemed protected in certain situations. 26 U.S.C. § 6323(d). However, as no advance has been established by a preponderance of evidence, any discussion on the priority of an advance over a federal tax lien is unnecessary.



D. DUMAS: MOTION IN LIMINE - GOV'T ESTOPPEL

16. Dumas brought a motion in limine to estop the United States from arguing that the Dumas's lien is less than $857,946.74. Doc. 253.

17. Dumas claims the US "promised" Dumas would be paid that amount in a Notice of Judicial Sale. Ex. 25(a). Dumas argues that the United States entered into an agreement for a "private sale" but that the United States did not deliver any title to Dumas. Dumas contends that the Judicial Notice of Sale constituted an "offer" to compensate Dumas for its "loss" of the private sale.

18. Dumas argues that the Judicial Notice of Sale, Exhibit 25(a), constitutes an agreement with the United States of the amount to which Dumas is entitled. The Judicial Notice of Sale states:
The court has approved and authorized the Internal Revenue Service Representative to accept the minimum bid offer of $857,956.74 to Dumas.

Ex. 25(a).

19. The Judicial Notice of Sale is not signed, but bidders are referred to an IRS Property Appraisal and Liquidation Specialist. The Judicial Notice of Sale is directed to the public and does not set forth any terms of any agreement between Dumas and the United States. Dumas submitted no evidence of consideration for such an agreement.

20. Under the doctrine of governmental estoppel, "[a] party seeking to raise estoppel against the government must establish [1] 'affirmative misconduct going beyond mere negligence'; even then, 'estoppel will only apply where [2] the government's wrongful act will cause a serious injustice, and the public's interest will not suffer undue damage by imposition of the liability.'" Watkins v. United States Army, 875 F.2d 699, 705 (9th Cir. 1989). After proving these two threshold requirements are present, the traditional elements of estoppel must be satisfied. Id. at 709. (1) The party to be estopped must know the facts; (2) that party must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) the relying party must rely on the former's conduct to his injury. Id.

21. The first threshold question, whether there was affirmative misconduct "require[s] an affirmative misrepresentation or affirmative concealment of a material fact by the government, ... although it does not require that the government intend to mislead a party. Id. at 707 (citations omitted). However, the government is not bound by the unauthorized acts of its agents. Id.

22. The second threshold question involves weighing the injustice to the aggrieved party against the possibility of damage to the public interest. Id. at 708. "Even when affirmative misconduct has been shown, the government cannot be estopped unless its acts also threaten to work a serious injustice and the public's interest will not be unduly damaged by the imposition of estoppel." Id.

23. The United States seeks to enforce its tax liens against the Bell Ranch. A tax debtor's property is sold at a public auction under 28 U.S.C. § 2001(a). This Court approved an unopposed motion for an order for a "private sale" under 28 U.S.C. § 2001(b). Doc. 217.

24. One of the Section 2001(b) requirements is: "Before confirmation of any private sale, the terms thereof shall be published in such newspaper or newspapers of general circulation as the court directs at least ten days before confirmation. The private sale shall not be confirmed if a bona fide offer is made, under conditions prescribed by the court, which guarantees at least a 10 per centum increase over the price offered in the private sale." The "private sale" provides for public notice and a chance of an overbid.

25. An overbid was received in this case and was not matched or exceeded by Dumas. Doc. 218. The US argues that if Dumas objected to the terms of the private sale, it should have objected to those terms when the private sale was approved by the Second Amended Order of Judicial Sale, entered November 22, 2005. Doc. 217. The US made no promise to Dumas that it would compensate it for losing in the bidding process.

26. Dumas received a copy of 28 U.S.C. § 2001 when it negotiated the statutory private sale. 4/25 Tr. Transcript 94:1-19. The acceptance letter from the United States to Dumas concerning the private sale specifically warns that the procedure is subject to overbid. Ex. 32, ¶ 2. The only benefit Dumas obtained from the "private sale" agreement was to lock in a price which a competing bidder must exceed by ten percent. The belief of Dumas that the United States must deliver the Bell Ranch to Dumas, despite the overbid, is not reasonable, nor is it stated in the Notice of Sale. Dumas simply underestimated the economic demand for the Bell Ranch.

27. The position of the United States is that the minimum bid in the Judicial Notice of Sale ($857,946.74 - Ex. 25a) includes the amount due on the Dumas Deed of Trust ($482,956.74 - Ex. 1) and the offer by Dumas to the United States ($375,000 - Ex. 32). The difference between the Dumas offer of $375,000 and the $857,946.74 minimum bid in the Judicial Notice of Sale is $482,956.74. The US argues that this is precisely the total balance due in the sworn statement by Dumas at Exhibit 1. Dumas could credit-bid its lien amount and only pay cash of $375,000, to complete the minimum bid amount. All of this became moot when an overbid was received.

28. The IRS cannot settle cases which are assigned to the United States Department of Justice. 26 U.S.C. § 7122(a). 2 Even if the IRS official intended to settle with Dumas, it had no authority to do so during the time the case was handled by the United States Department of Justice.

29. Mr. Souza testified at trial that he believed that according to the Letter of Acceptance, Dumas would pay the US for the Bell Ranch but if the bid did not go through, the deal would change and the US would pay Dumas $857,000. Mr. Souza has no Letter of Acceptance from the US to evidence an agreement for the US to pay Dumas $857,000, if the bid did not go through. 4/24 Tr. Transcript 91:18-93:1. Nor has any US representative so testified.

30. There was no misconduct by the US in this case. There is no act, omission, misrepresentation, or agreement with Dumas beyond the Letter of Acceptance. Ex. 32. Dumas, despite a lack of credible evidence, seeks to obtain a windfall under an estoppel theory, to recover $857,946.74 on a loan for which it paid $260,000. There is no basis for estoppel against the US here.

31. Dumas's motion in limine is DENIED.



E. US: MOTION IN LIMINE - PAROLE EVIDENCE

32. The US brought a motion in limine to exclude evidence of any purported loan advance under the parole evidence rule. Doc. 251.

33. Dumas argues that an advance was made after the Loan Purchase and Sale Agreement was entered into, and should be considered a subsequent transaction, not a prior or contemporaneous transaction, and the parole evidence rule does not apply. Dumas also argues that the advance, if made, does not contradict the Deed of Trust terms, since the Deed of Trust had a future advance clause.

34. The US argues that the Loan Purchase and Sale Agreement between Dumas and Guaranty Bank, is an "integrated" contract, i. e., a final expression of agreement, with an integration clause. Section 16 states: this agreement "constitutes the entire agreement between the parties hereto with respect to the purchase and sale of the Loan Documents, and supersedes any other agreements..." Ex. 2, § 16..

35. The US argues that the evidence is clear from the Loan Purchase and Sale Agreement executed by Dumas in 2003, that the balance due in 2003 on the loan to the Bells was the total amount of $384,907.59, of which the principal amount due was $251,112.49. Ex. 2, p. US 003. It contends that Dumas directly contradicts the terms of this written agreement when it argues that additional principal was loaned before the federal tax liens existed. Banco Do Brasil, S.A. v. Latian, Inc., 234 Cal.App.3d 973, 1000, 285 Cal.Rptr. 870 (1991), rev. denied, cert. denied, 504 U.S. 986 (1992).

36. Parol evidence is a rule of substantive law that applies to restrict the introduction of extrinsic evidence to add to or alter the terms of an integrated written document. Harry D. Miller, 1 Miller & Starr California Real Estate § 1.60 at 159 (West 2000). However, the parol evidence rule is considered to be a rule of substantive law, not a rule of "evidence" and so is applied by federal courts and applied in accordance with state laws. Merchants National Bank & Trust Co. v. Professional Men's Association, 409 F.2d 600, 602 (5th Cir. 1969).

37. 46. Under California law:
Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.

Cal Code Civ.Proc. § 1856(a). The terms set forth in a writing may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. Cal Code Civ.Proc. § 1856(b)(emphasis added). Terms of an agreement may be explained or supplemented by course of dealing or usage of trade or by course of performance. Cal Code Civ.Proc. § 1856(c). It is the court that will determine with the writing is intended by the parties as a final expression of their agreement with respect to such terms as are included therein and whether the writing is intended also as a complete and exclusive statement of the terms of the agreement. Cal Code Civ.Proc. § 1856(d).

38. Generally, the parties' intent is revealed by nature and character of the agreement. "The words used in an agreement are a primary source from which to glean the parties' intent." Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas, 116 Cal.App.4th 1375, 1389, 11 Cal.Rptr.3d 412 (2004).

39. Under California's liberal parol evidence rule, because the parties dispute the intended meaning of the words in the Loan Purchase and Sale Agreement, extrinsic evidence must be referenced to show whether the Loan Purchase and Sale Agreement was reasonably susceptible to a particular meaning.

40. "Where the meaning of the words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning. [Citations.] Indeed, it is reversible error for a trial court to refuse to consider such extrinsic evidence on the basis of the trial court's own conclusion that the language of the contract appears to be clear and unambiguous on its face. Even if a contract appears unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which reveals more than one possible meaning to which the language of the contract is yet reasonably susceptible." Morey v. Vannucci, 64 Cal.App.4th 904, 912, 75 Cal.Rptr.2d 573 (1998); see also Davidson v Welch, 270 Cal App 2d 220, 75 Cal Rptr 676 (1969) (In order to determine initially whether the terms of any written instrument are clear, definite, and free from ambiguity, the court must examine the instrument in the light of the circumstances surrounding its execution so as to ascertain what the parties meant by the words used, and only then can it be determined whether the seemingly clear language of the instrument is in fact ambiguous).

41. US motion in limine is DENIED.



F. CONCLUSION

42. The Loan Purchase and Sale Agreement provides for future advances, however no persuasive evidence was submitted by Dumas that there was any such advance, and if there was an advance that it was issued prior to the recording of federal tax lien claims in 1989.

43. Dumas has not proved by a preponderance of evidence the validity of its claim under the Deed of Trust for amounts alleged advanced by a lender under the Deed of Trust.

44. The balance due on the Adjustable Rate Note and Deed of Trust as of May 1, 2008, was $499,999.46. The United States shall calculate the additional accrued interest to the date of the entry of these Findings of Fact and Conclusions of Law, and submit a proposed order directing the Clerk of the Court to distribute that sum to Dumas, with the remainder to be distributed to the US to apply to the Bell tax debt.

45. Dumas shall further recover its attorney's fees and costs.


CONCLUSION

1. Defendant Dumas shall recover $499,999.46, plus, additional interest to the date of the entry of these Findings of Fact and Conclusions of Law, and attorney's fees and costs.

2. Defendant U.S. motion in limine is DENIED.

3. Plaintiff Dumas motion in limine is DENIED.

4. Plaintiff shall lodge a form of judgment with the court within five days following service of these findings.

IT IS SO ORDERED.

1 The Court held that a nominee relationship existed between the Bells and Stark Management Company and permitted the enforcement of the tax liens against the Bell Ranch. United States v. Bell, 27 F.Supp.2d at 1201.

2 (a) Authorization. --The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense. 26 U.S.C. § 7122(a) (emphasis added).

Validity and Priority Against Third Parties: Estoppel

The government was not estopped from claiming priority for its federal tax lien over a security interest merely because of its official's failure to advise the interest holder of the lien when the holder filed notices of assignments to the General Services Administration as required by the Assignment of Claims Act. The holder was not ignorant of the tax claims, since the filing of the lien had given it constructive notice of the existence of the lien.

Atlantic National Bank, CtCls, 76-2 USTC ¶9483, 536 F2d 1354.

The U.S. did not carry its burden of showing that two previous dismissals necessarily decided an issue regarding whether it had properly reimbursed an individual for his payment to a senior lienor.

W. Little, CA-9, 86-2 USTC ¶9558, 794 F2d 484.

The government's tax lien arose and was duly filed before a secured creditor took an assignment of the debtor's interest. Thus, the federal lien had priority. Moreover, the secured creditor could not claim that the government delayed unduly in assessing the tax after liability arose; only the debtor can, in this situation, raise an estoppel argument.

Keystone Bank, Ct. of Common Pleas of Allegheny County, Pa., 80-1 USTC ¶9253.

The IRS was not estopped from claiming an interest in mortgaged real estate, even though it waited almost 10 years to begin legal proceedings or to enforce its lien. Despite the fact that the lender would not have made the loan had it known of the IRS's assessment, the IRS had committed no affirmative act that misled the bank or induced it to make the loan. Furthermore, the IRS was not required under equitable principles to apply seized assets to the earliest tax liability.

First of America Bank --West Michigan, DC Mich., 94-1 USTC ¶50,169.

An attorney, who was president of a law firm that was a corporation, was individually responsible with respect to an IRS levy that was served on the firm relating to funds held in escrow for a taxpayer. He asked the IRS to take no action to derail the taxpayer's real estate closing based on his assurance the funds would remain in escrow pending resolution of this issue. Accordingly, he was estopped from asserting any right that could insulate himself from liability for his act performed as a corporate officer.

R. Scher, DC N.Y., 97-1 USTC ¶50,282.

An IRS tax lien on realty which was recorded after the realty was sold to third parties had priority over the purchasers' equitable lien that arose following a state (Florida) court-ordered rescission of the sale. The government timely recorded its tax lien four days after assessing the unpaid taxes against the sellers. Thus, it was not estopped from asserting the priority of its lien on the basis of what the purchasers described as "tardy filing."

J.F. Wasenius, CA-11 (unpublished opinion), 97-1 USTC ¶50,433.

The IRS was not estopped from denying title to the transferees of real property subject to a tax lien simply because they might have detrimentally relied on an earnest money contract with the delinquent taxpayer. There was no evidence that the taxpayer falsely represented to the transferees that they were the owners of the property or that he had concealed any material facts. Moreover, the transferees did not have a claim for estoppel by silence because there was no evidence that the taxpayer induced them to make improvements to the property, and the parties did not have a confidential or fiduciary relationship.

A.E. Blanche, DC Tex., 97-1 USTC ¶50,448. Appeal dism'd, CA-5, 99-2 USTC ¶50,966.

A prior state court decision that dismissed with prejudice an action to declare a conveyance of real property fraudulent did not estop the IRS from litigating the issue, since it was not a party in that case or in privity with the third party who brought the suit.

J.C. Dunkel, DC Ill., 98-2 USTC ¶50,610.

The government's failure to file a notice of tax lien until after a delinquent taxpayer's former husband received real property under the terms of their marital settlement agreement did not constitute affirmative misconduct that would estop enforcement of the lien.

I. Herzog, CA-9 (unpublished opinion), 99-2 USTC ¶50,958, aff'g, rev'g and rem'g an unreported District Court decision.

The doctrine of estoppel by deed did not apply to the government and, thus, did not preclude it from arguing that a purchaser's deed to property that he bought at a tax sale was invalid.

R.A. Frese, DC Ill., 99-2 USTC ¶50,994.

The doctrine of equitable estoppel did not prevent the government from asserting its tax liens because a creditor cannot use equitable estoppel against the government to recover public funds in the 11th Circuit.

Watson Clinic LLP, DC Fla., 2000-2 USTC ¶50,625.

The government was not barred by the doctrine of collateral estoppel from proceeding against seven parcels of real property titled to two trusts based on an unpublished court opinion that validated a series of trusts created with similar trust documents. The issues litigated in the decision were not identical and there was no evidence that the government was in privity with the defendants in that case.

E.G. Novotny, DC Colo., 2001-2 USTC ¶50,719.

Offer in compromise in a collection due process hearing. Case where an offer in compromise was given an adverse decision because the IRS did not give adequate time to submit information requested. This is a common "cheap shot" use by the IRS when they have an anti-taxpayer bias.

James R. Rutherford and Linda L. Rutherford v. Commissioner.

Dkt. No. 25729-06L , TC Memo. 2008-227, October 8, 2008.

An IRS Appeals officer did not abuse his discretion when he sent a notice of deficiency to a married couple without giving them more time to submit the required financial information to support an Offer in Compromise. The couple's testimony suggested that the decision not to produce the documents was a deliberate one and for strategic reasons. The couple's argument that they were ineffectively counseled was rejected. Further, the couple had sufficient time to prepare for the hearing, were advised by experienced tax counsel and had previous experience with respect to the financial information requirement. They were merely seeking an opportunity to further delay collection of their liabilities; thus, it was not unreasonable for the Appeals officer to set a deadline. --CCH.





MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge: This action was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) with respect to petitioners' 1992, 1993, and 1994 Federal income tax liabilities. The issue for decision is whether it was an abuse of discretion to send a notice of determination without extending the time for petitioners to submit financial information. Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended.


FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioners resided in Texas at the time that their petition was filed.

Petitioners jointly filed Forms 1040, U.S. Individual Income Tax Return, for 1992, 1993, and 1994 reporting taxes due in the amounts of $8,834, $6,966, and $4,121, respectively. Petitioners failed to pay the reported liabilities.

The Internal Revenue Service (IRS) assessed the liabilities shown on petitioners' income tax returns for 1992, 1993, and 1994, on August 13, 1994, May 1, 1995, and May 8, 1995, respectively.

On October 27, 1995, the IRS accepted an offer-in-compromise with respect to petitioners' liabilities for 1986 through 1991 and the taxes shown on the returns filed by petitioners for 1992, 1993, and 1994. Under the terms of the compromise, petitioners were required to pay a total of $41,668 plus interest. Petitioners failed to make the payments. On August 14, 1996, the IRS declared the offer-in-compromise in default.

On December 12, 1997, the IRS filed notices of Federal tax liens for the then-outstanding tax liabilities of petitioners. Petitioners paid the liabilities, and the liens were released on January 20, 1999.

On December 2, 1997, a notice of deficiency was sent to petitioners for 1992, 1993, and 1994, determining deficiencies in tax totaling $293,057 and penalties and additions to tax totaling $130,179 under sections 6651(a)(1) and 6662(a).

Petitioners filed a petition with this Court in response to the December 2, 1997, notice of deficiency. On December 7, 2000, the Court entered a decision, pursuant to the agreement of the parties, determining that petitioners owed: (1) Deficiencies in income taxes for the taxable years 1992, 1993, and 1994 in the amounts of $123,063, $161,648, and $8,346, respectively; (2) additions to tax for the taxable years 1992 and 1993, under the provisions of section 6651(a)(1) in the amounts of $30,979 and $40,579, respectively; and (3) penalties for the taxable years 1992, 1993, and 1994 under the provisions of section 6662 in the amounts of $24,613, $32,330, and $1,669, respectively. On February 6, 2001, the liabilities reflected in the Tax Court decision were assessed.

On June 16, 2006, the IRS filed a notice of Federal tax lien for petitioners' 1992, 1993, and 1994 tax liabilities and sent petitioners a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320. On June 22, 2006, the IRS sent petitioners a Notice of Intent to Levy and Notice of Your Right to a Hearing with respect to their liabilities for 1992, 1993, and 1994.

Petitioners timely requested a hearing under section 6330. In a letter dated September 18, 2006, the hearing process was explained to them. The hearing was held on October 31, 2006. Petitioner James Rutherford (petitioner) appeared at the hearing with experienced tax counsel. During the hearing, petitioner raised a defense based on the previous offer-in-compromise. The Appeals settlement officer refused to discuss the underlying liabilities because of the prior opportunity to dispute them. The Appeals settlement officer requested that petitioner submit a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, in order to evaluate his financial situation and consider collection alternatives. Petitioner was not prepared to discuss collection alternatives. Petitioner, acting on advice of counsel, had not presented financial information. His counsel told petitioner:

We're not going to present any paperwork, we're not going to do nothing, we're just going to get through this process, through this step, and then we're going to go file a petition and go to federal court and fight the merits and fight the entire case at federal court, not at this level, so at this time we just need to go and do the process and get it past here and get to the federal court.

The Appeals settlement officer told petitioner that he had to provide the financial information that same day as part of the hearing.

On November 9, 2006, the Appeals Office sent the notice of determination to petitioners. The notice summarized the issues raised by the taxpayers and the conclusion reached as follows:

IRC § 6330(c) allows the taxpayer to raise any relevant issues relating to the unpaid tax at the hearing. In the request for a hearing the taxpayer states "Taxes were extinguished by accepted and paid offer in compromise. Taxpayers qualify for alternative collection method."

* * * * * * *

During the face-to-face hearing the taxpayer raised the issue of the accepted offer in compromise. He stated the IRS had accepted the offer, filed a tax lien on the amount of the accepted offer when he was unable to comply with its terms, and released the tax lien when the balance was paid. Once the lien was released, the IRS had no right to assess additional taxes.

* * * * * * *

The taxpayer stated he was not prepared to discuss collection alternatives at the hearing. His issue was the assessment of the additional tax liabilities, which he continues to believe was unfair. He stated he is currently unable to pay the balance due in full and would consider other options. One option he will consider is the filing of an Offer in Compromise. The taxpayer was advised of the new requirements for the processing fee and payment requirements. Another option he will consider is the filing of bankruptcy. This option was not discussed.

The taxpayer raised no other issues during the hearing.


BALANCING THE NEED FOR EFFICIENT COLLECTION WITH THE TAXPAYER'S CONCERN THAT COLLECTION ACTION BE NO MORE INTRUSIVE THAN NECESSARY

IRC Section § 6333(c)(3)(C) [6330(c)(3)(C)] requires that the Settlement Officer determine if the proposed levy action and the filed Notice of Federal Tax Lien balances the need for efficient collection of the taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. The tax liabilities are legally due and owing. No financial documents were provided. Therefore, the Settlement Officer had insufficient information to determine if the taxpayer qualified for a collection alternative such as an installment agreement or offer in compromise. Therefore, it is my determination that the levy and the lien balance the need for efficient tax collection with the taxpayer's concern that such action be no more intrusive than necessary. The proposed levy action and the filing of the Notice of Federal Tax Lien are sustained.


OPINION

Petitioners argue that it was an abuse of discretion for the Appeals settlement officer not to recognize that petitioners were receiving ineffective assistance of counsel and not to allow petitioners additional time to submit the required financial information. Petitioners assert:

The record in this case demonstrates that this controversy has been dragging on for over 10 years prior to the CDP hearing. It is manifestly unreasonable and arbitrary and capricious and an abuse of discretion not to allow taxpayers even 1 additional day in which to present the information necessary to resolve this case.

Respondent argues that: (1) It is unreasonable to expect the Appeals settlement officer to assess the adequacy of counsel's advice to a taxpayer; (2) based on their prior experience, petitioners were well aware of the requirement of providing financial information for consideration of an offer-in-compromise; and (3) petitioners failed to provide the information after the deadline passed.

We cannot conclude on this record that petitioners were not adequately advised by counsel. Petitioner's testimony suggests that there were strategic reasons for not producing the financial information at the hearing, and the decision not to produce "paperwork" was a deliberate one. We will not speculate as to the reasons for counsel's advice, and the Appeals settlement officer was certainly not in a position to inquire into the reasons for counsel's advice to petitioners. Neither reason nor authority supports petitioners' arguments based on alleged ineffectiveness of counsel.

Petitioners have invoked our jurisdiction under section 6330(d) to review the notice of determination sent to them with respect to the notice of tax lien filing and the proposed levies to collect their long-outstanding tax liabilities. Petitioners cite relevant authorities, but those authorities do not support their position. As petitioners acknowledge, the notice of determination is reviewed by this Court for abuse of discretion, which is defined as action that was arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner, 112 T.C. 19, 23 (1999). Under section 6320(b)(2), taxpayers are entitled to only one hearing with respect to taxable years in dispute. See sec. 301.6320-1(b)(1) and (2), Proced. & Admin. Regs. Petitioners had sufficient time to prepare for the hearing, were advised by experienced tax counsel, and had experience with respect to the financial information required to support an offer-in-compromise. They appeared at the hearing unprepared and unwilling to discuss collection alternatives. The only argument raised at the hearing was that the prior offer-in-compromise somehow affected the underlying tax liabilities. Petitioners have now abandoned that argument, which appears to have no merit.

Petitioners are seeking an opportunity to reverse course, abandon the strategy that they and their counsel adopted in relation to the hearing, and further delay collection of the liabilities that, as petitioners acknowledge, had accrued over a period in excess of 10 years. Through the time of trial petitioners had not presented the financial information necessary to resolve their tax liabilities without enforced collection. It was not unreasonable for the Appeals settlement officer to set a deadline, and not continuing the hearing cannot be characterized as arbitrary, capricious, or without sound basis in fact or law. In Roman v. Commissioner, T.C. Memo. 2004-20, we stated:

No statutory or regulatory provision requires that taxpayers be afforded an unlimited opportunity to supplement the administrative record. * * * The statute only requires that a taxpayer be given a reasonable chance to be heard prior to the issuance of a notice of determination.

Petitioners had that chance. To reflect the foregoing,

Decision will be entered for respondent.
Hearing procedures. --Notice of Levy and Right to Hearing: Hearing procedures

A taxpayer's claim that he was denied a CDP hearing because the hearing was scheduled "almost an hour away" was denied. The hearing was scheduled to be held at the IRS Appeals Ofice located nearest to the taxpayer's residence. The taxpayer failed to demonstrate why commuting one hour would be unduly burdensome to either himself or his witnesses. Moreover, telephone conversations between the taxpayer and an IRS appeals officer qualified as a collection due process hearing. The taxpayer and the appeals officer discussed the facts and history of the taxpayer's case, and the appeals officer heard and considered the taxpayer's arguments

S.W. Katz, 115 TC 329, Dec. 54,081.

Similarly, face-to-face hearing not required:

G.L. Sanford, CA-11 (unpublished opinion), 2008-2 USTC ¶50,410, aff'g, per curiam, an unreported Tax Court decision.

P.R. Burnett, CA-5 (unpublished opinion), 2007-1 USTC ¶50,433, 227 FedAppx 342 ,aff'g, per curiam, an unreported District Court decision.

B.E. Maynard, CA-9 (unpublished opinion), 2007-2 USTC ¶50,541,233 FedAppx 721, aff'g an unreported Tax Court decision.

W.T. Barry, DC Fla., 2008-1 USTC ¶50,293.

F.G. Martin, DC N.J., 2007-1 USTC ¶50,215. Aff'd, per curiam, CA-3 (unpublished opinion), 2007-1 USTC ¶50,216, 205 FedAppx 94.

G. Priest, DC Ill., 2006-2 USTC ¶50,571.

R.E. Gerhart, DC Pa., 2006-2 USTC ¶50,451.

D. Frese, DC N.J., 2006-1 USTC ¶50,169, 186 FSupp2d 1123.

E.C. Holmes, DC La., 2005-1 USTC ¶50,172.

D. Gardner, DC N.J., 2005-2 USTC ¶50,649.

T.E. Tilley, DC N.C., 2003-2 USTC ¶50,594, 270 FSupp2d 731.

T.S. Loofbourrow, DC Tex., 2002-1 USTC ¶50,465.

B.J. Konkel, DC Fla., 2001-2 USTC ¶50,520.

W.O. Taylor, 95 TCM 1602, Dec. 57,465(M), TC Memo. 2008-151.

G.R. Clark, 95 TCM 1610, Dec. 57,469(M), TC Memo. 2008-155.

L.P. Connolly, 95 TCM 1371, Dec. 57,400(M), TC Memo. 2008-95.

S.A. D'Onofrio, 95 TCM 1106, Dec. 57,328(M), TC Memo. 2008-25.

A. Oropeza, 95 TCM 1367, Dec. 57,399(M), TC Memo. 2008-94.

E. Enax, 95 TCM 1425, Dec. 57,423(M), TC Memo. 2008-116.

P.D. Dahlin, 94 TCM 388, Dec. 57,139(M), TC Memo. 2007-310.

C.E. Davis, 93 TCM 1396, Dec. 56,977(M), TC Memo. 2007-160.

E.W. Clough, 93 TCM 1170, Dec. 56,918(M), TC Memo. 2007-106.

T. Skeriotis, 93 TCM 972, Dec. 56,856(M), TC Memo. 2007-52.

L.P. Mitchell, 92 TCM 402, Dec. 56,669(M), TC Memo. 2006-238.

D.J. Faris, 92 TCM 451, Dec. 56,686(M), TC Memo. 2006-254.

B.W. Bean, 91 TCM 1083, Dec. 56,499(M), TC Memo. 2006-88.

A.T. Ball,, 92 TCM 7, Dec. 56,560(M), TC Memo. 2006-141.

H.D. Summers,, 92 TCM 345, Dec. 56,647(M), TC Memo. 2006-219.

G.W. Kozack, 90 TCM 425, Dec. 56,175(M), TC Memo. 2005-246.

S.A. Brandenburg,, 90 TCM 433, Dec. 56,178(M), TC Memo. 2005-249.

G. Wright, 90 TCM 615, Dec. 56,224(M), TC Memo. 2005-291.

J.H. Leineweber, 87 TCM 824, Dec. 55,518(M), TC Memo. 2004-17.

A. Thomas, 86 TCM 216, Dec. 55,253(M), TC Memo. 2003-231.

G. Gougler, 84 TCM 118, Dec. 54,824(M), TC Memo. 2002-185.

T. Armstrong, 84 TCM 287, Dec. 54,865(M), TC Memo. 2002-224.

An IRS settlement officer's refusal to grant a face-to-face hearing was an abuse of discretion because it had been requested by the taxpayer and it was unclear from the record whether the taxpayer and his attorney were aware that a telephone conversation with the settlement officer would be treated as a formal CDP hearing. Accordingly, the case was remanded to the IRS Appeals Office for a face-to-face hearing.

J. Cavanaugh, DC N.J. (unpublished opinion), 2004-2 USTC ¶50,420.

An Appeals officer's Collection Due Process (CDP) hearing determination to impose the frivolous return penalty was upheld. The individual participated in a telephone conference and was permitted to submit additional arguments in writing after the conference. Therefore, the IRS did not violate his rights by not holding an in-person hearing.

R. Ulloa, DC N.Y., 2008-2 USTC ¶50,547.

An IRS Appeals officer did not err or abuse of his discretion in sustaining the IRS's notice of Federal tax lien or proposed levy action without conducting a telephone interview with the taxpayer. The taxpayer failed to identify any materials that were not duly considered or that would otherwise would have affected the officer's decision.

J.E. Hunter, II, 93 TCM 852, Dec. 56,824(M), TC Memo. 2007-23.

The IRS's erroneous notice of determination that found an individual liable for the frivolous return penalty following an unscheduled telephone hearing with a revenue agent, which served as his Collection Due Process Hearing, was deemed invalid and was vacated. While acknowledging the erroneous statement in the notice, the government sought a remand at which the administrative hearing would be continued. However, it cited no authority under which the court could remand the matter. Moreover, a remand would constitute a judicial sanctification of the procedure used.

D. Montijo, DC Nev., 2002-1 USTC ¶50,321.

An individual who was granted additional time prior to collection of his tax liabilities to seek a private letter ruling as to his employment status, but who instead requested the IRS examination division to review his status, was given a full and fair opportunity to seek an alternative resolution of his tax liabilities. Since collection was delayed at least six months while the taxpayer sought the administrative resolution of his liabilities and the IRS did not impede his efforts to seek an alternative to collection, the IRS did not abuse its discretion in refusing to allow him an additional stay to obtain a private letter ruling.

K.P. Vossbrinck, 83 TCM 1474, Dec. 54,713(M), TC Memo. 2002-96.

An IRS Appeals officer improperly refused to address a taxpayer's challenge to the imposition of frivolous return penalties at his Collection Due Process (CDP) hearing; thus, the issue was remanded to IRS Appeals. Moreover, the Appeals officer declined to consider the taxpayer's conditional alternative to collection.

B.D. Erickson, DC Calif. (unpublished opinion), 2002-1 USTC ¶50,444.

A Collection Due Process (CDP) determination upholding a tax lien imposed against a delinquent taxpayer's property was not an abuse of discretion. The evidence established that she received copies of her transcripts of account for the tax years at issue; thus, the IRS did not abuse its discretion in failing to provide that information to her at the CDP hearing. Also, the IRS properly relied on the transcripts of account to satisfy the Code Sec. 6330(c)(1) verification requirements. Finally, because the taxpayer failed to raise a spousal defense, challenge the appropriateness of the IRS's collection action, or offer alternative means of collection, those issues were deemed conceded.

M. Eiselstein, 85 TCM 794, Dec. 55,025(M), TC Memo. 2003-22.

An individual failed to present evidence establishing the IRS's noncompliance with the administrative collection procedures under Code Sec. 6330(c)(1). The taxpayer's argument that the Collection Due Process hearing was improper because he was not allowed to conduct discovery or to compel the appearance of witnesses was rejected. The IRS was not obligated to provide the documents sought by the taxpayer, who did not have the right to subpoena witnesses.

K.A. Schrems, 85 TCM 801, Dec. 55,029(M), TC Memo. 2003-25.

The refusal of the IRS to afford formal discovery to an individual at his Collection Due Process hearing was not an abuse of its discretion. Moreover, it was not an abuse of discretion for the Appeals officer to refuse to allow the taxpayer's spouse to participate in the hearing. Although the likely reason for the taxpayer's argument was that his spouse held a community property interest in any property of his that might be subject to levy, the taxpayer and his spouse did not file joint returns during the years at issue. Consequently, she was not liable for the unpaid taxes that were the subject of the collection action, and she had no hearing rights.

J. Perez, 84 TCM 501, Dec. 54,924(M), TC Memo. 2002-274.

The government was entitled to dismissal or, in the alternative, summary judgment, with respect to an individual's action challenging frivolous return penalties assessed against her for two tax years. Her arguments under Code Sec. 6330 that the IRS Appeals officer at her Collection Due Process hearing improperly failed to produce various documents or consider her arguments, lacked merit. The court noted that an Appeals officer must verify that applicable laws and administrative procedures have been met; however, such verification need not be sent to the taxpayer.

C. Gregory, DC Ga., 2003-1 USTC ¶50,256.

The IRS did not prematurely close a taxpayer's Collection Due Process (CDP) hearing. There is no statutory or regulatory deadline for closing a hearing and issuing a notice of determination. Moreover, the IRS issued the notice almost three weeks after the hearing and, during that time period, the taxpayer failed to respond to the IRS charge that he had not complied with his current tax obligations.

A. Manjourides, 90 TCM 396, Dec. 56,171(M), TC Memo. 2005-242.

The IRS was entitled to summary judgment with respect to its determination to proceed with the collection of an individual's unpaid taxes, penalties and interest following a Collection Due Process hearing. The taxpayer unsuccessfully contended that the Appeals officer failed to obtain verification from the IRS that legal and administrative requirements under Code Sec. 6330(c)(1) had been satisfied. The Appeals officer had obtained, reviewed and provided the taxpayer with a copy of a transcript of account (Form 4340). Moreover, the notice of balance due that was issued to the taxpayer constituted a notice and demand for payment.

T.R. Smith, 85 TCM 889, Dec. 55,051(M), TC Memo. 2003-45.

Similarly:

G.J. Copeland, 85 TCM 894, Dec. 55,052(M), TC Memo. 2003-46.

M.D. Keown, 85 TCM 1003, Dec. 55,077(M), TC Memo. 2003-69.

D.E. Duncan, 85 TCM 1068, Dec. 55,097(M), TC Memo. 2003-89.

W.A. Swann, 85 TCM 1006, Dec. 55,078(M), TC Memo. 2003-70.

L.A. Cortes, 85 TCM 1036, Dec. 55,088(M), TC Memo. 2003-80.

R. Stoewer, 85 TCM 1009, Dec. 55,079(M), TC Memo. 2003-71.

G.R. Lyman, 85 TCM 1011, Dec. 55,080(M), TC Memo. 2003-72.

R.S. Quigley, DC Pa., 2005-1 USTC ¶50,305, 358 FSupp2d 427.

M.G. Blankenship, DC Tex., 2005-1 USTC ¶50,128.

T.W. Holliday, 90 TCM 390, Dec. 56,169(M), T.C. Memo. 2005-240.

A taxpayer's challenge to the validity of a Collection Due Process (CDP) determination holding him liable for frivolous return penalties was rejected, and his claim for compensatory and punitive damages against the government was dismissed. The IRS officer's failure to present verification that the applicable statutory and administrative procedures were satisfied did not invalidate the determination; although the officer was required to obtain the appropriate verification, he was not required to send or provide that verification to the taxpayer. Further, the IRS was not required to provide documents regarding imposition of the frivolous return penalty before imposing a levy or in connection with a CDP hearing, nor did it have to publish internal delegations of administrative authority in order to enforce the tax laws.

J. Tornichio, DC Ohio, 2003-1 USTC ¶50,285, 263 FSupp2d 1090.

An individual's challenge to two adverse Collection Due Process (CDP) determinations upholding the imposition of the frivolous return penalty for one year and the validity of a federal tax lien for a second year was dismissed for failure to state a justiciable claim because the IRS had properly complied with the applicable procedural requirements. With respect to the tax lien, despite the fact that the taxpayer failed to timely request a CDP hearing, the IRS reviewed the collection action and issued a determination that all procedural requirements had been met and that the assessment was proper. Thus, the taxpayer's challenge to the collection action was invalid.

D.L. Blackstone, DC Ga., 2003-1 USTC ¶50,347.

The issue of a taxpayer's underlying tax liability was not properly at issue in his appeal from an adverse Collection Due Process (CDP) determination; thus, the Tax Court reviewed that determination for an abuse of discretion on the part of the IRS Appeals officer and concluded that no such abuse had occurred. The taxpayer was properly provided with copies of his transcripts of account at, and subsequent to, the CDP hearing. Because he alleged no irregularity in the assessment procedure that would raise a question about the validity of the assessments or the information contained in the transcripts, the verification requirement was satisfied. Also, he was not entitled to summon or cross-examine witnesses, conduct discovery, examine documents, or obtain evidence from the IRS in connection with the informal hearing.

R. Bourbeau, 85 TCM 1205, Dec. 55,127(M), TC Memo. 2003-117.

The IRS issued a valid notice of determination to an individual with respect to his tax liability for one tax year. The signature of the IRS Appeals officer who conducted the taxpayer's Collection Due Process hearing was not required on the notice, which was reviewed, approved, and signed by IRS Appeals team managers in accordance with internal IRS policy. The Tax Court noted that Code Sec. 6330 does not require that a notice of determination be signed.

R.D. Elmore, 85 TCM 1234, Dec. 55,133(M), TC Memo. 2003-123.

An individual was not entitled to subpoena witnesses or documents to rebut evidence presented by the IRS prior to a Collection Due Process (CDP) hearing. As a result, the CDP determination imposing a frivolous return penalty was valid.

W.B. Britton, DC Nev., 2003-1 USTC ¶50,434.

A nonfiling individual's arguments that the IRS failed to properly conduct his Collection Due Process (CDP) hearing and that it unjustifiably imposed the delay penalty were rejected as frivolous. The Tax Court properly found that the IRS could proceed with collection activities for the two tax years at issue. The taxpayer's contention that his CDP hearing was inadequate due to the hearing officer's reliance on an automated Summary Record of Assessments form (RACS report), instead of a signed IRS Form 23C record of assessments, was meritless because the RACS report had replaced Form 23C. Since the taxpayer had requested a telephonic CDP hearing and had copies of pertinent documents, his contention that the hearing officer prevented him from examining documents was also meritless. Finally, the imposition of the delay penalty was not an abuse of discretion because it was justified by the record.

J.W. Hauck, Jr., CA-6 (unpublished opinion), 2003-1 USTC ¶50,445, 64 FedAppx 492.

An IRS Appeals officer did not abuse her discretion in issuing a Collection Due Process (CDP) determination permitting the IRS to proceed to levy against a corporate provider of services for mentally and physically challenged individuals in order to collect delinquent taxes. The Appeals officer verified that all applicable laws and administrative procedures incident to the issuance of a notice of intent to levy had been satisfied.

Community Residential Services, Inc., DC N.C., 2003-1 USTC ¶50,458 .

A Collection Due Process determination approving collection actions against a dentist for his delinquent employment tax liability was upheld. The IRS was entitled to collect the unpaid taxes by levy, and it timely assessed those taxes within three years from the date the applicable tax return was filed. Moreover, Code Sec. 6204(a) authorizes the IRS to make a supplemental assessment upon discovering that any assessment is imperfect or incomplete. Additionally, the dentist failed to raise a genuine issue of material fact as to whether the Form 4340 Certificate of Assessments and Payments was inaccurate.

M. Myers, D.D.S., CA-9 (unpublished opinion), 2003-1 USTC ¶50,467, 61 FedAppx 469.

An IRS Appeals officer's Collection Due Process (CDP) determination was upheld absent a showing that the taxpayer was not afforded a legitimate CDP hearing. He was not entitled to be provided with verification that the legal and procedural requirements were satisfied, and the IRS was authorized to impose levies against taxpayers.

R.B. Henning, DC Ohio, 2003-2 USTC ¶50,538.

A taxpayer was entitled, pursuant to Code Sec. 7521(a)(1), to make an audio recording of his Collection Due Process hearing with the IRS Appeals Office. The Tax Court concluded that the exchange of information between a taxpayer and an Appeals officer during an administrative hearing conducted under Code Sec. 6330 constituted an "in-person interview" within the meaning of that term as used in Code Sec. 7521(a)(1). Further, the court noted that there was nothing in Code Sec. 6330 or in the legislative history of that section to suggest that Congress did not intend to afford taxpayers the right, consistent with Code Sec. 7521(a)(1), to audio record administrative hearings in collections.

C.B. Keene, 121 TC 8, Dec. 55,213.

A taxpayer was not entitled to a second hearing because she was denied the opportunity to record the first hearing. Because she failed to make the recording request prior to the hearing, her argument was rejected.

S. Taylor, 87 TCM 848, Dec. 55,528(M), TC Memo. 2004-25.

The Tax Court rejected married taxpayers' challenge of an adverse Collection Due Process (CDP) determination on the grounds that they were denied the opportunity to make an audio recording of their CDP hearing. Despite the court's ruling in C.B Keene, 121 TC 8, CCH Dec. 55,213, that Code Sec. 7521(a) requires an appeals officer to allow a taxpayer to make an audio recording of the CDP hearing, the court was unwilling to remand the case for another hearing in light of the frivolous arguments raised by the taxpayers, who filed zero-income returns.

V. Brashear, 86 TCM 16, Dec. 55,215(M), TC Memo. 2003-196.

A. Horton, 86 TCM 19, Dec. 55,216(M), TC Memo. 2003-197.

G.R. Kemper, 86 TCM 12, Dec. 55,214(M), TC Memo. 2003-195.

G.L. Frey, 87 TCM 1170, Dec. 55,601(M), TC Memo. 2004-87.

G.E. Boyd, DC N.M., 2004-2 USTC ¶50,297, aff'd CA-10 (unpublished opinion), 2005-1 USTC ¶50,195.

C.C. Carrillo,, 92 TCM 177, Dec. 56,223(M), TC Memo. 2005-290.

G.K.J. Yuen, 92 TCM 1, Dec. 56,557(M), TC Memo. 2006-138.

The IRS's determination to proceed with a levy action against an individual was sustained. The taxpayer's procedural stance regarding the recording of collection hearings was correct because her request to record her hearing was made after the Tax Court's decision in Keene v Commr., 121 T.C. 8, Dec. 55,213 (2003). However, the individual raised only frivolous, tax-protestor type arguments at her trial. Therefore, the Tax Court refused to remand the case to appeals for a new hearing because the propriety of the collection determination could be decided on the record.

T. Taylor, 89 TCM 1017, Dec. 55,984(M), TC Memo. 2005-74.

Failure to provide opportunity to make an audio recording of CDP hearing was harmless error.

T.W. Holliday, 88 TCM 41, Dec. 55,704(M), TC Memo. 2004-172.

Similarly:

W.B. Meyer, 89 TCM 1046, Dec. 55,991(M), TC Memo. 2005-81. Aff'd, on another issue, CA-9 (unpublished opinion), 2006-2 USTC ¶50,539, 200 FedAppx 676.

W.B. Meyer, 89 TCM 1049, Dec. 55,992(M), TC Memo. 2005-82. Aff'd, on another issue, CA-9 (unpublished opinion), 2006-2 USTC ¶50,539, 200 FedAppx 676.

D.B. Malis, CA-9 (unpublished opinion), 2005-1 USTC ¶50,190, aff'g an unreported Tax Court decision.

M.G. Pomeranz, DC Fla., 2004-2 USTC ¶50,353.

J.G. Gilligan, 88 TCM 170, Dec. 55,731(M), TC Memo. 2004-194.

K. Thompson, 88 TCM 219, Dec. 55,741(M), TC Memo. 2004-204.

M.K. Dues, 89 TCM 1253, Dec. 56,022(M), TC Memo. 2005-109.

R. Lee, Jr., 88 TCM 469, Dec. 55,807(M), TC Memo. 2004-264.

N. Cozzens, 89 TCM 1129, Dec. 56,010(M), TC Memo. 2005-98.

R. Holliday, 89 TCM 1408, Dec. 56,049(M), TC Memo. 2005-132. Aff'd, CA-9 (unpublished opinion), 2006-2 USTC ¶50,430, 186 FedAppx 779.

D. Schwersensky, 92 TCM 177, Dec. 56,599(M), TC Memo. 2006-178.

W. Leggett, 92 TCM 551, Dec. 56,712(M), TC Memo. 2006-277.

An individual was not entitled to audio record a Code Sec. 6330 telephone hearing with the IRS Appeals Office. The telephone hearing did not constitute an in-person interview that is allowed to be audio recorded under Code Sec. 7521(a). C.B. Keene, 121 TC 8, Dec. 55,213, which treated a face-to-face hearing as an in-person interview, did not apply to a telephone hearing because the taxpayer and the IRS Appeals officer would not be within each other's physical presence. However, since the taxpayer's decision to reject the IRS's offer of a face-to-face hearing in favor of a telephone hearing was made before the Keene decision was released and before the IRS issued guidance on its post-Keene position, the Tax Court exercised its discretion and remanded the case for further proceedings so that the taxpayer could be given the opportunity to have a face-to-face hearing that could be audio recorded.

D. Calafati, 127 TC 219, Dec. 56,705.

An IRS settlement officer did not abuse his discretion in terminating a telephone hearing with an individual who owed taxes, and deciding that a federal tax lien was appropriately imposed on the taxpayer's property. At some point in the telephone hearing, the taxpayer and his representative confirmed that they were making an audio recording of the hearing without having made an advance request as required by Code Sec. 7521(a)(1). There was no prejudice in not permitting the recording because the taxpayer did not assert that he raised any collection alternatives that were not considered by the settlement officer.

T.O. Maxton, Jr., 93 TCM 1132, Dec. 56,906(M), TC Memo. 2007-95.

Although the Appeals officer had refused to allow a stenographer to record the collection due process hearing, whereupon the individual refused to proceed, the Tax Court declined to remand the case. No purpose would be served by a remand or additional hearings.

D.A. Lehmann, 89 TCM 1084, Dec. 56,001(M), TC Memo. 2005-90.

An IRS Appeals officer's Collection Due Process (CDP) determination upholding the imposition of a frivolous return penalty was sustained, absent proof that the IRS failed to follow proper procedures during the CDP hearing.

M.A. Mayben, Jr., DC Nev., 2003-2 USTC ¶50,567.

Similarly:

P. Christian, DC Pa., 2003-2 USTC ¶50,562.

D. Jones, CA-5, 2003-2 USTC ¶50,584, 338 F3d 463.

G. Newman, DC Nev., 2003-1 USTC ¶50,474.

R.T. Broderick, CA-9, 2004-1 USTC ¶50,147, 83 FedAppx 929.

C.M. Van Gaasbeck, DC Nev., 2004-1 USTC ¶50,185.

L.H. McDonald, DC Tex., 2004-1 USTC ¶50,117.

T.E. Johnson, DC Calif., 2003-2 USTC ¶50,689, 291 FSupp2d 1163.

R.E. Hardy, DC Ala.2003-2 USTC ¶50,542.

H.D. Goltz, CA-52003-2 USTC ¶50,587, 70 FedAppx 212.

M.A. Farenga, DC N.Y., 2004-1 USTC ¶50,240.

J.W. Bunch, DC Nev., 2004-1 USTC ¶50,282.

M.G. Pomeranz, DC Fla., 2004-2 USTC ¶50,353.

K.F. Deyo, Jr., DC Conn., 2007-1 USTC ¶50,152.

B.E. Carrillo, CA-9 (unpublished opinion), 2003-2 USTC ¶50,651, 72 FedAppx 732.

M. Cipolla, DC N.Y., 2003-2 USTC ¶50,722.

L.C. Standifird, CA-9 (unpublished opinion), 2003-2 USTC ¶50,652, 72 FedAppx 729, aff'g 84 TCM 371, Dec. 54,889(M) TC Memo. 2002-245.

W.J. Kubon, 89 TCM 1001, Dec. 55,981(M), TC Memo. 2005-71.

R. Broderick, CA-9 (unpublished), 2005-1 USTC ¶50,200, aff'g unreported Tax Court order.

L.A. Sergio, DC Ga., 2005-1 USTC ¶50,232.

L. Ray, DC Nev., 2003-2 USTC ¶50,657291 FSupp2d 1179.

M. Cipolla, 87 TCM 801, Dec. 55,507(M), TC Memo. 2004-6.

A federal district court properly dismissed an individual's challenge of a collection due process (CDP) determination imposing a frivolous return penalty against the taxpayer for filing a zero-income return. The taxpayer failed to file a meaningful return, and his challenge of the penalty was deemed frivolous.

G.D. Henry, CA-5, 2003-2 USTC ¶50,587, 70 FedAppx 212.

The district court dismissed an individual's challenge to an adverse CDP determination where evidence established that the IRS followed proper hearing procedures. The Appeals officer was not required to provide the taxpayer with a copy of the verification that the requirements of applicable law and administrative procedure had been met. The taxpayer was appropriately prohibited from disputing her underlying tax liability because she received a notice of deficiency and did not contest the liability at that time. Moreover, the Appeals officer was not required to produce documentation of a delegation of authority to impose or collect the frivolous return penalty. Finally, the taxpayer unsuccessfully argued that the IRS improperly denied her a collection alternative after she challenged the Appeals officer to produce a statute or code regulation authorizing the imposition of the frivolous return penalty.

D.J. Barnett, DC Fla., 2003-2 USTC ¶50,612.

The government was granted summary judgment dismissing an individual's challenge to an adverse Collection Due Process (CDP) determination where no genuine issues of material fact remained. The taxpayer failed to establish that the Appeals officer abused his discretion in deciding to proceed with collection without holding a CDP hearing. The taxpayer failed to provide the Appeals officer with a power of attorney form authorizing a law firm to participate in the hearing on his behalf, and failed to return the Appeals officer's telephone calls.

L.A. McLee, 86 TCM 317, Dec. 55,275(M), TC Memo. 2003-252.

The IRS was entitled to summary judgment with respect to an individual's challenge to its Collection Due Process hearing determination to maintain a notice of federal tax lien. The taxpayer raised no legitimate issues regarding his underlying tax liabilities in his request for hearing, during the course of proceedings, or in his Tax Court petition. The requirements of applicable law and administrative procedure were met with respect to his assessment. Moreover, the taxpayer received notice and demand for payment and copies of certified transcripts showing that the assessments were valid. There was no evidence that the Appeals officer abused his discretion during the hearing.

J.M. Young, 85 TCM 739, 55,007(M), TC Memo. 2003-6.

An Appeals officer's Collection Due Process determination permitting the IRS to proceed with collection against an individual who failed to appear for the scheduled conference was not an abuse of discretion.

S. Taylor, 87 TCM 848, Dec. 55,528(M), TC Memo. 2004-25.

The government's motion to dismiss an individual's challenge of an adverse Collection Due Process determination, which imposed a frivolous return penalty, was denied. The administrative record was inadequate in that it did not establish the IRS's compliance with statutory procedure, and did not provide a basis for the imposition of the frivolous return penalty.

D. Muhammad, DC S.C., 2003-2 USTC ¶50,647.

The district court declined to invalidate a Collection Due Process determination made against an individual because no genuine issue of material fact existed regarding the legality of the hearing. The taxpayer submitted Forms 1040 for the tax years at issue with zeros in the income section and, as a result, was subject to frivolous return penalties, the underlying tax liability in the case. The hearing officer verified that all legal and administrative requirements were met and properly considered collection alternatives.

G. K. J. Yuen, DC Nev., 2003-2 USTC ¶50,661, 290 FSupp2d 1220.

An individual taxpayer waived his rights to his Collection Due Process (CDP) hearing by failing to comply with procedural rules prohibiting the tape recording of the CDP hearing. Thus, he could not assert that his rights to due process were denied.

C.N. Henry, DC Md., 2002-2 USTC ¶50,781.

The district court properly ruled in favor of the government in a taxpayer's action seeking to vacate an IRS notice of determination that approved assessments of frivolous return penalties for three tax years. The IRS presented uncontroverted evidence establishing that it provided the taxpayer with adequate notice, and the taxpayer failed to raise a genuine issue of material fact as to whether the Appeals officer abused his discretion in determining, pursuant to Code Sec. Code Sec. 6330(c)(1), that the IRS had met the requirements of applicable law or administrative procedures.

L. Standifird, CA-9 (unpublished opinion), 2002-2 USTC ¶50,584, aff'g unreported district court decision.

An individual's suit against the IRS was dismissed because the taxpayer failed to establish that the notice and hearing procedures followed by IRS agents were improper. The notice of levy signed by the chief of the IRS Automated Collection Branch fulfilled the requirements of Code Sec. 6330, and the underlying tax liability raised by the taxpayer at the Collection Due Process (CDP) hearing was appropriately disregarded. Moreover, the taxpayer's request for IRS documentation, which essentially constituted a request for legal research, exceeded the bounds of the Freedom of Information Act. Also, there was no legal foundation for the taxpayer's claim that IRS Appeals officers failed to provide documentary support for a frivolous return penalty; the IRS had issued the taxpayer two notices indicating an outstanding tax lien and the possibility of a penalty. Finally, the taxpayer's claim that the requirements of Code Sec. 6331had not been met lacked merit because no collection occurred and the CDP hearing was not about the taxpayer's failure to pay taxes.

R.. Cole, DC Mich., 2002-2 USTC ¶50,804, aff'g unreported district court decision.

An individual's suit challenging IRS collection activities was dismissed without leave to amend. The IRS's alleged failure to send the taxpayer verification prior to the issuance of a determination was not in violation of Code Sec. 6330. Furthermore, there was no legal requirement that the IRS produce any of the documents the taxpayer claimed it needed to produce prior to the imposition of a levy or in connection with the Collection Due Process hearing; and there was no requirement of publication of internal delegations of administrative authority to enforce Internal Revenue laws. The taxpayer's remaining allegations failed to state a claim upon which relief could be granted. His allegations did not propose an alternative to collection by levy as described in Code Sec. 6330, but rather proposed a condition to payment of the underlying ability, which was clear as a matter of law and known to the taxpayer.

S. Rennie, DC Calif., 2002-2 USTC ¶50,548, 216 FSupp2d 1078.

Taxpayer failed to establish that the notice and hearing procedures followed by IRS agents were improper. The notice of levy signed by the chief of the IRS Automated Collection Branch fulfilled the requirements of Code Sec. 6330, and the underlying tax liability raised by the taxpayer at the Collection Due Process (CDP) hearing was appropriately disregarded. Moreover, the taxpayer's request for IRS documentation, which essentially constituted a request for legal research, exceeded the bounds of the Freedom of Information Act. Also, there was no legal foundation for the taxpayer's claim that IRS Appeals officers failed to provide documentary support for a frivolous return penalty; the IRS had issued the taxpayer two notices indicating an outstanding tax lien and the possibility of a penalty.

S. Rennie, DC Mich., 2002-2 USTC ¶50,804.

The taxpayer's claim that he was entitled to remand his case to the Appeals Office for further proceedings because the Appeals officer failed to complete the hearing process or take into consideration his request for abatement of interest and penalties was dismissed. Regardless of whether the taxpayer was accorded his right to a hearing pursuant to Code Sec. 6330(b), he was not prejudiced, and it was neither necessary nor productive to remand his case.

B.S. Parikh, 86 TCM 720, Dec. 55,377(M), TC Memo. 2003-341.

An IRS Appeals officer's Collection Due Process (CDP) determination upholding the imposition of a delay penalty was sustained, absent proof that the IRS failed to follow proper procedures during the CDP hearing.

M. Cipolla, 87 TCM 801, Dec. 55,507(M), TC Memo. 2004-6.

No genuine issue of material fact remained with respect to the taxpayer's claim that he did not have a "hearing" within the meaning of Code Secs. 6320(b) or 6330(b). The IRS Appeals officer heard and considered all of the taxpayer's arguments via telephone conference, which satisfied Reg. §301.6320-1(d)(2).

A.J. Dorra, 87 TCM 822, Dec. 55,517(M), TC Memo. 2004-16.

The IRS did not abuse its discretion in issuing married taxpayers notices of determination without conducting a collection due process hearing that they had requested. The taxpayers failed to take advantage of several opportunities to properly request a hearing and engaged in dilatory conduct to postpone collection.

V.S. Pless, 87 TCM 845, Dec. 55,527(M), TC Memo. 2004-24.

An IRS Appeals officer who denied an individual's request for a further postponement of his Collection Due Process (CDP) hearing did not abuse her discretion in determining that the IRS was entitled to proceed with collection. The taxpayer had been granted two prior postponements and had failed to submit an offer in compromise to the Appeals officer, he was deemed to have been afforded a proper opportunity for a hearing.

S.M. Day, 87 TCM 949, Dec. 55,534(M), TC Memo. 2004-30.

An IRS Appeals officer's decision to continue with the CDP hearing despite the fact that the taxpayer had not received tax records he requested from the IRS did not constitute an abuse of discretion. The taxpayer did not ask for an extension of time in order to obtain the records before the hearing.

C.E. Minion, Sr., CA-6, 2004-1 USTC ¶50,161, 79 FedAppx 172.

The Tax Court dismissed an individual's challenge to an adverse Collection Due Process (CDP) determination. The taxpayer was properly prohibited from addressing her underlying tax liability. She received a notice of deficiency and, as a result, had a prior opportunity to dispute the liability. The court rejected the taxpayer's argument that the balance due under a proposed installment agreement was excessive.

L.M. Hiltz, 87 TCM 973, Dec. 55,545(M), TC Memo. 2004-38.

The government was not entitled to a dismissal of an individual's challenge to an adverse Collection Due Process (CDP) determination. The taxpayer provided significant evidence that he made attempts to negotiate collection alternatives to satisfy his outstanding taxes. The parties contemplated further negotiations, even though certain taxpayer correspondence might not have been received by the IRS.

A.G. Cooper, 87 TCM 1033, Dec. 55,559(M), TC Memo. 2004-50.

The IRS was limited to an assessment amount indicated in a settlement agreement it entered into with married taxpayers in connection with one tax year. The settlement agreement was validated by the Tax Court and represented a final and binding resolution.

T.J. Ratke, 87 TCM 1169, Dec. 55,600(M), TC Memo. 2004-86.

The taxpayer did not request redetermination after receiving the deficiency notices; therefore, he could not contest the underlying tax deficiencies.

J.G. Gilligan, 88 TCM 170, Dec. 55,731(M), TC Memo. 2004-194.

An informal hearing between an individual and an IRS Appeals officer to discuss employment taxes owed in connection with the taxpayer's moving company constituted a Collection Due Process (CDP) hearing. The taxpayer was given notice of the relevant tax issue, was informed of the IRS's position, and was given an opportunity to be heard. The Appeals officer already had the necessary documentation at the time of the meeting, and the parties engaged in follow-up telephone conferences. Moreover, there were no factual issues in dispute. The taxpayer conceded that taxes were owed and agreed with the IRS's revised calculations. As such, their review of the taxpayer's file constituted a CDP hearing under the low standard imposed by Reg. §301.6330-1.

S.D. Stewart, DC Pa., 2004-1 USTC ¶50,212.

A taxpayer's request for a collection due process (CDP) hearing under Code Sec. 6330 was met by means of two telephone conversations between the taxpayer's representative and the IRS appeals officer.The taxpayer failed to offer evidence as to the content of the conversations; thus there was, no basis to conclude that the IRS improperly characterized the conversations as CDP hearings.

C. Whiting, 87 TCM 1399, Dec. 55,658(M), TC Memo. 2004-136.

An IRS initiation of collection proceedings was sustained despite numerous allegations by the taxpayer of procedural errors and improper deficiency assessment. The taxpayer claimed (1) IRS notices were invalid because they were not signed under penalties of perjury, (2) the Appeals officer had not met the requirements of Code Sec. 6330, a "procedurally proper" Notice and Demand for Payment was not issued and, (4) they were entitled to an examination interview or administrative appeal. All taxpayer allegations were dismissed.

J.O. Milam Jr., 87 TCM 1214, Dec. 55,609(M), TC Memo. 2004-94.

Taxpayers failed to show they were denied a fair hearing on their appeal of the IRS's determination to levy their property. Although the taxpayers alleged that a CDP hearing was not properly provided, a series of communications, including a telephone conversation, can collectively satisfy the CDP hearing requirement. There is no requirement that a CDP hearing be specifically designated as such by the conducting officer so long as the taxpayers and IRS officers address the issues on the merits during the communications.

Allglass Systems, Inc., DC Pa., 2004-2 USTC ¶50,387, 330 FSupp2d 540.

The IRS's collection action could proceed. The individual never appeared at the scheduled hearing and did not respond to telephone calls from the hearing officer.

T.D. Hiland, 88 TCM 322, Dec. 55,767(M), TC Memo. 2004-225.

The IRS did not abuse its discretion in determining to proceed with collection actions against the taxpayer. In reaching this decision, the Tax Court refused to remand the case to Appeals even if there were an Appeals office closer to where the taxpayer lived than the one where the IRS offered to hold the hearing. While taxpayers must be offered an opportunity for a hearing at the Appeals office closest to their residence, because the taxpayer's arguments were limited to the Code Sec. 6330(c)(1) verification requirements, his presence was not required for the hearing.

M.E. Vierow, 88 TCM 422, Dec. 55,798(M), TC Memo. 2004-255. Aff'd, CA-9 (unpublished opinion), 2006-1 USTC ¶50,133, 158 FedAppx 926.

A levy determination on an individual's property was remanded because the taxpayer and his representative had no prior notice of the date or time of the collection due process (CDP) hearing. The Appeals officer considered two telephone conversations with the taxpayer's representative to be a CDP hearing. However, at no time during the phone calls did the taxpayer's representative have any clear notice that the phone calls constituted the taxpayer's CDP hearing. Since the taxpayer was entitled to at least minimal notice of the hearing, no adequate CDP hearing was provided.

J.W. Cox, DC Okla., 2004-2 USTC ¶50,404, 345 FSupp2d 1218.

While the IRM instructed the hearing be held at the taxpayer's place of business, in this case, failure to do so did not amount to an abuse of discretion by the settlement officer

Reid & Reid, Inc., DC Md., 2005-1 USTC ¶50,266.

The Tax Court found that a taxpayer was entitled to make an audio recording of his Collection Due Process hearing and ordered that the case be remanded to IRS Appeals, but only if the taxpayer intended to make non-frivolous arguments at the remanded hearing. Because the taxpayer continued to forward only frivolous arguments, remand was unnecessary. The collection action was, therefore, allowed to proceed because there was no abuse of discretion and the IRS could determine that collection was appropriate from the evidence it had already compiled.

R.E. Crandall,, 90 TCM 573, Dec. 56,219(M), TC Memo. 2005-286.

The IRS has issued a fact sheet explaining its collection process, suggesting actions for taxpayers who are unable to pay what they owe or who question the accuracy of their tax bills. The IRS also suggests that taxpayers who cannot pay what they owe liquidate assets and/or arrange for a loan, since the cost of a loan may be lower than the combination of interest and penalties imposed by the IRS. The many forms of payment that taxpayers may use to pay outstanding amounts are listed, as are methods of contacting the IRS to discuss possible inaccuracies in bills as well as alternatives for taxpayers who truly are unable to pay. Liens are discussed, as are account delinquencies, seizure of assets and appeal rights. Amongst resources that a taxpayer may turn to are many IRS publications and other information found on the IRS website.

IRS Fact Sheet FS-2006-11, January 3, 2006.

The IRS was entitled to proceed with the collection of unpaid taxes, penalties and interest against an individual who reported zero income on his tax return and attached a statement containing frivolous and groundless tax protestor arguments. The Appeals officer did not abuse his discretion when he determined that a levy was appropriate even though there was no face-to-face hearing. The individual failed to indicate any legitimate issues to be addressed in the hearing, such as spousal defenses, the appropriateness of the intended collection action or possible alternative means of collection or interest abatement. Furthermore, the IRS properly verified that the requirements of applicable law and administrative procedures were met and that it balanced the need for efficient collection of taxes with the legitimate concern that the collection action be no more intrusive than necessary.

R. Ho,, 91 TCM 876, Dec. 56,447(M), TC Memo. 2006-41.

The IRS did not abuse its discretion in refusing to grant an in-person collection due process hearing and not allowing an audio recording. Nor did IRS fail to verify that it had complied with all legal and procedural requirements. In addition, the married taxpayers' request to bar summary judgment was premature and their request to dismiss the Justice Department for failure to produce authorization from the Secretary of Treasury and the Attorney General's office was without foundation in the Code, since there is no Code requirement to produce such internal documents.

R. Dibble, DC Mich., 2006-1 USTC ¶50,254.

An individual taxpayer's complaint of an improperly conducted Collection Due Process (CDP) hearing was unfounded. The individual had no rights to the names, titles and job descriptions of IRS employees because their identities had no relevance as to whether the levy to collect penalties was valid. The IRS was also not required to present oral testimony if authenticated documentation was available.

M. S. Eash, DC Neb., 2006-1 USTC ¶50,186.

The IRS's determination to proceed with a levy against an individual for unpaid liability arising from several years was not an abuse of discretion. The IRS Appeals Office prepared a supplemental notice of determination in response to the individual's Tax Court filing, which was an improper act while the Tax Court retained jurisdiction. Upon remand for a second CDP hearing, a second supplemental notice of determination was prepared. The individual's argument that the impropriety of the initial notice of determination was to an abuse of discretion was dismissed as moot. The Tax Court's remand of the case to Appeals was an appropriate act and the individual had been accorded all pre-levy rights under Code Sec. 6330.

K.A. Sapp, 91 TCM 1177, Dec. 56,519(M), TC Memo. 2006-104.

An individual's claim that he did not receive a proper collection hearing because it was conducted by a settlement officer, rather than an Appeals officer, was without merit. There is no requirement that a collection hearing be conducted by an Appeals officer; the hearing need only be conducted by an officer or employee of the Appeals office, which includes a settlement officer. Further, the settlement officer was under no obligation to provide specific evidence to the individual that statutory and administrative requirements had been met. The settlement officer's reliance on a Form 4340 was sufficient to meet the verification requirements of Code Sec. 6330(c)(1). The individual did not present any evidence that the settlement officer abused his discretion but instead raised frivolous tax protestor arguments. Therefore, the IRS's determination was not an abuse of discretion and the proposed collection could proceed.

W. Reynolds, 92 TCM 260, Dec. 56,617(M), TC Memo. 2006-192.

Taxpayers who had received a timely notice of deficiency could not contest their tax liability under Code Sec. 6330(c)(2)(B) during a collection due process hearing. Although the IRS did not also mail a copy of a deficiency notice to the taxpayers' named representative, such failure did not invalidate the notice of deficiency.

C.H. Bond, 94 TCM 207, Dec. 57,062(M), TC Memo. 2007-240.

A corporate taxpayer was entitled to a new Collection Due Process (CDP) hearing because the IRS Appeals officer originally assigned to the matter participated in an ex parte communication with the revenue agent who issued the levy. Along with the taxpayer's case files, the revenue agent forwarded to the Appeals officer a cover letter describing in detail why the levy should be sustained. The cover letter was precisely the sort of ex parte contact prohibited by Rev. Proc. 2000-43, 2000-2 CB 404. Moreover, the court rejected the Appeals officer's testimony that he was not influenced by the cover letter because of the hostile manner in which he conducted the CDP hearing process. Finally, the taxpayer's request that the Appeals officer review a settlement agreement was not a prohibited attempt to contest the taxpayer's previously litigated tax liability. The taxpayer merely wanted to confirm that the IRS had made the required adjustments to its account.

Industrial Investors, 93 TCM 1126, Dec. 56,904(M), TC Memo. 2007-93.

The IRS did not abuse its discretion in issuing a tax lien against a corporation for nonpayment of corporate income and payroll taxes. The taxpayer's claims that the tax lien was excessive and that it did not receive a fair and impartial Collection Due Process hearing (CDP) were rejected. The IRS officer's written comment in her notes was insufficient to support a finding that the officer was not impartial or that the taxpayer was denied a fair hearing.

C & W Mechanical Contractors, Inc., DC Ga., 2007-1 USTC ¶50,504. Aff'd, per curiam, CA-11 (unpublished opinion), 2008-1 USTC ¶50,313.

An IRS Appeals Officer did not abuse his discretion in declining to await the outcome of an individual's "eleventh-hour" request for audit reconsideration before issuing his determination to sustain a proposed collection action. Pursuant to Reg. §301.6330-1(e)(3), Q&A-E9, the Appeals Officer was to conduct the hearing and issue a determination as expeditiously as possible. In addition, the individual failed to make a valid challenge to the appropriateness of the intended collection action or to offer an alternative means of collection.

O.K. Jones, 93 TCM 1312, Dec. 56,958(M), TC Memo. 2007-142.

The IRS did not abuse its discretion by terminating an individual's Collection Due Process hearing. The individual had been provided with a meaningful opportunity to present arguments why the levy should not be allowed to proceed but had raised no substantive issues and did not provide required financial information. Furthermore, the proper assessments were made and requisite notices had been sent.

R.B. Keenan, 92 TCM 470, Dec. 56,693(M), TC Memo. 2006-260.

Proposed Regulations on section 6694 return preparer penalties
NPRM REG-129243-07 June 17, 2008 DEPARTMENT OF THE TREASURY

Internal Revenue Service (IRS)

26 CFR Parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54, 55, 56, 156, 157, and 301

[REG-129243-07]

RIN 1545-BG83

Tax Return Preparer Penalties under Sections 6694 and 6695

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations implementing amendments to the tax return preparer penalties under sections 6694 and 6695 of the Internal Revenue Code (Code) and related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments to the Code made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007. The proposed regulations affect tax return preparers and provide guidance regarding the amended provisions. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by [ INSERT DATE THAT IS 60 DAYS AFTER PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER]. Outlines of topics to be discussed at the public hearing scheduled for Monday, August 18, 2008, must be received by Monday, August 4, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-129243- 07), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-129243-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C., or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov/Regs (IRS REG-129243-07). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Michael E. Hara, (202) 622-4910, and Matthew S. Cooper, (202) 622-4940; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Regina Johnson, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:



Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by [ INSERT DATE THAT IS 60 DAYS AFTER PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER]. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this proposed regulation is in §§1.6060-1(a)(1), 1.6107-1, 1.6694- 2(c)(3), 20.6060-1(a)(1), 20.6107-1, 25.6060-1(a)(1), 25.6107-1, 26.6060-1(a)(1), 26.6107-1, 31.6060-1(a)(1), 31.6107-1, 40.6060-1(a)(1), 40.6107-1, 41.6060-1(a)(1), 41.6107-1, 44.6060-1(a)(1), 44.6107-1, 53.6060-1(a)(1), 53.6107-1, 54.6060-1(a)(1), 54.6107-1, 55.6060-1(a)(1), 55.6107-1, 56.6060-1(a)(1), 56.6107-1, 156.6060-1(a)(1), 156.6107-1, 157.6060-1(a)(1), and 157.6107-1. This information is necessary to make the record of the name, taxpayer identification number, and principal place of work of each tax return preparer, make each return or claim for refund prepared available for inspection by the Commissioner of Internal Revenue, and to document that the tax return preparer advised the taxpayer of the penalty standards applicable to the taxpayer in order for the tax return preparer to avoid penalties under section 6694. The collection of information is required to comply with the provisions of section 8246 of the Small Business and Work Opportunity Tax Act of 2007. The likely respondents are tax return preparers and their employers.

Estimated total annual reporting burden: 10,679,320 hours.

Estimated average annual burden per respondent: 15.6 hours.

Estimated number of respondents: 684,268.

Estimated frequency of responses: 127,801,426.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.



Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1), the Estate Tax Regulations (26 CFR part 20), the Gift Tax Regulations (26 CFR part 25), the Generation-Skipping Transfer Tax Regulations (26 CFR part 26), the Employment Tax and Collection of Income Tax at Source Regulations (26 CFR part 31), the Excise Tax Procedural Regulations (26 CFR part 40), the Highway Use Tax Regulations, (26 CFR part 41), the Wagering Tax Regulations (26 CFR part 44), the Foundation and Similar Excise Tax Regulations (26 CFR part 53), the Pension Excise Tax Regulations (26 CFR part 54), the Excise Tax on Real Estate Investment Trusts and Regulated Investment Companies Regulations (26 CFR part 55), the Public Charity Excise Tax Regulations (26 CFR part 56), the Excise Tax on Greenmail Regulations (26 CFR part 156), the Excise Tax on Structured Settlement Factoring Transactions Regulations (26 CFR part 157), and the Regulations on Procedure and Administration (26 CFR part 301) implementing the amendments to tax return preparer penalties under sections 6694 and 6695 (and the related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36)) made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007, Public Law 110-28 (121 Stat. 190) (May 25, 2007) (the 2007 Act).

In accordance with the 2007 Act, these proposed regulations amend existing regulations defining income tax return preparers to broaden the scope of that definition to include preparers of estate, gift, and generation-skipping transfer tax returns, employment tax returns, excise tax returns, and returns of exempt organizations. These proposed regulations also revise current regulations to amend the standards of conduct that must be met to avoid imposition of the tax return preparer penalty under section 6694. In addition, these proposed regulations reflect changes to the computation of the section 6694 tax return preparer penalty made by the 2007 Act. These regulations also amend current regulations under the penalty provisions of section 6695 to conform them with changes made by the 2007 Act expanding the scope of that statute beyond income tax returns. The Treasury Department and the IRS intend to finalize these proposed regulations by the end of 2008, with the expectation that the final regulations will be applicable to returns and claims for refund filed (and advice given) after the date that final regulations are published in the Federal Register, but in no event sooner than December 31, 2008.



History of the Tax Return Preparer Penalty Provisions

The 2007 Act amended section 6694 to expand the definition of tax return preparer, broaden the scope of the tax return preparer penalties to include preparers of returns other than income tax returns, revise the standards of conduct that tax return preparers must meet to avoid imposition of penalties, and change the computation of the tax return preparer penalties. The 2007 Act did not amend a number of other Code sections related to tax return preparer conduct, nor did it directly address the tax regulations, published guidance, and case law that have developed since enactment of the preparer penalty regime as part of the Tax Reform Act of 1976, Public Law 94-455 (90 Stat. 1688) (October 4, 1976) (the 1976 Act).

The Treasury Department and the IRS believe that the recent amendments to the tax return preparer penalty provisions necessitate a comprehensive review and overhaul of all the tax return preparer penalties and related regulatory provisions. These proposed regulations are the first significant step in this process. Because the proposed regulations were drafted with consideration of the existing regulations and the legislative history of the statutory provisions that were amended by the 2007 Act, a brief review of the legislative and regulatory history leading up to the recent amendments is appropriate in order to place the proposed regulatory changes reflecting the 2007 Act amendments in context.



The Tax Reform Act Of 1976

The provisions in section 7701(a)(36) defining income tax return preparers, and the provisions in sections 6694, and 6695, imposing various penalties on income tax return preparers, were first enacted by the 1976 Act. Sections 6107 and 6109, imposing an obligation on return preparers to furnish and maintain copies of returns and include an identifying number on those returns, were also enacted by the 1976 Act.

As originally enacted, section 7701(a)(36)(A) defined the term income tax return preparer to mean any person who prepared for compensation, or who employed one or more persons to prepare for compensation, any income tax return or income tax claim for refund, or a "substantial portion" of such return or claim. Section 7701(a)(36)(B) excluded from the definition of income tax return preparer persons who merely provided mechanical assistance in the preparation of a return or claim for refund, or who prepared returns and claims as an employee of the taxpayer or in a fiduciary capacity. The legislative history to the 1976 Act explained that whether or not a portion of a return constituted a substantial portion of a tax return was to be determined by examining both the length and complexity of that particular portion of the return and the amount of tax liability involved. The legislative history noted, however, that the filling out of a single schedule would generally not be considered a substantial portion of that return unless that particular schedule was the dominant portion of the entire tax return. The legislative history also provided that a person who prepared a return for compensation may be an income tax return preparer even though that person did not actually place figures on a taxpayer's return. See S. Rep. No. 94-938, 94 th Cong., 2 d Sess. 349-359 (1976).

As originally enacted, section 6694(a) imposed a "first tier" penalty of $100 if any part of an understatement was due to the negligent or intentional disregard of rules or regulations by an income tax return preparer. Section 6694(b) imposed a "second tier" penalty of $500 if any part of an understatement was due to a willful attempt in any manner to understate tax liability by an income tax return preparer. Section 6695(b) imposed a penalty of $25 if an income tax return preparer failed to sign a return or claim for refund in the manner prescribed by regulations. Sections 6695(a), (c), (d), and (e) also imposed penalties of $25 if an income tax return preparer failed to comply with the various identification rules in sections 6107(a), 6109(a)(4), 6107(b) and 6060.

The House and Senate Reports to the 1976 Act, H. Rep. No. 94-658, 94 th Cong., 1 st Sess. at 274 (1975) and S. Rep. No. 94-938 at 349-50, and the Joint Committee on Taxation's General Explanation of the Tax Reform Act of 1976, 94 th Cong., 2 d Sess. at 346 (1976), explained the need for the new tax return preparer penalty regime by noting the significant number of fraudulent returns and tax return preparers engaged in abusive practices. The legislative history further explained that, under prior law, it was often difficult for the IRS to detect any individual case of improper return preparation. This was because the IRS generally had no way of knowing whether the return was prepared by the taxpayer or by a tax return preparer who may have engaged in abusive practices involving a number of returns. Further, even when the IRS could trace the improper preparation of tax returns to an individual tax return preparer, the only sanctions available were criminal penalties, which were often considered inappropriate, cumbersome, and ineffective deterrents because of the cost and length of time involved in prosecuting those cases. The legislative history makes clear that Congress intended the tax return preparer penalties to aid the IRS in detecting returns that were incorrectly prepared and to deter tax return preparers from engaging in improper conduct. See S. Rep. No. 94-938, at 350-51 (1976).

Regulations implementing certain of the amendments made by the 1976 Act were published on December 29, 1976, as TD 7451, 41 FR 56631, and later amended on March 31, 1977, by TD 7473, 42 FR 17124. Additional regulations were published on April 1, 1977, as TD 7475, 42 FR 17452, and November 23, 1977, as TD 7519, 42 FR 17452 (the November 1977 final regulations).

The November 1977 final regulations applied the tax return preparer penalty provisions to persons who did not sign the return or claim for refund, or make or control the entries on the return or claim for refund, including tax professionals who rendered advice that was directly related to the determination of the existence, characterization, or amount, of an entry on a return or claim for refund. By including a broad definition of tax return preparer, the Treasury Department and the IRS intended the regulations to increase advisor care and to monitor careless or deceptive members of the profession. The November 1977 final regulations reflected the considered view that excluding nonsigning tax professionals from the reach of section 6694 could result in a lack of accountability for positions taken on a return, as taxpayers could escape penalty liability because they employed tax return preparers, tax return preparers could escape liability because they relied on nonsigning tax professionals' opinions, and nonsigning tax professionals could escape liability because they would not be considered tax return preparers. The November 1977 final regulations also reflected a concern with the possible exemption of tax attorneys and other professionals involved in preparing more complex returns while at the same time subjecting to penalties preparers of less sophisticated returns who did not rely on the work of others.

The November 1977 final regulations also adopted the safe harbor provisions of §301.7701-15(b)(2), which excluded from the definition of a tax return preparer persons providing tax advice (other than those signing the return) if the amounts of gross income, deductions, or credits giving rise to the understatement were less than $2,000; or less than $100,000 and also less than 20 percent of the gross income (or, for an individual, the individual's adjusted gross income) shown on the return or claim for refund.



Omnibus Budget Reconciliation Act of 1989

Sections 6694 and 6695 were amended by the Improved Penalty Administration and Compliance Tax Act of 1989, enacted as title G of the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989), Public Law 101-239 (103 Stat. 2106) (December 19, 1989). The OBRA 1989 amended section 6694(a) to remove the prior link to negligence or intentional disregard of rules or regulations and instead impose a $250 penalty on an income tax return preparer who understated a taxpayer's tax liability on an income tax return or claim for refund if the understatement was due to a position for which there was not a "realistic possibility" of being sustained on its merits, and the tax return preparer knew or reasonably should have known of such position. The revised section 6694(a) penalty did not apply, however, if the position was "not frivolous" and was adequately disclosed, or if there was reasonable cause for the position taken and the tax return preparer acted in good faith. The OBRA 1989 also amended section 6694(b) to impose a $1,000 penalty on a tax return preparer who understated a taxpayer's tax liability on an income tax return or claim for refund if the understatement was due to the tax return preparer's willful attempt to understate tax liability or the tax return preparer's reckless or intentional disregard of rules or regulations.

The OBRA 1989 also made uniform the tax return preparer penalties that apply for each failure by a tax return preparer to: (1) furnish a copy of a return or claim for refund to the taxpayer under section 6695(a); (2) sign the return or claim for refund under section 6695(b); (3) furnish his or her identification number under section 6695(c); or (4) file a correct information return under section 6695(e). The unified penalty amount was $50 for each failure, with a limit of $25,000 for the total amount of penalties that could be imposed for any single type of failure.

The OBRA 1989 also consolidated the negligence, substantial understatement and valuation misstatement penalties applicable to taxpayers. These penalties were consolidated into a single accuracy-related penalty regime under section 6662. The new accuracy-related penalty for a substantial understatement of income tax generally would not be imposed, however, if (1) there was "substantial authority" for the taxpayer's treatment of the item giving rise to the understatement, or (2) relevant facts affecting the tax treatment of the item were adequately disclosed in the return or in a statement attached to the return and there was a "reasonable basis" for the tax treatment of the item.

By adopting the "realistic possibility" standard for tax return preparers, and the higher "substantial authority" standard for taxpayers with respect to undisclosed positions, OBRA 1989 created a disparity between the penalty treatment of tax return preparers and most taxpayers subject to income tax.

Regulations were published on December 31, 1991, as TD 8382, 56 FR 67509, which amended the regulations under section 6694 to conform the income tax return preparer regulations with the statutory changes made by OBRA 1989 and to make other changes.



The Small Business and Work Opportunity Tax Act of 2007

Section 8246 of the 2007 Act amended sections 6694 and 7701(a)(36) and made conforming changes to other Code provisions to make tax return preparer penalties applicable to a broader range of tax returns. The 2007 Act's amendments to section 6694 also changed the standards of conduct that tax return preparers must meet in order to avoid imposition of penalties in the event that a return prepared results in an understatement of tax. For undisclosed positions, the 2007 Act replaced the "realistic possibility" standard with a standard requiring the tax return preparer to "reasonably believe that the tax treatment of the position is more likely than not" the proper treatment. For disclosed positions, the 2007 Act replaced the "not-frivolous" standard with a standard requiring the tax return preparer to have a "reasonable basis" for the tax treatment of the position.

The 2007 Act also increased the first-tier penalty under section 6694(a) from $250 to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer from the preparation of a return or claim for refund with respect to which the penalty was imposed. In addition, the 2007 Act increased the secondtier penalty under section 6694(b) from $1,000 to the greater of $5,000 or 50 percent of the income derived (or to be derived) by the tax return preparer. The amendments made by the 2007 Act are effective for tax returns prepared after the date of enactment, May 25, 2007.



Notice 2008-13

Notice 2008-13 (2008-3 IRB 282) was released on December 31, 2007 and provided interim guidance under the 2007 Act regarding: (1) the relevant categories of tax returns or claims for refund for purposes of applying the penalty under section 6694(a); (2) the definition of "tax return preparer" under sections 6694 and 7701(a)(36); (3) the date a return is deemed prepared; (4) the standards of conduct applicable to tax return preparers for disclosed and undisclosed positions taken on tax returns; and (5) the penalty compliance obligations applicable to tax return preparers. Additional guidance was provided in Notice 2008-12 (2008-3 IRB 280) with respect to the implementation of the tax return preparer signature requirement of section 6695(b), and in Notice 2008-11 (2008-3 IRB 279), which clarified the earlier transition relief provided in Notice 2007-54 (2007-27 IRB 12 (July 2, 2007)). Notice 2008-46 (2008-18 IRB 868) was released on April 16, 2008 and added certain returns and documents to Exhibits 1, 2, and 3 of Notice 2008-13.



Explanation of Provisions

In developing these proposed regulations, the Treasury Department and the IRS recognize that the majority of tax return preparers serve the interests of their clients and the tax system by preparing complete and accurate returns. Tax return preparers are critical to ensuring compliance with the Federal tax laws and are an important component in the IRS's administration of those laws. The proposed regulations intend to balance the interests of the IRS in curtailing the activities of noncompliant tax return preparers against the burden imposed on all tax return preparers in complying with the requirements imposed by the 2007 Act and these proposed regulations.

The Treasury Department and the IRS also recognize that the government has a number of tools to monitor and sanction tax return preparers, and will continue to coordinate the application of penalties under sections 6694, 6695, 6695A, 6700, 6701, 6702, and Circular 230, as well as other applicable penalties and criminal sanctions.

The IRS will assess penalties under section 6694 in appropriate cases. In keeping with a balanced enforcement program for tax return preparers, the IRS intends to modify its internal guidance so that a referral by revenue agents to the IRS Office of Professional Responsibility (OPR) will not be per se mandatory when the IRS assesses a tax return preparer penalty under section 6694(a) against a tax return preparer who is also a practitioner within the meaning of Circular 230. This change is consistent with the general administrative recommendations made in the legislative history of the amendments made by OBRA 1989 to the section 6694 penalty. See H.R. Conf. Rep. 101-386, 101 st Cong., 1 st Sess. at 662 (1989). In matters involving non-willful conduct, the IRS will generally look for a pattern of failing to meet the required penalty standards under section 6694(a) before making a referral to OPR, although any egregious conduct subjecting a tax return preparer to penalty may also form a basis for a referral to OPR.



Proposed Changes

The following is a summary of the proposed changes to the existing regulations affecting tax return preparers. The changes included in these proposed regulations are discussed in order of the Code sections to which they relate. When appropriate, cross-references to definitional sections are included. Significantly, the definition of tax return preparer, which maintains the concepts in the existing regulations of signing and nonsigning tax return preparers, is located at the end of these proposed regulations in §301.7701-15, and that section is crossreferenced in the relevant sections of the regulations under sections 6694 and 6695.



Furnishing of Copy of the Tax Return

Section 1.6107-1(a), which requires signing tax return preparers to furnish the taxpayer a copy of the prepared return, is proposed to be amended to provide that for electronically filed Forms 1040EZ, "Income Tax Return for Single Filers and Joint Filers With No Dependents," and Forms 1040A, "U.S. Individual Income Tax Return," filed for the 2009, 2010 and 2011 taxable years, the return information may be provided on a replica of a Form 1040, "U.S. Individual Income Tax Return," that provides all of the return information. For other electronically filed returns, the information may be provided on a replica of an official form that provides all of the information. This amendment addresses the IRS' transitional issues in implementing the Modernized e-File platform for the Form 1040 series of returns.



Date Return is Prepared

Proposed §1.6694-1(a)(2) defines the date a return or claim for refund is prepared as the date it is signed by the tax return preparer, and also provides that if the tax return preparer fails to sign the return when otherwise required to do so, the date the return is deemed prepared is the date the return is filed. In the case of a nonsigning tax return preparer, the relevant date is the date the person provides the advice on the position that results in the understatement. This date will be determined based on all the facts and circumstances.



Defining the Preparer Within a Firm

Current §1.6694-1(b)(1) provides a "one preparer per firm" rule. Specifically, if a signing tax return preparer is associated with a firm, that individual, and no other individual in the firm, is treated as a tax return preparer with respect to the return or claim for purposes of section 6694. Under the current regulations, if two or more individuals associated with a firm are tax return preparers with respect to a return or claim for refund, and none of them is the signing tax return preparer, only one of the individuals is a nonsigning tax return preparer with respect to that return or claim for purposes of section 6694. In such a case, ordinarily, the individual who is a tax return preparer for purposes of section 6694 is the individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim. The "one preparer per firm" rule and the corollary rule included in §1.6694-2(d)(5) of the current regulations precluding a tax return preparer from relying on the advice of an individual associated with the tax return preparer's same firm for purposes of penalty protection were intended to eliminate the administrative difficulty of attempting to apply the section 6694 penalty on an intra-firm basis.

The Treasury Department and the IRS believe that the amendments to section 6694 made by the 2007 Act, together with the evolution in existing business practices and the increased complexity of the Federal tax law that has created an increased need for specialization, require reconsideration of the "one preparer per firm" rule. Specifically, the Treasury Department and the IRS believe this evolution requires the adoption of a framework that centers on the return or claim for refund on a position-byposition basis, with the focus of any penalty on the position(s) giving rise to the understatement on the return or claim for refund and any responsible parties with respect to such position(s). Thus the Treasury Department and the IRS believe that the "one preparer per firm" rule is no longer appropriate and have proposed to adopt a framework defining a preparer-per-position within a firm.

Under both the current and the proposed regulations, an individual is a tax return preparer subject to section 6694 if the individual is primarily responsible for the position on the return or claim for refund giving rise to the understatement.

Under proposed §1.6694-1(b)(1), only one person within a firm will be considered primarily responsible for each position giving rise to an understatement and, accordingly, be subject to the penalty. In the course of identifying the individual who is primarily responsible for the position, the IRS may advise multiple individuals within the firm that it may be concluded that they are the individual within the firm who is primarily responsible. In some circumstances, there may be more than one tax return preparer who is primarily responsible for the position(s) giving rise to an understatement if multiple tax return preparers are employed by, or associated with, different firms.

Proposed §1.6694-1(b)(2) provides that the individual who signs the return or claim for refund as the tax return preparer will generally be considered the person that is primarily responsible for all of the positions on the return or claim for refund giving rise to an understatement. The "one preparer per firm" rule, however, is revised by these proposed regulations if it is concluded based upon information received from the signing tax return preparer (or other relevant information from a source other than the signing tax return preparer) that another person within the signing tax return preparer's same firm was primarily responsible for the position(s) giving rise to the understatement. In this situation, the "one preparer per firm" rule in the current regulations could unduly limit the IRS to assessing the penalty against a person who may have overall responsibility in terms of signing the return, but who may lack detailed knowledge of, or responsibility for, a problematic return position, and who reasonably relied on another professional at the same firm with greater knowledge of, and responsibility for, the accuracy of a position giving rise to the understatement.

The Treasury Department and the IRS believe that amending the regulations to better target the person or persons responsible for the position(s) giving rise to the understatement will further compliance and result in more equitable administration of the tax return preparer penalty regime.

Proposed §1.6694-1(b)(3) establishes a similar rule for situations when there are one or more nonsigning tax return preparers at the same firm. If there are one or more nonsigning tax return preparers at the firm and no signing tax return preparer within the firm, the individual within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement is the tax return preparer who is primarily responsible for the position for purposes of section 6694. Additionally, if after the application of proposed §1.6694-1(b)(2) it is concluded that the signer is not primarily responsible for the position or the IRS cannot conclude which individual (as between the signing tax return preparer and other persons within the firm) is primarily responsible for the position, the individual nonsigning tax return preparer within the firm with overall supervisory responsibility for the position(s) is the tax return preparer who is primarily responsible for the position(s) giving rise to the understatement.

This rule in proposed §1.6694-1(b)(3) is intended to address the potential for uncertainty regarding the identification of the primarily responsible tax return preparer prior to the time of the expiration of the period of limitations on making an assessment under section 6694(a). The proposed rule is distinguished from the current "one preparer per firm" rule in the current regulations because under the proposed rule the IRS may assess the penalty against either the signing tax return preparer or the nonsigning tax return preparer with overall supervisory responsibility for the position(s) giving rise to an understatement depending on the facts and circumstances. Specifically, when the facts indicate that the signing tax return preparer is the primarily responsible tax return preparer under proposed §1.6694-1(b)(1) and (b)(2), the IRS may assess the section 6694 penalty against that individual when appropriate under the statute and regulations. In situations when the facts indicate that the nonsigning tax return preparer with overall supervisory responsibility is the primarily responsible tax return preparer under proposed §1.6694-1(b)(1) and (b)(3), the IRS may assess the section 6694 penalty against that individual when appropriate. In situations when it is unclear which individual, as between the signer and other nonsigning tax return preparers at the firm, the IRS may assess the section 6694 penalty against the nonsigning tax return preparer with overall supervisory responsibility with respect to the position giving rise to the understatement when appropriate. The Treasury Department and the IRS specifically request comments regarding the approach taken in these proposed regulations and any recommendations to improve this rule.

As described in this preamble, conforming rules are included in §1.6694-1(f) of the proposed regulations regarding computation of the "income derived (or to be derived)" from the firm and the individual(s) associated with the firm, in order to ensure that the same income is not counted twice in determining the amount of income subject to the section 6694 penalty.



Reliance on Information Provided

Section 1.6694-1(e) of the current regulations allows a tax return preparer generally to rely in good faith without verification upon information furnished by the taxpayer. Proposed §1.6694-1(e) allows similar reliance, but provides that a tax return preparer may not rely on information provided by taxpayers with respect to legal conclusions on Federal tax issues.

The proposed regulations expand on the current regulations to provide that a tax return preparer may rely in good faith and without verification on information furnished by another advisor, another tax return preparer, or other party (even when the advisor or tax return preparer is within the tax return preparer's same firm). Similarly, a tax return preparer may rely in good faith without verification upon a tax return that has been previously prepared by a taxpayer or another tax return preparer and filed with the IRS. The tax return preparer, however, may not ignore the implications of information furnished to the tax return preparer or actually known by the tax return preparer, and must make reasonable inquiries if the information as furnished appears to be incorrect or incomplete. The Treasury Department and the IRS believe that this expansion of the current rules regarding reliance is necessary given the heightened standards imposed on tax return preparers by the 2007 Act and the increased complexity of the tax law, which often requires signing and nonsigning tax return preparers to rely on the work of others in ensuring compliance.



Income Derived Determination in Computing Penalty Amount

Proposed §1.6694-1(f) defines "income derived (or to be derived)" with respect to a return or claim for refund as all compensation the tax return preparer receives or expects to receive with respect to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement. In the situation of a tax return preparer who is not compensated directly by the taxpayer, but rather by a firm that employs the tax return preparer or with whom the tax return preparer is associated, income derived (or to be derived) means all compensation the tax return preparer receives from the firm that can be reasonably allocated to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement. In the situation where a firm that employs the individual tax return preparer (or the firm with which the individual tax return preparer is associated) is subject to a penalty under section 6694(a) or (b), income derived (or to be derived) means all compensation the firm receives or expects to receive with respect to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement.

If the tax return preparer or the tax return preparer's firm has multiple engagements related to the same return or claim for refund, only those engagements relating to the position(s) taken on the return or claim for refund that gave rise to the understatement are considered for purposes of computing the income derived (or to be derived). In the situation of a tax return preparer who is not compensated directly by the taxpayer, but rather by a firm that employs the tax return preparer or with whom the tax return preparer is associated, income derived (or to be derived) means all compensation the tax return preparer receives from the firm that can be reasonably allocated to the relevant firm engagements.

The proposed regulations also provide that only compensation for time spent on tax advice that is given with respect to events that have occurred at the time the advice is rendered and that relates to the position(s) giving rise to the understatement will be taken into account for purposes of calculating the section 6694 penalty. This rule is intended to be consistent with the definition of tax return preparer in §301.7701-15(b)(2)(i).

The proposed regulations provide that it may be concluded, based upon information received from the tax return preparer, that an appropriate allocation of compensation attributable to the position(s) giving rise to the understatement on the return or claim for refund is less than the total amount of compensation associated with the engagement. For example, it may be concluded that the number of hours of the engagement spent on the position(s) giving rise to the understatement may be less than the total hours associated with the engagement. If this is concluded, the amount of the penalty will be calculated based upon the compensation attributable to the position(s) giving rise to the understatement. Otherwise, the total amount of compensation from the engagement will be the amount of income derived for purposes of calculating the penalty under section 6694.

The proposed regulations also clarify that the amount of penalties assessed against the individual and the firm shall not exceed 50 percent of the income derived (or to be derived) by the firm from the relevant engagement(s) relating to the position(s) giving rise to an understatement. The portion of the total amount of penalty assessed against the individual tax return preparer shall not exceed 50 percent of the individual's compensation attributable to the engagement that relates to the position(s) giving rise to an understatement. In other words, the same income will not be taken into consideration more than once in calculating the penalty against an individual tax return preparer and the individual tax return preparer's firm. The Treasury Department and the IRS also anticipate that Circular 230 will be revised to state that the IRS generally will not stack the section 6694 penalty and monetary penalties under 31 U.S.C. section 330 with respect to the same conduct.



Firm Liability

Proposed §§1.6694-2(a)(2) and 1.6694-3(a)(2) are the same as §§1.6694-2(a)(2) and 1.6694-3(a)(2) of the current regulations regarding when a firm is liable for the section 6694(a) or (b) penalty with one exception. Proposed §§1.6694-2(a)(2)(iii) and 1.6694-3(a)(2)(iii) provide that a firm is also subject to the penalty when the firm's review procedures were disregarded by the firm through willfulness, recklessness, or gross indifference (including ignoring facts that would lead a person of reasonable prudence and competence to investigate or ascertain) in the formulation of the advice, or the preparation of the return or claim for refund, that included the position for which the penalty is imposed.



Reasonable Belief of More Likely Than Not

Proposed §1.6694-2(b)(1) provides that the "reasonable belief that the position would more likely than not be sustained on its merits" standard will be satisfied if the tax return preparer analyzes the pertinent facts and authorities and, in reliance upon that analysis, reasonably concludes in good faith that the position has a greater than 50 percent likelihood of being sustained on its merits. Whether a tax return preparer meets this standard will be determined based upon all facts and circumstances, including the tax return preparer's due diligence. In determining the level of diligence in a particular case, the IRS will take into account the tax return preparer's experience with the area of tax law and familiarity with the taxpayer's affairs, as well as the complexity of the issues and facts in the case. The proposed regulations also provide that a tax return preparer may meet the "reasonable belief that the position would more likely than not be sustained on its merits" standard if a position is supported by a well-reasoned construction of the applicable statutory provision despite the absence of other types of authority, or if the tax return preparer relies on information or advice furnished by a taxpayer, advisor, another tax return preparer, or other party (even when the advisor or tax return preparer is within the tax return preparer's same firm), as provided in proposed §1.6694-1(e).

Proposed §1.6694-2(b)(2) provides that a tax return preparer may not rely on unreasonable assumptions, while proposed §1.6694-2(b)(3) states that the authorities contained in §1.6662-4(d)(3)(iii) (or any successor provision) are to be considered in determining whether a position satisfies the "more likely than not" standard. Proposed §1.6694-2(b)(4) also provides examples that illustrate positions meeting the "reasonable belief that the position would more likely than not be sustained on its merits" standard.



Reasonable Basis

Proposed §§1.6694-2(c)(1) and (2) establish that the "reasonable basis" standard that must be met for disclosed positions is the same standard as defined in §1.6662-3(b)(3) (or any successor provision). The proposed regulations also provide that, to meet the "reasonable basis" standard, a tax return preparer may rely in good faith, without verification, upon information furnished by a taxpayer, advisor, another tax return preparer, or other party (even when the advisor or tax return preparer is within the tax return preparer's same firm), as provided in proposed §1.6694-1(e).



Adequate Disclosure

Section 1.6694-2(c)(3) builds on the current regulations and the interim guidance provided in Notice 2008-13 and provides the rules for disclosure of a position for which there is a "reasonable basis" but for which the tax return preparer does not have a "reasonable belief that the position would more likely than not be sustained on its merits."

For a signing tax return preparer within the meaning of §301.7701-15(b)(1), the proposed regulations provide that a position may be disclosed in one of five ways. First, the position may be disclosed on a properly completed and filed Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, as appropriate, or on the tax return in accordance with the annual revenue procedure. See Revenue Procedure 2008-14 (2008-7 IRB 435 (February 19, 2008)). Second, for income tax returns, if the position does not meet the "substantial authority" standard described in §1.6662-4(d), disclosure of the position is adequate if the tax return preparer provides the taxpayer with a prepared tax return that includes the appropriate disclosure. Third, for income tax returns, if the position meets the "substantial authority" standard, disclosure of the position is adequate if the tax return preparer advises the taxpayer of all of the penalty standards applicable to the taxpayer under section 6662. Fourth, for income tax returns, if the position may be described as a tax shelter under section 6662(d)(2)(C) or a reportable transaction to which section 6662A applies, disclosure of the position is adequate if the tax return preparer advises the taxpayer that there needs to be at a minimum "substantial authority" for the position, that the taxpayer must possess a "reasonable belief that the tax treatment was more likely than not" the proper treatment, and that disclosure will not protect the taxpayer from assessment of an accuracy-related penalty. Fifth, for tax returns or claims for refund that are subject to penalties other than the accuracy-related penalty for substantial understatements under sections 6662(b)(2) and (d), the tax return preparer advises the taxpayer of the penalty standards applicable to the taxpayer under section 6662. This fifth rule is intended to address the situation when the penalty standard applicable to the taxpayer is based on compliance with requirements other than disclosure on the return (for example, section 6662(e)). In order to establish that the tax return preparer's disclosure obligation was satisfied, the tax return preparer must document contemporaneously in the tax return preparer's files that the information or advice required by the proposed regulations was provided.

In the case of a nonsigning tax return preparer within the meaning of §301.7701-15(b)(2), the position may be disclosed in one of three ways. First, the position may be disclosed on a properly completed and filed Form 8275, "Disclosure Statement," or Form 8275-R, "Regulation Disclosure Statement," as appropriate, or on the tax return in accordance with the annual revenue procedure. Second, a nonsigning tax return preparer may meet the disclosure standards if the nonsigning tax return preparer advises the taxpayer of all opportunities to avoid penalties under section 6662 that could apply to the position and advises the taxpayer of the standards for disclosure to the extent applicable. Third, disclosure of a position is adequate if a nonsigning tax return preparer advises another tax return preparer that disclosure under section 6694(a) may be required. The nonsigning tax return preparer must document contemporaneously in the tax return preparer's files that this advice required by the proposed regulations was provided.

In order to satisfy the disclosure standards when the position is not disclosed on or with the return, each return position for which there is a "reasonable basis" but for which the tax return preparer does not have a "reasonable belief that the position would more likely than not be sustained on the merits" must be addressed by the tax return preparer. Thus, the advice to the taxpayer with respect to each position must be particular to the taxpayer and tailored to the taxpayer's facts and circumstances. No form of a general boilerplate disclaimer will satisfy these standards. Proposed §1.6694-2(c)(iv) provides that disclosure in the case of items attributable to a passthrough entity is adequate if made at the entity level in accordance with the rules in §1.6662-4(f)(5). For example, a tax return preparer of a partnership tax return need only advise the partnership in order to satisfy any of the above disclosure rules and does not need to advise each individual partner in the partnership of the applicable penalties.



Reasonable Cause

Proposed §1.6694-2(d) maintains the rules in the current regulations regarding reasonable cause and good faith, except that §1.6694-2(d) is proposed to be revised to provide that whether a position is supported by a generally accepted administrative or industry practice is an additional factor to consider in determining whether the tax return preparer acted with reasonable cause and good faith. This provision is intended to address situations in the absence of published guidance when administrative or industry practice has developed that would not reasonably be subject to challenge by the IRS.

The reasonable cause factor regarding reliance on advice of another tax return preparer is also expanded to allow a tax return preparer to reasonably rely on information or advice furnished by a taxpayer, advisor, another tax return preparer, or other party (even when the advisor or tax return preparer is within the tax return preparer's same firm), as provided in proposed §1.6694-1(e).



Electronically Signed Returns

Proposed §1.6695-1(b)(2) provides that, in the case of an electronically signed tax return, a tax return preparer need not sign the return prior to presenting a completed copy of the return to the taxpayer. The tax return preparer, however, must furnish all of the information to the taxpayer contemporaneously with furnishing the Form 8879, IRS e-file Signature Authorization, or similar IRS efile signature form. The information may be furnished on a replica of an official form that provides all of the information.



Due Diligence for Earned Income Credit

Proposed §1.6695-2(b)(3) establishes a reasonableness standard for signing tax return preparers' due diligence requirements with respect to determining eligibility for the earned income credit and adds examples.



Claims for Refund or Credit by Tax Return Preparers or Appraisers

Proposed §1.6696-1, discussing the procedures for filing claims for credit or refund for penalties assessed against tax return preparers under sections 6694 or 6695, is revised to also cover the new appraiser penalty under section 6695A. Section 6695A was enacted by section 1219 of the Pension Protection Act of 2006 (Public Law 109-280 (120 Stat. 780, 1084- 86) (August 17, 2006)), as amended by the Tax Technical Corrections Act of 2007 (Public Law 110-172 (121 Stat. 2473, 2474) December 29, 2007)). A separate regulation project will provide guidance under section 6695A.



Definition of Tax Return Preparer

Proposed §§301.7701-15(b)(1) and (2) add to the section 7701 regulations the definitions of "signing tax return preparer" and "nonsigning tax return preparer" that are included in §1.6694-1 of the current regulations. Proposed §301.7701-15(b)(1) provides that a signing tax return preparer is any tax return preparer who signs or who is required to sign a return or claim for refund as a tax return preparer pursuant to §1.6695-1(b).

Proposed §301.7701-15(b)(2) provides that a nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund within the meaning of §301.7701-15(b)(3) with respect to events that have occurred at the time the advice is rendered. In determining whether an individual is a nonsigning tax return preparer, the proposed regulations provide that any time spent on advice that is given with respect to events that have occurred, which is less than 5 percent of the aggregate time incurred by the person with respect to the position(s) giving rise to the understatement will not be taken into account in determining whether an individual is a nonsigning tax return preparer. The Treasury Department and the IRS believe that this less than 5 percent test will encourage tax professionals who principally rendered advice regarding events that had not yet occurred to provide follow-up advice requested by a taxpayer without the concern that, by providing such advice to a taxpayer, the advisor would become a tax return preparer under proposed §301.7701-15(b)(2) and (3).

Consistent with the current regulations and the legislative history of the 1976 Act, proposed §301.7701- 15(b)(3)(i) clarifies that whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion is determined based upon all facts and circumstances, and a single tax entry may constitute a substantial portion of the tax required to be shown on a return. The proposed regulations include additional factors to consider in determining whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion, such as the size and complexity of the item relative to the taxpayer's gross income and the size of the understatement attributable to the item compared to the taxpayer's reported tax liability.

Proposed §301.7701-15(b)(3)(ii) increases the de minimis exception in determining a substantial portion of a return or claim for refund for nonsigning tax return preparers. Under the proposed regulations, the de minimis exception applies if the item giving rise to the understatement is (i) less than $10,000, or (ii) less than $400,000 if the item is also less than 20 percent of the taxpayer's gross income (or, for an individual, the individual's adjusted gross income). This de minimis rule does not apply for signing tax return preparers within the meaning of §301.7701-15(b)(1). This change to the regulations updates the current de minimis amounts to reflect the passage of time since those amounts were set in 1977. The Treasury Department and the IRS are considering whether other de minimis rules applicable to nonsigning tax return preparers of non-income tax returns are warranted.

Consistent with the interim guidance set forth in Notice 2008-13, §301.7701-15(b)(4) is proposed to be amended by revising the definitions of "return" and "claim for refund" to only include preparers of returns and claims for refund that are specifically identified in published guidance in the Internal Revenue Bulletin. The Treasury Department and the IRS will publish this guidance simultaneously with the publication of final regulations and will likely maintain the three tiered approach used in the exhibits to Notice 2008-13, subject to any appropriate modifications. Under the substantial portion rule in section 7701(a)(36)(A), preparation of a broad range of information returns, schedules, and other documents can subject a person to the section 6694 penalties even though the documents may not themselves give rise to an understatement. Accordingly, the Treasury Department and the IRS believe that including a list of returns or other documents, the preparation of which may subject a tax return preparer to penalties, will further compliance by not unduly increasing the burden on persons preparing information returns and other documents.



Cross-References

Conforming changes are made in §§1.6060-1, 1.6107-1, 1.6109-2, 1.6694-0, 1.6694-1, 1.6694-4, 1.6695-1, 1.6695-2, 1.6696-1, and 301.7701-15 to replace references to income tax return preparers with references to tax return preparers, consistent with the provisions of the 2007 Act. Conforming cross references are also made to Part 20, Estate Tax; Estates of Decedents Dying After August 16, 1954; Part 25, Gift Tax; Gifts Made After December 31, 1954; Part 26, Generation-Skipping Transfer Tax Under the Tax Reform Act of 1986; Part 31, Employment Taxes and Collection of Income Tax at Source; Part 40, Procedural Excise Tax; Part 41, Highway Use Tax; Part 44, Wagering Tax; Part 53, Foundation and Similar Excise Taxes; Part 54, Pension Excise Taxes; Part 55, Excise Tax on Real Estate Investment Trusts and Regulated Investment Company Taxes; Part 56, Public Charity Excise Taxes; Part 156, Excise Tax on Greenmail; and Part 157, Excise Tax on Structured Settlement Factoring Transactions; to conform these parts with the provisions in Parts 1 and 301, consistent with the provisions of the 2007 Act.



Availability of IRS Documents

The IRS notices referred to in this preamble are published in the Internal Revenue Bulletin and are available at http://www.irs.gov.



Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (5 U.S.C. chapter 6), requires the agency to "prepare and make available for public comment an initial regulatory flexibility analysis" that will "describe the impact of the proposed rule on small entities." (5 U.S.C. 603(a)). Section 605 of the RFA provides an exception to this requirement if the agency certifies that the proposed rulemaking will not have a significant economic impact on a substantial number of small entities.

The proposed rules affect tax return preparers. The IRS estimates there are 38,566 tax return preparation firms and 260,338 self-employed tax return preparers that qualify as small entities. Therefore, the IRS has determined that these proposed rules will have an impact on a substantial number of small entities.

The IRS has determined, however, that the impact on entities affected by the proposed rule will not be significant. The statute and proposed regulations would require entities that employ tax return preparers to retain a record of the name, taxpayer identification number and principal place of work of each tax return preparer employed. The IRS estimates that this would not require purchase of additional software and would take five minutes per tax return preparer employed. The statute and proposed regulations would also require tax return preparers to retain a complete copy of a return (or claim for refund) or a list of the name, taxpayer identification number and taxable year for each return (or claim for refund) and the name of the tax return preparer required to sign the return or claim for refund. Many tax return preparers have copying machines or scanners and already make copies of the returns prepared, and the IRS estimates this would not require the purchase of additional equipment. The IRS estimates that it would take an average of five minutes to make copies or prepare a record of the returns prepared. Accordingly, the burden on employers of tax return preparers to make a record of the name, taxpayer identification number, and principal place of work of each employed tax return preparer, and a copy of each return or claim for refund prepared, or a record, is insignificant.

The proposed regulations also allow the tax return preparer to generally avoid imposition of the tax return preparer penalties under section 6694 in cases when a tax return position meets the "substantial authority" standard but not the "reasonable belief that the position would more likely than not be sustained on its merits" standard if the tax return preparer advises the taxpayer of the penalty standards applicable to the taxpayer, and contemporaneously documents in the tax return preparer's files that this information or advice was provided. Often, tax return preparers will choose not to advise the taxpayer of the applicable penalty standards and will instead disclose the position on a properly completed and filed Form 8275, "Disclosure Statement," or Form 8275-R, "Regulation Disclosure Statement," as appropriate, or on the tax return in accordance with the annual revenue procedure. In those instances when the tax return preparer elects to advise the taxpayer of the penalty standards, the IRS estimates that it would take an average of 15 minutes to document this advice. Accordingly, the burden on those who choose this option is insignificant.

Although the proposed regulations also conform the standards of conduct and tax return preparer penalties to the provisions of the 2007 Act, tax return preparers already enroll in educational seminars or training programs to keep up to date with the latest changes to the Code, and the provisions of the 2007 Act and the proposed regulations will generally be part of that training.

Moreover, these proposed regulations are required to comply with the provisions of section 8246 of the 2007 Act and flow directly from amendments to the Code contained in the 2007 Act.

Based on these facts, the IRS hereby certifies that the collection of information contained in these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a Regulatory Flexibility Analysis is not required.

Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.



Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed regulations and how they can be made easier to understand. Comments are requested on the examples in the proposed regulations, and commentators are specifically invited to suggest changes to these examples or to suggest new examples that they believe would better illustrate the principles that should be included in the final regulations. The IRS and the Treasury Department also request comments on the accuracy of the certification that the regulations in this document will not have a significant economic impact on a substantial number of small entities. All comments will be available for public inspection and copying.

A public hearing has been scheduled for Monday, August 18, 2008, at 10:00 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the "FOR FURTHER INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written or electronic comments by [ INSERT DATE 60 DAYS AFTER PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER] and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by Monday, August 4, 2008. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.



Drafting Information

The principal authors of these proposed regulations are Matthew S. Cooper and Michael E. Hara, Office of the Associate Chief Counsel (Procedure and Administration).

List of Subjects



26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.



26 CFR Part 20

Estate taxes, Reporting and recordkeeping requirements.



26 CFR Part 25

Gift taxes, Reporting and recordkeeping requirements.



26 CFR Part 26

Estate taxes, Reporting and recordkeeping requirements.



26 CFR Part 31

Employment taxes, Income taxes, Penalties, Pensions, Railroad Retirement, Reporting and recordkeeping requirements, Social security, Unemployment compensation.



26 CFR Part 40

Excise taxes, Reporting and recordkeeping requirements.



26 CFR Part 41

Excise, Motor vehicles, Reporting and recordkeeping requirements.



26 CFR Part 44

Excise, Gambling, Reporting and recordkeeping requirements.



26 CFR Part 53

Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements.



26 CFR Part 54

Excise taxes, Pensions, Reporting and recordkeeping requirements.



26 CFR Part 55

Excise taxes, Investments, Reporting and recordkeeping requirements.



26 CFR Part 56

Excise taxes, Lobbying, Nonprofit organizations, Reporting and recordkeeping requirements.



26 CFR Part 156

Excise taxes, Reporting and recordkeeping requirements.



26 CFR Part 157

Excise taxes, Reporting and recordkeeping requirements.



26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.



Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54, 55, 56, 156, 157, and 301 are proposed to be amended as follows:



PART 1 --INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.6060-1 also issued under 26 U.S.C. 6060(a).

* * *

Section 1.6109-2 also issued under 26 U.S.C. 6109(a).

* * *

Section 1.6695-1 also issued under 26 U.S.C. 6695(b).

* * *

Section 1.6695-2 also issued under 26 U.S.C. 6695(g).

* * *

Par. 2. Section 1.6060-1 is amended by revising the section heading and paragraphs (a) and (c) and adding paragraph (d) to read as follows:



§1.6060-1 Reporting requirements for tax return preparers.

(a) In general. (1) Each person who employs one or more signing tax return preparers to prepare any return of tax or claim for refund of tax, other than for the person, at any time during a return period shall satisfy the requirements of section 6060 of the Internal Revenue Code by --

(i) Retaining a record of the name, taxpayer identification number, and principal place of work during the return period of each tax return preparer employed by the person at any time during that period; and

(ii) Making that record available for inspection upon request by the Commissioner.

(2) The record described in this paragraph (a) must be retained and kept available for inspection for the 3-year period following the close of the return period to which that record relates.

(3) The person may choose any form of documentation to be used under this section as a record of the signing tax return preparers employed during a return period. However, the record must disclose on its face which individuals were employed as tax return preparers during that period.

(4) For the definition of the term "signing tax return preparer," see section 7701(a)(36) and §301.7701-15(b)(1) of this chapter. For the definition of the term "return period," see paragraph (b) of this section.

(5)(i) For purposes of this section, any individual who, in acting as a signing tax return preparer, is not employed by another tax return preparer shall be treated as his or her own employer. Thus, a sole proprietor shall retain and make available a record with respect to himself (or herself) as provided in this section.

(ii) A partnership shall, for purposes of this section, be treated as the employer of the partners of the partnership and shall retain and make available a record with respect to the partners and others employed by the partnership as provided in this section.

* * * * *

(c) Penalty. For the civil penalty for failure to retain and make available a record of the tax return preparers employed during a return period as required under this section, or for failure to include an item in the record required to be retained and made available under this section, see §1.6695-1(e).

(d) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 3. Section 1.6107-1 is revised to read as follows:



§1.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) Furnishing copy to taxpayer. A person who is a signing tax return preparer of any return of tax or claim for refund of tax under the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer (or nontaxable entity) not later than the time the return or claim for refund is presented for the signature of the taxpayer (or nontaxable entity). For electronically filed Forms 1040EZ, "Income Tax Return for Single Filers and Joint Filers With No Dependents," and Form 1040A, "U.S. Individual Income Tax Return," filed for the 2009, 2010 and 2011 taxable years, the information may be provided on a replica of a Form 1040, "U.S. Individual Income Tax Return," that provides all of the information. For other electronically filed returns, the information may be provided on a replica of an official form that provides all of the information. The signing tax return preparer may, at its option, request a receipt or other evidence from the taxpayer (or nontaxable entity) sufficient to show satisfaction of the requirement of this paragraph (a).

(b) Copy or record to be retained. (1) A person who is a signing tax return preparer of any return or claim for refund shall --

(i)(A) Retain a completed copy of the return or claim for refund; or

(B) Retain a record, by list, card file, or otherwise of the name, taxpayer identification number, and taxable year of the taxpayer (or nontaxable entity) for whom the return or claim for refund was prepared, and the type of return or claim for refund prepared;

(ii) Retain a record, by retention of a copy of the return or claim for refund, maintenance of a list or card file, or otherwise, for each return or claim for refund presented to the taxpayer (or nontaxable entity), of the name of the individual tax return preparer required to sign the return or claim for refund pursuant to §1.6695-1(b); and

(iii) Make the copy or record of returns and claims for refund and record of the individuals required to sign available for inspection upon request by the Commissioner.

(2) The material described in this paragraph (b) shall be retained and kept available for inspection for the 3- year period following the close of the return period during which the return or claim for refund was presented for signature to the taxpayer (or nontaxable entity). In the case of a return that becomes due (with extensions, if any) during a return period following the return period during which the return was presented for signature, the material shall be retained and kept available for inspection for the 3-year period following the close of the later return period in which the return became due. For the definition of "return period," see section 6060(c). If the person subject to the record retention requirement of this paragraph (b) is a corporation or a partnership that is dissolved before completion of the 3-year period, then all persons who are responsible for the winding up of the affairs of the corporation or partnership under state law shall be subject, on behalf of the corporation or partnership, to these record retention requirements until completion of the 3-year period. If state law does not specify any person or persons as responsible for winding up, then, collectively, the directors or general partners shall be subject, on behalf of the corporation or partnership, to the record retention requirements of this paragraph (b). For purposes of the penalty imposed by section 6695(d), such designated persons shall be deemed to be the tax return preparer and will be jointly and severally liable for each failure.

(c) Tax return preparer. For the definition of "signing tax return preparer," see section 7701(a)(36) and §301.7701-15(b)(1) of this chapter. For purposes of applying this section, in the case of --

(1) An arrangement between two or more signing tax return preparers, the person who employs one or more other signing tax return preparers to prepare any return or claim for refund for compensation other than for the person shall be considered to be the sole signing tax return preparer; and

(2) A partnership arrangement for the preparation of returns and claims for refund, the partnership shall be considered to be the sole signing tax return preparer.

(d) Penalties. (1) For the civil penalty for failure to furnish a copy of the return or claim for refund to the taxpayers (or nontaxable entity) as required under paragraphs (a) of this section, see section 6695(a) and §1.6695-1(a).

(2) For the civil penalty for failure to retain a copy of the return or claim for refund, or to retain a record as required under paragraphs (b) of this section, see section 6695(d) and §1.6695-1(d).

(e) Effective/applicability date. This section is applicable to returns and claims for refund filed on the date that final regulations are published in the Federal Register.

Par. 4. Section 1.6109-2 is amended by revising the section heading and paragraphs (a) and (d) to read as follows:



§1.6109-2 Tax return preparers furnishing identifying numbers for returns or claims for refund filed after December 31, 2008.

(a) Furnishing identifying number. (1) Each return of tax or claim for refund of tax under the Internal Revenue Code prepared by one or more tax return preparers must include the identifying number of the tax return preparer required by §1.6695-1(b) to sign the return or claim for refund. In addition, if there is an employment arrangement or association between the individual tax return preparer and another person (except to the extent the return prepared is for the person), the identifying number of the other person must also appear on the return or claim for refund. For the definition of the term "tax return preparer," see section 7701(a)(36) and §301.7701-15 of this chapter.

(2) The identifying number of an individual tax return preparer is that individual's social security account number, or such alternative number as may be prescribed by the Internal Revenue Service in forms, instructions, or other appropriate guidance.

(3) If an individual tax return preparer described in paragraph (a)(2) of this section is employed by, or associated with, a person (whether an individual or entity) and prepares the return or claim for refund (other than a return prepared for the person), the identifying number is the person's employer identification number.

* * * * *

(d) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register, but no sooner than December 31, 2008. For returns or claims for refund filed before January 1, 2000, see §1.6109-2A(a).

Par 5. Section 1.6694-0 is revised to read as follows:



§1.6694-0 Table of contents.

This section lists the captions that appear in §§1.6694-1 through 1.6694-4.



§1.6694-1 Section 6694 penalties applicable to tax return preparers.

(a) Overview.

(1) In general.

(2) Date return is deemed prepared.

(b) Tax return preparer.

(1) In general.

(2) Responsibility of signing tax return preparer.

(3) Responsibility of nonsigning tax return preparer.

(4) Tax return preparer and firm responsibility.

(5) Examples.

(c) Understatement of liability.

(d) Abatement of penalty where taxpayer's liability not understated.

(e) Verification of information furnished by taxpayer or other third party.

(1) In general.

(2) Verification of information on previously filed returns.

(3) Examples.

(f) Income derived (or to be derived) with respect to the return or claim for refund.

(1) In general.

(2) Compensation.

(i) Multiple engagements.

(ii) Reasonable allocation.

(iii) Fee refunds.

(iv) Reduction of compensation.

(3) Individual and firm allocation.

(4) Examples.

(g) Effective/applicability date.



§1.6694-2 Penalty for understatement due to an unreasonable position.

(a) In general.

(1) Proscribed conduct.

(2) Special rule for corporations, partnerships, and other firms.

(b) Reasonable belief that the position would more likely than not be sustained on its merits.

(1) In general.

(2) No unreasonable assumptions.

(3) Authorities.

(4) Examples.

(5) Written determinations.

(6) When more likely than not standard must be satisfied.

(c) Exception for adequate disclosure of positions with a reasonable basis.

(1) In general.

(2) Reasonable basis.

(3) Adequate disclosure.

(i) Signing tax return preparers.

(ii) Nonsigning tax return preparers.

(A) Advice to taxpayers.

(B) Advice to another tax return preparer.

(iii) Requirements for advice.

(iv) Pass-through entities.

(v) Examples.

(d) Exception for reasonable cause and good faith.

(1) Nature of the error causing the understatement.

(2) Frequency of errors.

(3) Materiality of errors.

(4) Tax return preparer's normal office practice.

(5) Reliance on advice of others.

(6) Reliance on generally accepted administrative or industry practice.

(e) Burden of proof.

(f) Effective/applicability date.



§1.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general.

(1) Proscribed conduct.

(2) Special rule for corporations, partnerships, and other firms.

(b) Willful attempt to understate liability.

(c) Reckless or intentional disregard.

(d) Examples.

(e) Rules or regulations.

(f) Section 6694(b) penalty reduced by section 6694(a) penalty.

(g) Burden of proof.

(h) Effective/applicability date.



§1.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general.

(b) Tax return preparer must bring suit in district court to determine liability for penalty.

(c) Suspension of running of period of limitations on collection.

(d) Effective/applicability date.

Par. 6. Section 1.6694-1 is revised to read as follows:



§1.6694-1 Section 6694 penalties applicable to tax return preparers.

(a) Overview --(1) In general. Sections 6694(a) and (b) impose penalties on tax return preparers for conduct giving rise to certain understatements of liability on a return (including an amended or adjusted return) or claim for refund. The section 6694(a) penalty is imposed in an amount equal to the greater of $1,000, or 50 percent of the income derived (or to be derived) by the tax return preparer for an understatement of liability with respect to tax that is due to an undisclosed position for which the tax return preparer did not have a reasonable belief that the position would more likely than not be sustained on its merits (or due to a disclosed position for which there is no reasonable basis). The section 6694(b) penalty is imposed in an amount equal to the greater of $5,000, or 50 percent of the income derived (or to be derived) by the tax return preparer for an understatement of liability with respect to tax that is due to a willful attempt to understate tax liability or that is due to reckless or intentional disregard of rules or regulations. See §1.6694-2 for rules relating to the penalty under section 6694(a). See §1.6694-3 for rules relating to the penalty under section 6694(b).

(2) Date return is deemed prepared. For purposes of the penalties under section 6694, a return or claim for refund is deemed prepared on the date it is signed by the tax return preparer. If a signing tax return preparer within the meaning of §301.7701-15(b)(1) of this chapter fails to sign the return, the return is deemed prepared on the date the return is filed. See §1.6695-1 of this section. In the case of a nonsigning tax return preparer within the meaning of §301.7701-15(b)(2) of this chapter, the relevant date is the date the nonsigning tax return preparer provides the tax advice with respect to the position giving rise to the understatement. This date will be determined based on all the facts and circumstances.

(b) Tax return preparer --(1) In general. For purposes of this section, "tax return preparer" means any person who is a tax return preparer within the meaning of section 7701(a)(36) and §301.7701-15 of this chapter. An individual is a tax return preparer subject to section 6694 if the individual is primarily responsible for the position(s) on the return or claim for refund giving rise to an understatement. There is only one individual within a firm who is primarily responsible for each position on the return or claim for refund giving rise to an understatement. In the course of identifying the individual who is primarily responsible for the position, the Internal Revenue Service may advise multiple individuals within the firm that it may be concluded that they are the individual within the firm who is primarily responsible. In some circumstances, there may be more than one tax return preparer who is primarily responsible for the position(s) giving rise to an understatement if multiple tax return preparers are employed by, or associated with, different firms.

(2) Responsibility of signing tax return preparer. The signing tax return preparer within the meaning of §301.7701-15(b)(1) of this chapter will generally be considered the person who is primarily responsible for all of the positions on the return or claim for refund giving rise to an understatement. It may be concluded, however, based upon information received from the signing tax return preparer (or other relevant information from a source other than the signing tax return preparer) that another person within the signing tax return preparer's same firm was primarily responsible for the position(s) on the return or claim for refund giving rise to an understatement.

(3) Responsibility of nonsigning tax return preparer. If there are one or more individuals within a firm who are nonsigning tax return preparers within the meaning of §301.7701-15(b)(2) of this chapter and there is no signing tax return preparer within the meaning of §301.7701- 15(b)(1) of this chapter for the return or claim for refund within that firm, the individual within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement is the tax return preparer who is primarily responsible for the position for purposes of section 6694. Additionally, if, after the application of paragraph (b)(2) of this section, it is concluded that the signing tax return preparer is not primarily responsible for the position or the IRS cannot conclude which individual (as between the signing tax return preparer and other persons within the firm) is primarily responsible for the position, the individual within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement is the tax return preparer who is primarily responsible for the position for purposes of section 6694.

(4) Tax return preparer and firm responsibility. To the extent provided in §§1.6694-2(a)(2) and 1.6694-3(a)(2), an individual and the firm that employs the individual, or the firm of which the individual is a partner, member, shareholder, or other equity holder, may both be subject to penalty under section 6694 with respect to the position(s) on the return or claim for refund giving rise to an understatement. If an individual (other than the sole proprietor) who is employed by a sole proprietorship is subject to penalty under section 6694, the sole proprietorship is considered a "firm" for purposes of this paragraph (b).

(5) Examples. The provisions of paragraph (b) of this section are illustrated by the following examples:

Example 1. Attorney A provides advice to Client C concerning the proper treatment of an item with respect to which all events have occurred on C's income tax return. In preparation for providing that advice, A seeks advice regarding the proper treatment of the item from Attorney B, who is within the same firm as A, but A is the attorney who signs C's return as a tax return preparer. B provides advice on the treatment of the item upon which A relies. B's advice is reflected on C's income tax return but no disclosure was made in accordance with §1.6694-2(c)(3). The advice constitutes preparation of a substantial portion of the return within the meaning of §301.7701-15(b)(3) and the IRS later challenges the position taken on the tax return, giving rise to an understatement of liability. For purposes of the regulations under section 6694, A is initially considered the tax return preparer with respect to C's return and the IRS advises A that A may be subject to the penalty under section 6694 with respect to C's return. Based upon information received from A or another source, it may be concluded that B had primary responsibility for the position taken on the return that gave rise to the understatement because B had overall supervisory responsibility for the position giving rise to an understatement.

Example 2. Same as Example 1, except that neither Attorney A nor any other attorney within A's firm signs Client C's return as a tax return preparer. Attorney B is the nonsigning tax return preparer within the firm with overall supervisory responsibility for the position giving rise to an understatement. Accordingly, B is the tax return preparer who is primarily responsible for the position on C's return giving rise to an understatement and is subject to penalty under section 6694.

Example 3. Same as Example 1, except Attorney D, who works for a different firm than A, also provides advice on the same position upon which A relies. It may be concluded that D is also primarily responsible for the position on the return.

(c) Understatement of liability. For purposes of this section, an "understatement of liability" exists if, viewing the return or claim for refund as a whole, there is an understatement of the net amount payable with respect to any tax imposed by the Internal Revenue Code (Code), or an overstatement of the net amount creditable or refundable with respect to any tax imposed by the Code. The net amount payable in a taxable year with respect to the return for which the tax return preparer engaged in conduct proscribed by section 6694 is not reduced by any carryback. Tax imposed by the Code does not include additions to the tax, additional amounts, and assessable penalties imposed by subchapter 68 of the Code. Except as provided in paragraph (d) of this section, the determination of whether an understatement of liability exists may be made in a proceeding involving the tax return preparer that is separate and apart from any proceeding involving the taxpayer.

(d) Abatement of penalty where taxpayer's liability not understated. If a penalty under section 6694(a) or (b) concerning a return or claim for refund has been assessed against one or more tax return preparers, and if it is established at any time in a final administrative determination or a final judicial decision that there was no understatement of liability relating to the position(s) on the return or claim for refund, then --

(1) The assessment shall be abated; and

(2) If any amount of the penalty was paid, that amount shall be refunded to the person or persons who so paid, as if the payment were an overpayment of tax, without consideration of any period of limitations.

(e) Verification of information furnished by taxpayer or other party --(1) In general. For purposes of sections 6694(a) and (b) (including meeting the reasonable belief that the position would more likely than not be sustained on its merits and reasonable basis standards in §§1.6694- 2(b) and (c)(2), and demonstrating reasonable cause and good faith under §1.6694-2(d)), the tax return preparer generally may rely in good faith without verification upon information furnished by the taxpayer. A tax return preparer, however, may not rely on information provided by a taxpayer with respect to legal conclusions on Federal tax issues. A tax return preparer may also rely in good faith and without verification upon information furnished by another advisor, another tax return preparer or other party (including another advisor or tax return preparer at the tax return preparer's firm). The tax return preparer is not required to audit, examine or review books and records, business operations, or documents or other evidence to verify independently information provided by the taxpayer, advisor, other tax return preparer, or other party. The tax return preparer, however, may not ignore the implications of information furnished to the tax return preparer or actually known by the tax return preparer. The tax return preparer must make reasonable inquiries if the information as furnished appears to be incorrect or incomplete. Additionally, some provisions of the Code or regulations require that specific facts and circumstances exist (for example, that the taxpayer maintain specific documents) before a deduction or credit may be claimed. The tax return preparer must make appropriate inquiries to determine the existence of facts and circumstances required by a Code section or regulation as a condition of the claiming of a deduction or credit.

(2) Verification of information on previously filed returns. For purposes of section 6694(a) and (b) (including meeting the reasonable belief that the position would more likely than not would be sustained on its merits and reasonable basis standards in §§1.6694-2(b) and (c)(2), and demonstrating reasonable cause and good faith under §1.6694-2(d)), a tax return preparer may rely in good faith without verification upon a tax return that has been previously prepared by a taxpayer or another tax return preparer and filed with the IRS. For example, a tax return preparer who prepares an amended return (including a claim for refund) need not verify the positions on the original return. The tax return preparer, however, may not ignore the implications of information furnished to the tax return preparer or actually known by the tax return preparer. The tax return preparer must make reasonable inquiries if the information as furnished appears to be incorrect or incomplete. The tax return preparer must confirm that the position being relied upon has not been adjusted by examination or otherwise.

(3) Examples. The provisions of this paragraph (e) are illustrated by the following examples:

Example 1. During an interview conducted by Preparer E, a taxpayer stated that he had made a charitable contribution of real estate in the amount of $50,000 during the tax year, when in fact he had not made this charitable contribution. E did not inquire about the existence of a qualified appraisal or complete a Form 8283, Noncash Charitable Contributions, in accordance with the reporting and substantiation requirements under section 170(f)(11). E reported a deduction on the tax return for the charitable contribution, which resulted in an understatement of liability for tax, and signed the tax return as the tax return preparer. E is subject to a penalty under section 6694.

Example 2. While preparing the 2008 tax return for an individual taxpayer, Preparer F realizes that the taxpayer did not provide a Form 1099 for a bank account that produced significant taxable income in 2008. When F inquired about any other income, the taxpayer furnished the Form 1099 to F for use in preparation of the 2008 tax return. F did not know that the taxpayer owned an additional bank account that generated taxable income for 2008 and the taxpayer did not reveal this information to the tax return preparer notwithstanding F's general inquiry about any other income. F signed the taxpayer's return as the tax return preparer. F is not subject to a penalty under section 6694.

Example 3. In preparing a tax return, Accountant G relies on the advice of an actuary concerning the limit on deductibility under section 404(a)(1)(A) of a contribution by an employer to a qualified pension trust. On the basis of this advice, G completed and signed the tax return. It is later determined that there is an understatement of liability for tax that resulted from the incorrect advice provided by the actuary. G had no reason to believe that the advice was incorrect or incomplete, and the advice appeared reasonable on its face. G was also not aware at the time the return was prepared of any reason why the actuary did not know all of the relevant facts or that the advice was no longer reliable due to developments in the law since the time the advice was given. G is not subject to a penalty under section 6694. The actuary, however, may be subject to penalty under section 6694 if the advice given by the actuary constitutes a substantial portion of the tax return within the meaning of §301.7701-15(b)(3) of this chapter.

(f) Income derived (or to be derived) with respect to the return or claim for refund --(1) In general. For purposes of sections 6694(a) and (b), income derived (or to be derived) means all compensation the tax return preparer receives or expects to receive with respect to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement. In the situation of a tax return preparer who is not compensated directly by the taxpayer, but rather by a firm that employs the tax return preparer or with whom the tax return preparer is associated, income derived (or to be derived) means all compensation the tax return preparer receives from the firm that can be reasonably allocated to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement. In the situation where a firm that employs the individual tax return preparer (or the firm of which the individual tax return preparer is a partner, member, shareholder, or other equity holder) is subject to a penalty under section 6694(a) or (b) pursuant to the provisions in §§1.6694-2(a)(2) or 1.6694-3(a)(2), income derived (or to be derived) means all compensation the firm receives or expects to receive with respect to the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement.

(2) Compensation --(i) Multiple engagements. For purposes of applying paragraph (f)(1) of this section, if the tax return preparer or the tax return preparer's firm has multiple engagements related to the same return or claim for refund, only those engagements relating to the position(s) taken on the return or claim for refund that gave rise to the understatement are considered for purposes of calculating the income derived (or to be derived) with respect to the return or claim for refund.

(ii) Reasonable allocation. For purposes of applying paragraph (f)(1) of this section, only compensation for tax advice that is given with respect to events that have occurred at the time the advice is rendered and that relates to the position(s) giving rise to the understatement will be taken into account for purposes of calculating the section 6694(a) and (b) penalties. If a lump sum fee is received that includes amounts not taken into account under the preceding sentence, the amount of income derived will be based on a reasonable allocation of the lump sum fee between the tax advice giving rise to the penalty and the advice that does not give rise to the penalty.

(iii) Fee refunds. For purposes of applying paragraph (f)(1) of this section, a refund to the taxpayer of all or part of the amount paid to the tax return preparer or the tax return preparer's firm will not reduce the amount of the section 6694 penalty assessed. A refund in this context does not include a discounted fee or alternative billing arrangement for the services provided.

(iv) Reduction of compensation. For purposes of applying paragraph (f)(1) of this section, it may be concluded based upon information provided by the tax return preparer or the tax return preparer's firm that an appropriate allocation of compensation attributable to the position(s) giving rise to the understatement on the return or claim for refund is less than the total amount of compensation associated with the engagement. For example, the number of hours of the engagement spent on the position(s) giving rise to the understatement may be less than the total hours associated with the engagement. If this is concluded, the amount of the penalty will be calculated based upon the compensation attributable to the position(s) giving rise to the understatement. Otherwise, the total amount of compensation from the engagement will be the amount of income derived for purposes of calculating the penalty under section 6694.

(3) Individual and firm allocation. If both an individual within a firm and a firm that employs the individual (or the firm of which the individual is a partner, member, shareholder, or other equity holder) are subject to a penalty under section 6694(a) or (b) pursuant to the provisions in §§1.6694-2(a)(2) or 1.6694-3(a)(2), the amount of penalties assessed against the individual and the firm shall not exceed 50 percent of the income derived (or to be derived) by the firm from the engagement of preparing the return or claim for refund or providing tax advice (including research and consultation) with respect to the position(s) taken on the return or claim for refund that gave rise to the understatement. The portion of the total amount of the penalty assessed against the individual tax return preparer shall not exceed 50 percent of the individual's compensation as determined under paragraphs (f)(1) and (2) of this section.

(4) Examples. The provisions of this paragraph (f) are illustrated by the following examples:

Example 1. Signing Tax Return Preparer H is engaged by a taxpayer and paid a total of $21,000. Of this amount, $20,000 relates to research and consultation regarding a transaction that is later reported on a return, and $1,000 for the activities relating to the preparation of the return. Based on H's hourly rates, a reasonable allocation of the amount of compensation related to the advice rendered prior to the occurrence of events that are the subject of the advice is $5,000. The remaining compensation of $16,000 is considered to be compensation related to the advice rendered after the occurrence of events that are the subject of the advice and return preparation. The income derived by H with respect to the return for purposes of computing the penalty under section 6694(a) is $16,000, and the amount of the penalty imposed under section 6694(a) is $8,000.

Example 2. Accountants I, J, and K are employed by Firm L. I is a principal manager of Firm L and provides corporate tax advice for the taxpayer after all events have occurred subject to an engagement for corporate tax advice. J provides international tax advice for the taxpayer after all events have occurred subject to a different engagement for international tax advice. K prepares and signs the taxpayer's return under a general tax services engagement. I's advice is the source of an understatement on the return and the advice constitutes preparation of a substantial portion of the return within the meaning of §301.7701-15(b) of this chapter. I is the nonsigning tax return preparer within the firm with overall supervisory responsibility for the position on the taxpayer's return giving rise to an understatement. Thus, I is the tax return preparer who is primarily responsible for the position on the taxpayer's return giving rise to the understatement. Because K's signature as the signing tax return preparer is on the return, the IRS advises K that K may be subject to the section 6694(a) penalty against K to the understatement. K provides information that I is the tax return preparer with primary responsibility for the position that gave rise to the understatement and K formed a reasonable belief that the position would more likely than not be sustained on the merits by relying on the advice provided by I. Furthermore, K has reasonable cause because K relied on I for the advice on the corporate tax matter. The IRS, therefore, assesses the section 6694 penalty against I. The portion of the total amount of the penalty allocable to I does not exceed that part of I's compensation that is attributable to the corporate tax advice engagement. In the event that Firm L is also liable under the provisions in §1.6694-2(a)(2), the IRS assesses the section 6694 penalty in an amount not exceeding 50 percent of Firm L's firm compensation based on the engagement relating to the corporate tax advice services provided by I where there is no applicable reduction in compensation pursuant to §1.6694-1(f)(2)(iii).

Example 3. Same facts as Example 2, except that I provides the advice on the corporate matter when the events have not yet occurred. I's advice is the cause of an understatement position on the return but I is not a tax return preparer pursuant to §301.7701-15(b)(2) or (3) of this chapter. K has reasonable cause because K relied on I for the advice on the corporate tax matter and K is not limited to reliance on persons who provide post-transactional advice if such reliance is reasonable and in good faith. I, K and Firm L are not liable for the section 6694 penalty.

(g) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 7. Section 1.6694-2 is revised to read as follows:



§1.6694-2 Penalty for understatement due to an unreasonable position.

(a) In general --(1) Proscribed conduct. Except as otherwise provided in this section, a tax return preparer is liable for a penalty under section 6694(a) equal to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer for any return or claim for refund that it prepares that results in an understatement of liability due to a position if the tax return preparer knew (or reasonably should have known) of the position and either --

(i) The position was not disclosed as provided in this section and there was not a reasonable belief that the position would more likely than not be sustained on its merits; or

(ii) The position was disclosed as provided in this section but there was no reasonable basis for the position.

(2) Special rule for corporations, partnerships, and other firms. A firm that employs a tax return preparer subject to a penalty under section 6694(a) (or a firm of which the individual tax return preparer is a partner, member, shareholder or other equity holder) is also subject to penalty if, and only if --

(i) One or more members of the principal management (or principal officers) of the firm or a branch office participated in or knew of the conduct proscribed by section 6694(a);

(ii) The corporation, partnership, or other firm entity failed to provide reasonable and appropriate procedures for review of the position for which the penalty is imposed; or

(iii) Such review procedures were disregarded by the corporation, partnership, or other firm entity through willfulness, recklessness, or gross indifference (including ignoring facts that would lead a person of reasonable prudence and competence to investigate or ascertain) in the formulation of the advice, or the preparation of the return or claim for refund, that included the position for which the penalty is imposed.

(b) Reasonable belief that the position would more likely than not be sustained on its merits --(1) In general. A tax return preparer may "reasonably believe that a position would more likely than not be sustained on its merits" if the tax return preparer analyzes the pertinent facts and authorities, and in reliance upon that analysis, reasonably concludes in good faith that the position has a greater than 50 percent likelihood of being sustained on its merits. In reaching this conclusion, the possibility that the position will not be challenged by the Internal Revenue Service (IRS) (for example, because the taxpayer's return may not be audited or because the issue may not be raised on audit) is not to be taken into account. The analysis prescribed by §1.6662-4(d)(3)(ii) (or any successor provision) for purposes of determining whether substantial authority is present applies for purposes of determining whether the more likely than not standard is satisfied. Whether a tax return preparer meets this standard will be determined based upon all facts and circumstances, including the tax return preparer's diligence. In determining the level of diligence in a particular situation, the tax return preparer's experience with the area of Federal tax law and familiarity with the taxpayer's affairs, as well as the complexity of the issues and facts, will be taken into account. A tax return preparer may reasonably believe that a position more likely than not would be sustained on its merits despite the absence of other types of authority if the position is supported by a well-reasoned construction of the applicable statutory provision. For purposes of determining whether the tax return preparer has a reasonable belief that the position would more likely than not be sustained on the merits, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer, advisor, other tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer's firm), as provided in §1.6694-1(e).

(2) No unreasonable assumptions. A position must not be based on unreasonable factual or legal assumptions (including assumptions as to future events) and must not unreasonably rely on the representations, statements, findings, or agreements of the taxpayer or any other person. For example, a position must not be based on a representation or assumption that the tax return preparer knows, or has reason to know, is inaccurate.

(3) Authorities. The authorities considered in determining whether a position satisfies the more likely than not standard are those authorities provided in §1.6662-4(d)(3)(iii) (or any successor provision).

(4) Examples. The provisions of paragraphs (b)(1) through (b)(3) of this section are illustrated by the following examples:

Example 1. A new statute is silent as to whether the taxpayer may take advantage of certain tax benefits. The Treasury Department and the IRS have not issued any interpretative guidance for the newly enacted provision. A well-reasoned construction of the statutory text supports the position that a taxpayer may claim the tax benefits. Preparer M may avoid the section 6694(a) penalty by taking the position that M reasonably believed that the taxpayer's position would more likely than not be sustained on its merits.

Example 2. After the passage of legislation containing a new statutory provision, a taxpayer engaged in a transaction that is adversely affected by the new provision. Prior law supported a position favorable to the taxpayer. Preparer N believes that the new statute is inequitable as applied to the taxpayer's situation. The statutory language, however, is unambiguous as applied to the transaction to deny the result claimed by the taxpayer previously. In considering the new statutory provision as applied to the taxpayer's position, N may not avoid the section 6694(a) penalty by taking the position that the tax return preparer reasonably believed that the position would more likely than not be sustained on its merits.

Example 3. While preparing the taxpayer's return, Preparer O determines that a statute is silent as to whether the taxpayer may take a certain position on the taxpayer's 2007 Federal income tax return. Three private letter rulings issued to other taxpayers in 2002 and 2003 support the taxpayer's position. Temporary regulations issued in 2004, however, are clearly contrary to the taxpayer's position. After the issuance of the temporary regulations, the earlier private letter rulings cease to be authorities and are not taken into account in determining whether the taxpayer's position satisfies the reasonable belief that the position would more likely than not be sustained on its merits standard. Preparer O may not avoid the section 6694(a) penalty by taking the position that the tax return preparer reasonably believed that the taxpayer's position would more likely than not be sustained on its merits.

Example 4. In the course of researching whether an interpretation of a phrase in the Internal Revenue Code (Code) is a position that more likely than not will be sustained on its merits, Preparer P discovers that the only relevant authorities include decisions of five U.S. courts of appeal. Three U.S. courts of appeal have construed the language as being taxpayer favorable. Two other U.S. courts of appeal, however, have construed the identical language as being favorable to the government's position. The U.S. court of appeals in the jurisdiction where the taxpayer is located has not addressed this issue. P reasonably believes that the taxpayer's facts more closely parallel the facts involved in the three U.S. courts of appeals' decisions that were taxpayer favorable. Under the analysis prescribed by §1.6662-4(d)(3)(ii), P may avoid the section 6694(a) penalty by taking the position that the tax return preparer reasonably believed that a well-reasoned position consistent with the taxpayer favorable interpretation would more likely than not be sustained on its merits.

(5) Written determinations. The tax return preparer may avoid the section 6694(a) penalty by taking the position that the tax return preparer reasonably believed that the taxpayer's position satisfies the "more likely than not" standard if the taxpayer is the subject of a "written determination" as provided in §1.6662-4(d)(3)(iv)(A).

(6) When "more likely than not" standard must be satisfied. For purposes of this section, the requirement that a position satisfies the "more likely than not" standard must be satisfied on the date the return is deemed prepared, as prescribed by §1.6694-1(a)(2).

(c) Exception for adequate disclosure of positions with a reasonable basis --(1) In general. The section 6694(a) penalty will not be imposed on a tax return preparer if the position taken has a reasonable basis and is adequately disclosed within the meaning of paragraph (c)(3) of this section. For an exception to the section 6694(a) penalty for reasonable cause and good faith, see paragraph (d) of this section.

(2) Reasonable basis. For purposes of this section, "reasonable basis" has the same meaning as in §1.6662-3(b)(3) or any successor provision of the accuracy-related penalty regulations. For purposes of determining whether the tax return preparer has a reasonable basis for a position, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer, advisor, other tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer's firm), as provided in §1.6694-1(e).

(3) Adequate disclosure --(i) Signing tax return preparers. In the case of a signing tax return preparer within the meaning of §301.7701-15(b)(1) of this chapter, disclosure of a position for which there is a reasonable basis but for which the tax return preparer does not have a reasonable belief that the position would more likely than not be sustained on the merits is adequate if the tax return preparer meets any of the following standards:

(A) The position is disclosed in accordance with §1.6662-4(f) (which permits disclosure on a properly completed and filed Form 8275, "Disclosure Statement," or Form 8275-R, "Regulation Disclosure Statement," as appropriate, or on the tax return in accordance with the annual revenue procedure described in §1.6662-4(f)(2)).

(B) For income tax returns, if the position would not meet the standard for the taxpayer to avoid a penalty under section 6662(d)(2)(B) without disclosure (no substantial authority), the tax return preparer provides the taxpayer with the prepared tax return that includes the disclosure in accordance with §1.6662-4(f).

(C) For income tax returns, if the position would otherwise meet the standard for nondisclosure under section 6662(d)(2)(B)(i) (substantial authority), the tax return preparer advises the taxpayer of all the penalty standards applicable to the taxpayer under section 6662. The tax return preparer must also contemporaneously document the advice in the tax return preparer's files.

(D) For income tax returns, if section 6662(d)(2)(B) does not apply because the position may be described in section 6662(d)(2)(C) or section 6662A (a tax shelter, reportable transaction with a significant purpose of tax avoidance or evasion, or a listed transaction), the tax return preparer advises the taxpayer that there needs to be at a minimum substantial authority for the position, that the taxpayer must possess a reasonable belief that the tax treatment was more likely than not the proper treatment in order to avoid a penalty under section 6662(d) or section 6662A as applicable, and that disclosure will not protect the taxpayer from assessment of an accuracy-related penalty if either section 6662(d)(2)(C) or 6662A applies to the position. The tax return preparer must also contemporaneously document the advice in the tax return preparer's files.

(E) For returns or claims for refund that are subject to penalties pursuant to section 6662 other than the substantial understatement penalty under section 6662(b)(2) and (d), the tax return preparer advises the taxpayer of the penalty standards applicable to the taxpayer under sections 6662. The tax return preparer must also contemporaneously document the advice in the tax return preparer's files.

(ii) Nonsigning tax return preparers. In the case of a nonsigning tax return preparer within the meaning of §301.7701-15(b)(2) of this chapter, disclosure of a position that satisfies the reasonable basis standard but does not satisfy the reasonable belief that a position would more likely than not be sustained on its merits standard is adequate if the position is disclosed in accordance with §1.6662-4(f) (which permits disclosure on a properly completed and filed Form 8275 or Form 8275-R, as appropriate, or on the return in accordance with an annual revenue procedure described in §1.6662-4(f)(2)). In addition, disclosure of a position is adequate in the case of a nonsigning tax return preparer if, with respect to that position, the tax return preparer complies with the provisions of paragraph (c)(3)(ii)(A) or (B) of this section, whichever is applicable.

(A) Advice to taxpayers. If a nonsigning tax return preparer provides advice to the taxpayer with respect to a position for which there is a reasonable basis but for which the nonsigning tax return preparer does not have a reasonable belief that the position would more likely than not be sustained on the merits, disclosure of that position is adequate if the tax return preparer advises the taxpayer of any opportunity to avoid penalties under section 6662 that could apply to the position, if relevant, and of the standards for disclosure to the extent applicable. The tax return preparer must also contemporaneously document the advice in the tax return preparer's files.

(B) Advice to another tax return preparer. If a nonsigning tax return preparer provides advice to another tax return preparer with respect to a position for which there is a reasonable basis but for which the nonsigning tax return preparer does not have a reasonable belief that the position would more likely than not be sustained on the merits, disclosure of that position is adequate if the tax return preparer advises the other tax return preparer that disclosure under section 6694(a) may be required. The tax return preparer must also contemporaneously document the advice in the tax return preparer's files.

(iii) Requirements for advice. For purposes of satisfying the disclosure standards of paragraphs (c)(3)(i) and (ii) of this section, each return position for which there is a reasonable basis but for which the tax return preparer does not have a reasonable belief that the position would more likely than not be sustained on the merits must be addressed by the tax return preparer. The advice to the taxpayer with respect to each position, therefore, must be particular to the taxpayer and tailored to the taxpayer's facts and circumstances. The tax return preparer is required to contemporaneously document the fact that the advice was provided. There is no general pro forma language or special format required for a tax return preparer to comply with these rules. No form of a general boilerplate disclaimer, however, is sufficient to satisfy these standards. A tax return preparer may choose to comply with the documentation standard in one document covering each position, or in multiple documents covering all of the positions.

(iv) Pass-through entities. Disclosure in the case of items attributable to a pass-through entity is adequate if made at the entity level in accordance with the rules in §1.6662-4(f)(5) or at the entity level in accordance with the rules in paragraphs (c)(3)(i) or (ii) of this section.

(v) Examples. The provisions of paragraph (c)(3) of this section are illustrated by the following examples:

Example 1. An individual taxpayer hires Accountant Q to prepare its income tax return. Q does not reasonably believe that a particular position taken on the tax return would more likely than not be sustained on its merits although there is substantial authority for the position. Q prepares and signs the tax return without disclosing the position taken on the tax return, but advises the individual taxpayer of the penalty standards applicable to the taxpayer under section 6662, and contemporaneously documents in Q's files that this advice was provided. The individual taxpayer signs and files the tax return without disclosing the position because the position meets the standards for nondisclosure under section 6662(d)(2)(B)(i). The IRS later challenges the position taken on the tax return, resulting in an understatement of liability. Q is not subject to a penalty under section 6694.

Example 2. Attorney R advises a large corporate taxpayer concerning the proper treatment of complex entries on the corporate taxpayer's tax return. R has reason to know that the tax attributable to the entries is a substantial portion of the tax required to be shown on the tax return within the meaning of §301.7701-15(b)(3). When providing the advice, R concludes that one position with respect to these entries does not meet the reasonable belief that the position would more likely than not be sustained on the merits standard and also does not have substantial authority, although the position meets the reasonable basis standard. R, in good faith, advises the corporate taxpayer that the position lacks substantial authority and the taxpayer will be subject to an accuracy-related penalty under section 6662 unless the position is disclosed in a disclosure statement included in the return. R also documents the fact that this advice was contemporaneously provided to the corporate taxpayer at the time the advice was provided. Neither R nor any other attorney within R's firm signs the corporate taxpayer's return as a tax return preparer, but the advice by R constitutes preparation of a substantial portion of the tax return and R is the individual with overall supervisory responsibility for the position giving rise to the understatement. Thus, R is a tax return preparer for purposes of section 6694. R, however, will not be subject to a penalty under section 6694.

(d) Exception for reasonable cause and good faith. The penalty under section 6694(a) will not be imposed if, considering all the facts and circumstances, it is determined that the understatement was due to reasonable cause and that the tax return preparer acted in good faith. Factors to consider include:

(1) Nature of the error causing the understatement. The error resulted from a provision that was complex, uncommon, or highly technical and a competent tax return preparer of tax returns or claims for refund of the type at issue reasonably could have made the error. The reasonable cause and good faith exception, however, does not apply to an error that would have been apparent from a general review of the return or claim for refund by the tax return preparer.

(2) Frequency of errors. The understatement was the result of an isolated error (such as an inadvertent mathematical or clerical error) rather than a number of errors. Although the reasonable cause and good faith exception generally applies to an isolated error, it does not apply if the isolated error is so obvious, flagrant, or material that it should have been discovered during a review of the return or claim for refund. Furthermore, the reasonable cause and good faith exception does not apply if there is a pattern of errors on a return or claim for refund even though any one error, in isolation, would have qualified for the reasonable cause and good faith exception.

(3) Materiality of errors. The understatement was not material in relation to the correct tax liability. The reasonable cause and good faith exception generally applies if the understatement is of a relatively immaterial amount. Nevertheless, even an immaterial understatement may not qualify for the reasonable cause and good faith exception if the error or errors creating the understatement are sufficiently obvious or numerous.

(4) Tax return preparer's normal office practice. The tax return preparer's normal office practice, when considered together with other facts and circumstances, such as the knowledge of the tax return preparer, indicates that the error in question would rarely occur and the normal office practice was followed in preparing the return or claim for refund in question. Such a normal office practice must be a system for promoting accuracy and consistency in the preparation of returns or claims for refund and generally would include, in the case of a signing tax return preparer, checklists, methods for obtaining necessary information from the taxpayer, a review of the prior year's return, and review procedures. Notwithstanding these rules, the reasonable cause and good faith exception does not apply if there is a flagrant error on a return or claim for refund, a pattern of errors on a return or claim for refund, or a repetition of the same or similar errors on numerous returns or claims for refund.

(5) Reliance on advice of others. For purposes of demonstrating reasonable cause and good faith, a tax return preparer may rely without verification upon advice and information furnished by the taxpayer or other party, as provided in §1.6694-1(e). The tax return preparer may reasonably rely in good faith on the advice of, or schedules or other documents prepared by, the taxpayer, another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer's firm), and who the tax return preparer had reason to believe was competent to render the advice or other information. The advice or information may be written or oral, but in either case the burden of establishing that the advice or information was received is on the tax return preparer. A tax return preparer is not considered to have relied in good faith if --

(i) The advice or information is unreasonable on its face;

(ii) The tax return preparer knew or should have known that the other party providing the advice or information was not aware of all relevant facts; or

(iii) The tax return preparer knew or should have known (given the nature of the tax return preparer's practice), at the time the return or claim for refund was prepared, that the advice or information was no longer reliable due to developments in the law since the time the advice was given.

(6) Reliance on generally accepted administrative or industry practice. The tax return preparer reasonably relied in good faith on generally accepted administrative or industry practice in taking the position that resulted in the understatement. A tax return preparer is not considered to have relied in good faith if the tax return preparer knew or should have known (given the nature of the tax return preparer's practice), at the time the return or claim for refund was prepared, that the administrative or industry practice was no longer reliable due to developments in the law or IRS administrative practice since the time the practice was developed.

(e) Burden of proof. In any proceeding with respect to the penalty imposed by section 6694(a), the issues on which the tax return preparer bears the burden of proof include whether --

(1) The tax return preparer knew or reasonably should have known that the questioned position was taken on the return;

(2) There is reasonable cause and good faith with respect to such position; and

(3) The position was disclosed adequately in accordance with paragraph (c) of this section.

(f) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 8. Section 1.6694-3 is amended by revising paragraphs (a),(c)(2) and (3),(d),(e),(f),(g) and (h) to read as follows:



§1.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general --(1) Proscribed conduct. A tax return preparer is liable for a penalty under section 6694(b) equal to the greater of $5,000 or 50 percent of the income derived (or to be derived) by the tax return preparer if any part of an understatement of liability for a return or claim for refund that is prepared is due to --

(i) A willful attempt in any manner to understate the liability for tax by a tax return preparer on the return or claim for refund; or

(ii) Any reckless or intentional disregard of rules or regulations by any such person.

(2) Special rule for corporations, partnerships, and other firms. A firm that employs a tax return preparer subject to a penalty under section 6694(b) (or a firm of which the individual tax return preparer is a partner, member, shareholder or other equity holder) is also subject to penalty if, and only if --

(i) One or more members of the principal management (or principal officers) of the firm or a branch office participated in or knew of the conduct proscribed by section 6694(b);

(ii) The corporation, partnership, or other firm entity failed to provide reasonable and appropriate procedures for review of the position for which the penalty is imposed; or

(iii) Such review procedures were disregarded by the corporation, partnership, or other firm entity through willfulness, recklessness, or gross indifference (including ignoring facts that would lead a person of reasonable prudence and competence to investigate or ascertain) in the formulation of the advice, or the preparation of the return or claim for refund, that included the position for which the penalty is imposed.

* * * * *

(c) Reckless or intentional disregard --(1)* * *

(2) A tax return preparer is not considered to have recklessly or intentionally disregarded a rule or regulation if the position contrary to the rule or regulation has a reasonable basis as defined in §1.6694- 2(c)(2) and is adequately disclosed in accordance with §1.6694-2(c)(3). In the case of a position contrary to a regulation, the position must represent a good faith challenge to the validity of the regulation and, when disclosed in accordance with §1.6694-2(c)(3), the tax return preparer must identify the regulation being challenged. For purposes of this section, disclosure on the return in accordance with an annual revenue procedure under §1.6662-4(f)(2) is not applicable.

(3) In the case of a position contrary to a revenue ruling or notice (other than a notice of proposed rulemaking) published by the Internal Revenue Service in the Internal Revenue Bulletin, a tax return preparer also is not considered to have recklessly or intentionally disregarded the ruling or notice if the tax return preparer reasonably believes that the position would more likely than not be sustained on its merits in accordance with §1.6694-2(b).

(d) Examples. The provisions of paragraphs (b) and (c) of this section are illustrated by the following examples:

Example 1. A taxpayer provided Preparer S with detailed check registers reflecting personal and business expenses. One of the expenses was for domestic help, and this expense was identified as personal on the check register. S knowingly deducted the expenses of the taxpayer's domestic help as wages paid in the taxpayer's business. S is subject to the penalty under section 6694(b).

Example 2. A taxpayer provided Preparer T with detailed check registers to compute the taxpayer's expenses. T, however, knowingly overstated the expenses on the return. After adjustments by the examiner, the tax liability increased significantly. Because T disregarded information provided in the check registers, T is subject to the penalty under section 6694(b).

Example 3. Preparer U prepares a taxpayer's return and encounters certain expenses incurred in the purchase of a business. Final regulations provide that such expenses incurred in the purchase of a business must be capitalized. One U.S. Tax Court case has expressly invalidated that portion of the regulations. Under these facts, U will have a reasonable basis for the position as defined in §1.6694- 2(c)(2) and will not be subject to the section 6694(b) penalty if the position is adequately disclosed in accordance with paragraph (c)(2) of this section because the position represents a good faith challenge to the validity of the regulations.

(e) Rules or regulations. The term rules or regulations includes the provisions of the Internal Revenue Code, temporary or final Treasury regulations issued under the Code, and revenue rulings or notices (other than notices of proposed rulemaking) issued by the Internal Revenue Service and published in the Internal Revenue Bulletin.

(f) Section 6694(b) penalty reduced by section 6694(a) penalty. The amount of any penalty to which a tax return preparer may be subject under section 6694(b) for a return or claim for refund is reduced by any amount assessed and collected against the tax return preparer under section 6694(a) for the same return or claim for refund.

(g) Burden of proof. In any proceeding with respect to the penalty imposed by section 6694(b), the government bears the burden of proof on the issue of whether the tax return preparer willfully attempted to understate the liability for tax. See section 7427. The tax return preparer bears the burden of proof on such other issues as whether --

(1) The tax return preparer recklessly or intentionally disregarded a rule or regulation;

(2) A position contrary to a regulation represents a good faith challenge to the validity of the regulation; and

(3) Disclosure was adequately made in accordance with §1.6694-3(c)(2).

(h) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 9. Section 1.6694-4 is amended by revising paragraph (a) to read as follows:



§1.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. (1) The Internal Revenue Service will investigate the preparation by a tax return preparer of a return of tax under the Internal Revenue Code (Code) or claim for refund of tax under the Code as described in §301.7701-15(b)(4) of this chapter, and will send a report of the examination to the tax return preparer before the assessment of either --

(i) A penalty for understating tax liability due to a position for which there was not a reasonable belief that the position would more likely than not be sustained on its merits under section 6694(a) (or not a reasonable basis for disclosed positions); or

(ii) A penalty for willful understatement of liability or reckless or intentional disregard of rules or regulations under section 6694(b).

* * * * *

(d) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 10. Section 1.6695-1 is revised to read as follows:



§1.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) Failure to furnish copy to taxpayer. (1) A person who is a signing tax return preparer as described in §301.7701-15(b)(1) of this chapter of any return of tax or claim for refund of tax under the Internal Revenue Code (Code), and who fails to satisfy the requirements imposed by section 6107(a) and §1.6107-1(a) to furnish a copy of the return or claim for refund to the taxpayer (or nontaxable entity), shall be subject to a penalty of $50 for such failure, with a maximum penalty of $25,000 per person imposed with respect to each calendar year, unless it is shown that the failure is due to reasonable cause and not due to willful neglect.

(2) No penalty may be imposed under section 6695(a) and paragraph (a)(1) of this section upon a tax return preparer who furnishes a copy of the return or claim for refund to taxpayers who --

(i) Hold an elected or politically appointed position with the government of the United States or a state or political subdivision thereof; and

(ii) In order faithfully to carry out their official duties, have so arranged their affairs that they have less than full knowledge of the property that they hold or of the debts for which they are responsible, if information is deleted from the copy in order to preserve or maintain this arrangement.

(b) Failure to sign return. (1) An individual who is a tax return preparer as described in §301.7701-15 of this chapter with respect to a return of tax or claim for refund of tax under the Code that is not signed electronically shall sign the return or claim for refund after it is completed and before it is presented to the taxpayer (or nontaxable entity) for signature. For rules covering electronically signed returns, see paragraph (b)(2) of this section. For purposes of this paragraph (b), a return of tax shall not include information returns under subpart B and subpart C of Part III of Subtitle F. If the tax return preparer is unavailable for signature, another tax return preparer shall review the entire preparation of the return or claim for refund, and then shall sign the return or claim for refund. The tax return preparer shall sign the return in the manner prescribed by the Commissioner in forms, instructions, or other appropriate guidance.

(2) In the case of electronically signed tax returns, the tax return preparer need not sign the return prior to presenting a completed copy of the return to the taxpayer. The tax return preparer, however, must furnish all of the information that will be transmitted as the electronically signed tax return to the taxpayer contemporaneously with furnishing the Form 8879, "IRS e-file Signature Authorization," or other similar Internal Revenue Service (IRS) e-file signature form. The information may be furnished on a replica of an official form. The tax return preparer shall electronically sign the return in the manner prescribed by the Commissioner in forms, instructions, or other appropriate guidance.

(3) If more than one tax return preparer is involved in the preparation of the return or claim for refund, the individual tax return preparer who has the primary responsibility as between or among the tax return preparers for the overall substantive accuracy of the preparation of such return or claim for refund shall be considered to be the signing tax return preparer for purposes of this paragraph (b) and §301.7701-15(b)(1) of this chapter. Any other tax return preparer as described in §301.7701-15(b)(2) of this chapter is not required to sign the return or claim for refund.

(4) Examples. The application of this paragraph (b) is illustrated by the following examples:

Example 1. Law Firm A employs B, a lawyer, to prepare for compensation estate tax returns and claims for refund of taxes. Firm A is engaged by C to prepare a Federal estate tax return. Firm A assigns B to prepare the return. B obtains the information necessary for completing the return from C and makes determinations with respect to the proper application of the tax laws to such information in order to determine the estate's tax liability. B then forwards such information to D, a computer tax service that performs the mathematical computations and prints the return by means of computer processing. D then sends the completed estate tax return to B who reviews the accuracy of the return. B is the individual tax return preparer who is primarily responsible for the overall accuracy of the estate tax return. B must sign the return as tax return preparer.

Example 2. Partnership E is a national accounting firm that prepares returns and claims for refund of taxes for compensation. F and G, employees of Partnership E, are involved in preparing the Form 990-T, Exempt Organization Business Income Tax Return, for H, a tax exempt organization. After they complete the return, including the gathering of the necessary information, analyzing the proper application of the tax laws to such information, and the performance of the necessary mathematical computations, I, a supervisory employee of Partnership E, reviews the return. As part of this review, I reviews the information provided and the application of the tax laws to this information. The mathematical computations and carriedforward amounts are reviewed by J, an employee of Partnership E. The policies and practices of Partnership E require that K, a partner, finally review the return. The scope of K's review includes reviewing the information provided and applying to this information his knowledge of H's affairs, observing that Partnership E's policies and practices have been followed, and making the final determination with respect to the proper application of the tax laws to determine H's tax liability. K may or may not exercise these responsibilities, or may exercise them to a greater or lesser extent, depending on the degree of complexity of the return, his confidence in I (or F and G), and other factors. K is the individual tax return preparer who is primarily responsible for the overall accuracy of H's return. K must sign the return as tax return preparer.

Example 3. L corporation maintains an office in Seattle, Washington, for the purpose of preparing partnership returns for compensation. L makes compensatory arrangements with individuals (but provides no working facilities) in several states to collect information from partners of a partnership and to make decisions with respect to the proper application of the tax laws to the information in order to prepare the partnership return and calculate the partnership's distributive items. M, an individual, who has such an arrangement in Los Angeles with L, collects information from N, the general partner of a partnership, and completes a worksheet kit supplied by L that is stamped with M's name and an identification number assigned to M by L. In this process, M classifies this information in appropriate categories for the preparation of the partnership return. The completed worksheet kit signed by M is then mailed to L. O, an employee in L's office, reviews the worksheet kit to make sure it was properly completed. O does not review the information obtained from N for its validity or accuracy. O may, but did not, make the final decision with respect to the proper application of tax laws to the information provided. The data from the worksheet is entered into a computer and the return form is completed. The return is prepared for submission to N with filing instructions. M is the individual tax return preparer primarily responsible for the overall accuracy of the partnership return. M must sign the return as tax return preparer.

Example 4. P employs R, S, and T to prepare gift tax returns for taxpayers. After R and S have collected the information from a taxpayer and applied the tax laws to the information, the return form is completed by a computer service. On the day the returns prepared by R and S are ready for their signatures, R is away from the city for 1 week on another assignment and S is on detail to another office in the same city for the day. T may sign the gift tax returns prepared by R, provided that T reviews the information obtained by R relative to the taxpayer, and T reviews the preparation of each return prepared by R. T may not sign the returns prepared by S because S is available.

(5) An individual required by this paragraph (b) to sign a return or claim for refund shall be subject to a penalty of $50 for each failure to sign, with a maximum of $25,000 per person imposed with respect to each calendar year, unless it is shown that the failure is due to reasonable cause and not due to willful neglect. If the tax return preparer asserts reasonable cause for failure to sign, the IRS will require a written statement to substantiate the tax return preparer's claim of reasonable cause. For purposes of this paragraph (b), reasonable cause is a cause that arises despite ordinary care and prudence exercised by the individual tax return preparer.

(6) Effective/applicability date. This paragraph (b) is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

(c) Failure to furnish identifying number. (1) A person who is a signing tax return preparer as described in §301.7701-15(b)(1) of this chapter of any return of tax under the Code or claim for refund of tax under the Code, and who fails to satisfy the requirement of section 6109(a)(4) and §1.6109-2(a) to furnish one or more identifying numbers of signing tax return preparers or persons employing the signing tax return preparer (or with which the signing tax return preparer is associated) on a return or claim for refund after it is completed and before it is presented to the taxpayer (or nontaxable entity) for signature shall be subject to a penalty of $50 for each failure, with a maximum of $25,000 per person imposed with respect to each calendar year, unless it is shown that the failure is due to reasonable cause and not due to willful neglect.

(2) No more than one penalty of $50 may be imposed under section 6695(c) and paragraph (c)(1) of this section with respect to a single return or claim for refund.

(d) Failure to retain copy or record. (1) A person who is a signing tax return preparer as described in §301.7701-15(b)(1) of this chapter of any return of tax under the Code or claim for refund of tax under the Code, and who fails to satisfy the requirements imposed upon him or her by section 6107(b) and §1.6107-1(b) and (c) (other than the record requirement described in both §1.6107-1(b)(2) and (3)) to retain and make available for inspection a copy of the return or claim for refund, or to include the return or claim for refund in a record of returns and claims for refund and make the record available for inspection, shall be subject to a penalty of $50 for the failure, unless it is shown that the failure is due to reasonable cause and not due to willful neglect.

(2) A person may not, for returns or claims for refund presented to the taxpayers (or nontaxable entities) during any single return period, be subject to more than $25,000 in penalties under section 6695(d) and paragraph (d)(1) of this section.

(e) Failure to file correct information returns. A person who is subject to the reporting requirements of section 6060 and §1.6060-1 and who fails to satisfy these requirements shall pay a penalty of $50 for each such failure, with a maximum of $25,000 per person imposed for each calendar year, unless such failure was due to reasonable cause and not due to willful neglect.

(f) Negotiation of check. (1) No person who is a tax return preparer as described in §301.7701-15 of this chapter may endorse or otherwise negotiate, directly or through an agent, a check for the refund of tax under the Code that is issued to a taxpayer other than the tax return preparer if the person was a tax return preparer of the return or claim for refund which gave rise to the refund check.

(2) Section 6695(f) and paragraphs (f)(1) and (3) of this section do not apply to a tax return preparer-bank that --

(i) Cashes a refund check and remits all of the cash to the taxpayer or accepts a refund check for deposit in full to a taxpayer's account, so long as the bank does not initially endorse or negotiate the check (unless the bank has made a loan to the taxpayer on the basis of the anticipated refund); or

(ii) Endorses a refund check for deposit in full to a taxpayer's account pursuant to a written authorization of the taxpayer (unless the bank has made a loan to the taxpayer on the basis of the anticipated refund).

(3) A tax return preparer-bank may also subsequently endorse or negotiate a refund check as a part of the checkclearing process through the financial system after initial endorsement or negotiation.

(4) The tax return preparer shall be subject to a penalty of $500 for each endorsement or negotiation of a check prohibited under section 6695(f) and paragraph (f)(1) of this section.

(g) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 11. Section 1.6695-2 is amended by revising the heading and paragraphs (a), (b)(3), (c) and (d) to read as follows:



§1.6695-2 Tax return preparer due diligence requirements for determining earned income credit eligibility.

(a) Penalty for failure to meet due diligence requirements. A person who is a signing tax return preparer of a tax return or claim for refund under the Internal Revenue Code with respect to determining the eligibility for, or the amount of, the earned income credit (EIC) under section 32 and who fails to satisfy the due diligence requirements of paragraph (b) of this section will be subject to a penalty of $100 for each such failure.

(b) * * *

(3) Knowledge --(i) In general. The tax return preparer must not know, or have reason to know, that any information used by the tax return preparer in determining the taxpayer's eligibility for, or the amount of, the EIC is incorrect. The tax return preparer may not ignore the implications of information furnished to, or known by, the tax return preparer, and must make reasonable inquiries if the information furnished to the tax return preparer appears to be incorrect, inconsistent, or incomplete. A tax return preparer must make reasonable inquiries if a reasonable and well-informed tax return preparer knowledgeable in the law would conclude that the information furnished to the tax return preparer appears to be incorrect, inconsistent, or incomplete. The tax return preparer must also contemporaneously document in the files the reasonable inquiries made and the responses to these inquiries.

(ii) Examples. The provisions of paragraph (b)(3)(i) of this section are illustrated by the following examples:

Example 1. A 22 year-old taxpayer wants to claim two sons, ages 10 and 11, as qualifying children for purposes of the EIC. Preparer A must make additional reasonable inquiries regarding the relationship between the taxpayer and the children as the age of the taxpayer appears inconsistent with the ages of the children claimed as sons.

Example 2. An 18 year-old female taxpayer with an infant has $3,000 in earned income and states that she lives with her parents. Taxpayer wants to claim the infant as a qualifying child for the EIC. This information appears incomplete and inconsistent because the taxpayer lives with her parents and earns very little income. Preparer B must make additional reasonable inquires to determine if the taxpayer is the qualifying child of her parents and, therefore, ineligible to claim the EIC.

Example 3. In March 2008, Mr. D has Preparer C prepare his tax year 2007 return using Married Filing Separate filing status, and an address of 25 Main Street, Mytown, Mystate. Two weeks later Mrs. D has C prepare her tax year 2007 return, and she asks C to use the Head of Household filing status, claiming two qualifying children, and the EIC. She tells C that her address is 25 Main Street, Mytown, Mystate. Mrs. D's filing status appears incorrect based on the filing status used by Mr. D. Therefore, C must make additional reasonable inquiries to determine Mrs. D's proper filing status.

Example 4. Taxpayer asks Preparer E to prepare her tax return and tells D that she has a Schedule C business, that she has two qualifying children and that she wants to claim the EIC. Taxpayer indicates that she earned $10,000 from her Schedule C business, but that she has no expenses. This information appears incomplete because it is very unlikely that someone who is self-employed has no business expenses. E must make additional reasonable inquiries regarding taxpayer's business to determine whether the information regarding both income and expenses is correct.

(c) Exception to penalty. The section 6695(g) penalty will not be applied with respect to a particular tax return or claim for refund if the tax return preparer can demonstrate to the satisfaction of the Internal Revenue Service that, considering all the facts and circumstances, the tax return preparer's normal office procedures are reasonably designed and routinely followed to ensure compliance with the due diligence requirements of paragraph (b) of this section, and the failure to meet the due diligence requirements of paragraph (b) of this section with respect to the particular return or claim for refund was isolated and inadvertent.

(d) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 12. Section 1.6696-1 is revised to read as follows:



§1.6696-1 Claims for credit or refund by tax return preparers or appraisers.

(a) Notice and demand. (1) The Internal Revenue Service (IRS) shall issue to each tax return preparer or appraiser one or more statements of notice and demand for payment for all penalties assessed against the tax return preparer or appraiser under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations).

(2) For the definition of the term "tax return preparer," see section 7701(a)(36) and §301.7701-15 of this chapter. A person who prepares a claim for credit or refund under this section for another person, however, is not, with respect to that preparation, a tax return preparer as defined in section 7701(a)(36) and §301.7701-15 of this chapter.

(b) Claim filed by tax return preparer or appraiser. A claim for credit or refund of a penalty (or penalties) assessed against a tax return preparer or appraiser under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations) may be filed under this section only by the tax return preparer or the appraiser (or the tax return preparer's or appraiser's estate) against whom the penalty (or penalties) is assessed and not by, for example, the tax return preparer's or appraiser's employer. This paragraph (b) is not intended, however, to impose any restrictions on the preparation of this claim for credit or refund. The claim may be prepared by the tax return preparer's or appraiser's employer or by other persons. In all cases, however, the claim for credit or refund shall contain the information specified in paragraph (d) of this section and, as required by paragraph (d) of this section, shall be verified by a written declaration by the tax return preparer or appraiser that the information is provided under penalty of perjury.

(c) Separation and consolidation of claims. (1) Unless paragraph (c)(2) of this section applies, a tax return preparer shall file a separate claim for each penalty assessed in each statement of notice and demand issued to the tax return preparer.

(2) A tax return preparer may file one or more consolidated claims for any or all penalties imposed on the tax return preparer by a single IRS Office under section 6695(a) and §1.6695-1(a) (relating to failure to furnish copy of return to taxpayer), section 6695(b) and §1.6695-1(b) (relating to failure to sign), section 6695(c) and §1.6695-1(c) (relating to failure to furnish identifying number), or under section 6695(d) and §1.6695-1(d) (relating to failure to retain copy of return or record), whether the penalties are asserted on a single or on separate statements of notice and demand. In addition, a tax return preparer may file one consolidated claim for any or all penalties imposed on the tax return preparer by a single IRS Office under section 6695(e) and §1.6695-1(e) (relating to failure to file correct information return), which are asserted on a single statement of notice and demand.

(d) Content of claim. Each claim for credit or refund for any penalty (or penalties) paid by a tax return preparer under section 6694 and §1.6694-1, or under section 6695 and §1.6695-1, or paid by an appraiser under section 6695A (and any subsequently issued regulations) shall include the following information, verified by a written declaration by the tax return preparer or appraiser that the information is provided under penalty of perjury:

(1) The tax return preparer's or appraiser's name.

(2) The tax return preparer's or appraiser's identification number. If the tax return preparer or appraiser is --

(i) An individual (not described in paragraph (d)(2)(iii) of this section) who is a citizen or resident of the United States, the tax return preparer's or appraiser's social security account number (or such alternative number as may be prescribed by the IRS in forms, instructions, or other appropriate guidance) shall be provided;

(ii) An individual who is not a citizen or resident of the United States and also was not employed by another tax return preparer or appraiser to prepare the document (or documents) with respect to which the penalty (or penalties) was assessed, the tax return preparer's or appraiser's employer identification number shall be provided; or

(iii) A person (whether an individual, corporation, or partnership) that employed one or more persons to prepare the document (or documents) with respect to which the penalty (or penalties) was assessed, the tax return preparer's or appraiser's employer identification number shall be provided.

(3) The tax return preparer's or appraiser's address where the IRS mailed the statement (or statements) of notice and demand and, if different, the tax return preparer's or appraiser's address shown on the document (or documents) with respect to which the penalty (or penalties) was assessed.

(4)(i) The address of the IRS campus or office that issued the statement (or statements) of notice and demand for payment of the penalty (or penalties).

(ii) The date (or dates) and identifying number (or numbers) of the statement (or statements) of notice and demand.

(5)(i) The identification, by amount, type, and document to which related, of each penalty included in the claim. Each document referred to in the preceding sentence shall be identified by the form title or number, by the taxpayer's (or nontaxable entity's) name and taxpayer identification number, and by the taxable year to which the document relates.

(ii) The date (or dates) of payment of the amount (or amounts) of the penalty (or penalties) included in the claim.

(iii) The total amount claimed.

(6) A statement setting forth in detail --

(i) Each ground upon which each penalty overpayment claim is based; and

(ii) Facts sufficient to apprise the IRS of the exact basis of each such claim.

(e) Form for filing claim. Notwithstanding §301.6402(c) of this chapter, Form 6118, "Claim for Refund of Tax Return Preparer Penalties," is the form prescribed for making a claim as provided in this section.

(f) Place for filing claim. A claim filed under this section shall be filed with the IRS campus or office that issued to the tax return preparer or appraiser the statement (or statements) of notice and demand for payment of the penalty (or penalties) included in the claim.

(g) Time for filing claim. (1)(i) Except as provided in section 6694(c)(1) and §1.6694-2(a)(3)(ii) and (4), and in section 6694(d) and §1.6694-1(c):

(A) A claim for a penalty paid by a tax return preparer under section 6694 and §1.6694-1, or under section 6695 and §1.6695-1, or by a appraiser under section 6695A (and any subsequently issued regulations) shall be filed within three years from the date the payment was made.

(B) A consolidated claim, permitted under paragraph (c)(2) of this section, shall be filed within three years from the first date of payment of any penalty included in the claim.

(ii) For purposes of this paragraph (g)(1), payment is considered made on the date payment is received by the IRS or, if applicable, on the date an amount is credited in satisfaction of the penalty.

(2) For purposes of determining whether a claim is timely filed, the rules under sections 7502 and 7503 and the provisions of §§1.7502-1, 1.7502-2, and 1.7503-1 apply.

(h) Application of refund to outstanding liability of tax return preparer or appraiser. The IRS may, within the applicable period of limitations, credit any amount of an overpayment by a tax return preparer or appraiser of a penalty (or penalties) paid under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations) against any outstanding liability for any tax (or for any interest, additional amount, addition to the tax, or assessable penalty) owed by the tax return preparer or appraiser making the overpayment. If a portion of an overpayment is so credited, only the balance will be refunded to the tax return preparer or appraiser.

(i) Interest. (1) Section 6611 and §301.6611-1 of this chapter apply to the payment by the IRS of interest on an overpayment by a tax return preparer or appraiser of a penalty (or penalties) paid under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations).

(2) Section 6601 and §301.6601-1 of this chapter apply to the payment of interest by a tax return preparer or appraiser to the IRS on any penalty (or penalties) assessed against the tax return preparer under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations).

(j) Suits for refund of penalty. (1) A tax return preparer or appraiser may not maintain a civil action for the recovery of any penalty paid under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A(and any subsequently issued regulations), unless the tax return preparer or appraiser has previously filed a claim for credit or refund of the penalty as provided in this section (and the court has jurisdiction of the proceeding). See sections 6694(c) and 7422.

(2)(i) Except as provided in section 6694(c)(2) and §1.6694-2(b), the periods of limitation contained in section 6532 and §301.6532-1 of this chapter apply to a tax return preparer's or appraiser's suit for the recovery of any penalty paid under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations).

(ii) The rules under section 7503 and §301.7503-1 of this chapter apply to the timely commencement by a tax return preparer or appraiser of a suit for the recovery of any penalty paid under section 6694 and §1.6694-1, under section 6695 and §1.6695-1, or under section 6695A (and any subsequently issued regulations).

(k) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 20 --ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER

AUGUST 16, 1954

Par. 13. The authority citation for part 20 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 20.6060-1 also issued under 26 U.S.C. 6060(a).

* * *

Section 20.6109-2 also issued under 26 U.S.C. 6109(a).

* * *

Section 20.6695-1 also issued under 26 U.S.C. 6695(b).

* * *

Section 20.6695-2 also issued under 26 U.S.C. 6695(g).

* * *

Par. 14. Section 20.6060-1 is added to read as follows:



§20.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of estate tax under chapter 11 of subtitle B of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the recordkeeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 15. Section 20.6107-1 is added to read as follows:



§20.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of estate tax under chapter 11 of subtitle B of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the estate, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 16. Section 20.6109-1 is added to read as follows:



§20.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each estate tax return or claim for refund prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 17. Section 20.6694-1 is added to read as follows:



§20.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of estate tax returns or claims see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 18. Section 20.6694-2 is added to read as follows:



§20.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of estate tax under chapter 11 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 19. Section 20.6694-3 is added to read as follows:



§20.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of estate tax under chapter 11 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 20. Section 20.6694-4 is added to read as follows:



§20.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of the period of collection when a tax return preparer who prepared a return or claim for refund for estate tax under chapter 11 of subtitle B of the Internal Revenue Code pays 15 percent of a penalty for understatement of the taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under sections 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 21. Section 20.6695-1 is added to read as follows:



§20.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of estate tax under chapter 11 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 22. Section 20.6696-1 is added to read as follows:



§20.6696-1 Claims for credit or refund by tax return preparers or appraisers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for estate tax under chapter 11 of subtitle B of the Internal Revenue Code, or by an appraiser that prepared an appraisal in connection with such a return or claim for refund under section 6695A, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 23. Section 20.7701-1 is added to read as follows:



§20.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 25 --GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 24. The authority citation for part 25 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 25.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 25.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 25.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 25.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 25. Section 25.6060-1 is added to read as follows:



§25.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of gift tax under chapter 12 of subtitle B of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 26. Section 25.6107-1 is added to read as follows:



§25.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of gift tax under chapter 12 of subtitle B of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 27. Section 25.6109-1 is added to read as follows:



§25.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each gift tax return or claim for refund prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 28. Section 25.6694-1 is added to read as follows:



§25.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of gift tax returns or claims see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 29. Section 25.6694-2 is added to read as follows:



§25.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of gift tax under chapter 12 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 30. Section 25.6694-3 is added to read as follows:



§25.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of gift tax under chapter 12 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 31. Section 25.6694-4 is added to read as follows:



§25.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules for the extension of period of collection when a tax return preparer who prepared a return or claim for refund for gift tax under chapter 12 of subtitle B of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation of , assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 32. Section 25.6695-1 is added to read as follows:



§25.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of gift tax under chapter 12 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 33. Section 25.6696-1 is added to read as follows:



§25.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for gift tax under chapter 12 of subtitle B of the Internal Revenue Code, or by an appraiser that prepared an appraisal in connection with such a return or claim for refund under section 6695A, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 34. Section 25.7701-1 is added to read as follows:



§25.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 26 --GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX REFORM ACT OF 1986

Par. 35. The authority citation for part 26 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 26.6060-1 also issued under 26 U.S.C. 6060(a).

* * *

Section 26.6109-2 also issued under 26 U.S.C. 6109(a).

* * *

Section 26.6695-1 also issued under 26 U.S.C. 6695(b).

* * *

Section 26.6695-2 also issued under 26 U.S.C. 6695(g).

* * *

Par. 36. Section 26.6060-1 is added to read as follows:



§26.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of generation-skipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 37. Section 26.6107-1 is added to read as follows:



§26.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of generationskipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the estate, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 38. Section 26.6109-1 is added to read as follows:



§26.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each generation-skipping transfer tax return or claim for refund prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 39. Section 26.6694-1 is added to read as follows:



§26.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of generation-skipping transfer tax returns or claims see §1.66994-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 40. Section 26.6694-2 is added to read as follows:



§26.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of generationskipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 41. Section 26.6694-3 is added to read as follows:



§26.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of generation-skipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 42. Section 26.6694-4 is added to read as follows:



§26.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for generationskipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 43. Section 26.6695-1 is added to read as follows:



§26.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of generation-skipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code (Code) shall be subject to penalties for failure to a furnish copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 44. Section 26.6696-1 is added to read as follows:



§26.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for generation-skipping transfer tax under chapter 13 of subtitle B of the Internal Revenue Code, or by an appraiser that prepared an appraisal in connection with such a return or claim for refund under section 6695A, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 45. Section 26.7701-1 is added to read as follows:



§26.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 31 --EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE SOURCE

Par. 46. The authority citation for part 31 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 31.6060-1 also issued under 26 U.S.C. 6060(a).

* * *

Section 31.6109-2 also issued under 26 U.S.C. 6109(a).

* * *

Section 31.6695-1 also issued under 26 U.S.C. 6695(b).

* * *

Section 31.6695-2 also issued under 26 U.S.C. 6695(g).

* * *

Par. 47. Section 31.6060-1 is added to read as follows:



§31.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 48. Section 31.6107-1 is added to read as follows:



§31.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 49. Section 31.6109-2 is added to read as follows:



§31.6109-2 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each employment tax return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Registe r.

Par. 50. Section 31.6694-1 is added to read as follows:



§31.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of employment tax returns or claims of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code, see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 51. Section 31.6694-2 is added to read as follows:



§31.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 52. Section 31.6694-3 is added to read as follows:



§31.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in 1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.
Par. 53. Section 31.6694-4 is added to read as follows:



§31.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 54. Section 31.6695-1 is added to read as follows:



§31.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 55. Section 31.6696-1 is added to read as follows:



§31.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 56. Section 31.7701-1 is added to read as follows:



§31.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 40 --EXCISE TAX PROCEDURAL REGULATIONS

Par. 57. The authority citation for part 40 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 40.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 40.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 40.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 40.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 58. Section 40.6060-1 is added to read as follows:



§40.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the recordkeeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 59. Section 40.6107-1 is added to read as follows:



§40.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of excise tax under chapters 31, 32(other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 60. Section 40.6109-1 is added to read as follows:



§40.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each return or claim for refund of excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36(other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 61. Section 40.6694-1 is added to read as follows:



§40.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of returns or claims for refund of excise tax under chapters 31, 32(other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code, see §1.6694-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 62. Section 40.6694-2 is added to read as follows:



§40.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 63. Section 40.6694-3 is added to read as follows:



§40.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 64. Section 40.6694-4 is added to read as follows:



§40.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 65. Section 40.6695-1 is added to read as follows:



§40.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 66. Section 40.6696-1 is added to read as follows:



§40.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 67. Section 40.7701-1 is added to read as follows:



§40.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 41 --EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES

Par. 68. The authority citation for part 41 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 41.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 41.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 41.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 41.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 69. Section 41.6060-1 is added to read as follows:



§41.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of excise tax under section 4481 of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 70. Section 41.6107-1 is added to read as follows:



§41.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of excise tax section 4481 of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 71. Section 41.6109-2 is added to read as follows:



§41.6109-2 Tax return preparers furnishing identifying numbers for returns or claims for refund filed after December 31, 2008.

(a) In general. Each excise tax return or claim for refund under section 4481 prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 72. Section 41.6694-1 is added to read as follows:



§41.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund, see §1.6694-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 73. Section 41.6694-2 is added to read as follows:



§41.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under section 4481 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 74. Section 41.6694-3 is added to read as follows:



§41.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under section 4481 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 75. Section 41.6694-4 is added to read as follows:



§41.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for excise tax under section 4481 of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 76. Section 41.6695-1 is added to read as follows:



§41.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under section 4481 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign a return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 77. Section 41.6696-1 is added to read as follows:



§41.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for excise tax under section 4481 of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 78. Section 41.7701-1 is added to read as follows:



§41.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 44 --TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955

Par. 79. The authority citation for part 44 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 44.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 44.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 44.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 44.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 80. Section 44.6060-1 is added to read as follows:



§44.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 81. Section 44.6107-1 is added to read as follows:



§44.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 82. Section 44.6109-1 is added to read as follows:



§44.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each tax return or claim for refund of tax under sections 4401 or 4411 prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. This section is applicable for returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 83. Section 44.6694-1 is added to read as follows:



§44.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of wagering tax returns or claims for refund under sections 4401 or 4411, see §1.6694-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 84. Section 44.6694-2 is added to read as follows:



§44.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 85. Section 44.6694-3 is added to read as follows:



§44.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 86. Section 44.6694-4 is added to read as follows:



§44.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax on wagers under sections 4401 or 4411 of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 87. Section 44.6695-1 is added to read as follows:



§44.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 88. Section 44.6696-1 is added to read as follows:



§44.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax on wagers under sections 4401 or 4411 of the Internal Revenue Code, the rules under §1.6696- 1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 89. Section 44.7701-1 is added to read as follows:



§44.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 53 --FOUNDATION AND SIMILAR EXCISE TAXES

Par. 90. The authority citation for part 53 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 53.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 53.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 53.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 53.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 91. Section 53.6060-1 is added to read as follows:



§53.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of tax under Chapter 42 of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 92. Section 53.6107-1 is added to read as follows:



§53.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under Chapter 42 of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 93. Section 53.6109-1 is added to read as follows:



§53.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund filed.

(a) In general. Each tax return or claim for refund under Chapter 42 of the Internal Revenue Code prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 94. Section 53.6694-1 is added to read as follows:



§53.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund under Chapter 42 of the Internal Revenue Code, see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 95. Section 53.6694-2 is added to read as follows:



§53.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under Chapter 42 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 96. Section 53.6694-3 is added to read as follows:



§53.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under Chapter 42 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 97. Section 53.6694-4 is added to read as follows:



§53.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund of tax under Chapter 42 of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 98. Section 53.6695-1 is added to read as follows:



§53.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under Chapter 42 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 99. Section 53.6696-1 is added to read as follows:



§53.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax under Chapter 42 of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 100. Section 53.7701-1 is added to read as follows:



§53.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 54 --PENSION EXCISE TAXES

Par. 101. The authority citation for part 54 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 54.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 54.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 54.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 54.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 102. Section 54.6060-1 is added to read as follows:



§54.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund under Chapter 43 of subtitle D of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 103. Section 54.6107-1 is added to read as follows:



§54.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under Chapter 43 of subtitle D of the Internal Revenue Code, shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 104. Section 54.6109-1 is added to read as follows:



§54.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund filed.

(a) In general. Each tax return or claim for refund of tax under Chapter 43 of subtitle D prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 105. Section 54.6694-1 is added to read as follows:



§54.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund of tax under Chapter 43 of subtitle D, see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 106. Section 54.6694-2 is added to read as follows:



§54.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 43 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 107. Section 56.6694-3 is added to read as follows:



§54.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapter 43 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 108. Section 54.6694-4 is added to read as follows:



§54.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax under chapter 43 of subtitle D of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 109. Section 54.6695-1 is added to read as follows:



§54.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 43 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 110. Section 54.6696-1 is added to read as follows:



§54.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for excise tax under chapter 43 of subtitle D of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 111. Section 54.7701-1 is added to read as follows:



§54.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 55 --EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED INVESTMENT COMPANIES

Par. 112. The authority citation for part 55 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 55.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 55.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 55.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 55.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 113. Section 55.6060-1 is added to read as follows:



§55.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund under chapter 44 of subtitle D of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 114. Section 55.6107-1 is added to read as follows:



§55.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under Chapter 44 of subtitle D of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 115. Section 55.6109-1 is added to read as follows:



§55.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each tax return or claim for refund of tax under chapter 44 of Subtitle D prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 116. Section 55.6694-1 is added to read as follows:



§55.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund of tax under chapter 44 of Subtitle D see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 117. Section 55.6694-2 is added to read as follows:



§55.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapter 44 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 118. Section 55.6694-3 is added to read as follows:



§55.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 44 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 119. Section 55.6694-4 is added to read as follows:



§55.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for excise tax under chapter 44 of subtitle D of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 120. Section 55.6695-1 is added to read as follows:



§55.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 44 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 121. Section 55.6696-1 is added to read as follows:



§55.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax under chapter 44 of subtitle D of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 122. Section 55.7701-1 is added to read as follows:



§55.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 56 --PUBLIC CHARITY EXCISE TAXES

Par. 123. The authority citation for part 56 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 56.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 56.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 56.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 56.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 124. Section 56.6060-1 is added to read as follows:



§56.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund of tax under chapter 41 of subtitle D of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 125. Section 56.6107-1 is added to read as follows:



§56.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under Chapter 41 of subtitle D of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the estate, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 126. Section 56.6109-1 is added to read as follows:



§56.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each tax return or claim for refund for tax under chapter 41 of subtitle D prepared by one or more tax signing return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 127. Section 56.6694-1 is added to read as follows:



§56.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund of tax under chapter 41 of subtitle D see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 128. Section 56.6694-2 is added to read as follows:



§56.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under chapter 41 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 129. Section 56.6694-3 is added to read as follows:



§56.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 41 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 130. Section 56.6694-4 is added to read as follows:



§56.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax under chapter 41 of subtitle D of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 131. Section 56.6695-1 is added to read as follows:



§56.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 41 of subtitle D of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 132. Section 56.6696-1 is added to read as follows:



§56.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules relating to claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax under chapter 41 of subtitle D of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 133. Section 56.7701-1 is added to read as follows:



§56.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 156 --EXCISE TAX ON GREENMAIL

Par. 134. The authority citation for part 156 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 156.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 156.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 156.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 156.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 135. Section 156.6060-1 is added to read as follows:



§156.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund under section 5881 of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 136. Section 156.6107-1 is added to read as follows:



§156.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under Section 5881 of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 137. Section 156.6109-1 is added to read as follows:



§156.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each tax return or claim for refund for tax under section 5881 of the Internal Revenue Code prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 138. Section 156.6694-1 is added to read as follows:



§156.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund for tax under section 5881 of the Internal Revenue Code, see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 139. Section 156.6694-2 is added to read as follows:



§156.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5881 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 140. Section 156.6694-3 is added to read as follows:



§156.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5881 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 141. Section 156.6694-4 is added to read as follows:



§55.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax under section 5881 of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 142. Section 156.6695-1 is added to read as follows:



§156.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5881 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 143. Section 156.6696-1 is added to read as follows:



§156.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax under section 5881 of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 144. Section 156.7701-1 is added to read as follows:



§156.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 157 --EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING TRANSACTIONS

Par. 145. The authority citation for part 157 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805* * *

Section 157.6060-1 also issued under 26 U.S.C. 6060(a). * * *

Section 157.6109-2 also issued under 26 U.S.C. 6109(a). * * *

Section 157.6695-1 also issued under 26 U.S.C. 6695(b). * * *

Section 157.6695-2 also issued under 26 U.S.C. 6695(g). * * *

Par. 146. Section 157.6060-1 is added to read as follows:



§157.6060-1 Reporting requirements for tax return preparers.

(a) In general. A person that employs (or engages) one or more tax return preparers to prepare a return or claim for refund for tax under section 5891 of the Internal Revenue Code, other than for the person, at any time during a return period, shall satisfy the record keeping and inspection requirements in the manner stated in §1.6060-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 147. Section 157.6107-1 is added to read as follows:



§157.6107-1 Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of tax under section 5891 of the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer, and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 148. Section 157.6109-1 is added to read as follows:



§157.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each tax return or claim for refund for tax under section 5891 of the Internal Revenue Code prepared by one or more signing tax return preparers must include the identifying number of the preparer required by §1.6695-1(b) of this chapter to sign the return or claim for refund in the manner stated in §1.6109-2 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 149. Section 157.6694-1 is added to read as follows:



§157.6694-1 Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of tax returns or claims for refund for tax under section 5891 of the Internal Revenue Code see §1.6694-1 of this chapter.

(b) Effective/applicability date. Paragraph (a) of this section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 150. Section 157.6694-2 is added to read as follows:



§157.6694-2 Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5891 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(a) of the Code in the manner stated in §1.6694-2 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 151. Section 157.6694-3 is added to read as follows:



§157.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5891 of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in §1.6694-3 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 152. Section 157.6694-4 is added to read as follows:



§157.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax under section 5891 of the Internal Revenue Code pays 15 percent of a penalty for understatement of taxpayer's liability, and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under §1.6694-4 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 153. Section 157.6695-1 is added to read as follows:



§157.6695-1 Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax under section 5891 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in §1.6695-1 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed after the date that final regulations are published in the Federal Register.

Par. 154. Section 157.6696-1 is added to read as follows:



§157.6696-1 Claims for credit or refund by tax return preparers.

(a) In general. For rules for claims for credit or refund by a tax return preparer who prepared a return or claim for refund for tax under section 5891 of the Internal Revenue Code, the rules under §1.6696-1 of this chapter will apply.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Par. 155. Section 157.7701-1 is added to read as follows:



§157.7701-1 Tax return preparer.

(a) In general. For the definition of a tax return preparer, see §301.7701-15 of this chapter.

(b) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.



PART 301 --PROCEDURE AND ADMINISTRATION

Par. 156. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 157. Section 301.7701-15 is amended to read as follows:



§301.7701-15 Tax return preparer.

(a) In general. A tax return preparer is any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claim for refund of tax under the Internal Revenue Code (Code).

(b) Definitions --(1) Signing tax return preparer. A signing tax return preparer is any tax return preparer who signs or who is required to sign a return or claim for refund as a tax return preparer pursuant to §1.6695-1(b) of this chapter.

(2) Nonsigning tax return preparer --(i) In general. A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund within the meaning of paragraph(b)(3) of this section with respect to events that have occurred at the time the advice is rendered. In determining whether an individual is a nonsigning tax return preparer, time spent on advice that is given after events have occurred that represents less than 5 percent of the aggregate time incurred by such individual with respect to the position(s) giving rise to the understatement shall not be taken into account. Examples of nonsigning tax return preparers are tax return preparers who provide advice (written or oral) to a taxpayer (or to another tax return preparer) when that advice constitutes a substantial portion of the return within the meaning of paragraph(b)(3) of this section.

(ii) Examples. The provisions of this paragraph (b)(2) are illustrated by the following examples:

Example 1. Attorney A, an attorney in a law firm, provides legal advice to a large corporate taxpayer regarding a completed corporate transaction. The advice provided by A is directly relevant to the determination of an entry on the taxpayer's return and this advice constitutes a substantial portion of the return. A, however, does not prepare any other portion of the taxpayer's return and is not the signing tax return preparer of this return. A is considered a tax return preparer.

Example 2. Attorney B, an attorney in a law firm, provides legal advice to a large corporate taxpayer regarding the tax consequences of a proposed corporate transaction. Based upon this advice, the corporate taxpayer enters into the transaction. Once the transaction is completed, the corporate taxpayer does not receive any additional advice from B with respect to the transaction. B did not provide advice with respect to events that have occurred and is not considered a tax return preparer.

Example 3. The facts are the same as Example 2, except that Attorney B provides supplemental advice to the corporate taxpayer on a phone call after the transaction is completed. The time incurred on this supplemental advice by B represented less than 5 percent of the aggregate amount of time spent by B providing tax advice on the position. B is not considered a tax return preparer.

(3) Substantial portion. (i) Only a person who prepares all or a substantial portion of a return or claim for refund shall be considered to be a tax return preparer of the return or claim for refund. A person who renders tax advice on a position that is directly relevant to the determination of the existence, characterization, or amount of an entry on a return or claim for refund will be regarded as having prepared that entry. Whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion is determined based upon whether the person knows or reasonably should know that the tax attributable to the schedule, entry, or other portion of a return or claim for refund is a substantial portion of the tax required to be shown on the return or claim for refund. A single tax entry may constitute a substantial portion of the tax required to be shown on a return. Factors to consider in determining whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion include but are not limited to --

(A) the size and complexity of the item relative to the taxpayer's gross income; and

(B) the size of the understatement attributable to the item compared to the taxpayer's reported tax liability.

(ii)(A) For purposes of applying the rules of paragraph (b)(3)(i) of this section to a nonsigning tax return preparer within the meaning of paragraph (b)(2) of this section only, if the schedule, entry, or other portion of the return or claim for refund involves amounts of gross income, amounts of deductions, or amounts on the basis of which credits are determined that are --

( 1) Less than $10,000; or

( 2) Less than $400,000 and also less than 20 percent of the gross income as shown on the return or claim for refund (or, for an individual, the individual's adjusted gross income), then the schedule or other portion is not considered to be a substantial portion.

(B) If more than one schedule, entry or other portion is involved, all schedules, entries or other portions shall be aggregated in applying this rule. This paragraph shall not apply to a signing tax return preparer within the meaning of paragraph (b)(1) of this section.

(iii) A tax return preparer with respect to one return is not considered to be a tax return preparer of another return merely because an entry or entries reported on the first return may affect an entry reported on the other return, unless the entry or entries reported on the first return are directly reflected on the other return and constitute a substantial portion of the other return. For example, the sole preparer of a partnership return of income or small business corporation income tax return is considered a tax return preparer of a partner's or a shareholder's return if the entry or entries on the partnership or small business corporation return reportable on the partner's or shareholder's return constitute a substantial portion of the partner's or shareholder's return.

(iv) Examples. The provisions of this paragraph (b)(3) are illustrated by the following examples:
Example 1. Accountant C prepares a Form 8886, "Reportable Transaction Disclosure Statement", that is used to disclose reportable transactions. C does not prepare the tax return or advise the taxpayer regarding the tax return reporting position of the transaction to which the Form 8886 relates. The preparation of the Form 8886 is not directly relevant to the determination of the existence, characterization, or amount of an entry on a tax return or claim for refund. Rather, the Form 8886 is prepared by C to disclose a reportable transaction. C has not prepared a substantial portion of the tax return and is not considered a tax return preparer under section 6694.

Example 2. Accountant D prepares a schedule for an individual taxpayer's Form 1040, "U.S. Individual Income Tax Return", reporting $4,000 in dividend income and gives oral or written advice about Schedule A, which results in a claim of a medical expense deduction totaling $5,000, but does not sign the tax return. D is not a tax return preparer because the total aggregate amount of the deductions is less than $10,000.

(4) Return and claim for refund --(i) Return. For purposes of this section, a return of tax is a return (including an amended or adjusted return) filed by or on behalf of a taxpayer reporting the liability of the taxpayer for tax under the Code, if the type of return is identified in published guidance in the Internal Revenue Bulletin. A return of tax also includes any information return or other document identified in published guidance in the Internal Revenue Bulletin, and that reports information that is or may be reported on another taxpayer's return under the Code if the information reported on the information return or other document constitutes a substantial portion of the taxpayer's return within the meaning of paragraph (b)(3) of this section.

(ii) Claim for refund. For purposes of this section, a claim for refund of tax includes a claim for credit against any tax that is included in published guidance in the Internal Revenue Bulletin. A claim for refund also includes a claim for payment under section 6420, 6421, or 6427.

(c) Mechanical or clerical assistance. A person who furnishes to a taxpayer or other tax return preparer sufficient information and advice so that completion of the return or claim for refund is largely a mechanical or clerical matter is considered a tax return preparer, even though that person does not actually place or review placement of information on the return or claim for refund. See also paragraph (b)(3) of this section.

(d) Qualifications. A person may be a tax return preparer without regard to educational qualifications and professional status requirements.

(e) Outside the United States. A person who prepares a return or claim for refund outside the United States is a tax return preparer, regardless of the person's nationality, residence, or the location of the person's place of business, if the person otherwise satisfies the definition of tax return preparer. Notwithstanding the provisions of §301.6109-1(g), the person shall secure an employer identification number if the person is an employer of another tax return preparer, is a partnership in which one or more of the general partners is a tax return preparer, is a firm entity in which one or more of the equity holders is a tax return preparer, or is an individual not employed by another tax return preparer.

(f) Persons who are not tax return preparers. (1) The following persons are not tax return preparers:

(i) An official or employee of the Internal Revenue Service (IRS) performing their official duties.

(ii) Any individual who provides tax assistance under a Volunteer Income Tax Assistance (VITA) program established by the IRS, but only with respect to those returns prepared as part of the VITA program.

(iii) Any organization sponsoring or administering a VITA program established by the IRS, but only with respect to that sponsorship or administration.

(iv) Any individual who provides tax counseling for the elderly under a program established pursuant to section 163 of the Revenue Act of 1978, but only with respect to those returns prepared as part of that program.

(v) Any organization sponsoring or administering a program to provide tax counseling for the elderly established pursuant to section 163 of the Revenue Act of 1978, but only with respect to that sponsorship or administration.

(vi) Any individual who provides tax assistance as part of a qualified Low-Income Taxpayer Clinic (LITC), as defined by section 7526, subject to the requirements of paragraphs (f)(2) and (3) of this section, but only with respect to those returns prepared as part of the LITC program.

(vii) Any organization that is a qualified LITC, as defined by section 7526, subject to the requirements of paragraphs (h)(2) and (3) of this section.

(viii) An individual providing only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund.

(ix) An individual preparing a return or claim for refund of a person, or an officer, a general partner, member, shareholder, or employee of a person, by whom the individual is regularly and continuously employed or compensated or in which the individual is a general partner.

(x) An individual preparing a return or claim for refund for a trust, estate, or other entity of which the person either is a fiduciary or is an officer, general partner, or employee of the fiduciary.

(xi) An individual preparing a claim for refund for a taxpayer in response to --

(A) A notice of deficiency issued to the taxpayer; or

(B) A waiver of restriction on assessment after initiation of an audit of the taxpayer or another taxpayer if a determination in the audit of the other taxpayer affects, directly or indirectly, the liability of the taxpayer for tax under subtitle A.

(xii) A person who prepares a return or claim for refund for a taxpayer with no explicit or implicit agreement for compensation, even if the person receives an insubstantial gift, return service, or favor.

(2) Paragraphs (f)(1)(vi) and (vii) of this section apply only if any assistance with a return of tax or claim for refund is directly related to a controversy with the IRS for which the qualified LITC is providing assistance, or is an ancillary part of an LITC program to inform individuals for whom English is a second language about their rights and responsibilities under the Code.

(3) Notwithstanding paragraph (f)(2) of this section, paragraphs (f)(1)(vi) and (f)(1)(vii) of this section do not apply if an LITC charges a separate fee or varies a fee based on whether the LITC provides assistance with a return of tax or claim for refund under the Code, or if the LITC charges more than a nominal fee for its services.

(4) For purposes of paragraph (f)(1)(ix) of this section, the employee of a corporation owning more than 50 percent of the voting power of another corporation, or the employee of a corporation more than 50 percent of the voting power of which is owned by another corporation, is considered the employee of the other corporation as well.

(5) For purposes of paragraph (f)(1)(x) of this section, an estate, guardianship, conservatorship, committee, or any similar arrangement for a taxpayer under a legal disability (such as a minor, an incompetent, or an infirm individual) is considered a trust or estate.

(6) Examples. The mechanical assistance exception described in paragraph (f)(1)(viii) of this section is illustrated by the following examples:

Example 1. A reporting agent received employment tax information from a client from the client's business records. The reporting agent did not render any tax advice to the client or exercise any discretion or independent judgment on the client's underlying tax positions. The reporting agent processed the client's information, signed the return as authorized by the client pursuant to Form 8655, Reporting Agent Authorization, and filed the client's return using the information supplied by the client. The reporting agent is not a tax return preparer.

Example 2. A reporting agent rendered tax advice to a client on determining whether its workers are employees or independent contractors for Federal tax purposes. For compensation, the reporting agent received employment tax information from the client, processed the client's information and filed the client's return using the information supplied by the client. The reporting agent is a tax return preparer.

(g) Effective/applicability date. This section is applicable to returns and claims for refund filed, and advice provided, after the date that final regulations are published in the Federal Register.

Linda E. Stiff

Deputy Commissioner for Services and Enforcement.

Proposed Legislation, HR 7082, Inmate Tax Fraud Prevention Act of 2008, Enrolled, , (October 6, 2008) Inmate Tax Fraud Prevention Act of 2008, Enrolled

October 6, 2008

110th Congress

H.R.7082



One Hundred Tenth Congress



of the



United States of America



AT THE SECOND SESSION

Begun and held at the City of Washington on Thursday, the third day of January, two thousand and eight



An Act

To amend the Internal Revenue Code of 1986 to permit the Secretary of the Treasury to disclose certain prisoner return information to the Federal Bureau of Prisons, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,



SECTION 1. SHORT TITLE.

This Act may be cited as the 'Inmate Tax Fraud Prevention Act of 2008'.



SEC. 2. DISCLOSURE OF PRISONER RETURN INFORMATION TO FEDERAL BUREAU OF PRISONS.

(a) In General- Subsection (k) of section 6103 of the Internal Revenue Code of 1986 (relating to disclosure of certain return and return information for tax administration purposes) is amended by adding at the end the following new paragraph:

'(10) DISCLOSURE OF CERTAIN RETURN INFORMATION OF PRISONERS TO FEDERAL BUREAU OF PRISONS-

'(A) IN GENERAL- Under such procedures as the Secretary may prescribe, the Secretary may disclose to the head of the Federal Bureau of Prisons any return information with respect to individuals incarcerated in Federal prison whom the Secretary has determined may have filed or facilitated the filing of a false return to the extent that the Secretary determines that such disclosure is necessary to permit effective Federal tax administration.

'(B) RESTRICTION ON REDISCLOSURE- Notwithstanding subsection (n), the head of the Federal Bureau of Prisons may not disclose any information obtained under subparagraph (A) to any person other than an officer or employee of such Bureau.

'(C) RESTRICTION ON USE OF DISCLOSED INFORMATION- Return information received under this paragraph shall be used only for purposes of and to the extent necessary in taking administrative action to prevent the filing of false and fraudulent returns, including administrative actions to address possible violations of administrative rules and regulations of the prison facility.

'(D) TERMINATION- No disclosure may be made under this paragraph after December 31, 2011.'.

(b) Recordkeeping- Paragraph (4) of section 6103(p) of such Code is amended by striking '(k)(8)' both places it appears and inserting '(k)(8) or (10)'.

(c) Evaluation by Treasury Inspector General for Tax Administration-Paragraph (3) of section 7803(d) of such Code is amended by striking 'and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting '; and', and by adding at the end the following new subparagraph:

'(C) not later than December 31, 2010, submit a written report to Congress on the implementation of section 6103(k)(10).'.

(d) Effective Date- The amendments made by this section shall apply to disclosures made after December 31, 2008.

(e) Annual Reports- The Secretary of the Treasury shall annually submit to Congress and make publicly available a report on the filing of false and fraudulent returns by individuals incarcerated in Federal and State prisons. Such report shall include statistics on the number of false and fraudulent returns associated with each Federal and State prison.



SEC. 3. RESTORATION OF CERTAIN JUDICIAL SURVIVORS' ANNUITIES.

(a) In General- Section 376 of title 28, United States Code, is amended by adding at the end the following:

'(x) In the case of a widow or widower whose annuity under clause (i) or (ii) of subsection (h)(1) is terminated because of remarriage before attaining 55 years of age, the annuity shall be restored at the same rate commencing on the day the remarriage is dissolved by death, divorce, or annulment, if --

'(1) the widow or widower elects to receive this annuity instead of any other survivor annuity to which such widow or widower may be entitled, under this chapter or under another retirement system for Government employees, by reason of the remarriage; and

'(2) any payment made to such widow or widower under subsection (o) or (p) on termination of the annuity is returned to the Judicial Survivors' Annuities Fund.'.

(b) Conforming Amendment- Section 376(h)(2) of title 28, United States Code, is amended by striking the period at the end and inserting ', subject to subsection (x).'.

(c) Effective Date-

(1) IN GENERAL- This section and the amendments made by this section shall take effect on the first day of the first month beginning at least 30 days after the date of the enactment of this Act and shall apply in the case of a remarriage which is dissolved by death, divorce, or annulment on or after such first day.

(2) LIMITED RETROACTIVE EFFECT-

(A) IN GENERAL- In the case of a remarriage which is dissolved by death, divorce, or annulment within the 4-year period ending on the day before the effective date of this section, the amendments made by this section shall apply only if the widow or widower satisfies the requirements of paragraphs (1) and (2) of section 376(x) of title 28, United States Code (as amended by this section) before --

(i) the end of the 1-year period beginning on the effective date of this section; or

(ii) such later date as Director of the Administrative Office of the United States Courts may by regulation prescribe.

(B) RESTORATION- If the requirements of paragraph (1) are satisfied, the survivor annuity shall be restored, commencing on the date the remarriage was dissolved by death, annulment, or divorce, at the rate which was in effect when the annuity was terminated.

(C) LUMP-SUM PAYMENT- Any amounts becoming payable to the widow or widower under this subsection for the period beginning on the date on which the annuity was terminated and ending on the date on which periodic annuity payments resume shall be payable in a lump-sum payment.

Speaker of the House of Representatives.

Vice President of the United States and President of the Senate.

All Taxpayers Do Not Qualify for an Offer in Compromise

Absent special circumstances, if you have the ability to fully pay your tax liability in a lump sum or via an installment agreement, an offer in compromise will not be accepted. Those who qualify for an "offer in compromise" based on their personal "reasonable collection potential" - based on their assets and income in excess of what they need for their reasonable and necessary living expenses.

Offer in Compromise Payments are Non-refundable

The IRS considers the 20 percent payment for a lump sum offer and any periodic payments as “payments on tax” and are not refundable, regardless of whether the offer is declared not-processable or is later returned, withdrawn, rejected or terminated by the IRS. For those who are "not collectible" we offer the IRS approximately $1,000 to reflect "reasonable collection potential." Therefore, the 20% is $200 with $800 payable to the IRS when the Offer in Compromise is accepted.

If there is a Notice of Federal Tax Lien on record prior to acceptance of the offer, the lien is not released until the OIC terms are satisfied or until the liability is paid, whichever comes first. A Notice of Federal Tax Lien may be filed during the course of the OIC investigation. However, the IRS will release all tax liens when the Offer in Compromise is accepted.


You may designate in writing how the IRS should apply payments made with the filing of the offer and while an offer is under investigation. Without a written designation, payments will be applied to the tax liability and in the government’s best interest. The $150 application fee cannot be designated, but is applied to the tax liability and in the government’s best interest.


The IRS will keep any refund, including interest due, because of an overpayment of any tax or other liability, for tax periods extending through the calendar year the IRS accepts the OIC.
The 20% is not required for Offers in Compromise based on "no liability."

The IRS will keep all payments and credits made, received or applied to the total original tax liability before the OIC was submitted. The IRS may also keep any proceeds from a levy that was served prior to the submission of an OIC, but which were not received at the time the OIC was submitted.



The statutory period for collection is suspended during the period that the OIC is under consideration (pending) and is further suspended if the OIC is rejected by the IRS and you appeal the rejection.


If your offer is accepted, you must timely file all tax returns and timely pay all tax for five years or until the offered amount is paid in full, whichever period is longer. Failure to adhere to these terms will result in default of the offer and the IRS may then collect the amounts originally owed plus penalties and interest.


If you qualify for a low-income exception waiver or you submit a doubt as to liability offer you are exempt from the $150 application fee and any OIC payments due upon submission of the OIC or during the course of the investigation. The low income waiver does not apply to businesses.


If your OIC is rejected, you will have the opportunity to file an appeal which will be heard by the IRS Office of Appeals. There are no appeal rights associated with offers that are returned, withdrawn or terminated.


If you have an approved installment agreement and submit a periodic payment offer, you are not required to continue to make the installment agreement payments while the offer is being investigated. You will, however, be required to make the OIC periodic payments as they become due.

Mandatory Acceptance

Per IRC 7122(f), the IRS will deem an offer “accepted” if it is not withdrawn, returned or rejected within 24 months of the IRS receipt date. If a liability included in the offer amount is disputed in any judicial proceeding, that time period is omitted from calculating the 24-month time frame.

IRC Section 7122(d)(1) requires the Service to conduct an independent administrative review of all proposed offer in compromise rejections. The review must be conducted prior to the rejection being communicated to the taxpayer.

The Independent Administrative Reviewer (IAR) is responsible for conducting this review. Generally, the IAR should report to the Technical Support manager.

The Independent Administrative Reviewer (IAR) is responsible for reviewing each case to determine if the proposed rejection is reasonable based on the taxpayer's facts and circumstances. The Offer Investigator's analysis of the taxpayers financial information should be reviewed to determine if there are special circumstances that should have been considered. The IAR should compare the amount that the taxpayer offered with the reasonable collection potential (RCP) or the Asset/Equity Table (AET) for legal sufficiency.



Part 5. Collecting Process
Chapter 8. Offer in Compromise
Section 12. Independent Administrative Review

--------------------------------------------------------------------------------




The IAR should consider if the taxpayers rights have been observed during the offer investigation and during communication and discussions with the taxpayer or authorized representative. These considerations should be based on issues that would impact the recommended rejection.

The IAR must also consider if the taxpayers facts and circumstances were considered during the investigation. If the file indicates any circumstances that could impact either future earning potential or allowable expenses, the file should document this information and the determinations relating to the taxpayers circumstances.

If the case file indicates issues are raised that meet either Effective Tax Administration (ETA) or Doubt as to Collectibility with Special Circumstance (DCSC) criteria, as defined in IRM .8.11, Effective Tax Administration, the case history must address these issues and discuss the determinations made.

5.8.12.3 (09-01-2005)
Rejections
The IAR should ensure that all of the facts and circumstances of the case were considered during the investigation and that the decision to reject the offer is reasonable, based on the case analysis.

Note:
The IAR is not responsible for conducting a quality analysis of completeness and accuracy of the documents used to support the case decision. That is the responsibility of the manager.


The following items should be present in the file and used as an aid for the IAR to ensure the decision was appropriate.

Form 656, Offer in Compromise

Form 1271, Rejection or Withdrawal memorandum

Rejection Letter

Asset/Equity Table (AET)

Income/Expense Table (IET)

Rejection Narrative

Collection Information Statements (CIS)

Case History

Supporting Documents


If any information is missing or unavailable that hinders the IAR in making a determination that the decision was appropriate, the case file should be returned or a memorandum sent to the Offer Investigator or the manager requesting the missing documentation or supporting information. In the case where the IAR is located off-site, the information needed may be faxed to the IAR for inclusion in the analysis.

The case file should indicate an attempt to communicate the results of the offer investigation with the taxpayer or authorized representative, prior to recommending the rejection. This communication can be accomplished by personal contact or by letter.

Exception:
The only exception is for those cases rejected based on the Screen for Obvious Full Pay criteria as outlined in IRM 5.8.4.5, Screen for Obvious Full Pay.


5.8.12.3.1 (09-01-2005)
Communication
The IAR should consider if required communication with the taxpayer or authorized representative was attempted and if these communications were reasonable based on the facts of the case. Communications need not necessarily include phone calls. They may be conducted entirely in the form of letters to the taxpayers or their authorized representatives.

The case file should document these communications and any specific issues that are in dispute.

5.8.12.4 (09-01-2005)
Independent Review Process
Prior to the proposed rejection being submitted to the IAR, the authorized official must have reviewed the file and signed the Form 1271, Rejection or Withdrawal Memorandum, indicating concurrence with the proposed disposition.

Once the approving official has signed the Form 1271, the offer must be re-assigned to the IAR on AOIC. The file is then forwarded to the IAR for review using a Form 3210, Document Transmittal.

Upon receipt of the file by the IAR, AOIC should be updated to reflect the individual independent reviewers assignment number.

Once the offer is reviewed by the IAR, AOIC must be updated to reflect the results of the review.

5.8.12.4.1 (09-01-2005)
Rejections Sustained by the Independent Administrative Reviewer
If the proposed rejection of the offer is sustained by the IAR, the reviewer will:

Update the IAR Main Screen on AOIC indicating the appropriate disposition.

Sign the Form 1271, Rejection or Withdrawal Memorandum , as the reviewer, indicating concurrence with the proposed disposition.

Return the case file to the originator using a Form 3210, Document Transmittal.


5.8.12.4.2 (09-01-2005)
Rejections Not Sustained by the Independent Administrative Reviewer
If the proposed rejection is not sustained by the IAR, the reviewer will:

Update the IAR Main Screen on AOIC indicating the appropriate IAR disposition.

Prepare the Form 5942, Reviewers Report, providing an explanation of why the determination was not sustained and indicating additional actions necessary by the investigating employee.

Route the Form 5942 and the offer case file to the IAR Manager for approval.


After the IAR Manager approves the Form 5942, the case will be routed as follows:

The original Form 5942 and the offer file will be returned to the Offer Investigator's manager.

A copy of the Form 5942 will be sent to the Offer Investigator's second level manager.

A copy of the 5942 will be retained by the IAR.


The following procedures describe necessary actions once the offer file is received by the originating office:

If… Then…
Reconsideration of the offer based on recommendations from the IAR results in a determination to accept the offer Process the acceptance recommendation following procedures defined in IRM 5.8.8, Acceptance Processing.
Reconsideration of the offer based on recommendations from the IAR results in a determination to continue to recommend rejection of the offer Update the case file with the additional case actions and any new information and re-submit to the IAR for a second review.
The investigating employee determines that the rejection is the correct action without further development, after reviewing the Form 5942 The offer file will be returned to the IAR for reconsideration. If necessary, additional history should be included to further support the offer rejection.
After a second review by the IAR, the rejection is still not sustained by the IAR and the Offer Investigator and the manager disagree with the decision of the IAR The decision will be raised to the second level manager for resolution.
The IAR Manager will forward a memorandum to the Offer Manager with an explanation of why the rejection cannot be sustained.

A copy of the memorandum will be forwarded to the second level manager.

The IAR manager and the second level manager will discuss the issues to reach a resolution.

The final decision will be made by the field second level manager for cases assigned to the field and the second level manager for those cases decided by the COIC sites.



The original Form 5942 and any other documentation regarding second level management involvement and decisions must be retained in the offer file as a record of actions taken during the IAR process.

The IRS has published procedures applicable to the submission and processing of offers to compromise a tax liability under Code Sec. 7122. The procedures reflect IRS imposition of an offer in compromise application fee, effective November 1, 2003.
Most of the offers in compromise are based on reasonable collection potential An offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the Service could collect through other means, including administrative and judicial collection remedies. See Policy Statement P-5-100. This amount is the reasonable collection potential of a case. In determining the reasonable collection potential of a case, the Service will take into account the taxpayer's reasonable basic living expenses. In some cases, the Service may accept an offer of less than the total reasonable collection potential of a case if there are special circumstances.


Full Text --Rev. Proc. 2003-71




SECTION 1. PURPOSE

The purpose of this revenue procedure is to explain the procedures applicable to the submission and processing of offers to compromise a tax liability under section 7122 of the Internal Revenue Code. These procedures reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat. 685, 764).



SECTION 2. BACKGROUND

.01 Section 7122 permits the Secretary of the Treasury or his delegate to compromise any civil or criminal liability arising under the internal revenue laws before the case is referred to the Department of Justice for prosecution or defense.

.02 The Secretary has developed guidelines and procedures for the submission and evaluation of offers to compromise under section 7122. These guidelines can be found in § 301.7122-1 of the Regulations on Procedure and Administration, the Internal Revenue Manual, and various forms and publications issued by the Internal Revenue Service (Service). This revenue procedure supplements and clarifies the procedures identified in § 301.7122-1.

.03 This revenue procedure includes provisions relating to the offer in compromise application fee, required under § 300.3 of the Regulations on User Fees and effective November 1, 2003.



SECTION 3. SCOPE

This revenue procedure applies to all offers to compromise a civil or criminal liability under section 7122 submitted to the Service, except for those offers submitted directly to the Office of Appeals. This revenue procedure does not apply to offers to compromise a tax liability after a case involving a civil or criminal liability has been referred to the Department of Justice for prosecution or defense.



SECTION 4. SUBMITTING AN OFFER TO COMPROMISE

.01 An offer to compromise a tax liability must be submitted in writing on the Service's Form 656, Offer in Compromise. None of the standard terms may be stricken or altered, and the form must be signed under penalty of perjury. The offer should include all liabilities to be covered by the compromise, the legal grounds for compromise, the amount the taxpayer proposes to pay, and the payment terms. Payment terms include the amounts and due dates of the payments. The offer should also contain any other information required by Form 656. The Service occasionally revises Form 656 and may require offers to be submitted on the most recent version of the form. The most recent version of the form and instructions are available on the Service's website at www.irs.gov.

.02 An offer to compromise a tax liability should set forth the legal grounds for compromise and should provide enough information for the Service to determine whether the offer fits within its acceptance policies.

(1) Doubt as to liability. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence of the liability.

An offer to compromise based on doubt as to liability generally will be considered acceptable if it reasonably reflects the amount the Service would expect to collect through litigation. This analysis includes consideration of the hazards of litigation that would be involved if the liability were litigated. The evaluation of the hazards of litigation is not an exact science and is within the discretion of the Service.

(2) Doubt as to collectibility. Doubt as to collectibility exists in any case where the taxpayer's assets and income cannot satisfy the full amount of the liability.

An offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the Service could collect through other means, including administrative and judicial collection remedies. See Policy Statement P-5-100. This amount is the reasonable collection potential of a case. In determining the reasonable collection potential of a case, the Service will take into account the taxpayer's reasonable basic living expenses. In some cases, the Service may accept an offer of less than the total reasonable collection potential of a case if there are special circumstances.

(3) Promotion of effective tax administration.

(a) The Service may compromise to promote effective tax administration where it determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship. Economic hardship is defined as the inability to pay reasonable basic living expenses. See § 301.6343-1(d). No compromise may be entered into on this basis if compromise of the liability would undermine compliance by taxpayers with the tax laws.

An offer to compromise based on economic hardship generally will be considered acceptable when, even though the tax could be collected in full, the amount offered reflects the amount the Service can collect without causing the taxpayer economic hardship. The determination to accept a particular amount will be based on the taxpayer's individual facts and circumstances.

(b) If there are no other grounds for compromise, the Service may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. The taxpayer will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full. No compromise may be entered into on this basis if compromise of the liability would undermine compliance by taxpayers with the tax laws.

An offer to compromise based on compelling public policy or equity considerations generally will be considered acceptable if it reflects what is fair and equitable under the particular facts and circumstances of the case.

.03 The offer should include all information necessary to verify the grounds for compromise. Except for offers to compromise based solely on doubt as to liability, this includes financial information provided in a manner approved by the Service. Individual or self-employed taxpayers must submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, together with any attachments or other documentation required by the Service. Corporate or other business taxpayers must submit a Form 433-B, Collection Information Statement for Businesses, together with any attachments or other documentation required by the Service. The Service may require the corporate officers or individual partners of a business taxpayer to complete a Form 433-A.

.04 An offer to compromise a tax liability should be mailed to the appropriate address listed on Form 656. The Service may, in its discretion, receive offers to compromise in other manners. Simply because the Service has received an offer does not mean that it has accepted the offer for processing such that the offer is considered pending within the meaning of section 6331(k)(1). Accepting an offer for processing is addressed in Section 5.01 of this revenue procedure.

.05 If a deposit is submitted with the offer to compromise and the taxpayer authorizes application of a deposit to tax liabilities, it will be credited to the taxpayer's account as of the day the deposit is first received.



SECTION 5. WHEN AN OFFER BECOMES PENDING AND RETURN OF OFFERS

.01 Section 6331(k)(1) generally prohibits the Service from making a levy on a taxpayer's property or rights to property while an offer to compromise a liability is pending with the Service, for 30 days after the rejection of an offer to compromise, or while an appeal of a rejection is pending. The statute of limitations on collection is suspended while levy is prohibited. An offer to compromise becomes pending when it is accepted for processing. The Service accepts an offer to compromise for processing when it determines that: the offer is submitted on the proper version of Form 656 and Form 433-A or B, as appropriate; the taxpayer is not in bankruptcy; the taxpayer has complied with all filing and payment requirements listed in the instructions to Form 656; the taxpayer has enclosed the application fee, if required; and the offer meets any other minimum requirements established by the Service. A determination that the offer meets these minimum requirements means that the offer is processable.

.02 A determination is made to accept an offer to compromise for processing when a Service official with delegated authority to accept an offer for processing signs the Form 656. The date the Service official signs the Form 656 is recorded on the Service's computers. As of this date, levy is prohibited unless the Service determines that collection of the liability is in jeopardy.

.03 If the Service determines that an offer to compromise a liability does not meet the minimum requirements the Service has established for a processable offer, the offer to compromise is not processable and may be returned to the taxpayer. Because the offer to compromise was never accepted for processing, it was never pending and levy was never prohibited.

.04 If an offer to compromise accepted for processing does not contain sufficient information to permit the Service to evaluate whether the offer should be accepted, the Service will request that the taxpayer provide the needed additional information. These requests for information are described in Section 6 below. If the taxpayer does not submit the additional information that the Service has requested within a reasonable time period after such a request, the Service may return the offer to the taxpayer. The Service also may return the offer after it has been accepted for processing if:

(1) The Service determines that the offer was submitted solely to delay collection;

(2) The taxpayer fails to file a return or pay a liability;

(3) The taxpayer files for bankruptcy;

(4) The offer is no longer processable; or

(5) The offer was accepted for processing in error.

When an offer is returned under this Section 5.04, the Service will not refund the application fee submitted with the offer unless the offer was accepted for processing in error.

.05 If a determination is made to return the offer to compromise as described in Sections 5.03 and 5.04, the return of the offer does not constitute a rejection. The taxpayer is not entitled to appeal the matter to Appeals under the provisions of § 301.7122-1(f)(5). If the Service initiates collection action following a return of an offer to compromise, the taxpayer may be able to appeal the collection action under section 6320, section 6330, or under the Collection Appeals Program.

.06 An offer to compromise is considered to be returned on the day the Service mails, or personally delivers, a written letter to the taxpayer informing the taxpayer of the decision to return the offer. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the offer is returned. The Service may levy to collect the liability that was the subject of the offer anytime after it returns the offer to the taxpayer.



SECTION 6. CASE BUILDING, INVESTIGATION, AND EVALUATION

.01 Once the Service accepts an offer to compromise for processing, it begins to gather the basic information necessary to begin evaluating the offer. During this initial processing, the Service may contact the taxpayer to secure information or documentation that was incorrect or omitted from the offer documents.

.02 After all of the basic information has been obtained from the taxpayer, the Service evaluates the information and determines whether the taxpayer's offer is acceptable. In the course of evaluating the offer to compromise, the Service may request additional information or documentation from the taxpayer.

.03 The decision whether and when to accept an offer to compromise a liability is within the discretion of the Service. In keeping with Policy Statement P-5-100, an offer will only be accepted if it is determined to be in the best interest of both the taxpayer and the Service. In addition to the criteria discussed in Section 4.02, the Service may take into account public policy and tax administration concerns in determining whether an offer to compromise is acceptable.

.04 For all offers to compromise, except for those based solely on doubt as to liability, the Service verifies the taxpayer's income and assets according to the Service's policies and procedures. Verification allows the Service to determine whether or not the taxpayer can fully pay the liability and, if not, to determine the reasonable collection potential of the liability.

(1) The Service uses a variety of sources to verify the taxpayer's valuation of the taxpayer's property. The Service relies on internal sources, such as its computer databases or other records, public and electronic sources, such as state motor vehicle records and credit bureau reports, and taxpayer supplied documentation.

(2) Section 7122 requires the Service to prescribe and publish guidelines to ensure that taxpayers entering into a compromise have an adequate means to provide for basic living expenses. The amount of basic living expenses will be determined based on an evaluation of the individual facts and circumstances presented by the taxpayer's case. The Service maintains a schedule of national and local allowances to account for the basic living expenses of taxpayers seeking to compromise. To determine whether an offer is adequate, the Service uses these schedules to analyze the income and expenses of the taxpayer to determine the monthly income available to pay the liability. These schedules are available in the Financial Analysis Handbook, IRM 5.15, and on the Service's website at www.irs.gov. The schedules are not applied when doing so would leave the taxpayer without adequate means to provide for basic living expenses.

(3) For purposes of evaluating an offer to compromise, the Service allows expenses only to the extent it determines they are necessary for the health and welfare of the taxpayer or the taxpayer's family or are necessary for the production of income.



SECTION 7. WITHDRAWING AN OFFER TO COMPROMISE

.01 The taxpayer may withdraw an offer to compromise a liability anytime prior to acceptance of the offer. An offer that has been withdrawn is no longer pending and the Service may levy to collect the liability that was the subject of the offer. When an offer is withdrawn the Service will not refund the application fee submitted with the offer.

.02 The taxpayer may withdraw an offer to compromise by delivery of written notification of the withdrawal in person, by mail, or by fax. An offer assigned to Centralized Offer in Compromise Units, however, may not be withdrawn by personal delivery, because documents cannot be personally delivered to these units. A taxpayer may also request withdrawal of an offer telephonically. A notice of intent to withdraw an offer should be directed to the Service office assigned to the case.

(1) If the taxpayer withdraws an offer to compromise by personal delivery, the offer will be considered withdrawn when written notification of the withdrawal is received by the Service.

(2) If the taxpayer withdraws an offer to compromise by mailing written notification of the withdrawal via U.S. certified mail, the offer will be considered withdrawn on the date the Service receives the certified mail.

(3) In all other cases, including withdrawal by non-certified mail, fax, or phone, the offer will be considered withdrawn on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.



SECTION 8. ACCEPTING AN OFFER TO COMPROMISE

.01 An offer to compromise has not been accepted until the Service issues written notification of acceptance to the taxpayer. Acceptance is effective as of the date on the acceptance letter.

.02 Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of any person not named in the offer who is also liable for the tax to which the offer relates. The Service may take action to collect from any person not named in the offer.



SECTION 9. REJECTING AN OFFER TO COMPROMISE

.01 An offer to compromise has not been rejected until the Service issues written notification of rejection to the taxpayer. Section 7122(d) requires the Service to conduct an independent administrative review before the rejection of an offer to compromise is communicated to the taxpayer. The Service reviews each case to determine if the proposed rejection is reasonable based on the facts and circumstances of the case. Rejection is effective as of the date on the rejection letter. When an offer is rejected the Service will not refund the application fee submitted with the offer.

.02 The taxpayer may appeal the rejection of an offer to compromise to Appeals. The taxpayer must timely file the appeal with the Service office that rejected the offer. An appeal is timely filed if it is delivered to the Service or postmarked within thirty days from the date of the letter of rejection.

.03 Pursuant to section 6331, the Service may not make a levy on the taxpayer's property or rights to property for thirty days following the rejection of an offer to compromise or while an appeal of a rejection is pending.



SECTION 10. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 96-38 is obsoleted.



SECTION 11. EFFECTIVE DATE

This revenue procedure is effective August 21, 2003, the date this revenue procedure was announced by news release, except that the provisions relating to the offer in compromise application fee are not effective for offers submitted prior to November 1, 2003.



SECTION 12. DRAFTING INFORMATION

The principal author of this revenue procedure is Sheara L. Krvaric of the Office of the Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy & Summonses Division. For further information regarding this revenue procedure contact Branch 2 of Collection, Bankruptcy & Summonses on (202) 622-3620 (not a toll free call).

Rev. Proc. 2003-71, 2003-2 CB 517 , obsoleting Rev. Proc. 96-38, 1996-2 CB 44.

The IRS Commissioner did not abuse his discretion by rejecting a married couple's offer-in-compromise based on economic hardship and exceptional circumstances. The couple's considerable accumulation of wealth and the speculative nature of their medical expenses did not support their argument that medical expenses for the husband's progressive dementia would bankrupt them in about a decade. The couple's ability to pay basic living expenses would not be impaired by significantly greater health care expenses. Further, the legislative history did not support the conclusion that denial of the offer was an abuse of discretion nor was the IRS Appeals officer required to negotiate with the couple on their offer.
C.G. Fargo, CA-9, 2006-1 USTC ¶50,326, 447 F3d 706.

Charles G. and Elizabeth A. Fargo v. Commissioner.

Docket No. 9492-02L . T.C. Memo. 2004-13. Filed January 16, 2004. [Appealable, barring stipulation to the contrary, to CA-9.

Collection Due Process: Hearing: Offer in compromise: Abuse of discretion. --
An IRS Appeals officer's refusal to accept a married couple's offer in compromise regarding tax liabilities arising from a tax shelter investment was sustained. His determination that the taxpayers' resources were sufficient to warrant collection of the entire outstanding liability was not an abuse of discretion; the possibility that they might sustain a substantial economic hardship in the future did not bar a finding that they could pay their taxes. The delay in informing the taxpayers of their pending tax liability was attributable to the deliberate pace at which the TEFRA partnership audit of their tax shelter progressed; the IRS was not compelled to accept their settlement offer because it is generally their tax matters partner's responsibility to keep them informed. Finally, the mere fact that one participant in the same tax shelter was granted an interest abatement did not establish that the Appeals officer acted improperly in denying the offer in compromise.


MEMORANDUM OPINION

HOLMES, Judge: The petitioners, Charles and Elizabeth Fargo, bought two tax shelters 20 years ago. When respondent disallowed their losses and sent them a notice of deficiency in 2000, time and the compounding of interest had nearly quadrupled their total bill. Petitioners paid the tax portion of the deficiencies in full. We consider whether respondent abused his discretion under section 6330 in refusing to compromise the remainder.


Background

Petitioners filed joint returns for the tax years 1983 and 1984. For 1983, they claimed a Schedule E loss of $30,767 attributable to their interest in a partnership named Jackson & Associates (Jackson). For 1984, they claimed Schedule E losses of $2,749 attributable to their interest in Jackson and $28,996 attributable to their interest in another partnership, Smith & Asher Associates (Smith/Asher). Both Jackson and Smith/Asher were partners in other partnerships: Jackson in a partnership called Wilshire West Associates (Wilshire), and Smith/Asher in a partnership called Redwood Associates (Redwood). All these partnerships were subject to the TEFRA provisions of sections Secs. 6221 - 6234.1

These partnerships were all affiliated with a group of tax shelters known as the Swanton Coal Programs, a coal mining venture which produced much more litigation than coal. See, e.g., Smith v. Commissioner [Dec. 45,807], 92 T.C. 1349 (1989); Beagles v. Commissioner [Dec. 55,075(M)], T.C. Memo. 2003-67; Kelley v. Commissioner [Dec. 49,360(M)], T.C. Memo. 1993-495. In Kelley, we concluded that "The formation and operation of the Swanton Coal Programs appear to have as substance little more than a grandiose serving of whimsy", and that they were "nothing more than an elaborate scam to provide highly leveraged deductions for nonexistent expenses." We therefore disallowed the partnership losses at issue, and sustained the Commissioner's imposition of increased interest pursuant to section 6621(c) because the programs were so clearly tax-motivated transactions.

Because the programs used tiered partnerships, however, our decision in Kelley did not automatically resolve the tax liability of partners in Jackson or Smith/Asher, and the Commissioner continued to negotiate with the tax matters partners (TMPs) for these partnerships until finally reaching closing agreements with both of them by mid-1999. After Jackson and Smith/Asher concluded their closing agreements, respondent contacted petitioners in November 1999, sending them a notice of examination that proposed changes to their 1983 and 1984 returns. In March 2000, respondent sent out notices of deficiency. Petitioners paid the entire tax portion of their outstanding 1983 and 1984 deficiencies (amounting to $23,977), but did not pay any of the accrued interest (which had grown to more than $100,000). After assessing the deficiencies, respondent sent petitioners a final notice of intent to levy. Petitioners timely requested a hearing, the focus of which was their offer to compromise the nearly two decades of compound interest for $7,500. The Appeals officer rejected their offer and determined that a levy was appropriate. This action followed. The case was calendared for trial in California, where the Fargos resided when they filed their petition. The parties stipulated the relevant facts, and moved to submit the case for decision without trial under Rule 122.


Discussion

Section 7122(c) directs the Secretary to prescribe guidelines for determining whether to accept or reject specific offers in compromise. Under section 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999),2 there are three grounds for compromise: Doubt as to liability, doubt as to collectibility, and promotion of effective tax administration. Petitioners argue that their compromise offer met two of the temporary regulations' separate standards for acceptance "in furtherance of effective tax administration" --collection of the full amount would cause them economic hardship, see sec. 301.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs., supra; and, even if it did not, would because of "exceptional circumstances" be "detrimental to voluntary compliance by taxpayers" by creating doubt as to the fair administration of the tax laws, see sec. 301.7122-1T(4)(ii), Temporary Proced. & Admin. Regs., supra.

Respondent rejected both arguments. He concluded that petitioners could fully satisfy both their tax debt and their foreseeable expenses without economic hardship. He also concluded that they had failed to show "exceptional circumstances" sufficient to justify accepting their compromise.

We examine each issue in turn, mindful that our review under section 6330 is for abuse of discretion. See Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 39 (2000). This standard does not ask us to decide whether in our own opinion the offer in compromise should have been accepted, but whether the Commissioner exercised his "discretion arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999).



A. Hardship
Petitioners suggest that although they currently enjoy fairly substantial means, their economic future is tainted by a diagnosis that petitioner Charles Fargo suffers from a progressive neurological condition that may eventually require round-the-clock nursing care. They claim that such care is so expensive (almost $90,000/year, by their estimate) that it would cause them to wholly consume their liquid assets in 10 years. They argue that respondent should have accepted their offer as a viable alternative to a levy because of this foreseeable economic hardship.

As we already noted, we look to respondent's determination for anything that runs counter to established law or suggests the lack of a "sound basis in fact or law." In that light, we decline to second-guess his determination that petitioners' resources are sufficient to warrant collection of the entire outstanding liability. The record compiled by respondent indicates that petitioners possess substantial wealth --over a million dollars in total assets (if equity in real estate is counted) and a large income even in their retirement. While petitioners certainly present a legitimate view of their possible future needs, we do not find that the record shows respondent to have abused his discretion in concluding that petitioners can pay their debt without suffering substantial economic hardship.



B. Exceptional Circumstances
Petitioners also renew here the arguments in favor of a finding of "exceptional circumstances" that they made to respondent. First, they contend the IRS had no justification for its extraordinary delay in assessing their unpaid tax liability after we decided Kelley v. Commissioner, supra. Quoting extensively from legislative history, petitioners argue that the delay between the adjudication of the underlying tax issues in 1993 and the first contact they received from the IRS in 1999 falls within the class of situations contemplated by Congress when it described the offer in compromise program as a method for resolving "longstanding cases * * * which have accumulated as a result of delay in determining the taxpayer's liability." H. Conf. Rept. 105-599, at 289 (1998), 1998-3 C.B. 747, 1043.

Petitioners suggest that the IRS was at the very least complicit, and perhaps negligent or malicious, in allowing their original tax savings of $23,977 to balloon into a total liability of more than $127,000. They allege that this IRS conduct should have compelled respondent to accept their offer in compromise.

Respondent, while acknowledging the length of time that passed between our decision in Kelley v. Commissioner [Dec. 49,360(M)], T.C. Memo. 1993-495, and his contacting petitioners, contends that it was due not to any improprieties by the IRS, but rather to the deliberate pace at which TEFRA partnership audits may progress. The partnership interests which petitioners held were not in the partnerships directly at issue in Kelley, but rather in partnerships which themselves were partners in the partnerships that Kelley analyzed. This tiered structure meant that under TEFRA, even after Kelley, respondent had to negotiate a closing agreement with the TMPs of the partnerships in which petitioners had an interest before starting collection activity at their level.

The Appeals officer determined that the delay in petitioners' learning of their snowballing liability is a matter they should address with the TMPs of their partnerships. We agree. TEFRA contemplates that it is generally a TMP's responsibility to keep his partners informed.3 Sec. 6233(g); sec. 301.6223(g)-1T, Temporary Proced. & Admin. Regs., 52 Fed Reg. 6785 (Mar. 5, 1987). We decline to decide that the failure of the IRS to contact petitioners sooner is reason to compel respondent to accept a settlement of approximately 7 percent of petitioners' interest liability.

We do agree with petitioners that there is something disconcerting about their not receiving notice of the ramifications for them of the Swanton coal litigation until 1999. Indeed, respondent's determination notes that petitioners may have received no correspondence at all from their TMPs since 1991. We believe however, that if there is a remedy, it does not lie in denying the Government the interest to which it is legally entitled.

Petitioners also call our attention to the decision in Beagles v. Commissioner [Dec. 55,075(M)], T.C. Memo. 2003-67, which indicates that the Commissioner abated over 6 years' worth of interest arising out of a similar liability for the taxpayers in that case, which also arose from the Swanton Coal Programs. Petitioners argue that this makes it inequitable for respondent to have denied their offer in compromise, which sought only similar relief.

We are unpersuaded. The Commissioner's decision to grant interest abatement to one Swanton participant would hardly suffice to show that he abused his discretion in denying another's request for an offer in compromise. Different factors are relevant to each form of relief, and of course, different taxpayers face different circumstances: in Beagles, the Commissioner may have abated interest at least in part because the taxpayer became terminally ill during the collection process. Id.

In any event, review for abuse of discretion allows different decisions even in similar cases, so long as none represent a clear error in judgment by the decisionmaker. Rasbury v. IRS [94-2 USTC ¶50,319], 24 F.3d 159, 168 (11th Cir. 1994).

Decision will be entered for respondent.

1 Section references are to the Internal Revenue Code of 1986, as amended. Secs. 6221 to 6234 were added by the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. 97-248, sec. 402(a) 96 Stat. 648, and provide for the determination of partnership items at the partnership, rather than at the individual partner, level. The Commissioner is generally unable to assess a deficiency relating to a TEFRA partnership item until after the completion of partnership-level proceedings. See generally Katz v. Commissioner [Dec. 54,207], 116 T.C. 5, 8 (2001), revd. on other grounds [2003-2 USTC ¶50,557] 335 F.3d 1121 (10th Cir. 2003).

2 As petitioners submitted their offer in compromise after July 21, 1999, and before July 18, 2002, it is governed by the temporary regulations that were then in force. (The portions relevant to this case survived in substantially similar form in the final regulations at sec. 301.7122-1(b), Proced. & Admin. Regs.)

3 One part of respondent's determination regarding the long delay between Kelley and assessment does seem mistaken. The Appeals officer found that "no link had been established" between the Swanton Coal Programs and petitioners' tax liabilities. This statement is fundamentally in error if it was intended to mean that Kelley did not at least indirectly affect petitioners' tax liabilities. Nevertheless, it appears to be dictum. Regardless of the interrelation of the partnerships involved in the Swanton Programs, respondent is correct that legal responsibility for more promptly notifying petitioners and trying to resolve their partnerships' tax issues lay ultimately with their TMPs.

Followed.

The IRS was not arbitrary and capricious when it rejected an offer in compromise made with respect to a deficiency arising from the taxpayers' participation in a Hoyt partnership. The IRS properly followed its guidelines when it determined that the taxpayers' offer did not qualify as an offer to promote effective tax administration because the taxpayers did not have sufficient assets to pay the full amount of their liability; and that the offer was too low, in relation to the deficiency and to the taxpayers' assets, to qualify as an offer due to doubts as to collectibility with special circumstances. The taxpayers' case was not a "longstanding" case that was entitled to special treatment with respect to interest and penalties; C.G. Fargo, CA-9, 2006-1 USTC ¶50,326, 447 F3d 706, followed. The IRS Appeals Officer who rejected the offer did not fail to consider the taxpayers' alleged unique circumstances; fail to balance efficient collection against the use of the least intrusive means possible; or fail to consider their request to abate interest. She was not required to discuss her decision with the taxpayers before she issued her notice of determination. The taxpayers failed to support their claim that they would suffer severe economic hardship if they had to pay more than the offered amount. Their claim that they were the victims of fraud did not obligate the IRS to accept their offer based on public policy, especially since acceptance would tend to undermine voluntary tax compliance. Finally, the taxpayers' claim that their assessment was untimely was frivolous.

R.D. Catlow, 93 TCM 946, Dec. 56,850(M), TC Memo. 2007-47.

The IRS did not abuse its discretion when it rejected a delinquent corporation's proposed offer in compromise. An IRS agent properly considered the taxpayer's other tax liabilities in assessing its ability to pay its federal liabilities, and she did not abuse her discretion when she concluded that the taxpayer did not demonstrate the ability to make the payments proposed in the offer, despite its improving financial condition.

Action Employment Resources, Inc., CA-9, 2006-1 USTC ¶50,130, 158 FedAppx 67.

The trial court properly determined that the IRS did not abuse its discretion when it attempted to collect unpaid employment taxes and penalties owed by an individual through the levy process. Although the taxpayer filed a formal offer in compromise to settle his tax liability, he did not supply the financial information that the IRS requested and believed necessary to evaluate the offer in compromise. The IRS was also justified in requesting financial information about the taxpayer's spouse since it appeared that the taxpayer may have transferred some of his assets to his spouse and since the IRS needed to verify each spouse's responsibility for the couple's living expenses. Further, the IRS's failure to negotiate and make a counteroffer during consideration of the compromise offer did not violate the taxpayer's due process rights since the taxpayer did not provide requested financial information.

R.E. Olsen, CA-1, 2005-2 USTC ¶50,637, 414 F3d 144.

An individual could not overcome the government's motion for summary judgment on his claim that an IRS Appeals officer was not aware of the taxpayer's "separate property" contention with respect to levied property. The officer's decision to proceed with collection was based on the taxpayer's failure to make an offer in compromise. That the Appeals officer insisted on the filing of returns for the tax years at issue as a condition for processing and considering an offer in compromise did not create a genuine issue of material fact as to whether the IRS abused its discretion in issuing notice of determination. The taxpayer was charged with the knowledge that the officer's oral representations were not binding, and that a written offer was necessary.

A. Richter, DC Calif., 2002-2 USTC ¶50,607.

The IRS was entitled to reject married taxpayers' offer in compromise of their tax liability because under Code Sec. 7122 it has discretion as to whether it will accept such an offer.

A.C. Addington, DC W.Va., 99-1 USTC ¶50,441.

The IRS Appeals Office did not abuse its discretion by rejecting a married couple's offer-in-compromise where the taxpayers had underreported their income for several tax years due to claimed losses and credits from Hoyt partnership tax shelter investments. The taxpayers argued that their offer should have been accepted because of their age, health and anticipated postretirement earnings. However, the court found that the taxpayers failed to show that payment of more than they offered would render them unable to meet their basis living expenses in retirement.

R. Bergevin, 95 TCM 1031, Dec. 57,307(M) , TC Memo. 2008-6.

A taxpayer and his late wife's estate failed to establish that the IRS abused its discretion by refusing to grant them additional time to submit an offer in compromise (OIC) because the Commissioner is not required to wait a certain length of time before proceeding with a levy. The IRS also did not abuse its discretion in proceeding with a levy because the taxpayers repeatedly delayed the proceedings and failed to remit the necessary financial information required for an installment agreement or OIC.

M.A. Gazi, 94 TCM 474, Dec. 57,176(M), TC Memo. 2007-342.

The IRS Appeals Office did not abuse its discretion in rejecting a married couple's offer-in-compromise where the taxpayers had underreported their income for several tax years due to claimed losses and credits from Hoyt partnership tax shelter investments. The IRS Appeals officer considered all of the evidence submitted, and reasonably applied the guidelines for evaluating an offer-in-compromise. The offer was unacceptable because, among other reasons, the taxpayers were not forthcoming in establishing their financial status, acceptance of the offer would undermine compliance with the tax laws by taxpayers in general, and the taxpayers had the financial wherewithal to pay more than the offered amount. The officer adequately considered the taxpayers' unique facts and circumstances, and the taxpayers did not show that requiring them to pay more than the offer amount would result in an economic hardship. Public policy did not demand that the taxpayers' offer be accepted because they were victims of fraud, and acceptance of the offer would not enhance voluntary compliance by other taxpayers.

M. Smith, 93 TCM 1047, Dec. 56,880(M), TC Memo. 2007-73.

The IRS did not abuse its discretion when it rejected an elderly couple's compromise offer that amounted to less than half of their estimated tax liability. The IRS was not required to compromise the couple's tax liability in order to promote effective tax administration based on economic hardship or public policy or equity grounds because the taxpayers were able to pay more than the amount that they offered. The IRS determined that the taxpayers had sufficient equity in their assets to pay the tax amounts owed and still meet their necessary living expenses for the foreseeable future. Further, it did not abuse its discretion in disregarding the couple's speculative future medical expenses. In addition, the IRS was not required to accept the offer based on the taxpayers' claim that they were the victims of fraud because the couple's situation was typical of many tax shelter participants who claimed deductions, obtained tax advantages and were now required to pay their tax liability. Thus, the IRS's determination to reject the offer-in-compromise was not arbitrary, capricious, or without a sound basis in fact or law, and it was not abusive or unfair to the taxpayers.

D. Clayton, 92 TCM 222, Dec. 56,612(M), TC Memo. 2006-188.

An IRS Appeals officer's refusal to accept a married couple's offer in compromise regarding tax liabilities arising from a tax shelter investment was sustained. His determination that the taxpayers' resources were sufficient to warrant collection of the entire outstanding liability was not an abuse of discretion. The possibility that they might sustain a substantial economic hardship in the future did not bar a finding that they could pay their taxes. The delay in informing the taxpayers of their pending tax liability was attributable to the deliberate pace at which the TEFRA partnership audit of their tax shelter progressed. The IRS was not compelled to accept their settlement offer because it is generally their tax matters partner's responsibility to keep them informed. Finally, the mere fact that one participant in the same tax shelter was granted an interest abatement did not establish that the Appeals officer acted improperly in denying this offer in compromise.

C.G. Fargo, 87 TCM 815 ,Dec. 55,514(M), TC Memo. 2004-13.

An IRS Appeals officer properly rejected an individual's offer in compromise for $100 to settle his unpaid tax liabilities in three years. The taxpayer offered no evidence to indicate that a rejection of his offer was an abuse of discretion. The Appeals officer properly reviewed the financial records of the taxpayer and his mother, whom the taxpayer supported. Moreover, the Appeals officer's refusal to refer the taxpayer's offer to IRS collection personnel for further evaluation did not constitute an abuse of discretion. As a result, the Tax Court upheld the IRS's Collection Due Process determination.

J.L. Tillman, 87 TCM 806,Dec. 55,509(M), TC Memo. 2004-8.

In consolidated cases, the IRS did not abuse its discretion in rejecting offers in compromise submitted by individuals who challenged their underlying tax liabilities as transferees of a corporation for its tax liability. Each taxpayer previously had entered into a stipulated decision agreeing to transferee liability and there was no doubt as to the taxpayers' liabilities within the meaning of the applicable regulations or otherwise. Thus, the IRS reasonably rejected the offers in compromise on grounds that the transferee liabilities had been determined in the transferee liability cases and that the taxpayers did not comply with filing requirements.

D.L. Oyer, 85 TCM 1510, Dec. 55,193(M), TC Memo. 2003-178.

Individual taxpayers were not entitled to loss deductions on account of their book tax shelters notwithstanding an IRS policy statement that, according to the taxpayers, gave them the right to settle the book shelter issue by being allowed deductions to the extent of their cash investment. The policy statement issue was not timely raised. Furthermore, the policy statement did not grant settlement rights to taxpayers but rather described procedures for arriving at such settlements.

R. Helstoski, 60 TCM 233, Dec. 46,748(M), TC Memo. 1990-382.

The IRS has identified 43 frivolous positions that have been deemed frivolous by courts or have no basis for validity in existing law. These positions are determined to be frivolous for purposes of the Code Sec. 6702(a) penalty for filing frivolous tax returns, and the Code Sec. 6702(b) penalty for filing specified frivolous submissions, which include applications for offers in compromise. Included in the list are four new positions that relate to a misinterpretation of the Ninth Amendment regarding objections to military spending, erroneous claims that taxes are owed only by persons with a fiduciary relationship to the U.S. or IRS, a nonexistent "Mariner's Tax Deduction," or something similar, related to invalid deductions for meals and misuse or excessive use of the credit for fuels under Code Sec. 6421.

Notice 2008-14, I.R.B. 2008-4, 310; modifying and superseding Notice 2007-30, I.R.B. 2007-14, 883.

IRS News Release, IR-2008-8, January 14, 2008.

The IRS has announced that a revised taxpayer application for an offer in compromise (OIC), the Form 656 package, is now available. The new form reflects procedural changes to the OIC program made by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222). The changes to the Form 656 package include new payment terms and offer submission rules, a processability checklist, a matrix to assist taxpayers in determining the number of forms and payments that must be submitted to the IRS, a checklist of items and documents that must be completed prior to submitting an OIC, and a new payment voucher to be used to remit required partial payments to the IRS.

IRS News Release, IR-2007-50, March 5, 2007.

IRS Fact Sheet FS-2007-16, March 5, 2007.

The IRS has issued guidance outlining the protections in place for the new private debt collection program in connection with administrative review. If the taxpayer proposes an installment agreement to the private collection agency (PCA) and the IRS rejects the proposed installment agreement, the taxpayer may appeal the rejection to the IRS. If the IRS assigns a PCA to monitor an installment agreement and the PCA determines the taxpayer is in default, the taxpayer may appeal to the IRS if the installment agreement is terminated. In both situations, the taxpayer must first appeal to the IRS office supervising the PCA's day-to-day work, but if not satisfied the taxpayer may continue the appeal to the IRS Office of Appeals, pursuant to the IRS review procedures for installment agreements and compromises.

Announcement 2006-63, I.R.B. 2006-37, 445.

The IRS issued information and guidance on the major changes made to the offer in compromise program by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) which tightened the rules for lump-sum and periodic payment offers received by the IRS on or after July 16, 2006. Taxpayers submitting requests for lump-sum OICs must include a payment of 20 percent of the amount offered. A lump-sum OIC is an offer of payments made in five or fewer installments. Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application and continue making payments under the terms proposed while the offer is being evaluated. The IRS will treat the payments as payments of tax, rather than refundable deposits under Code Sec. 7809(b) or Reg. §301.7122-1(h). Unless a waiver applies, failure to pay the 20 percent on a lump-sum offer, or the first installment payment on a periodic payment offer may result in the IRS returning the offer to the taxpayer as nonprocessable. Taxpayers qualifying as low-income or filing an offer based solely on doubt as to liability can receive a waiver of the new partial payment requirements. The IRS will deem an OIC accepted that is not withdrawn, returned or rejected within 24 months after receipt of the offer. When submitting Form 656, taxpayers must include user fee of $150 unless they qualify for a waiver. Offers are submitted using Form 656, Offers in Compromise. Taxpayers may continue to use the 2004 revision of the form until the new version, revised to reflect the new law, is available.

Notice 2006-68, I.R.B. 2006-31, 105.

IRS News Release, IR-2006-106, July 11, 2006.

IRS Fact Sheet FS-2006-22, July 11, 2006.

A new check-the-box disclosure authorization for the appointment of a third party to discuss and obtain information to facilitate the initial processing of an offer in compromise was added July 2004 to Form 656. This authorization is limited to this specific purpose and does not authorize the designated party to represent the taxpayer before the IRS or during a Collection Due Process hearing.

Announcement 2005-6, I.R.B. 2005-4, 377.

The IRS is warning taxpayers to beware of tax practitioners who encourage the use of an offer in compromise as a way to settle tax claims for "pennies on the dollar." The IRS's warning targets the actions of "unscrupulous promoters" who charge excessive fees when there is no chance that the taxpayer will qualify for the offer in compromise. Although the IRS has the authority to settle tax claims for less than their full amount, an offer in compromise may be considered only after other options, such as an installment agreement, are considered.

IRS News Release, IR-2004-130, October 25, 2004.

A revised taxpayer application for an offer in compromise (OIC), the Form 656 package, is now available. The revised form provides a signature block for paid preparers and also includes a Form 656-A, Income Certification for OIC Application Fee, and a worksheet to help taxpayers determine if they qualify for the income exception to $150 application fee. Other features of the new package include a checklist to determine eligibility for an OIC, an OIC process step-by-step guide, a third-party designee section and a summary checklist. The package can be obtained from the IRS by calling 1-800-829-3676 or by going to the IRS website "www.irs.gov.".

IRS News Release, IR-2004-129, October 25, 2004.

The IRS has issued a consumer alert advising taxpayers to beware of promoters' claims that tax debts can be settled for "pennies on the dollar" through the IRS Offer in Compromise Program. According to the IRS, some promoters are inappropriately advising indebted taxpayers to apply for an offer in compromise before exhausting other payment options, such as monthly installment agreements.

IRS News Release, IR-2004-17, February 3, 2004.

Beginning on November 1, 2003, the IRS will charge, with certain exceptions, a $150 application fee for the processing of offers in compromise (OICs). Individuals whose monthly income falls at or below levels based on the Department of Health and Human Services guidelines, and taxpayers that file OICs based solely on doubt as to liability, will be exempt from the fee. Individuals claiming the poverty guideline exception must certify their eligibility using Form 656-A, Offer in Compromise Application Fee Instructions and certification. To submit an OIC, taxpayers are to use the May 2001 version of Form 656, Offer in Compromise. The application fee for OICs that do not qualify for an exception must be submitted using a check or money order payable to the United States Treasury.

IRS News Release, IR-2003-124, October 23, 2003.

Chief Counsel concluded that a Code Sec. 7122 compromise would not legally bind a minor in a compromise agreement with the IRS. A minor child may repudiate, avoid or disaffirm a contract under state laws; thus, Chief Counsel advised against the IRS entering into compromise agreements with minors. Moreover, status as the legal guardian of a minor's property does not include the capacity to compromise the minor's tax liability.

CCA Letter Ruling 200220026, March 28, 2002.

Chief Counsel provided background information regarding Code Sec. 7122 and its legislative history as they relate to Chief Counsel Notice CC-2001-036. The notice set forth procedures to be followed by Associate Chief Counsel (SB/SE) offices when issuing the statutorily required opinion in offer in compromise cases. It also clarified procedures for the review of offers based on doubt as to collectibility and/or liability. Further, the notice added procedures and standards for the review of offers based upon the promotion of effective tax administration.

CCA Letter Ruling 200131029, July 2, 2001.

Chief Counsel concluded that the IRS need not require that individual offers in compromise submitted by married taxpayers specify that the offers were made in conjunction with each other in order to protect the collectability of the couple's joint and separate liabilities. Moreover, the offers did not have to specify that a failure to pay the entire amount of either offers would result in a default of both offers.

CCA Letter Ruling 200051043, October 26, 2000.

Reg. §1.183-2(b), the taxpayer's horse-breeding activity was carried on for profit. -

Richard S. Miller and Sandra R. Erickson v. Commissioner. Richard S. Miller v. Commissioner.

Dkt. Nos. 19703-06 ; 19749-06 , TC Memo. 2008-224, October 2, 2008.



[Code Sec. 183]




An individual's Paso Fino horse-breeding activity was not a hobby, but was carried on for profit under Code Sec. 183. The taxpayer maintained adequate business records, conducted the breeding activity in a business like manner, consulted with recognized horse experts, was reasonable in his expectation that his assets would appreciate in value, was successful in his previous businesses and had losses in the start-up phase of his business that were due to unforeseen circumstances. Therefore, based on the nonexclusive list of factors found in



Ronald L. Mountsier, for petitioners; Catherine S. Tyson, for respondent.





MEMORANDUM FINDINGS OF FACT AND OPINION



VASQUEZ, Judge: In these consolidated cases respondent determined the following deficiencies:





Year Deficiency

2004 $51,262





Richard S. Miller:





Year Deficiency

2002 $37,997

2003 48,884





The issue for decision is whether petitioners' horse breeding activity was an activity not engaged in for profit pursuant to section 183.2





FINDINGS OF FACT



Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time they filed the petition, petitioners resided in Florida.



In 1979 Mr. Miller purchased Electric Pump & Tool Services (Electric Pump). When Mr. Miller purchased Electric Pump, it had sales of $400,000 and 10 employees. At the time of trial Mr. Miller had increased the sales of Electric Pump to $23 million and increased its employees to 80. At the time of trial Mr. Miller had expanded Electric Pump to six offices throughout the country. Mr. Miller received $444,231, $395,014, and $420,597 in 2002, 2003, and 2004 in salary from Electric Pump, respectively. At various times Mr. Miller has been in the pay phone business, the hog slaughter and breeding business, and the spent-hen (chickens that no longer produce eggs) business. Mr. Miller has also owned real property which he rented out.



In 1989 Mr. Miller purchased his first Paso Fino horse. Paso Fino horses have a smooth gait which enables riders to have a smooth ride. Shortly after purchasing his first Paso Fino Mr. Miller joined the Paso Fino Horse Association (PFHA). In either 1990 or 1991 Mr. Miller became a board member of the PFHA and later served on the executive committee and as treasurer. Mr. Miller began attending PFHA conventions in 1995. Mr. Miller also attended instructional clinics and seminars on topics such as advertising and trail riding.



From 1989 until 2002 Mr. Miller conducted his horse activities from his home and farm in Van Meter, Iowa. In 1990 Mr. Miller had a horse barn built on the Iowa property, and in or around 1992 a hay shed was built.



Initially Mr. Miller entered his horses in show competitions in the northern United States. During this period Mr. Miller's horses were trained in Minnesota. Mr. Miller was successful at the northern shows; but when he attempted to compete at a national show, his horses were unable to compete with the horses that were trained in Southern States such as Florida, Georgia, and Louisiana, home to the industry's top trainers.



In June 2002 Mr. Miller purchased approximately 16 acres of property in Ocala, Florida, and moved some of his horses from Iowa to Florida. Some of the horses were already in Florida. Ocala, Florida, advertises itself as the "Horse Capital of the World". One of the main reasons that Mr. Miller moved his horses to Florida and bought the property in Ocala was that it was near trainer Jorge Suarez. Mr. Suarez is a noted trainer and rider of Paso Fino horses and along with his three brothers runs a farm called 4Js. Mr. Suarez is from Puerto Rico and was involved with Paso Fino horses in Puerto Rico before coming to the United States. Mr. Miller met Mr. Suarez in 1989 and was impressed with Mr. Suarez's riding ability. Mr. Suarez has a reputation as one of the top five Paso Fino riders in the world. Mr. Miller consults with Mr. Suarez on buying and selling horses and would not buy a horse without having Mr. Suarez see it first. In 2005 Mr. Miller moved to Fort Myers, Florida, which is approximately 216 miles from his farm in Ocala.



Beginning in 2002 and continuing in 2003, 2004, 2005, and 2006 Mr. Miller filed a Schedule C, Profit or Loss From Business, listing his principal business as "show horse breeding". In 2002 Mr. Miller reported losses of $95,571 on his Schedule C. In 2003 Mr. Miller reported losses of $126,377 on his Schedule C and losses of $9,223 on Form 4797, Sales of Business Property. In 2003 Mr. Miller sold three horses at a loss. In 2004 Mr. Miller reported Schedule C losses of $139,098 and losses of $13,742 on Form 4797. In 2004 Mr. Miller sold one horse at a loss.



Ms. Erickson kept financial records for the breeding activity listing income and expenses. In addition to Ms. Erickson's records, Mr. Miller registered his horses with the PFHA, which maintained records concerning the performance of specific horses at horse shows, recording earnings and placement. The PFHA certificate also traces the horse's bloodlines. As a lifetime member of the PFHA, Mr. Miller had access to the PFHA information 24 hours a day through the Internet.



When Mr. Miller decided to run his horse activity as a business, he had a business plan but did not commit it to writing. Mr. Miller began with three mares, Picaedia, Marcia, and Romana, and some stallions, including Guayacan. Mr. Miller's plan was to have excellent mares, breed them, and raise the foals to about 3 years old before putting a saddle on them. By the time the horses were 3 years old, Mr. Miller expected they would appreciate in value. There are three types of Paso Fino horses: Fino, pleasure, and performance. Fino horses are the most profitable of the three. Mr. Miller modified his initial business plan because he realized that his mares were not good enough to give birth to excellent Fino horses. Additionally, Mr. Miller encountered unexpected setbacks with some of his horses. Marcia always produced twins, which are undesirable in the Paso Fino horse industry. Mr. Miller incurred increased veterinary bills to "pinch off" one ovary every time Marcia was bred so that Marcia delivered only one offspring. Mr. Miller also used an embryo transfer on Marcia which cost approximately $4,000. Guayacan, which Mr. Miller paid $30,000 for in 2002, came with high expectations. Guayacan turned out not to be an athlete and got lazy, and Mr. Miller decided to geld him. In 2004 Mr. Miller sold Guayacan for $2,000.



Another horse, Amarissa IA, broke her hoof kicking her stall at age 4. After spending $5,000 on veterinary bills to heal Amarissa IA, Mr. Miller hoped that she could gait properly because she would not be worth much without a proper gait. Mr. Miller also had to euthanize a 5-day-old foal because of an arthritic condition.



Separate and apart from the horses Mr. Miller kept as part of his business, Mr. Miller used a personal horse named Artillero Maraco. Mr. Miller did not claim deductions with respect to Artillero Maraco except to the extent of show winnings. Mr. Miller did not ride his other horses for pleasure purposes. Ms. Erickson does not ride at all. Mr. Miller's farm is a working farm and has no living quarters.



Mr. Miller used various methods to advertise his horses. Mr. Miller advertised in magazines, handed out brochures at shows, listed his farm in the PFHA farm directory, and had business cards. In addition to paid advertisements, Mr. Miller received considerable publicity when his horses were successful at events.



In addition to consulting with Mr. Suarez, Mr. Miller uses various veterinarians for his horses. Among the veterinary doctors Mr. Miller consults with are Dr. Jose Diava, who Mr. Miller uses for horse reproduction issues, and Dr. James Wright, a horse bone and muscle specialist who also handles most of Mr. Miller's routine veterinary needs.



In 2002 when Mr. Miller decided to convert his horse activity into a business, he began keeping activity logs. Mr. Miller spent over 1,000, 800, and 800 hours on the horse activity in 2002, 2003, and 2004, respectively. Mr. Miller was involved in all aspects of the horse activity except cleaning the stalls.



In 2006 Mr. Miller's sales of horses totaled $110,700, up from $15,500 in 2002. Mr. Miller had a profit in 2006 of $16,693. In 2007 Mr. Miller's sales totaled $95,000. As of December 31, 2006, the estimated fair market value of Mr. Miller's horses was $318,000, with a basis of $34,384. Mr. Miller had a basis of $155,753 in the Ocala farm, including the addition of a fence. The property was appraised in May 2007 at $534,000.





OPINION



Generally, the Commissioner's deficiency determinations set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of showing the determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). There are exceptions to this rule. Section 7491(a) shifts the burden of proof to the Commissioner with respect to a factual issue affecting the tax liability of a taxpayer who meets certain preliminary conditions. This case is decided on the preponderance of the evidence and is not affected by section 7491(a).



Section 183(a) provides generally that if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183(b). Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."



A taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. Sec. 162(a). The U.S. Court of Appeals for the Eleventh Circuit, to which an appeal in this case would lie, has held that an activity constitutes a "trade or business" within the meaning of section 162 if the taxpayer's actual and honest objective is to realize a profit. Osteen v. Commissioner, 62 F.3d 356, 358 (11th Cir. 1995), affg. in part and revg. in part T.C. Memo. 1993-519.



The expectation of profit need not have been reasonable; however, the taxpayer must have entered into the activity, or continued it, with the objective of making a profit. Hulter v. Commissioner, 91 T.C. 371, 393 (1988); sec. 1.183-2(a), Income Tax Regs.



Whether the requisite profit objective exists is determined by looking at all the surrounding facts and circumstances. Keanini v. Commissioner, 94 T.C. 41, 46 (1990); sec. 1.183-2(b), Income Tax Regs. Greater weight is given to objective facts than to a taxpayer's mere statement of intent. Thomas v. Commissioner, 84 T.C. 1244, 1269 (1985), affd. 792 F.2d 1256 (4th Cir. 1986); sec. 1.183-2(a), Income Tax Regs.



Section 1.183-2(b), Income Tax Regs., provides a list of factors to be considered in the evaluation of a taxpayer's profit objective: (1) The manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, from the activity; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. This list is nonexclusive, and the number of factors for or against the taxpayer is not necessarily determinative, but rather all facts and circumstances must be taken into account, and more weight may be given to some factors than to others. Id.; see Dunn v. Commissioner, 70 T.C. 715, 720 (1978), affd. 615 F.2d 578 (2d Cir. 1980).




Manner in Which the Activity Is Conducted


The fact that a taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books and records may indicate a profit objective. Sec. 1.183-2(b)(1), Income Tax Regs. The evidence established that Mr. Miller kept complete and accurate records and that he operated the horse breeding activity in a businesslike manner.



Mr. Miller had a business plan for the horse breeding activity. See Phillips v. Commissioner, T.C. Memo. 1997-128 (holding that a business plan need not be in written form and can be evidenced by the taxpayer's actions). Mr. Miller's longtime accountant Dennis Mueller testified that Mr. Miller's records were organized and compared favorably with the records Mr. Miller kept in his other business ventures and those that others maintained in livestock and farm businesses. Mr. Mueller credibly testified that Mr. Miller never gets into a business without the intention of making a profit. When Mr. Miller decided to turn his horse breeding activity into a business, he had three mares and a plan to breed horses that would appreciate in value. Mr. Miller suffered setbacks with his mare Marcia because she always produced twins, which are undesirable in the Paso Fino horse community. As a result his costs increased because he decided to use embryonic transfers, an expensive procedure. Mr. Miller wanted to breed Fino quality horses but realized that his mares were not good enough. Consequently, he had to modify his approach in order to reach his goal of breeding Fino horses. When Mr. Miller started conducting his activities as a business, his plan was to have valuable horses after a few years because the horses would have to mature before they appreciated in value.



Mr. Miller registered his horses with the PFHA. The PFHA maintained records of a horse's bloodlines and show results. These records were available online to Mr. Miller at all times because he was a life member of the PFHA.



Another factor that demonstrates that Mr. Miller conducted his horse activities in a businesslike manner is that he advertised his horses in a variety of ways. Mr. Miller advertised in magazines, listed his farm in the PFHA directory, and handed out fliers at shows, and Mr. Miller and his wife had business cards. Additionally, Mr. Miller's attendance and successful participation at horse shows provided publicity to a wide audience.



We conclude that this factor indicates that petitioners had the requisite profit motive.




Expertise of the Taxpayer and His Advisers


A taxpayer's expertise, research, and study of an activity, as well as his consultation with experts, may be indicative of a profit intent. Sec. 1.183-2(b)(2), Income Tax Regs. Mr. Miller purchased his first Paso Fino in 1989 and joined the PFHA shortly after. Mr. Miller used Mr. Suarez, a highly respected rider and professional trainer of Paso Fino horses, as his trainer. Mr. Suarez is considered one of the top five Paso Fino riders in the world. Mr. Miller purchased the farm in Ocala because of its proximity to Mr. Suarez. Mr. Miller did not buy a horse unless Mr. Suarez had seen the horse. If Mr. Miller and Mr. Suarez disagreed over a horse, Mr. Suarez's viewpoint prevailed because Mr. Miller recognized that Mr. Suarez had more expertise.



In addition to his association with Mr. Suarez, Mr. Miller used experienced veterinarians. Dr. Diava was a specialist in reproductive issues, and Dr. Wright was a muscle and bone specialist.



We conclude that this factor is indicative of the requisite profit motive.




The Expectation That Assets May Appreciate in Value


In 2002 when Mr. Miller decided to turn his horse breeding activity into a business, his goal was to breed horses that would appreciate in value after about 3 years. As of December 31, 2006, Mr. Miller's horses were valued at $318,000 with a basis of $34,384. The unrealized gain in the horses indicates that they have appreciated in value.



In addition to the horses, the value of Mr. Miller's farm appreciated in value. Mr. Miller purchased the farm in 2002 for $10,000 per acre. Including the addition of a fence, Mr. Miller's basis in the land was $155,753. A comparative market analysis performed in May 2007 indicated that the land was worth approximately $534,000, or $32,000 per acre.



Respondent argues that the values of the horses and the farm are inflated and based on Mr. Miller's unreliable estimates. The value of the land is based on a comparative market analysis performed by Clayton Fell of Triple Crown Realty. Although the value of the horses was provided by Mr. Miller on the basis of his consultations with Mr. Suarez, respondent provided no credible evidence that the value of the horses was erroneous.



We conclude that this factor is indicative of the requisite profit motive.




The Taxpayer's Success in Similar or Dissimilar Activities


Mr. Miller is a successful businessman. He purchased Electric Pump in 1979 with sales of $400,000 and 10 employees. At the time of trial Electric Pump had $23 million in sales and 80 employees. Additionally, Mr. Miller has been successful in the real estate business. Although these businesses are dissimilar to horse breeding, their growth demonstrates Mr. Miller's business acumen and ability to develop and improve businesses. Mr. Miller also has experience in the spent-hen business as well as raising hogs for both slaughter and breeding. The hog business has some similarities with the horse business but is not entirely similar. The record shows that Mr. Miller is a successful entrepreneur who is not afraid to take risks.



We conclude that this factor is indicative of the requisite profit motive.




History of Income or Loss


In the years at issue Mr. Miller had cumulative losses of $384,011. Some of the losses are the result of unexpected setbacks Mr. Miller suffered. By 2006, a year not at issue, Mr. Miller had sales of $110,000 and a profit of $16,693. Respondent argues that the decrease in losses is due only to a decrease in expenses. We disagree. Mr. Miller initially tried to breed Fino quality horses but realized he did not have the mares to do so and was selling "pleasure" and "performance" quality horses. He made an effort to improve his stable and to be able to sell Fino quality horses. Mr. Miller encountered unexpected setbacks with some of his horses. Because Marcia always produced twins, which are undesirable in the Paso Fino horse industry, Mr. Miller had to "pinch off" one ovary every time Marcia was bred. As a result Marcia delivered only one offspring, but Mr. Miller had increased veterinary bills. Mr. Miller used an embryo transfer on Marcia which cost approximately $4,000. Guayacan, which Mr. Miller paid $30,000 for in 2002, came with high expectations. Guayacan turned out not to be an athlete and got lazy, and Mr. Miller decided to geld him. In 2004 Mr. Miller sold Guayacan for $2,000.



When she was 4 years old Amarissa IA started kicking the stall and broke her hoof. After spending $5,000 on veterinary bills to heal Amarissa IA, Mr. Miller can only hope that she can gait properly because she is not worth much without a proper gait. Mr. Miller also had to euthanize a 5-day-old foal because of an arthritic condition. Expenses also decreased in 2006 because Mr. Miller did not have the type of setbacks he had had in previous years.



A record of substantial losses over several years may be indicative of the absence of a profit motive. Golanty v. Commissioner, 72 T.C. 411, 426 (1979), affd. without published opinion 647 F.2d 170 (9th Cir. 1981). Section 1.183-2(b)(6), Income Tax Regs., however, provides that a series of losses during the startup phase of an activity may not necessarily be an indication that the activity is not engaged in for profit.



This Court has recognized that the startup phase of a horse breeding activity is 5 to 10 years. Engdahl v. Commissioner, 72 T.C. 659, 669 (1979). We believe that the years in issue, 2002 through 2004, encompassed a startup period. See Phillips v. Commissioner, T.C. Memo. 1997-128; see also Engdahl v. Commissioner, supra at 669. As Mr. Miller's losses were sustained as a result of unforeseen setbacks and during the startup phase of the horse breeding activity, we conclude that the losses sustained are not an indication that the horse breeding activity was not engaged in for profit.




Financial Status of the Taxpayer


A lack of income from sources other than the activity in question may indicate that an activity is engaged in for profit. Substantial income from sources other than the activity in question, particularly if offset by substantial tax benefits, may indicate the activity is not engaged in for profit. Sec. 1.183- 2(b)(8), Income Tax Regs.



Mr. Miller received a substantial salary from Electric Pump and received income from other sources as well. During the years at issue Mr. Miller received average annual wages of $432,1663 from Electric Pump. Without the claimed losses from the horse breeding activity Mr. Miller's income would have been higher. Although this factor may indicate that Mr. Miller lacked a profit motive, it is but one factor and is not determinative of the outcome. Additionally, Mr. Mueller testified that Mr. Miller did not enter into a business without the expectation and intent to make a profit.




Elements of Personal Pleasure and Time and Effort Expended


The absence of personal pleasure or recreation relating to the activity in question may indicate the presence of a profit objective. Sec. 1.183-2(b)(9), Income Tax Regs. The mere fact that a taxpayer derives personal pleasure from a particular activity does not, per se, demonstrate a lack of profit motive.



At all relevant times Mr. Miller kept a personal horse and did not claim deductions related to the horse except to the extent of show winnings related to the horse. Additionally, Mr. Miller's wife does not ride at all. Mr. Miller's farm is a working farm and has no living quarters.



Mr. Miller participated in all aspects of the breeding activity except cleaning the stalls, and he spent a substantial amount of his time on the breeding activity. Mr. Miller spent over 1,000, 800, and 800 hours on the horse activity in 2002, 2003, and 2004, respectively. Mr. Miller spent a significant amount of time traveling to horse shows where he interacted with others in the industry and also advertised his breeding activity. Additionally, Mr. Miller hired competent people to assist in carrying on the horse breeding activity.



We conclude that this factor is not indicative of the lack of a requisite profit motive.




Conclusion


The evidence established that Mr. Miller maintained adequate records, operated the horse breeding activity in a businesslike manner, consulted with horse experts including a renowned trainer, expended a significant amount of time on the horse breeding activity, had a reasonable expectation that the assets used in the activity would appreciate in value, and had success in other businesses, some of which are loosely related to horse breeding. Furthermore, Mr. Miller sustained the losses in issue during the startup phase of the horse breeding activity and partly from unforeseen circumstances. Accordingly, we conclude that Mr. Miller engaged in the horse breeding activity during 2002, 2003, and 2004 with the actual and honest objective of making a profit and section 183 is inapplicable in this case.



In reaching all of our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit.



To reflect the foregoing,



Decisions will be entered for petitioners.


1 In 2002 and 2003 petitioner Richard S. Miller's filing status was single. Petitioner Miller married petitioner Erickson in 2004.

2 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

3 This number is rounded to the nearest dollar.

Section 7201 - willful failure to file tax returns

United States of America, Plaintiff-Appellee, v. Robert Lee Cavins, Jr., Defendant-Appellant.

U.S. Court of Appeals, 8th Circuit; 07-3343, September 23, 2008.

Affirming an unreported DC Mo. decision.

[ Code Sec. 7201]

Tax crimes: Willful evasion: Indictment: Sufficiency: Jury instructions: Failure to file returns: Evidence: Fifth Amendment. --
An individual was properly convicted of willfully attempting to evade and defeat payment of federal income taxes. The indictment sufficiently alleged the willfulness element and fairly informed him of the charges by alleging specific affirmative acts of evasion and attempted evasion. The trial court correctly instructed the jury that the individual acted willfully if he knew he had a legal duty to pay federal income tax and acted intentionally to avoid paying the tax. The government was not required to show that he knew which specific provision created that duty. The individual did timely not object to the jury instruction or argue that the evidence was insufficient to convict him of willfully evading tax liabilities. The IRS forms clearly displayed an OMB control number and did not violate the Paperwork Reduction Act. Finally, admission of evidence that the individual did not file income tax returns did not violate the individual's Fifth Amendment privilege against self-incrimination because the Fifth Amendment does not authorize an individual to refuse to file a return.



Before: Loken, Chief Judge, Bye and Colloton, Circuit Judges.

LOKEN, Chief Judge: Robert Lee Cavins, Jr., a chiropractor, neither filed returns nor paid federal income taxes for the 1992-1994 tax years, except for estimated tax payments of $10,000 during 1992. Cavins and his wife also transferred their home and his office to residential and chiropractic trusts, and Cavins instructed his employees to deposit chiropractic revenues into various trust accounts. When Cavins sold his practice in 1999, he deposited $80,000 of the proceeds in an overseas bank. The Internal Revenue Service assessed nearly $130,000 in tax liabilities and filed a notice of federal tax lien, but the lien never attached to Cavins's property and the IRS went unpaid. Cavins was charged and after a jury trial convicted of willfully attempting to evade and defeat payment of federal income tax in violation of 26 U.S.C. § 7201 and 18 U.S.C. § 2. He appeals the conviction, arguing (i) that the indictment failed to charge and the government failed to prove a willful violation of § 7201; (ii) that the district court 1 erred in refusing to dismiss the indictment because the Form 1040 returns for the 1992-1994 tax years failed to comply with the Paperwork Reduction Act, 44 U.S.C. §§ 3501-3521 (2000); and (iii) that the admission of evidence that he failed to file income tax returns violated his Fifth Amendment rights. We affirm.


I.


Cavins first argues, without citation to relevant authority, that the indictment should have been dismissed because its "mere allegation of willfulness without more was insufficient to give Cavins notice as to what he was required to defend against regarding this element." Without question, proof that the defendant "willfully" attempted to evade a federal tax is an element of the § 7201 offense. Sansone v. United States, 380 U.S. 343, 351 (1965). An indictment is sufficient if "it contains all of the essential elements of the offense charged, fairly informs the defendant of the charges against which he must defend, and alleges sufficient information to allow a defendant to plead a conviction or acquittal as a bar to a subsequent prosecution." United States v. Fleming, 8 F.3d 1264, 1265 (8th Cir. 1993). Here, the indictment alleged that Cavins
did willfully attempt to evade and defeat payment of a large part of his federal income tax due and owing ... by failing to file federal income tax returns for 1992, 1993 and 1994, placing and maintaining money or other property in the names of other persons and entities ... depositing payments received for services ... in the names of other persons and entities ... transferring money ... outside the United States, paying creditors other than the United States, using available assets to purchase investments rather than pay the ... federal income tax liabilities ... and engaging in other affirmative conduct the likely effect of which would be to mislead or to conceal with the intent to avoid payment of Defendant's federal income tax liabilities ... .

We agree with the district court that the indictment both alleged the willfulness element and fairly informed Cavins of the charges by alleging specific affirmative acts of evasion and attempted evasion. The motion to dismiss was properly denied. 2

At the end of this section of his brief, Cavins asserts that "no evidence supporting this element" was presented at trial. His reply brief makes clear the argument is based solely on dicta in the Supreme Court's opinion in Bryan v. United States 524 U.S. 184, 194 (1998): "In certain cases involving willful violations of the tax laws, we have concluded that the jury must find that the defendant was aware of the specific provision of the tax code that he was charged with violating." Cavins argues that his motion for judgment of acquittal should have been granted because the government introduced no evidence that he knew he was violating 26 U.S.C. § 7201.

This contention was not properly preserved. The district court instructed the jury that Cavins acted willfully "if he knew he had a legal duty to pay federal income tax" and acted intentionally to avoid paying the tax. He did not object to this instruction, nor does he argue that the evidence was insufficient to convict him of willfully evading his 1992-1994 tax liabilities under this definition of willfully.

Moreover, the instruction was clearly correct. In Cheek v. United States, 498 U.S. 192, 201 (1991), the Supreme Court held that the willfulness element in § 7201 "requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." In discussing a hypothetical, the Court clarified that willfulness in this context means that the defendant knew of the "duty purportedly imposed" by the tax laws, not that he knew which specific provision created that duty. Id. at 201-02. Neither the majority nor the dissenting opinion in Bryan --a case involving an entirely unrelated criminal statute --stated that the word "willfully" in any statute requires the government to prove knowledge of a specific statutory citation. As the Seventh Circuit observed in United States v. Patridge, 507 F.3d 1092, 1094 (7th Cir. 2007), cert. denied, 128 S. Ct. 1721 (2008), "Knowledge of the law's demands does not depend on knowing the citation any more than ability to watch a program on TV depends on knowing the frequency on which the signal is broadcast."


II.


Cavins further argues that the district court erred in denying his motion to dismiss and in admitting evidence that he did not file Form 1040 tax returns for the 1992-1994 tax years because the forms violated the Paperwork Reduction Act. As we understand these contentions, 3 Cavins makes two distinct arguments. First, he argues that he was entitled to dismissal of the indictment or acquittal because the Forms 1040 did not inform him why the IRS was asking for the information and how it would be used. This contention is frivolous. At the time in question, 44 U.S.C. § 3512 provided: "no person shall be subject to any penalty for failing to maintain or provide information to any agency if the information collection request involved ... does not display a current control number assigned by the Director [of the Office of Management and Budget], or fails to state that such request is not subject to this chapter." 4 The trial record includes copies of the Form 1040 for each of the 1992-1994 tax years. An OMB control number is clearly displayed at the top of each form. If the Form 1040 displays the control number required by § 3512, "nothing more is required." United States v. Holden, 963 F.2d 1114, 1116 (8th Cir. 1992), quoting United States v. Dawes, 951 F.2d 1189, 1193 (10th Cir. 1991).

Second, Cavins argues that admission of evidence that he failed to file tax returns violated his Fifth Amendment privilege against self-incrimination. This argument is foreclosed by the Supreme Court's decision in United States v. Sullivan, 274 U.S. 259 (1927), which held that the Fifth Amendment does not authorize a taxpayer to refuse to file a return. As the Court explained, "If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all." Id. at 263; accord Garner v. United States, 424 U.S. 648, 656-65 (1976). Evidence that Cavins did not file tax returns was probative of whether he willfully attempted to evade his income tax liabilities. Therefore, the district court did not abuse its decision by admitting this evidence.

The judgment of the district court is affirmed.

1 The HONORABLE RICHARD E. DORR, United States District Judge for the Western District of Missouri.

2 For these reasons, the district court did not abuse its discretion in denying Cavins's pretrial motion for a bill of particulars on the willfulness issue. See United States v. Shepard, 462 F.3d 847, 860 (8th Cir.), cert. denied, 127 S. Ct. 838 (2006).

3 Cavins is represented on appeal by the same attorney who represented the defendant convicted of tax evasion and raised similar issues in Patridge, 507 F.3d at 1094-96.

4 The 1995 amendments to § 3512 would not change our analysis. See Pub. L. No. 104-13, § 2, 109 Stat. 163, 181 (1995).

Instructions given to the jury, after it had retired, to make every possible effort to come to agreement on at least some of the charges were proper and not coercive.

P.J. Commerford, CA-2, 1933 CCH ¶9255, 64 F2d 28. Cert. denied, 289 US 759.

Similarly.

Cendella, CA-1, 55-2 USTC ¶9586, 224 F2d 778. Cert. denied, 350 US 901.

Secret instructions were a denial of the taxpayer's trial rights to be present and were highly prejudicial to him, requiring a new trial.

F.L. McClanahan, CA-5, 60-1 USTC ¶9117, 272 F2d 663.

Instructions to the jury were complete and accurate, or there was no error in the judge's failure to give requested instruction.

O. Delli Paoli, SCt, 57-1 USTC ¶9356, 352 US 232.

R.C. Windisch, CA-5, 61-2 USTC ¶9720, 295 F2d 531.

F.L. McClanahan, CA-5, 61-2 USTC ¶9550, 292 F2d 630.

P.J. Richard, DC, 63-1 USTC ¶9243, 209 FSupp 542.

J.G. Ryan, CA-10, 63-1 USTC ¶9306, 314 F2d 306.

M. Sherwin, CA-9, 63-2 USTC ¶9550, 320 F2d 137. Cert. denied, 375 US 964. Rehearing denied, March 9, 1964.

E.P. Black, CA-8, 62-2 USTC ¶9792, 309 F2d 331. Cert. denied, 372 US 934.

J. Brewer, CA-10, 73-2 USTC ¶9612, 486 F2d 507.

T.L. Wiley, CA-8, 74-2 USTC ¶9694, 503 F2d 106.

R. Gray, CA-5, 75-1 USTC ¶9231, 507 F2d 1013. Cert. denied, 423 US 824.

J.D. Leonard, CA-2, 75-2 USTC ¶9695, 524 F2d 1076. Cert. denied, 425 US 958.

R.E. Berzinski, CA-8, 76-1 USTC ¶9211, 529 F2d 590.

J.A. Pelose, CA-2, 76-2 USTC ¶9572, 538 F2d 41.

P. Hollinger, CA-7, 77-1 USTC ¶9371, 553 F2d 535.

F.J. Hecht, CA-8, 83-1 USTC ¶9233, 515 FSupp 1198.

H.J. Kalita, CA-7, 83-2 USTC ¶9459, 712 F2d 1122.

B.A. Horton, CA-5, 76-1 USTC ¶9219, 526 F2d 884. Cert. denied, 429 US 820.

M.C. Goldberg, CA-3, 64-1 USTC ¶9316, 330 F2d 30. Cert. denied, 377 US 953.

G. Bacher, CA-5, 70-2 USTC ¶9692.

F.A. Marttila, CA-8, 70-2 USTC ¶9715, 434 F2d 834.

A.M. Siragusa, CA-2, 71-2 USTC ¶9730, 450 F2d 592. Cert. denied, 405 US 974.

R.D. Dana, CA-7, 72-1 USTC ¶9227, 457 F2d 207.

L.R. Johnson, CA-9, 72-1 USTC ¶9443, 460 F2d 20.

J.D. Miller, CA-8, 80-2 USTC ¶9842, 634 F2d 1134.

A.R. Grote, Jr., CA-5, 81-1 USTC ¶9109, 632 F2d 387. Cert. denied, 454 US 819.

R.L. Ness, CA-9, 81-2 USTC ¶9621, 652 F2d 890. Cert. denied, 454 US 1126.

Lurding, CA-6, 51-2 USTC ¶9478, 191 F2d 921.

C.J. Rothbart, CA-10, 84-1 USTC ¶9104.

R.E. Latham, CA-7, 85-1 USTC ¶9180, 754 F2d 747.

R.A. Bowden, DC Tenn., 84-2 USTC ¶10,007.

G.K. Garman, CA-4, 84-2 USTC ¶9948, 748 F2d 218. Cert. denied, 105 SCt 1361.

W.F. Green, CA-7, 85-1 USTC ¶9178, 757 F2d 116.

E. Witvoet, CA-7, 85-2 USTC ¶9530, 767 F2d 338.

L.C. Dunham, CA-9, 85-2 USTC ¶9617.

H.E. Bressler, CA-7, 85-2 USTC ¶9646. Cert. denied, 1/21/86.

F.L. Hook, CA-6, 86-1 USTC ¶9179, 781 F2d 1166. Cert. denied, 10/14/86.

J.C. Curtis, CA-6, 86-1 USTC ¶9195, 782 F2d 593.

D.H. Windfelder, CA-7, 86-1 USTC ¶9402.

I.A. Schiff, CA-2, 86-2 USTC ¶9684, 801 F2d 108. Cert. denied, 3/30/87.

F.J. Turano, CA-1, 86-2 USTC ¶9714.

F.T. Saussy, III, CA-6, 86-2 USTC ¶9718. Cert. denied, 3/2/87.

T.P. Meyer, CA-8, 87-1 USTC ¶9132, 808 F2d 1304.

E.A. Bohrer, CA-10, 87-1 USTC ¶9141, 807 F2d 159.

A. Davenport, CA-7, 87-2 USTC ¶9422, 824 F2d 1511.

E.J. Conley, CA-7, 87-2 USTC ¶9469, 826 F2d 551.

R.S. Taylor, CA-10, 87-2 USTC ¶9567, 828 F2d 630.

F.B. Black, Jr., CA-D.C., 88-1 USTC ¶9270, 843 F2d 1456.

W. Jeffries, CA-7, 88-2 USTC ¶9459, 854 F2d 254.

G.W. Barnett, CA-5, 91-2 USTC ¶50,519.

K.J. Massat, CA-5, 92-1 USTC ¶50,009, 948 F2d 923.

R.L. McGill, CA-1, 92-1 USTC ¶50,052, 964 F2d 222.

J.V. McKee, CA-8, 92-1 USTC ¶50,214.

F.O. Becker, CA-7, 92-2 USTC ¶50,314, 965 F2d 383. Cert. denied, 3/8/93.

R.S. Mal, CA-9, 91-2 USTC ¶50,518, 942 F2d 682.

R.V. Chastain, CA-9, 96-2 USTC ¶50,606.

J.M. Noske, CA-8, 97-2 USTC ¶50,538.

J.E. Sutton, CA-10 (unpublished opinion), 98-1 USTC ¶50,226, aff'g an unreported District Court decision.

R.A. King, CA-7, 97-2 USTC ¶50,746, 126 F3d 987.

E.H. Mathison, CA-8 (unpublished opinion), 98-2 USTC ¶50,560, aff'g, per curiam, an unreported District Court decision.

D.S. Bok, CA-2, 98-2 USTC ¶50,765, 156 F3d 157.

R.S. Carlson, CA-9, 2001-1 USTC ¶50,152.

G.A. DeMott, CA-9 (unpublished opinion), 2003-1 USTC ¶50,279, aff'g an unreported District Court decision.

To the contrary.

W.W. Heidelberg, CA-5, 63-2 USTC ¶9840, 324 F2d 678.

W.E. Nelson, CA-5, 86-1 USTC ¶9481, 791 F2d 336.

D.N. Heller, CA-11, 87-2 USTC ¶9572, 830 F2d 150.

G.M. Bishop III, CA-5, 2001-2 USTC ¶50,762, 264 F3d 535. Cert. denied, 4/22/2002.

C.A. Willis, CA-8, 2002-1 USTC ¶50,207, 277 F3d 1026.

D. Enright, CA-3 (unpublished opinion), 2002-1 USTC ¶50,394, aff'g an unreported District Court decision.

R. Pedroni, CA-3 (unpublished opinion), 2002-1 USTC ¶50,419, aff'g an unreported District Court decision.

Three individuals, who were properly convicted of conspiracy to defraud the government of income taxes under 18 U.S.C. §371, were not entitled to a jury instruction on a First Amendment defense because their words and acts were not remote from the commission of criminal acts. The individuals held meetings at which they instructed attendees to claim unlawful exemptions and not file tax returns. Also, instructions to the jury on the evidence required to prove a conspiracy were not misleading and adequately stated the elements necessary to convict.

H.D. Fleschner, CA-4, 96-2 USTC ¶50,536, 98 F3d 155.

The lower court's failure to instruct the jury on the defense of reliance on the advise of counsel did not constitute error, and, even if it did, no objection to such omission was ever made by the taxpayer.

D.G. Crum, CA-9, 76-1 USTC ¶9214, 529 F2d 1380.

The lower court did not err in failing to give a separate instruction on the defense theory that the defendant relied on the advice of counsel in not filing returns. There was no evidence of such reliance.

T.W. Hoopes, CA-10, 76-2 USTC ¶9797, 545 F2d 721. Cert. denied, 431 US 954.

The trial judge committed harmless error when he failed to inform counsel of the proposed action on the requested instructions prior to counsel's jury summation.

W.R. Conlin, CA-2, 77-1 USTC ¶9291, 551 F2d 534. Cert. denied, 434 US 831.

The trial judge did not err in instructing the jurors to decide factual questions on the evidence presented but to apply the law as he explained it to them.

D.C. Irwin, CA-10, 77-2 USTC ¶9627, 561 F2d 198. Cert. denied, 98 SCt 725.

Jury instructions as to wilfulness were proper.

D.L. Abdul, CA-9, 58-1 USTC ¶9453, 254 F2d 292 and CA-9, 60-1 USTC ¶9432, 278 F2d 234. Cert. denied, 364 US 832.

B.N. Litman, CA-3, 57-2 USTC ¶9820, 246 F2d 206.

Legatos, CA-9, 55-1 USTC ¶9443, 222 F2d 678.

M.V. Kuntz, CA-2, 58-2 USTC ¶9886, 259 F2d 871.

G. Cindrich, Jr., CA-3, 57-1 USTC ¶9343, 241 F2d 54.

P.C. Magnus, CA-2, 66-2 USTC ¶9660, 365 F2d 1007.

E.M. Ostendorff, CA-4, 67-1 USTC ¶9204, 371 F2d 729. Cert. denied, 386 US 982.

R.L. Strauss, CA-5, 67-1 USTC ¶9405, 376 F2d 416.

W.C. Siravo, CA-1, 67-1 USTC ¶9446, 377 F2d 469.

C.A. Deloach, CA-5, 68-1 USTC ¶9119, 387 F2d 145.

G.L. Samuels, CA-5, 68-2 USTC ¶9512, 398 F2d 964.

J.W. Tolbert, Sr., CA-7, 69-1 USTC ¶9173, 406 F2d 81.

R.G. Hayes, CA-5, 69-1 USTC ¶9204, 407 F2d 189.

J.D. McCarty, CA-10, 69-1 USTC ¶9322, 409 F2d 793. Cert. denied, 396 US 836.

A.L. Wainwright, CA-10, 69-2 USTC ¶9503, 413 F2d 796. Cert. denied, 396 US 1009.

S. Mac Corkle, CA-4, 69-1 USTC ¶9365, 407 F2d 497.

D.J. O'Connor, CA-1, 70-2 USTC ¶9649, 433 F2d 752. Cert. denied, 401 US 911.

M. Platt, CA-2, 70-2 USTC ¶9719, 435 F2d 789.

S.J. Polack, CA-3, 71-1 USTC ¶9356, 442 F2d 446. Cert. denied, 403 US 931.

J.E. Handy, CA-9, 71-2 USTC ¶9700, 450 F2d 145.

V.M. Mathews, DC, 72-1 USTC ¶9352, 335 FSupp 157. Aff'd on another issue, CA-3, 72-2 USTC ¶9478, 463 F2d 182. Cert. denied, 409 US 896.

W.R. Ming, Jr., CA-7, 72-1 USTC ¶9449, 466 F2d 1000. Cert. denied, 409 US 915.

N.L. Lachman, CA-1, 72-2 USTC ¶9766, 469 F2d 1043. Cert. denied, 411 US 931.

E.J. Hagen, CA-10, 73-1 USTC ¶9106, 470 F2d 110. Cert. denied, 412 US 905.

H. Gurtner, CA-9, 73-1 USTC ¶9228, 474 F2d 297.

K. Vanderburgh, CA-9, 73-1 USTC ¶9304, 473 F2d 1313.

J.B. Sherman, CA-6, 74-1 USTC ¶9103, 486 F2d 1404.

O.H. Klee, CA-9, 74-1 USTC ¶9412, 494 F2d 394.

R.E. Hawk, CA-9, 74-1 USTC ¶9465, 497 F2d 365.

M.L. Cooley, CA-9, 74-2 USTC ¶9718, 501 F2d 1249.

H.M. Bowness, CA-5, 74-2 USTC ¶9836, 504 F2d 391.

J.W. Greenlee, CA-3, 75-1 USTC ¶9488, 517 F2d 899. Cert. denied, 423 US 985.

J.J. Duffy, Jr., CA-3, 75-2 USTC ¶9674.

B.C.M. Pohlman, CA-8, 75-2 USTC ¶9677, 522 F2d 974. Cert. denied, 423 US 1049.

P. Pandilidis, CA-6, 75-2 USTC ¶9785. Cert. denied, 424 US 933.

J.T. Hull, CA-10, 76-1 USTC ¶9181.

O.H. White, CA-4, 76-1 USTC ¶9313. Cert. denied, 429 US 884.

J.E. Murphy, CA-9, 76-2 USTC ¶9551.

A.L. Honea, CA-8, 77-2 USTC ¶9489, 556 F2d 906.

L.S. Brown, CA-10, 79-1 USTC ¶9322, 600 F2d 248.

J.J. Harsky, CA-8, 80-1 USTC ¶9126, 610 F2d 548.

J.W. McCarty, CA-5, 82-1 USTC ¶9150, 665 F2d 596. Cert. denied, 456 US 991, 102 SCt 141.

D.L. Lewis, CA-7, 82-1 USTC ¶9236, 671 F2d 1025.

B.R. Hughes, CA-5, 85-2 USTC ¶9576, 766 F2d 875.

J.C. Ausmus, Jr., CA-6, 85-2 USTC ¶9742, 774 F2d 722.

T.G. Mueller, CA-9, 86-1 USTC ¶9121, 778 F2d 539.

J.R. Whiteside, CA-5, 87-1 USTC ¶9199, 810 F2d 1306.

L. Dube, CA-7, 87-1 USTC ¶9351, 820 F2d 886.

J.J. Birkenstock, CA-7, 87-2 USTC ¶9416, 823 F2d 1026.

S. Felak, Jr., CA-8, 87-2 USTC ¶9594, 831 F2d 794.

K.E. Krzyske, CA-6, 88-1 USTC ¶9117, 836 F2d 1013.

D.E. Fournier, CA-7, 88-2 USTC ¶9544, 861 F2d 148.

J.J. Hogan, CA-1, 88-2 USTC ¶9593, 861 F2d 312.

T.E. Hauert, CA-7, 95-1 USTC ¶50,045, 40 F3d 197. Cert. denied, 5/1/95.

To the contrary.

M.L. Petersen, CA-10, 59-2 USTC ¶9538, 268 F2d 87.

S.E. Haner, CA-5, 63-1 USTC ¶9390, 315 F2d 792.

S. Vitiello, CA-3, 66-2 USTC ¶9480, 363 F2d 240.

H.C. Collins, CA-6, 72-1 USTC ¶9323, 457 F2d 781.

M. Martin, CA-7, 74-2 USTC ¶9839, 507 F2d 428.

B.C.M. Pohlman, CA-8, 75-1 USTC ¶9228, 510 F2d 414.

L.A. Jerde, CA-8, 88-1 USTC ¶9238, 841 F2d 818.

C.D. Morrison, CA-4 (unpublished opinion), 2002-1 USTC ¶50,231, aff'g, per curiam, an unreported District Court opinion.

A conviction for willful failure to file timely income tax returns was reversed where an instruction to the jury equating "willfulness" with a "careless or reckless disregard of the law" was found to be an error so prejudicial as to require a new trial.

T.R. Bengimina, CA-8, 74-2 USTC ¶9513, 499 F2d 117.

W.H. Eilertson, CA-4, 83-1 USTC ¶9363, 707 F2d 108.

A jury's decision to convict the taxpayer of willful failure to file tax returns and willful filing of false withholding exemption forms was vacated, because the district court had improperly instructed the jury to use an objective test in determining willfulness. Rather than instructing the jury to consider the reasonableness of the taxpayer's belief that tax law does not deem wages to be income, the district court should have instructed the jury to consider whether the taxpayer subjectively held that belief, regardless of what the law actually requires. Mistake of law may be a defense to a charge of willfulness.

R.A. Aitken, CA-1, 85-1 USTC ¶9209, 755 F2d 188.

Similarly.

J.B. Wells, CA-10, 86-1 USTC ¶9407, 790 F2d 73.

A willfulness charge was adequate even though it did not state that action taken through gross negligence was not willfulness. The court did state that actions taken through negligence, inadvertence or mistake or through a good faith misunderstanding of the requirements of the law could not be willful.

O.W. Ware, CA-10, 79-2 USTC ¶9608, 608 F2d 400. Rehearing denied, CA-10, 79-2 USTC ¶9659.

Instructions to the jury on willful blindness were appropriate since the taxpayers may have deliberately hired an inexperienced return preparer to maximize the chances of reporting errors and to manipulate him.

A.H. Rothrock, CA-1, 87-1 USTC ¶9111, 866 F2d 318.

Jury instructions as to the scope of the evidence was proper.

A. Pasha, CA-7, 64-2 USTC ¶9595, 332 F2d 193.

Jury instructions given by the court properly stated the evidentiary standard to be met by the IRS.

W. Goldstein, CA-7, 82-2 USTC ¶9507, 685 F2d 179.

There was no error in denying a requested instruction where it was not submitted until after argument of the case and the United States attorney was not presented with a copy of the request.

Schuermann, CA-8, 49-1 USTC ¶9281, 174 F2d 397. Cert. denied, 338 US 831.

Wolcher, CA-9, 55-1 USTC ¶9161, 218 F2d 505. Cert. denied, 350 US 822, 76 SCt 48. Aff'd on another issue, CA-9, 56-2 USTC ¶9719, 233 F2d 748. Cert. denied, 352 US 839.

Similarly, as to not providing defendant with an opportunity to object to an instruction out of hearing of the jury.

Bostwick, CA-5, 55-1 USTC ¶9170, 218 F2d 790.

The trial court instructed the jury that if it found defendant aided and abetted H in willfully filing a false return for the purpose of defeating and evading taxes, this would warrant it to find defendant guilty of willfully aiding and abetting H. The charge as a whole could not lead to misunderstanding, nor was it contradictory.

H.V. Imholte, CA-8, 55-2 USTC ¶9727, 226 F2d 585.

The trial court correctly charged the jury that monies received by the officers and agents of a corporation on the sale of property by the corporation were corporate income.

L.M. Bernard, CA-7, 61-1 USTC ¶9221, 287 F2d 715. Rehearing denied on other grounds, CA-7, 61-1 USTC ¶9378.

The trial judge's instructions, taken as a whole, correctly informed the jury that restrictions on stock the defendant donated did not completely disable him from selling it.

J. Levine, CA-2, 77-1 USTC ¶9202.

It was not error to refuse to instruct the jury that a failure to make a proper return and pay a tax is not a violation of Code Sec. 7201. The proof showed an intentional act to evade the law and the affirmative act of filing a return reporting a tax due of over $10,000 less than was actually due.

J.J. Afferbach, CA-10, 77-1 USTC ¶9127, 547 F2d 522. Cert. denied, 429 US 1098.

The trial judge did not err in failing to instruct the jury that reliance on an inefficient and negligent accountant could constitute justification for failure to file returns.

W.E. Wilson, CA-5, 77-1 USTC ¶9331, 550 F2d 259.

The trial judge did not err in failing to instruct the jury on the defense theory that the defendant's reliance on his tax advisor demonstrated his lack of specific intent.

S.R. Pallan, CA-9, 78-1 USTC ¶9361, 571 F2d 497.

The trial court did not err in refusing to instruct the jury that, if the appellant acted merely as a conduit for passing the unreported income to third parties, he could not be found guilty where it had instructed that the appellant might be found guilty if the jury determined that he had actually received the money and retained a substantial portion for his own account.

H. Gross, CA-2, 61-1 USTC ¶9222, 286 F2d 59.

The prosecution used the net worth method to reconstruct the defendant's income, but the District Court inadvertently failed to instruct the jury on the nature of the net worth method. Although neither the prosecution nor the defense objected to the District Court's failure to instruct the jury on the net worth method, the conviction was reversed.

J.W. Tolbert, Sr., CA-7, 66-2 USTC ¶9682, 367 F2d 778.

There was no error on the part of the trial judge in sending the jury back for further deliberation when it expressed some confusion regarding the instructions. The jury was advised that any problem could be submitted to the court in writing; no objection was made to such instruction.

F.P. Balistrieri, CA-7, 68-2 USTC ¶9641, 403 F2d 472. Rev'd and rem'd on another issue, SCt, 69-2 USTC ¶9462, 395 US 710.

The appellate court held that the lower court did not err when it informed the jury of the personal interest of the taxpayer in the outcome of the trial and that it was not incompatible with his capability of telling the truth.

J.G. Martin, CA-2, 75-2 USTC ¶9699, 525 F2d 703. Cert. denied, 423 US 1035.

The trial judge did not err in instructing the jury that it could probably reach a guilty verdict without finding that the source of the defendant's unreported income was the purchase and sale of heroin as was averred in the indictment charging him with attempted tax evasion. This charge did not violate the rule against prejudicial variance.

B. Rodriguez, CA-2, 77-1 USTC ¶9175, 545 F2d 829. Cert. denied, 434 US 819.

In a net worth income tax prosecution, the burden of disproving a taxpayer's claimed source of nontaxable receipts rests on the government. Therefore, instructions to the jury which placed upon the taxpayer the burden of proving beyond a reasonable doubt that his parents were the source of his funds in order to gain acquittal were erroneous, and his conviction for willfully filing false and fraudulent tax returns was granted.

R.G. Mogavero, CA-4, 75-2 USTC ¶9655, 521 F2d 625.

In a net worth prosecution, the trial judge did not err in instructing the jury that it could consider income whether legal or illegal (this did not prejudice the defendant) and that the defendant had a burden to explain his income. This merely told the jury to decide the weight to be attached to the defendant's explanation.

A. Renfro, CA-6, 79-2 USTC ¶9438, 600 F2d 55. Cert. denied, 444 US 941.

Failure of the District Court judge to instruct the jury that income meant gross receipts less costs of goods sold may have materially prejudiced him.

J. Ballard, CA-8, 76-1 USTC ¶9378, 535 F2d 400. Cert. denied, 429 US 918.

Jury instructions on the issue of good faith were legally adequate and substantially the same as acceptable portions of the requested instructions.

L. Quimby, CA-5, 81-1 USTC ¶9196, 636 F2d 86.

The district court did not err in instructing the jury that the taxpayer's "disagreement with the law or the way in which tax revenues are spent does not constitute good faith misunderstanding of the requirements of the law."

R.E. Parshall, CA-8, 85-1 USTC ¶9279, 757 F2d 211.

The court's instructions to the jury, which included a statement that a partner's signature on a partnership return is presumed to be a signature on behalf of the partnership, were not in error.

M.N. Wolters, CA-9, 81-2 USTC ¶9679, 656 F2d 523.

The government counsel's reference to the submission of "fraudulent" forms was cured by the trial judge in his instructions to the jury, so that no prejudice resulted.

E.E. Johnson, CA-4, 80-2 USTC ¶9783, 634 F2d 1213. Cert. denied, 451 US 907, 101 SCt 1974.

Instructions which properly stated the law regarding the assertion of the Fifth Amendment privilege against self-incrimination and the requirement that defendant come forward with something more than a bald assertion of the privilege in order to validly invoke the Fifth Amendment did not impermissibly shift the burden of proof from the government or remove the presumption of innocence to which defendant was entitled. The court also properly gave an instruction which stated that the Secretary is permitted to file a return for the taxpayer.

T.E. Verkuilen, CA-7, 82-2 USTC ¶9618, 690 F2d 648.

A defendant's conviction was affirmed where: (1) instructing the jurors to reconsider their position if they found that a majority of the jurors took an opposite position and (2) failing to address the jurors' concern at having to work during a religious holiday did not constitute reversible error.

R.B. Graham, CA-3, 85-1 USTC ¶9317, 758 F2d 879.

A state senator who diverted campaign contributions to his personal use and filed false campaign statements was improperly convicted of income tax evasion, filing false tax returns, and mail fraud. He successfully showed that the trial judge erred by instructing the jury that political contributions are, per se, includible in gross income when they are used for personal purposes. The issue was one of fact which should have been resolved by the jury according to the donors' intent.

J.R. Pisani, CA-2, 85-2 USTC ¶9676, 773 F2d 397.

A jury in a criminal trial was improperly instructed that if the defendant did not have a reasonable ground for his claimed good faith misunderstanding of the law, then his belief as to the law's requirements was not a defense to the crime of failure to file. The element of willfulness is required to be proved according to a subjective standard.

R.R. Phillips, CA-10, 85-2 USTC ¶9745, 775 F2d 262.

A taxpayer was not prejudiced by the instruction to the jury that the expert witness had reached a hypothetical conclusion as to the amount of funds that the taxpayer had on hand.


A district court failed to explain that affirmative acts of tax evasion are required for conviction, and the appellate court remanded the case for a new trial.

K.J. Masat, CA-5, 90-1 USTC ¶50,156, 896 F2d 88.

The giving of an "ostrich" instruction to the jury was not inappropriate given the apparently disorganized records of a taxpayer and that he could not ignore what his records would disclose if they were organized. Furthermore, despite the taxpayer's argument that the instruction improperly imposed a negligence standard on a specific-intent crime, there were other instructions that adequately protected the taxpayer from being convicted for negligently failing to realize his income tax responsibilities. Moreover, this instruction had already been approved in a prosecution involving a crime that requires guilty knowledge.

L. Defazio, CA-7, 90-1 USTC ¶50,204, 899 F2d 626.

The trial court did not err when it instructed the jury on the law and presented its own instruction on the defendant's incompetency theory.

L.M. Barta, CA-8, 90-1 USTC ¶50,033.

An instruction that blank tax returns do not constitute returns as a matter of law did not direct a verdict in favor of the IRS because the jury remained free to resolve the issue of whether the taxpayer acted willfully.

E.R. Wunder, CA-6, 90-2 USTC ¶50,575, 919 F2d 34.

The trial court should have instructed the jury to consider whether the taxpayer's beliefs were actually or subjectively held in good faith, rather than whether his beliefs were objectively reasonable.

R.A. Pabisz, CA-2, 91-2 USTC ¶50,316, 936 F2d 80.

The trial court should have instructed the jury that, if it found that the taxpayers/investors relied on their interpretation of Code Sec. 1058 in good faith, then they could not be held criminally liable for proceeding in accordance with that reliance.

J.S. Regan, CA-2, 91-2 USTC ¶50,351, 937 F2d 823.

An attorney's convictions for failing to file income tax returns, filing false income tax returns and filing false statements with the Department of Housing and Urban Development were upheld. The trial court did not err in giving a "willful blindness" instruction because the evidence introduced could have supported a finding that he had deliberately avoided knowledge of the facts that made his conduct illegal. This instruction did not taint his conviction for filing a false statement with HUD because other instructions made it clear that actual intent to violate the law was required to support a conviction.

C.L. Bussey, Jr., CA-8, 91-2 USTC ¶50,402, 942 F2d 1241. Cert. denied, 5/18/92.

Jury instructions to consider a tax fraud conspirator's status as a non-practicing attorney and accountant and a "conscious avoidance" jury instruction were not erroneous.

C.H. Fletcher, CA-2, 91-2 USTC ¶50,137, 928 F2d 495. Cert. denied, 10/7/91.

Testimony regarding a public statement made by the taxpayer's attorney that jurors in criminal tax cases should always vote "not guilty" was admissible to impeach the attorney and was not prejudicial. Also, the jury instruction given prior to the attorney's testimony indicating that he received immunity and, therefore, that weight given the testimony must be considered with great caution was not reversible error because it was unlikely that it would affect the jury's decision. Finally, it was proper to allow jury instructions stating that reliance on counsel was a circumstance to consider in evaluating the taxpayer's willfulness in failing to file.

W.J. Benson, CA-7, 91-2 USTC ¶50,437, 941 F2d 598.

In a second trial on the same counts of willful failure to file tax returns and tax evasion that were originally charged in W.J. Benson, above, the individual was again convicted and the conviction was sustained. The evidence was sufficient to support the conviction, and the jury instructions were proper.

W.J. Benson, CA-7, 95-2 USTC ¶50,540, 67 F3d 641.

The trial judge erred in stating to the jury his opinion that the defendant was guilty beyond a reasonable doubt.

Murdock, 3 USTC ¶1194, 290 US 389.

Commenting on the evidence is a proper function of a federal judge.

J.M. Newton, CA-4, 47-2 USTC ¶9353, 162 F2d 795.

It was reversible error to instruct the jury that "by the filing of the amended return the defendants have admitted that the original return was false and untrue."

Heindel, CA-6, 45-2 USTC ¶9372, 150 F2d 493.

It was reversible error for the trial judge to instruct the jury that assessments made against the taxpayer were valid obligations of the taxpayer to the government as a matter of law, since the fact of a valid assessment was at issue.

W.B. England, CA-7, 65-1 USTC ¶9350, 347 F2d 425.

Conviction for materially understating income was reversed because of the error which occurred in the court's failure to give a precise and specific charge to the jury.

J.E. Mitchell, CA-4, 74-1 USTC ¶9414, 495 F2d 285.

A charge to the jury was not prejudicial because it stated that the jury was instructed, at defendant's request, with regard to his failure to testify.

Glazer, DC, 53-1 USTC ¶9351.

A supplemental instruction regarding proof about sources of unreported income was not prejudicial.

W. Goldstein, CA-7, 82-2 USTC ¶9507, 685 F2d 179.

Jury instructions that were, in part, improper did not harm taxpayer.

E. Mastropieri, CA-2, 82-2 USTC ¶9484, 685 F2d 776.

The jury should have been cautioned on the consideration to be given to evidence about offenses not being tried in the action.

J.R. Montgomery, CA-5, 53-1 USTC ¶9336, 203 F2d 887.

It is an error that the trial court failed to instruct the jury that the affidavit of a witness introduced for the purpose of impeaching him should not be regarded as substantive evidence. But the error was harmless because there still remained 90% of unreported income.

Scanlon, CA-1, 55-1 USTC ¶9508, 223 F2d 382.

The court's refusal to instruct the jury that the indictment constituted no evidence of guilt was not reversible error in the light of other instructions given.

Watts, CA-10, 54-1 USTC ¶9350, 212 F2d 275. Rem'd sub nom. D.H. Mitchell, SCt, 55-1 USTC ¶9139, 348 US 905.

The trial court's instruction relative to the theory of net worth was not erroneous.

Watts, CA-10, 55-1 USTC ¶9301, 220 F2d 483.

The charge to the jury was inadequate where it did not sufficiently relate the theory of net worth prosecution to the disputed questions.

R.A. O'Connor, CA-2, 60-1 USTC ¶9163, 273 F2d 358.

The defendant was entitled to a special instruction to the jury (which was not given) about the nature of the government's bank deposit method and its assumptions and weaknesses.

M. Greenberg, CA-1, 61-2 USTC ¶9727, 295 F2d 903.

Where the record supported the charge that the defendant performed various acts which constituted an affirmative, wilful attempt to evade or defeat the payment of the tax, the jury's conviction was upheld.

Sens, CA-6, 54-1 USTC ¶9415, 212 F2d 795. Cert. denied, 347 US 1015.

Requested charge to the effect that the taxpayer "was entitled to rely on the advice of others and that no mistaken advice or belief as to what constituted income was an offense in itself," was properly refused.

W.F. Monroe, CA-5, 54-2 USTC ¶9542, 215 F2d 81. Cert. denied, 348 US 914.

The trial court did not err in instructing the jury that questions of taxpayer's counsel should be disregarded as evidence when based on the assumption that all the money represented by checks for legal fees did not belong to taxpayer.

P. Dillon, CA-8, 55-1 USTC ¶9131, 218 F2d 97. Cert. dism'd, SCt, 56-1 USTC ¶9111, 350 US 906.

The instruction that if taxpayers were acquitted the government could not appeal could not be construed as asking the jury to convict, in view of the overwhelming evidence of the taxpayers' guilt.

Strauch, CA-6, 54-1 USTC ¶9452, 213 F2d 805. Cert. denied, 350 US 836.

There was no merit in taxpayer's complaint that the instruction to the jury was not fair in the matters unfavorable to him were emphasized and matters favorable to him were left out.

Kafes, CA-3, 54-2 USTC ¶9492, 214 F2d 887. Cert. denied, 348 US 887.

Prejudicial error was committed in the instructions to the jury where important facts were misstated, the defense theory was distorted, and other prejudicial remarks were made.

E.J. Benes, CA-6, 60-1 USTC ¶9348, 276 F2d 99.

Similarly, where the district court failed to instruct the jury on the inferences and assumptions underlying the "net worth" and "bank deposits" methods of proving unreported income. However, the district court's failure to instruct on forms on nontaxable income was not plain error.

J. Hall, CA-9, 81-1 USTC ¶9209, 650 F2d 994.

The trial judge was in error in instructing that the taxpayer was guilty of tax evasion if he did not use ordinary diligence as to the correctness of his tax return.

Hartman, CA-8, 54-2 USTC ¶9522, 215 F2d 386.

Similarly, where a jury was instructed that a tendered defense was not available, since the question of whether the testimony offered was a defense was a question of fact for the jury to decide.

R.A. Koontz, CA-5, 60-1 USTC ¶9405, 277 F2d 53.

Viewing the instructions of the court as a whole, it was felt that the jury was clearly informed that it was free to perform its fact-finding functions.

McFee, CA-9, 53-2 USTC ¶9549, 206 F2d 872. Order denying cert. vacated, 347 US 1007, 74 SCt 862. Rem'd, SCt, sub nom. D.H. Mitchell, 55-1 USTC ¶9139, 348 US 905. Reaff'd, CA-9, 55-1 USTC ¶9414, 221 F2d 807.

Although a jury charge concerning a defendant's good reputation was grammatically incorrect and confusing, it conveyed the idea that evidence of good character may be sufficient to create a reasonable doubt of guilt.

C.R. Haller, CA-9, 76-2 USTC ¶9708, 543 F2d 62.

An instruction in a conspiracy case was proper where it was couched in conditional language.

Witt, CA-3, 54-2 USTC ¶9582, 215 F2d 580.

Instructions to the jury that the prior acquittal involving prior years was not to be considered in determining guilt or innocence on the present charges were held proper.

V.H. Mitchell, CA-9, 54-2 USTC ¶9449, 213 F2d 951. Cert. denied, 348 US 905.

Charges to the jury concerning inferences, conclusions and findings appropriate on the evidence were proper where evidence of the government included his tax returns and admissions to revenue agents.

Linquata, CA-1, 49-1 USTC ¶9213, 173 F2d 201. Cert. denied, 337 US 916.

Where the court's instructions assumed that the crime had, in fact, been committed, such error affected the substantial rights of the taxpayer and required a reversal.

Balodimas, CA-7, 49-2 USTC ¶9434, 177 F2d 485.

Leo Link, CA-3, 53-1 USTC ¶9230, 202 F2d 592.

An instruction that an inference of intent could be drawn from the taxpayer's actions erroneously shifted the burden of proof with respect to intent from the Government to the taxpayer.

N. Mann, CA-5, 63-2 USTC ¶9563, 319 F2d 404. Cert. denied, 375 US 986.

It was error for the trial court not to give a requested instruction as to the deductibility of payments to the taxpayer by his wholly owned corporation where the instruction embodied one of the taxpayer's theories as to the false corporation returns. Accordingly, his convictions of tax evasion and aiding in the preparation of fraudulent tax returns were reversed and the case remanded for a new trial.

W.M. Bass, CA-7, 70-1 USTC ¶9311, 425 F2d 161.

To the contrary.

A.L. Wainwright, CA-10, 71-2 USTC ¶9594, 448 F2d 984.

It was not error to refuse to give a jury an instruction that a claim of Fifth Amendment privilege against disclosing income on a tax return was to be considered by the jury as a proper defense against the charge of willful failure to file.

D.D. Johnson, CA-5, 78-2 USTC ¶9642, 577 F2d 1304.

Followed.

A.B. Tibbetts, CA-5, 81-1 USTC ¶9475, 646 F2d 193.

Similarly.

C.E. Rice, CA-5, 81-2 USTC ¶9718, 659 F2d 524.

Similarly. Also, there was no entitlement to an instruction that the IRS was under a statutory duty to prepare the defendant's return.

E.M. Millican Jr., CA-5, 79-2 USTC ¶9543, 600 F2d 273. Cert. denied, 445 US 915.

The trial court properly instructed the jury that, if it found that the defendant had made exculpatory statements outside the courtroom with knowledge of their falsity, it could consider this as evidence of consciousness of guilt. A requirement that the jury find that the defendant in fact made the statements was implicit in the instruction.

R. Sawyer, CA-7, 79-2 USTC ¶9537, 607 F2d 1190. Cert. denied, 100 SCt 1338.

It was not reversible error to instruct the jury that, after the government had made a reasonable effort to identify cost of goods sold, the burden then shifted to the defendant to produce evidence of additional cost of goods sold. The defendant, proceeding without counsel, did not object to the charge when it was given. And it amounted to little more than a statement of accounting fact.

E.L. Fowler, CA-5, 79-2 USTC ¶9666, 605 F2d 181. Cert. denied, 100 SCt 1599.

The trial court did not err in instructing the jury that the Fifth Amendment does not give a person the right to withhold nonincriminating information on a tax return and that the revelation of income from legitimate activities does not amount to self-incrimination.

D.C. Reed, CA-5, 82-1 USTC ¶9312, 670 F2d 622.

The trial court did not err in instructing the jury that, as a matter of law, the taxpayer's tax forms did not contain enough information to constitute a return.

E.M. Loniello, CA-8, 84-2 USTC ¶9825.

A conviction for tax evasion was reversed because the district court judge failed to instruct the jury on how the cash expenditures method was used to establish the taxpayers' income tax deficiency.

J.B. Carter, CA-11, 84-2 USTC ¶9537.

The district court improperly instructed the jury that the taxpayer's alleged good faith belief that wages were not taxable income was not a defense to the taxpayer's failure to file income tax returns and his filing of false withholding forms. It was for the jury to determine if the taxpayer did not know that the tax laws included wages in taxable income.

E.T. Burton, CA-5, 84-2 USTC ¶9689.

The trial judge acted within his discretion when he instructed the jury on the law instead of distributing texts of a number of opinions relied upon by the taxpayer, as the taxpayer had requested.

R.A. Gleason, CA-8, 84-1 USTC ¶9161, 726 F2d 385.

It was reversible error in failing to charge, as requested by defendant, that it was necessary to prove knowledge of the obligation and wrongful intent to evade it.

Hargrave, CA-5, 3 USTC ¶1192, 67 F2d 820.

An instruction, taken as a whole, properly informed the jury that the question of competency to commit the offense was a separate element of the offense charged.

B. Klein, CA-10, 80-1 USTC ¶9109.

The trial judge's error in instructing the jury that they should decide whether a reasonable person would have understood that taxes were due was harmless. The charge as a whole was adequate. Moreover, the judge properly refused to give the defendant's proffered instructions on her good faith theory of defense --those instructions contained a misstatement of the law.

D.H. Walsh, CA-7, 80-2 USTC ¶9608.

Repeated references to the lack of dispute in facts, except with respect to purpose or intent, tended to overshadow instructions given elsewhere as to taxpayer's right to minimize taxes by legal means.

Raub, CA-7, 49-2 USTC ¶9422, 177 F2d 312.

But there was no reversible error in refusing to give requested jury instructions emphasizing certain phases of the evidence where the jury had been charged to consider all relevant facts and circumstances.

Pannell, CA-3, 49-2 USTC ¶9482, 178 F2d 98.

G.L. Smith, CA-3, 53-2 USTC ¶9538, 206 F2d 905.

The court erred in refusing to give a requested instruction that the defendant should be acquitted if his evidence in rebuttal of the Government's evidence would raise in the minds of the jury a reasonable doubt as to the substantial accuracy of the computations used in the net worth method.

Demetree, CA-5, 53-2 USTC ¶9646, 207 F2d 892.

The Court below did not err in refusing to give an instruction on the defense of entrapment nor in finding that an accountant was an accomplice and that his testimony was to be viewed with extreme caution.

Papadakis, CA-9, 54-1 USTC ¶9137, 208 F2d 944.

Taxpayer was not entitled to an instruction as to a possible inference to be drawn from the Government's failure to introduce in evidence all of taxpayer's records in its possession.

Remmer, CA-9, 53-1 USTC ¶9421, 205 F2d 277.

Where two instructions are given to the jury, one erroneous and prejudicial and the other correct, it is impossible to tell which one the jury followed and it constitutes reversible error.

Nicola, CA-3, 4 USTC ¶1331, 72 F2d 780.

Similarly.

Martell, CA-3, 52-2 USTC ¶9541, 199 F2d 670. Cert. denied, 345 US 917.

Where defendant did not except to instructions, they may not be attacked on appeal.

Kitrell, CA-10, 35-2 USTC ¶9548, 79 F2d 259. Cert. denied, 296 US 643.

Malone, CA-7, 38-1 USTC ¶9032, 94 F2d 281. Cert. denied, 304 US 562.

Fischer, CA-10, 54-1 USTC ¶9370, 212 F2d 441.

J. Gordon, CA-3, 57-1 USTC ¶9443, 242 F2d 122. Cert. denied, 354 US 921.

R. Percifield, CA-9, 57-1 USTC ¶9406, 241 F2d 225.

G.E. Hayes, CA-10, 56-2 USTC ¶10,022, 238 F2d 318. Cert. denied, 353 US 983.

Rule 30 of the Federal Rules of Criminal Procedure bars a party from assigning as error, on appeal, the giving of a jury instruction to which he has not objected on trial. Under Rule 52(b), however, the appellate court may of its own motion notice errors in instructions that amount to a miscarriage of justice.

J.A. Herzog, CA-9, 56-2 USTC ¶9654, 235 F2d 664. Aff'g on rehear. CA-9, 55-2 USTC ¶9694, 226 F2d 631. Cert. denied, 352 US 844.

Appellant must state specifically what he objects to in the instructions, and the grounds for his objection.

O.K. Armstrong, CA-8, 56-1 USTC ¶9210, 228 F2d 764. Cert. denied, 351 US 918.

Misdemeanor charges were properly refused where felony charges were given and the statute of limitations had run on the misdemeanor charges.

A. Chaifetz, CA-D.C., 60-2 USTC ¶9786, 288 F2d 133. Cert. denied, SCt, 61-1 USTC ¶9413, 366 US 209.

An instruction that a verdict of guilty of a misdemeanor rather of a felony would be permissible was properly denied.

L. Berra, SCt, 56-1 USTC ¶9480, 351 US 131.

The district court committed reversible error by failing to instruct the jury on the lesser-included offense of willful failure to pay taxes in violation of Code Sec. 7203, which is a lesser-included offense of Code Sec. 7201. Accordingly, a rational jury could have found a lack of intent or motive necessary to convict on evasion, while still finding a willful failure to pay the taxes when due.

J.H. DeTar, CA-9, 87-2 USTC ¶9621, 832 F2d 1110.

See, also, the lesser-offense rule at ¶41,318.205.

Refusal of trial court to charge upon the effect of a prior conviction on credibility of a witness against defendant was reversible error.

Delaney, CA-3, 35-1 USTC ¶9258, 77 F2d 916.

Trial court properly instructed jury that collateral transactions showing motive may be considered in order to show motive in failing to include money in appellant's income tax return.

H.J. Sullivan, CA-9, 35-1 USTC ¶9129, 75 F2d 622. Cert. denied, 295 US 757.

Instructions to the jury on circumstantial evidence and definition of reasonable doubt were erroneous.

Paddock, CA-9, 35-2 USTC ¶9611, 79 F2d 872.

There was no error in refusing the requested instruction to the jury that appellant could not be convicted if no additional tax was due, since only in the event the unreported receipts were not taxable could this instruction be appropriate.

Marienfeld, CA-8, 54-2 USTC ¶9489, 214 F2d 632. Cert. denied, 348 US 865.

The taxpayer's conviction for wilfully attempting to evade the income tax was reversed because the jury instructions did not point out that a defendant is not responsible if, because of mental disease, he lacks substantial capacity either to appreciate the wrongfulness of his conduct or to conform his conduct to the requirements of the law.

R.G. Sheller, CA-2, 67-1 USTC ¶9107, 369 F2d 293.

The district court committed plain error in instructing the jury that an unreasonable, but good-faith, misunderstanding of the income tax law was no defense to the charge of failing to file tax returns and filing false withholding exemption certificates. Since "willfulness" in the context of a criminal tax case has been defined as the "intentional violation of a known legal duty," there was little doubt that the instructions given in the instant case were erroneous.

R.W. Flitcraft, CA-5, 86-2 USTC ¶9778, 803 F2d 184.

The jury was instructed on the Government's burden of proof, reasonable doubt of the defendant's guilt, the necessity of intent and the failure of defendant to testify on his own behalf.

Swidler, DC, 55-1 USTC ¶9319. Cert. denied, 350 US 822.

J.L. Lodwick, Jr., CA-8, 69-2 USTC ¶9586, 410 F2d 1202. Cert. denied, 396 US 841.

A conviction for willful failure to timely file income tax returns was upheld after a determination that the district court properly instructed the jury on the issue of good faith. The reasonableness of the tax protestor's good-faith defense was a factor that the jurors could consider in determining whether the protestor's asserted belief that he was not obligated to pay taxes was genuinely held.

R.W. Collins, CA-10, 91-2 USTC ¶50,554, 920 F2d 619.

A tax protestor's conviction on charges of tax evasion and failure to file returns was upheld. The trial court did not commit reversible error when it instructed the jury that neither the taxpayer's opinion that tax laws were unconstitutional nor his disagreement with the government's tax collection system and policies constituted a good-faith misunderstanding of the law.

M.L. Lindsay, CA-10, 99-2 USTC ¶50,648, 184 F3d 1138.

A "deliberate ignorance" jury instruction was proper where an individual did not consult with an attorney or accountant to verify his understanding of the tax law, knew his interpretation differed from that of the IRS, and attended tax avoidance seminars to bolster his beliefs.

D.G. Fingado, CA-10, 91-2 USTC ¶50,528, 934 F2d 1163.

A taxpayer's proposed instruction to the jury in her defense that she did not report her assets to the IRS in good faith reliance on the advice of her accountant was a correct statement of the law, but she was not entitled to the instruction because there was no evidence to support the defense.

J.A. Brimberry, CA-7, 92-1 USTC ¶50,288, 961 F2d 1286.

A longshoreman who was convicted by a jury for willfully evading his taxes was not entitled to a new trial. Although the trial judge did instruct the jury on matters that were not part of the taxpayer's defense, the instructions were fair and proper and did not mislead the jury. Even if the instructions were erroneous, they did not prejudice the taxpayer given the strength of the evidence concerning his tax evasion.

D.E. Dack, CA-7, 93-1 USTC ¶50,162, 987 F2d 1282.

Since an individual had not filed a joint return with her husband for the tax years in question, she did not qualify for an innocent spouse defense, and the court did not err in refusing to instruct the jury on that defense. Further, with respect to the individual's reliance on an IRS-prepared substitute return, the court's instruction on willfulness and good-faith reliance fairly and adequately set forth the individual's theories of defense and applicable law for the jury. No plain error occurred upon the inclusion in a jury instruction of a phrase indicating that "statements of the defendant" did not constitute evidence.

M. Tarrant, DC Mich., 93-1 USTC ¶50,114, 798 FSupp 1292.

Related taxpayers who owned and operated several businesses were properly convicted of willful failure to pay over withheld payroll taxes. The trial court's general willfulness instruction adequately apprised the jury on the elements of the crime, and the court was not required to give specific instructions on the taxpayers' theories of defense. Thus, the taxpayers were not entitled to instructions regarding their alleged reliance on their accountant's advice, good faith belief that they complied with the tax laws, or financial hardship.

P. Evangelista, CA-2, 97-2 USTC ¶50,608, 122 F3d 112.

There was no error in the district court's jury instruction on willfulness, which appropriately placed before the jury the reasonableness of a physician's assertions that he relied upon his accountant honestly and in good faith.

D.M. Grunewald, CA-8, 93-1 USTC ¶50,122, 987 F2d 531. Rehearing denied.

Jury instructions which allowed the jury to infer the element of willfulness for the crime of tax evasion were plain error requiring reversal of the convictions of two individuals. A willful violation of a known legal duty is a statutorily required element of this crime. It is an exception to the general presumption that a taxpayer knows the law. Since the jury instructions included this presumption, the jury was forced to presume that the taxpayers had knowledge of their legal duty. Because the prosecution was not forced to prove this element of the crime, the taxpayers were denied due process.

W.J. Alt, CA-6, 93-2 USTC ¶50,385, 996 F2d 827.

A taxpayer's conviction by a district court for willful tax evasion was upheld. Although the jury instructions did not explicitly state that an "affirmative act" was required, the omission did not amount to an obvious and substantial error because the language used and the statements made during the closing arguments were sufficient to inform the jury. Also, since the jury did not question the instructions given, more explicit instructions were not needed.

J.D. Meek, Jr., CA-10, 93-2 USTC ¶50,409, 998 F2d 776.

A pilot's contention that the trial court erred in not instructing the jury on the advice of counsel defense was not valid because the court's instructions treated the issues fairly and accurately. Moreover, the court's instructions as to willfulness encompassed any defense claiming a good faith belief of lawful conduct. Thus, the taxpayer's conviction and sentencing for tax evasion and failure to file returns on retrial were upheld, consistent with the US Supreme Court's opinion in J.L. Cheek, SCt, 91-1 USTC ¶50,012.

J.L. Cheek, CA-7, 93-2 USTC ¶50,473. Cert. denied, 2/22/94.

An individual's convictions for failure to file income tax returns and currency structuring were upheld where he liquidated his assets to avoid IRS collection and structured his transactions to evade bank currency reporting obligations. The district court properly refused to instruct the jury that transactions exceeding the bank currency reporting threshold must occur on a single day in order to constitute illegal currency structuring since such an instruction would have incorrectly stated the law.

C.L. Paul, CA-11, 94-2 USTC ¶50,301, 23 F3d 365.

An individual's conviction for willful failure to file income tax returns was upheld. The trial court properly instructed the jury to disregard any reference made to an alleged "amnesty" program for delinquent filers. The existence of such a program was not relevant to the issue of the individual's guilt or innocence because he learned of it after completing his crime of failure to file.

G.D. Strong, CA-4 (unpublished opinion), 97-2 USTC ¶50,923, aff'g, per curiam, an unreported District Court decision.

Proposed jury instructions were properly denied.

R.G. Bremner, CA-4 (unpublished opinion), 2001-2 USTC ¶50,535, aff'g, per curiam, an unreported District Court decision.

Taxpayer was properly convicted on two counts of willful tax evasion. An instruction to the jury permitting it to infer from the taxpayer's signature on her joint tax returns that she knew the contents of the returns was not plain error.

L. Tekle, CA-9 (unpublished opinion), 2002-1 USTC ¶50,225, aff'g an unreported District Court decision.

The trial court did not err in refusing to instruct the jury on an individual's sham transaction defense. The proposed instruction did not accurately state the law because it failed to ask the jury to determine whether he had a business purpose for entering into the transaction.

M.Y. Khalaf, CA-9 (unpublished opinion), 2002-1 USTC ¶50,297, aff'g an unreported District Court decision.

An individual was properly convicted of conspiracy to defraud the IRS. The jury instructions clearly required the jury to find intent and an agreement to defraud the IRS.

T. Kosinski, CA-6 (unpublished opinion), 2005-1 USTC ¶50,241, aff'g an unreported DC Mich. decision.

A district court did not err in instructing a jury on an element of willfulness under Code Sec. 7203 for an individual who was convicted of corruptly endeavoring to impede the administration of the tax laws. He had threatened to sue the IRS and its agents, told the IRS that he planned to charge it $500,000 for each "unauthorized" use of his name, and demanded that the IRS cease efforts to subpoena his bank accounts. The court properly instructed the jury that a disagreement with the Internal Revenue Code or a belief that the Code is unconstitutional does not negate the element of willfulness.

S.A. Massey, CA-9 (unpublished opinion), 2005-2 USTC ¶50,482, aff'g in part and rev'g in part an unreported DC Alas. decision.

Jury instructions regarding the requirement that crimes be committed knowingly were sufficient; a specific instruction on good faith was not required. The response by the court to a question asked by the jury during deliberations, taken in the context of the entire instructions and the trial, did not misstate the law.

R.M. Simkanin, CA-5, 2005-2 USTC ¶50,507.

Jury instructions were proper in an individual's trial for failure to file a return and pay employment taxes. The jury was adequately instructed as to the willfulness components of Code Secs. 7202 and 7203. The instructions specified that the government was required to prove beyond a reasonable doubt that the individual was aware of duties that the law imposed on him and that he intentionally violated those duties.

D.G. Pflum, CA-10 (unpublished opinion), 2005-2 USTC ¶50,603, aff'g an unreported DC Kan. decision.

An individual's conviction for tax evasion and willful failure to account for and pay over payroll taxes was affirmed. The taxpayer's argument that the district court failed to properly instruct the jury on the meaning of the term "willfully" was without merit. The record established that the district court instructed the jury at length on the meaning of "willfully."

M.W. May, CA-6 (unpublished opinion),2006-1 USTC ¶50,260, aff'g, per curiam, an unreported DC Ohio decision.

A federal district court's jury instructions in a federal tax evasion case of a dentist who willfully attempted to evade paying income taxes for the tax years at issue did not constitute plain error. The court made it clear that a mere failure to file a return or pay taxes without additional affirmative effort to evade or defeat the tax would be insufficient to support the willful concealment element of a conviction for felony tax evasion.

R.E. Nolen, CA-5, 2007-1 USTC ¶50,285.

In his tax evasion trial, an individual was entitled to present evidence supporting his defense that he had sufficient allowable business expenses to offset unreported income for the year at issue from his work as an independent contractor. His improper report of those expenses as deductions on his corporation's returns did not preclude him from arguing that those deductions were offsets to his individual income.

M. Kayser, CA-9, 2007-2 USTC ¶50,550.

Three partners' convictions for their failure to pay federal employment taxes were vacated and remanded because the district court's jury instructions constructively amended the indictment and were therefore erroneous. The court's instructions had the effect of broadening the indictment because it included the partners' failure to report information to the partnership's accountant and falsifying books and records that was never charged in the indictment.

K. McKee, CA-3, 2007-2 USTC ¶50,778, 506 F3d 225.

An individual was properly convicted and sentenced for conspiracy to defraud the government and for willfully failing to file federal income tax returns. The trial court's instructions to the jury on the individual's good-faith defense did not justify reversal of the individual's convictions because the instructions accurately expressed the law and the individual failed to establish how the instructions prejudiced him.

J.K. Lansing, CA-11 (unpublished opinion), 2008-1 USTC ¶50,167, 263 FedAppx 849, aff'g, per curiam, an unreported DC Fla., decision.

Jury instructions in a chiropractor's trial for tax evasion were complete and accurate and adequately conveyed the law concerning tax evasion. The instructions on his good faith defense specifically stated that his personal research could result in an unreasonable but sincere belief that he had no duty to pay taxes. Instructions on the government's method of calculating his tax deficiency were not required because the government offered direct evidence on his sources of taxable income. Finally, the court did not mislead the jury by clarifying that his questions to the IRS were relevant only to determine willfulness.

E. Innes, CA-11 (unpublished opinion), 2008-1 USTC ¶50,275 ,aff'g, per curiam, an unreported DC Fla., decision.

An individual was properly convicted and sentenced for tax evasion. The government was not required to prove that the individual owed a "substantial" amount of tax because the deficiency was based on returns filed by the individual. Moreover, even if the government had used the net worth theory to prove the deficiency the instruction was still not required because the individual did not dispute the amount owed. Finally, any mistake committed by the trial court when instructing the jury was immediately corrected and did not seriously affect the fairness or integrity of the proceedings.

K. Heath, CA-6, 2008-1 USTC ¶50,360.

In the trial of a chiropractor and his wife for tax evasion and willful failure to file tax returns, the court properly refused to instruct the jury that a formal assessment is necessary to prove tax evasion. The IRS was not required to issue an assessment in order to prove the existence of a tax deficiency. A jury instruction regarding an employer's legal duty to withhold taxes from employees' wages was not erroneous given the manner in which the couple conducted their business in order to evade taxes. Finally, the court's comments during trial did not prejudice the couple or deprive them of a fair trial.

M.A. Gustafson, CA-8, 2008-1 USTC ¶50,393.

A married couple who operated a multi-level marketing program through their foreign and U.S.-based corporations was properly convicted of tax evasion. The trial court's instructions to the jury adequately explained the difference between personal and corporate income and apprised the jury of the issues and the governing law regarding willfulness. The wife failed to show that the court's failure to instruct on the lesser-included offense of misdemeanor tax evasion resulted in a miscarriage of justice.

J. Thompson, CA-10, 2008-1 USTC ¶50,398.

An individual was not entitled to a jury instruction contending that his failure to pay over employee payroll taxes was not willful because he did not have money to pay the taxes. In order to establish willfulness, the government was not required to prove that the individual had the ability to meet his tax obligations. Instead, the failure to pay was willful because the individual knew that he owed taxes and did not pay them.

J.E. Easterday, CA-9, 2008-2 USTC ¶50,512.

An individual convicted of willful failure to collect or pay over tax was not entitled to a judgment of acquittal or a new trial. The jury instructions were appropriate and, contrary to the individual's argument, the ability to pay was not an essential element of the crime required to be included in the jury instruction. Additionally, a special verdict form was not required because it was presumed that the jury followed the instructions.

R. Blanchard, DC Mich., 2008-2 USTC ¶50,535.

An individual was properly convicted and sentenced for willfully attempting to evade and defeat taxes by failing to file income tax returns. The jury instructions clearly stated the elements required for conviction.

N.M. Ware, CA-11, 2008-2 USTC ¶50,550.

Willful Failure to File Return, Supply Information, or Pay Tax: Sufficiency of Indictment or Information: Attempt to defeat and evade income taxes

The attempt to defeat and evade income taxes and failure to file returns, as a charge in the indictment, is sufficient.

E.K. Smith, DC, 1926 CCH ¶7127, 13 F2d 923.

R. Carpenter, DC, 59-2 USTC ¶9713, 175 FSupp 362.

Heasley, CA-8, 55-1 USTC ¶9149, 218 F2d 86. Cert. denied, 350 US 882.

Legatos, CA-9, 55-1 USTC ¶9443, 222 F2d 678.

Manno, DC, 54-1 USTC ¶9379, 118 FSupp 511.

J.W. Janko, CA-8, 60-2 USTC ¶9580, 281 F2d 156.

W.R. Ming, Jr., CA-7, 72-1 USTC ¶9449, 466 F2d 1000. Cert. denied, 409 US 915.

M.D. O'Ferrall, DC Del., 84-2 USTC ¶9483.

E.H. Mathison, CA-8 (unpublished opinion), 98-2 USTC ¶50,560, aff'g, per curiam, an unreported District Court decision.

The indictment was sufficient though it failed to allege that taxpayer acted with a "specific intent" to defraud the Government.

L. Elwert, CA-9, 56-1 USTC ¶9423, 231 F2d 928.

An indictment was sufficient where the charges made followed the statute, the alleged offenses were set out, and sufficient facts were given to apprise the defendants of the crime charged against them so that they could make their defense.

F.L. Wortman, DC, 61-1 USTC ¶9289.

An indictment was sufficient since it contained facts sufficient to constitute an offense against the United States.

W.A. Mousley, CA-3, 63-1 USTC ¶9245, 311 F2d 795. Cert. denied, 372 US 966.

W.B. England, DC, 64-2 USTC ¶9629, 229 FSupp 493.

J.L. Harrold, Sr., CA-10, 86-2 USTC ¶9543, 796 F2d 1275.

It was not necessary that the indictment specify the means by which appellant attempted to evade or defeat the payment of tax, as every attempt to evade or defeat such payment is a law violation.

A. Capone, CA-7, 3 USTC ¶885, 56 F2d 927. Cert. denied, 286 US 553.

Bahcall, DC, 54-1 USTC ¶9271, 116 FSupp 869.

Similarly. A city housing police officer's motion to dismiss an indictment against him for tax evasion and to strike certain words from the indictment was denied. The words, which referred to various means by which the crime was carried out, was an evidentiary matter and did not have to be stricken as surplusage or specified in more detail.

K. Washington, DC N.Y., 97-1 USTC ¶50,129, 947 FSupp 87.

Where the indictment charged only that there was a willful failure to pay the tax (occupational tax on wagering), an offense punishable as a misdemeanor, it did not sufficiently charge the felonious offense of wilful tax evasion for which appellants were convicted.

Clay, CA-5, 55-1 USTC ¶49,074, 218 F2d 483.

An indictment properly charged that the taxpayer's willful attempt to evade taxes by concealing his Irish Sweepstakes winnings in a foreign bank account was a felony, not a misdemeanor.

F.L. McNulty, CA-9, 76-1 USTC ¶9215, 528 F2d 1223. Cert. denied, 425 US 972.

An indictment charging defendant with preparing returns for others and collecting money from others for payment of taxes, without actually filing the returns or paying the taxes, was sufficient, if proved, to justify a finding of "willfulness."

E.J. Mesheski, DC, 59-1 USTC ¶9370, 169 FSupp 372. Rev'd on another ground, CA-7, 61-1 USTC ¶9233, 286 F2d 345.

An indictment was sufficient where it contained both the statutory language and a reference to the specific section alleged to have been violated and disclosed the means by which the defendant had allegedly attempted to evade paying tax.

R.G. Hayes, CA-5, 69-1 USTC ¶9204, 407 F2d 189.

An indictment against the taxpayer on income tax evasion charges for failure to report income which he allegedly received from bribes was dismissed and the case was not sent to the jury because the evidence was grossly inadequate.

S. Coletta, DC, 76-2 USTC ¶9568. Aff'd without opinion, CA-2, 77-1 USTC ¶9179.

A disclosure of grand jury testimony to a special agent who summarized the information for a second grand jury did not result in an invalid indictment. He was authorized to receive the information from the first grand jury as he was the IRS agent assisting the U.S. attorney in preparing the case, his testimony was proper as an indictment may be based on hearsay, and his presence before the grand jury was proper as he was a witness rather than an unauthorized person.

L.J. Block, DC, 82-1 USTC ¶9256, 497 FSupp 629.

Convictions against two individuals on drug charges and criminal tax-related charges were affirmed, because the indictment containing the charges was sufficient. The indictment, which superseded a prior indictment by adding the tax-related counts, did not improperly broaden or amend the prior indictment.

N.C. Edwards, Jr., CA-11, 86-1 USTC ¶9110, 777 F2d 644.

The tax evasion conviction of an individual who filed false withholding forms with his employers and filed no-information tax returns with the IRS, claiming "exception under the Fifth Amendment, U.S. Constitution" was upheld. The fact that the indictment did not specify whether the individual was being charged with evasion of assessment or evasion of payment did not make it improper because it clearly set forth the factual basis for the crimes charged. Furthermore, the individual understood the nature of the charge, as evidenced by his attorney's opening statement to the jury.

K.W. Waldeck, CA-1, 90-2 USTC ¶50,389, 909 F2d 555.

Since the individual taxpayer was not required to file a return when his net income was less than the specified amount, an indictment charging a willful attempt to evade income tax by filing a return in which certain gross income was not included is insufficient because it did not allege that the taxpayer had sufficient net income to require him to file a return.

E. Anderson, CA-7, 1926 CCH ¶7144, 11 F2d 938.

An indictment charging wilful income tax evasion was held to be sufficient even though it referred to the taxpayer's correct "adjusted gross income," rather than "taxable income."

W.T. Radford, CA-9, 61-1 USTC ¶9475, 290 F2d 9.

A tax evasion indictment was adequate even though it did not specify the exact amount of additional tax allegedly due.

R.G. Buckner, CA-9, 80-2 USTC ¶9470, 610 F2d 570.

A tax evasion indictment was legally sufficient.

L.G. Sloan, CA-7, 91-2 USTC ¶50,388, 939 F2d 499. Cert. denied, 1/21/92.

G.M. Bishop III, CA-5, 2001-2 USTC ¶50,762, 264 F3d 535. Cert. denied, 4/22/2002.

Cor-Bon Custom Bullet Co., CA-6, 2002-1 USTC ¶50,395.

A diamond sawblade salesman could not have an indictment charging him with criminal tax evasion dismissed. The indictment was sufficient because it fairly informed him of the charges that he was required to defend and it set forth the elements of the offense, the conduct constituting the offense, the tax deficiency for each tax year, and the type of tax.

N.H. Rhodes, DC Pa., 96-2 USTC ¶50,341, 921 FSupp 261.

Tax evasion charges against an individual were dismissed because documents that he produced pursuant to a grant of immunity were improperly used to convict him, and the independent counsel could not demonstrate with reasonable particularity a prior awareness that the subpoenaed documents existed and were in the individual's possession. The testimonial value of the individual's response to the document subpoena pertaining to the existence, possession or control, authenticity and identity of the requested documents.

W.L. Hubbell, SCt., 2000-1 USTC ¶50,499, 167 F3d 552. Aff'g CA-D.C., 99-1 USTC ¶50,219.

The IRS was not required to charge a couple and their tax attorney with the more specific offense of concealing income or assets instead of indicting them for defrauding the government. Their conduct was not a single incident or mere technical violation of the tax code and the allegations against them were sufficiently set forth in the indictment to apprise them of the crimes charged.

F.Y. Wright, Jr., CA-5, 2000-1 USTC ¶50,438, 211 F3d 233. Aff'g in part and rem'g in part an unreported District Court decision.

A taxpayer's conviction for tax evasion was upheld despite the fact that the indictment did not allege an affirmative act of tax evasion. The record indicated that the taxpayer knew which specific affirmative acts it was accused of committing, and it pursued a vigorous defense to show that it had not committed them. Consequently, the taxpayer was reasonably informed of the charges against it and was not disadvantaged in any way as a result of the indictment's omission of the affirmative act.

An indictment on fraud conspiracy and tax evasion charges arising from the reporting of ordinary income as gain from an involuntary conversion was sufficient under Federal Rule of Criminal Procedure 12(b)(3) since it alleged the necessary elements of the charged offenses.

H. Molaison, DC La., 2005-1 USTC ¶50,198.

The indictment for willful tax evasion of a self-employed individual was sufficient to inform him of the charges against him. The government was not required to allege every component of the willfulness requirement in the indictment. The indictment alleged that the individual failed to file income tax returns and indicated the amount of his taxable income and that a substantial amount of tax was due for the years at issue. Moreover, the indictment was not defective for failure to refer to a statute that required the individual to file returns or pay taxes because it specified that he had violated Code Sec. 7201.

N. Stierhoff, DC R.I., 2007-2 USTC ¶50,626.

The conviction of an estate planner and the leader and organizer of an alleged sham trust for aiding and abetting the willful attempt to evade taxes was upheld. The indictment charging the individual with tax evasion provided sufficient notice of the various charges made against him because it clearly set out the various affirmative acts of evasion that he committed.

J.C. Chisum, CA-10, 2007-2 USTC ¶50,724.

An individual's indictment on tax evasion specified the elements of the offense, contained all the facts required to inform the individual of the charges of a willful attempt to evade income and self-employment taxes, and contained no ambiguity. The mere fact that the indictment did not specify the alleged method of tax evasion did not invalidate the indictment. Tax evasion is a single crime under Code Sec. 7201, and the fact that it can be committed either by evading the assessment or by evading the payment only demonstrates that there are two methods of committing that single criminal act. The indictment clearly alleged commission of an affirmative act in each count of the tax evasion and the additional inclusion of certain omissions as part of the individual's conduct did not make the indictment deficient.

H.C. Bennett, DC Hawaii, 2007-2USTC ¶50,730.

An individual's motion to strike prejudicial references to his alleged failure to file tax returns from his indictment was denied. Although the individual alleged that the language in the indictment should be stricken because the jury would consider failure to file returns as an act of evasion, the language was not irrelevant, inflammatory or prejudicial and, therefore, was properly included in the indictment. Moreover, the individual could eliminate any prejudice by requesting a suitably worded jury instruction.

G.D. Miller, DC La., 2007-2USTC ¶50,735.